David Kirkpatrick

March 15, 2009

AIG is wasting taxpayer money

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 6:48 pm

Corporate socialism must be stopped. Legal obligations for the bonus money? The company wouldn’t even exist if taxpayer money wasn’t handed to it.

From the link:

Obama administration officials and lawmakers lambasted plans by American International Group Inc., the insurer rescued by the government, to dole out $1 billion in bonuses and retention pay to employees.

Lawrence Summers, director of the White House National Economic Council, called the payments “outrageous” in an interview on ABC’s “This Week” program. AIG is “abusing the system,” Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, told “Fox News Sunday.”

AIG, which has received $170 billion in taxpayer money, succumbed to demands from the U.S. Treasury to scale back the payments. AIG agreed to reduce some retention payments in 2009 by 30 percent and tie bonuses to the company’s recovery. The New York-based insurer still plans to hand out about $165 million on March 15 because of legally binding contracts, according to a person briefed on the matter.

Update 3/16/09 —  Looks like the Obama administration is going to fight the bonuses taken from taxpayer money.

January 15, 2009

One million foreclosures in 2008

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:21 pm

A ridiculous number. Especially given that Wall Street was handed money that is doing absolutely nothing. The Fed and really all of D.C. completely fell down on the job with this. I’m betting history will not be very kind looking back in a few years.

From the link:

SACRAMENTO, Calif.–(BUSINESS WIRE)–January 14, 2009–About 1 million homes were lost to foreclosure in 2008, up nearly 63.5 percent from 2007, according to the U.S. Foreclosure Index from ForeclosureS.com, a leading real estate information provider.

In this first look at complete 2008 statistics, the Index also shows nearly 2.1 million pre-foreclosure filings last year, up nearly 62 percent from 2007. Pre-foreclosure actions can include notice of default and/or foreclosure auction leading up to an actual foreclosure.

Month to month, foreclosed properties repossessed by lenders spiked in December, up 19.3 percent to 97,841 from November, when 82,033 properties were foreclosed. The December increase followed two months of steady declines, but December still was 6.1 percent below the peak foreclosure month of September. Pre-foreclosures, which had been slowing until December, also climbed to 190,467 in December, up 11.9 percent from November.

All regions of the country showed increases in lender-owned properties and pre-foreclosure filings in December, ForeclosureS.com analysis shows.

U.S. FORECLOSURE INDEX:
YEAR TO DATE PRE-FORECLOSURE FILINGS BY REGION
Pre-foreclosures   YTD 2007   YTD 2008   Change
Region   Filings   Per Household   Filings   Per Household    
Midwest   185,073   1.69%   228,849   1.98%   23.6%
Southeast   383,697   2.31%   735,417   4.29%   91.7%
Northeast   190,832   1.14%   235,745   1.34%   23.5%
Southwest   528,399   2.09%   883,006   3.60%   67.1%
Other States   3,476   0.60%   6,034   1.03%   73.6%
Nationwide   1,291,477   1.85%   2,089,051   2.95%   61.8%
*Percentage of every 1,000 households in state
U.S. FORECLOSURE INDEX:
YEAR TO DATE REO FILINGS BY REGION
REO   YTD 2007   YTD 2008   Change
Region   Filings   Per Household   Filings   Per Household    
Midwest   182,176   1.13%   195,057   1.24%   7.1%
Southeast   146,068   0.89%   253,126   1.49%   73.3%
Northeast   26,333   0.24%   41,250   0.25%   56.7%
Southwest   241,544   0.93%   501,641   1.99%   107.7%
Other States   1,056   0.21%   1,496   0.27%   41.7%
Nationwide   597,177   0.85%   992,570   1.34%   66.2%
*Percentage of every 1,000 households in state

On a quarterly basis, the Index also shows that the number of properties lost to foreclosure, 266,986, and pre-foreclosure filings, 528,241, both dropped in the fourth quarter, 9.2 and 2.4 percent respectively, compared with the third quarter.

“While the sheer number of about 1 million foreclosures is staggering, it was not unexpected,” says Alexis McGee, foreclosure expert, educator, author, and president of ForeclosureS.com. “Since July, we anticipated that we would see about 1 million foreclosures this year.”

“But there is good news – a variety of indicators show that some housing markets are bouncing back and we should see substantial improvement in 2009,” McGee says. “I think 2009 will surprise many people who have bought into the gloom-and-doom agenda.”

“In some areas like California, the housing recovery already has begun,” McGee says. “Inventories of unsold homes will drop quickly this year as people realize that today’s deals on homes are the best they’ll likely see in their lifetimes, both in terms of affordable prices and low interest rates!”

“The earlier declines in foreclosures and pre-foreclosure filings were likely the result of changes in state laws that slowed down the foreclosure process for many homeowners. But lenders played catch-up with foreclosure filings at year-end as December’s numbers indicate,” McGee adds.

“Don’t expect another tidal wave of foreclosures this year, either, just because more adjustable rate mortgages are due to reset,” she says. “Current mortgage rates are at 30 year lows and dropping. Those who qualify will be able to refinance and enjoy lower monthly payments, not higher ones. Those that can’t will end up either selling their homes pre-foreclosure or losing them to foreclosure. But I am anticipating our market can absorb this inventory.”

McGee said her optimism for 2009 is driven in part by positive housing market indicators, including:

Housing affordability. Thanks to drops in home prices and mortgage rates, housing is the most affordable it’s been since February 1994, when a mortgage on a median-price home equated to 18 percent of the median income. Credit Suisse estimates today’s mortgage payment on a median price home in October represented 16.7 percent of median household income based on a 6.23% mortgage. At current 5% interest rates and dropping houses affordability is more likely under 15% of the median income.

Growing U.S. population. The Census Bureau projects with births, deaths and immigration U.S. population will increase by one person every 14 seconds in 2009. More people mean more demand for housing.

Coming housing shortage. Housing construction has plummeted. Housing starts hit record lows in November, off 18.9 percent to a seasonally adjusted annual rate of 625,000 units. New building permits plunged 15.6 percent. That’s great news for housing markets because with fewer homes being built at the same time population — and housing demand — is exploding, the shortfall has to be made up somehow. In this case, it opens the door for the nation’s one million foreclosures to be easily absorbed in the market, and housing supply finally to catch up with demand.

Buyers for foreclosure properties.Tighter housing supplies mean buyers will look to foreclosure homes as viable purchase options.We are so under building right now that whatever new foreclosures do hit the market, I see them offsetting the losses of new housing we need but are not getting,” says McGee.

Unemployment is an issue, but not as large as some think. “The unemployment rate released by the government for December was consistent with economists’ consensus estimates and came in considerably better than a private forecast released in early January,” McGee says. At 7.2%, unemployment is just shy of the 7.8% experienced during the 1990-1991 recession but still well below our double-digit levels of the early 1980s.

The following charts provide additional information on trends from the latest U.S. Foreclosure Index from ForeclosureS.com:

U.S. FORECLOSURE INDEX:
TOP 10 STATES IN NUMBERS OF REO FILINGS
State   Filings   Per Household*
California   260,709   2.27%
Florida   107,833   1.71%
Texas   70,037   1.17%
Arizona   65,898   3.47%
Michigan   62,419   2.09%
Georgia   53,423   2.55%
Ohio   47,544   1.22%
Nevada   37,043   4.99%
Colorado   30,132   1.96%
Illinois   27,957   0.74%
*Percentage of every 1,000 households in state

For all of 2008, California still tops the list in terms of number of REO filings with nearly 1 ½ times as many filings as No. 2 and 3 on the list, Florida and Texas.

On a per household basis – often the best way to judge trends – California ranks a distant fifth with 22.7 of every 1,000 households lost to foreclosure in 2008. That’s behind Nevada (49.9 for every 1,000 households in the state); Arizona (34.7 of every 1,000 households); Mississippi (25.6 per 1,000); and Georgia (25.5 per 1,000). On a quarterly basis, however, California’s 4 th quarter REO filings (54,198) plunged 39.44 percent from third quarter (89,501).

January 8, 2009

Banks still aren’t lending

Remember that big ‘ole bailout of the financial sector, that little exercise in corporate socialism, that was supposed to thaw the credit freeze and get money flowing freely once again? Like pretty much every move taken by an inept Fed, our tax dollars are sitting in the coffers of banks and not flowing anywhere.

We may be in uncharted waters economically, but the bailout ought to be a public outrage. Our money, really our future, was taken from us forcefully by an incompetent government agency and handed to banks which are now doing nothing more than hoarding the dollars.

Nice.

From the link:

Despite all the government’s best efforts in recent months, big banks still aren’t lending money freely. One sign of the crunch: New loans to large companies slumped 37% in the three months ending Nov. 30 from the preceding three months. “Banks are being extremely cautious,” says Edward Wedbush, chairman of the Los Angeles brokerage Wedbush Morgan Securities.

The industry is getting flak for hunkering down. After all, the Treasury has injected $187.5 billion into the nation’s largest banks, including Citigroup (C), Bank of America (BAC), and JPMorgan Chase (JPM). The recipients of taxpayer money, say critics, should be required to open up their coffers. “The bad news [is] Treasury has no way to measure whether taxpayer funds are being used to increase lending,” Representative Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in December. “The much worse news [is that Treasury] does not even have the intention of doing so.”

Banking chiefs defend their position. They argue that the government funds are designed to shore up capital and support lending, but that they have no obligation to make new loans. “It’s not a one-to-one relationship,” says BofA CEO Kenneth D. Lewis. “We don’t write $15 billion in loans because we got $15 billion from the government.”

Right now there’s little financial incentive to make fresh loans. In the current unease, new corporate loans are immediately marked down to between 60¢ and 80¢ on the dollar, forcing banks to take a hit on the debt. It’s more lucrative, then, for them to buy old loans that are discounted already.

January 6, 2009

Total bailout cost heading toward $8T

Yep, you read that right — eight trillion dollars. Corporate socialism to the tune of eight trillion dollars. Obama’s plan looks to be in the $700 billion range.

The system, the markets and capitalism have failed on a massive scale. This might simply be a correction in the markets — a correction we are circumventing with this massive bailout — but it’s hard not to place at least some blame at the feet of the economic policies (and lack thereof) of the Bush 43 regime.

There’s a reason Congress feels the need to look into the incompetence of the SEC of the last several years. Instead of competent smaller government, Bush seems to have pressed for bloated government at every step (Department of Homeland Security, anyone) and increasing incompetence across the board with each stride.

With the ongoing financial crisis and this bailout, it really feels like Main Street is full of flaming bags of shit and the taxpayers are being forced to start stomping.

From the first link way up there in the first graf:

Sitting down? It’s time to tally up the federal government’s bailout tab.

There was $29 billion for Bear Stearns, $345 billion for Citigroup. The Federal Reserve put up $600 billion to guarantee money market deposits and has aggressively driven down interest rates to essentially zero.

The list goes on and on. All told, Congress, the Treasury Department, the Federal Reserve and other agencies have taken dozens of steps to prop up the economy.

Total price tag so far: $7.2 trillion in investment and loans. That puts a lot of taxpayer money at risk. Now comes President-elect Barack Obama’s economic stimulus plan, some details of which were made public on Monday. The tally is getting awfully close to $8 trillion.

Obama’s plan would combine tax cuts with infrastructure job creation efforts. Economists say it could serve as an integral piece to the government’s remaining economic recovery puzzle.

“This plan will be the first direct tool to make additions to disposable income,” said Lyle Gramley, an economist with Stanford Group and former Fed governor. “None of the other efforts have done that directly.”

December 30, 2008

The single biggest (quiet) story of 2008

Easily the bankruptcy of Lehman Brothers. Before and after this event the government threw money around like a drunk sailor on shore leave. If you had a hand out, the Fed put a cool billion right there in your sweaty palm.

Lehman? Left rolling in their own excrement and costing creditors something around $200B.

The way this entire financial meltdown has been handled is criminal. Just one more black mark on the legacy of the failed Bush 43 regime.

From the link:

Lehman Brothers Holdings Inc’s emergency bankruptcy filing wiped out as much as $75 billion of potential value for creditors, The Wall Street Journal reported on Monday, citing an analysis by the bank’s restructuring advisers.

A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions, according to the analysis by Alvarez & Marsal.

The Journal said it was too early to say how much money Lehman creditors would recover; it said unsecured creditors have asserted they are owed $200 billion.

Lehman filed for bankruptcy protection in September after the U.S. government declined to bail it out and a frantic weekend of negotiations to save the investment bank failed.

December 19, 2008

Bush bails automakers

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 11:06 am

For now Chrysler and General Motors stave off bankruptcy. Their alms come from the $700 billion set aside for the financial bailout.

From the link:

President Bush announced a rescue plan for General Motors and Chrysler LLC Friday morning that will make $13.4 billion in federal loans available almost immediately.

A senior administration official briefing reporters said he expects that GM (GM, Fortune 500) and Chrysler LLC will be signing the loan papers to access the cash later Friday morning.

December 18, 2008

Chrysler stops all production

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 1:19 pm

Hot on the heels of GM’s decision to “temporarily” shut down 20 plants, Chrysler announces a similar plan. Of course not to be outdone by GM, the automaker is going to stop all production for at least an entire month starting this week.

If these Puny Two are playing chicken with legislators who have yet to vote in an auto industry bailout package, I’d say that game might be deadly. Congress wants to bail the auto makers out, but the public is sick of this corporate socialism. The votes may just not be there because incumbents fear retaliation at the ballot box for a “yea” bailout vote.

From the link:

Chrysler is the third of the Big Three automakers to suspend operations for January. Last week, General Motors announced it was idling 30% of its North American manufacturing capacity during the first quarter of 2009 in response to deteriorating market conditions. That move will take 250,000 vehicles out of production. On Wednesday, a Ford spokeswoman confirmed for CNN that the automaker is adding a week to its normal two-week seasonal shutdown at a number of its plants.

Chrysler would not say how many fewer vehicles would be produced because of this shutdown. A total of 46,000 employees will be affected. They will be paid during the time off through a combination of state unemployment benefits and Chrysler contributions, but they will not receive the full amount of their working pay, a Chrysler spokesman said.

December 9, 2008

Mortgage modification might not be solution

There’s been a lot of talk about modifying home loans to help Main Street out during this era of corporate socialism on Wall Street.

Looks like that plan might not be so good after all. People having trouble paying still have trouble even after the mortgage gets reworked.

From the link:

Reacting to news that over half of borrowers have failed to keep up with their mortgage payments even after the terms of their loans have been modified, Office of Thrift Supervision director John Reich on Monday said that focusing on job creation might be a better use of federal dollars.

“I do have a concern about money for loan modifications, particularly with such a high range of re-default,” Reich told participants at a conference in Washington organized by the Office of Thrift Supervision. “Focusing on job creation is a better way to focus federal dollars than on a loan modification process may be only partially effective.”

Reich clashed with Federal Deposit Insurance Corporation chairwoman Sheila Bair over the best way to use government funds to end the financial crisis.

Reich’s comments were focused, in part, on Bair’s controversial proposal that would use $24.4 billion of a $700 billion government bank bailout program to modify loans. Bair argues that her proposal, which isn’t supported by outgoing Treasury Secretary Henry Paulson, could avert 1.5 million foreclosures. Reich also referred to a job creation stimulus proposal put forward by President-elect Barack Obama.

December 6, 2008

Mortgage delinquencies and foreclosures way up

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 1:07 pm

Now this is not really news, but as an economic indicator it’s very, very distressing. While Rome burns and corporate socialism goes on unabated, Main Street USA has been enduring a slow rot for a couple of years now.

There will be a heavy price to pay as a nation if this problem does not meet a real solution soon. I feel happy I have a very manageable mortgage, fixed at a great rate. I have friends who aren’t so lucky.

Some got a little greedy buying a home and some just got screwed by the broker/bank combo pressing them into loans that would never be workable under any circumstances, then completely hiding the nature of the loan before the shit hit the fan.

I bet a lot of these homeowners in trouble faced the same set of circumstances.

From the link:

One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

December 5, 2008

Power shift — Wall Street to Washington

Irwin Stelzer sees a radical shift in power from Wall Street to DC and puts the blame squarely on Hank Paulson’s shoulders.

And the corporate socialism goes on …

From the link:

The continuing series of bailouts, and potential bailouts, has Irwin M. Stelzer of The Weekly Standard bemoaning “a profound change in the nature of our government.” The check on government power imposed by the Constitution’s separation of powers will be weakened by full Democratic control of both branches, he notes. But the bigger change is the end of markets as a constraint on government. And for this, Stelzer pins much blame on Treasury Secretary Hank Paulson. “Paulson, of course, continues to preside over the billions-going-on-trillions that will be made available to whatever industries make the best case for a hand-out. You might recall that the Treasury secretary came to Washington after heading up Goldman Sachs, a firm now reporting billions in losses after abandoning its business model in favor of status as a government-sheltered commercial bank. Nothing more clearly demonstrates the shift of power from Wall Street to Washington than the Paulson saga. Once the man who raised private-sector funds for private-sector businesses from his perch at Goldman, he is now the man who distributes taxpayer funds to private-sector businesses from his perch at the Treasury.”

The financial meltdown is not slowing

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 12:19 pm

On top of this week’s bleak jobless rate report, not one bit of economic news seems very heartening. I guess the biggest upside (if you can call it that) is the fact everyone finally agrees we are in a recession.

All the head-in-the-sand, la-la-la-la-singers out there are at least facing reality. That’s a start. If they had a bit more contact with “Main Street USA,” a major presidential campaign topic, they’d realized this thing has been going on for a long, long time. The US may not be in a new Depression just yet, but our economy has a lot of Americans in depression.

From the link:

The year-long U.S. recession has taken a turn for the worse recently, two top Federal Reserve policy-makers said on Thursday, raising expectations for aggressive policy action by the central bank as soon as next week.

Separately, Federal Reserve Chairman Ben Bernanke urged more aggressive steps to halt home foreclosures, one of the most visible outcomes of the severe U.S. downturn.

Chicago Federal Reserve Bank President Charles Evans said that the economy is “contracting markedly” as consumer spending sinks and the jobless rate rises, and that a recovery might not be on tap until 2010.

“The outlook has clearly deteriorated” in the past six weeks, Evans told reporters after a speech to the Michigan Bankers Associationin Dearborn.

Evans’ comments were echoed by Atlanta Fed President Dennis Lockhart, who spoke at an energy conference in New Orleans and termed the near-term outlook “not encouraging.”

“Employment is expected to weaken further,” Lockhart said. House prices likely will continue to fall, with a further erosion of household wealth, while consumer spending will likely decline at least for the next few months.

If this financial crisis has grabbed your interest, or if you’d like a bit deeper analysis than daily Dow Jones reports and jobless announcements, the New Yorker published “Anatomy of  a Meltdown,”  by John Cassidy in the December 1, 2008 issue. That article can be found here.

It’s a bit long, but it does explain the steps the Fed has been taking for a whole lot longer than the general public understands to try and put “a finger in the dike” as the original strategy was phrased. Obviously that strategy was a non-starter and now we are staring down flat-out corporate socialism in the United States.

I highly recommend spending the time with Cassidy’s breakdown of the current financial crisis. He presents a very thorough timeline of actions taken, failures seen only in hindsight and a national economy still careening out of control.

From the New Yorker link:

The most serious charge against Bernanke and Paulson is that their response to the crisis has been ad hoc and contradictory: they rescued Bear Stearns but allowed Lehman Brothers to fail; for months, they dismissed the danger from the subprime crisis and then suddenly announced that it was grave enough to justify a huge bailout; they said they needed seven hundred billion dollars to buy up distressed mortgage securities and then, in October, used the money to purchase stock in banks instead. Summing up the widespread frustration with Bernanke, Dean Baker, the co-director of the Center for Economic and Policy Research, a liberal think tank in Washington, told me, “He was behind the curve at every stage of the story. He didn’t see the housing bubble until after it burst. Until as late as this summer, he downplayed all the risks involved. In terms of policy, he has not presented a clear view. On a number of occasions, he has pointed in one direction and then turned around and acted differently. I would be surprised if Obama wanted to reappoint him when his term ends”—in January, 2010.

November 28, 2008

Will the bailout steal Xmas?

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 11:14 pm

Maybe in a grinchlike fashion.

Here’s one opinion from Cato-at-Liberty:

What do people do when they’re scared about the state of the economy? They stop spending. With each new government “investment” announced by our new overlord Hank Paulson, Americans are going to clutch ever more fiercely at their wallets. They will eat out even less than they’ve been doing. They will rediscover the true spirit of Christmas and give each other hugs instead of Blue-Ray disc players. They will forgo that new coat or pair of winter boots. And they will bring the U.S. economy to a halt.

I do have to say this is a little more chicken-little than I prefer, even though I’ve been pretty gloomy about all this corporate socialism myself. The point is well-taken. The media deserves some blame on the coverage, bloggers (including me) deserve a little blame for continuing to harp on the subject, but at the same time some very wise money managers I know have basically all taken their winter nuts and buried them deeply underground for the duration.

To expect anyone else to do otherwise is not fair and more than a bit foolish.

November 25, 2008

Laffer on the bailout

Arthur Laffer, Reagan’s economist and namesake of the Laffer curvedisses the ongoing financial crisis bailout. I think I’ve made my thoughts about this bailout well known. Probably two words suffices to sum up my opinion — corporate socialism.

From the (second) link:

As you read this, our government is committing enormous sums of money above and beyond normal spending, solely to stimulate the economy and prop up failing companies and markets. These additional sums are huge by any reasonable measure, with estimates as high as $3 trillion in an economy with a GDP of about $15 trillion.

Here’s the bottom line: Instead of making things better, increased spending will only drive our economy further into the ground.

And there is still a lot more spending to come. First it was a $170 billion stimulus package in February of 2008, then material add-ons to both the housing and agricultural bills, followed by Federal Reserve asset swaps with Bear Stearns and a bailout of AIG (which, by the way, isn’t over yet) and then came the debt guarantees of Fannie Mae and Freddie Mac.

Shortly after that, the administration anted up $700 billion in a bailout package, and now Obama, Reid, Pelosi and Bernanke want another stimulus package of $300 billion. Just this week the powers that be are debating bailouts for Michigan’s auto industry. With the slowdown in the economy, tax receipts are now projected to fall sharply. The logic here is totally upside down, and each new measure, far from helping the economy, does enormous damage.

November 21, 2008

Dems want to bail out the Big Three

I guess the threat of a Chinese takeover of the US auto industry is going to drive more corporate socialism. Looks like elected Democrats want to fork over cash to the failing businesses.

Isn’t it time someone pointed out no one — no one — has any clue what is happening financially right now? Our treasure is being spilled and spent in the Middle East and now on Wall Street and the Rust(ed out) Belt. Main Street will eventually turn to garbage can fires and gunplay if this keeps up.

From the second link:

Democratic congressional leaders, seeking to salvage a bailout of the Big Three automakers, demanded executives provide a business survival plan in exchange for their support of up to $25 billion in loans.

The ultimatum came on Thursday after the Democratic leaders failed to persuade the White House and congressional Republicans to use part of a $700 billion financial rescue fund to prop up the auto industry.

Hanging in the balance is the future of General Motors, Ford Motor and Chrysler LLC, whose losses have mounted during a severe economic downturn that has prompted Americans to largely stop buying cars.

Shares of GM and Ford rebounded from multi-decade lows as the developments in Washington kept bailout hopes alive.

While many lawmakers are anxious to see the companies survive, Republicans have been more wary of whether the money would really help, and Democrats have been more inclined to be generous to the huge employers of unionized labor.

Democratic leaders acknowledged on Thursday a growing public resentment over government bailouts of U.S. business in slowing the automakers’ demands, saying they will take a look after the auto industry provides a roadmap to its survival.

November 20, 2008

Hats in hand with dirty knees …

our corporate backbone pleads with the gov’mint for a thin dime.

Sickening.

From the link:

At the very core of the current financial crisis lies the problem of moral hazard.

Moral hazard is the alignment of incentives that encourages the pursuit of short-term gains with scant regard to (or even responsibility for) potential long-term costs.

The U.S. Federal Reserve Bank and the federal government helped create the moral hazard problem, but they are not focused on correcting it. In fact, some recent actions are making the problem more acute.

Former Fed Chairman William McChesney Martin Jr., once said that the role of the Fed was to “take away the punch bowl just as the party got going.” But under the leadership of Alan Greenspan, the Fed not only left the punch bowl on the table, it also spiked the punch.

When equity markets wobbled, the Fed came to the rescue. Yet when he commented on the “irrational exuberance” of the equity markets several years ago, Greenspan admitted no role in creating that exuberance.

More recently Greenspan failed to acknowledge the moral hazard problem in a different context. In his Oct. 23 testimony before Congress, he expressed “shocked disbelief” that self-regulation failed — that financial institutions did not do a better job preventing themselves from getting into trouble.

Greenspan’s shock is itself surprising. He was right to believe that markets could be self-regulating, and he was right to believe that markets should work. What he failed to see, though, was that self-regulation couldn’t work because of the moral hazard that had crept into the way Wall Street operated.

Many of the problems with Wall Street lie with the corporate structure itself. In the idealized world, management should be acting for the benefit of the shareholders, and the shareholders should act through the board of directors to set compensation and power of management.

November 19, 2008

No corporate socialism for automakers

Or so it seems. The Big Three flew their private jets to DC with very natty, custom-made hats in hand for a little government scratch to tide ’em over for a while.

Looks like maybe they should have flown coach on a commercial carrier and crawled in with moth-eaten ski caps. Image is everything there guys.

From the link:

A year-end drive to win new aid for the ailing auto industry was near collapse in Congress on Wednesday, pulled down by old resentments toward Detroit’s Big Three and continued fighting between Democrats and the outgoing Bush administration.

Midwestern senators mounted a last push to try to craft a compromise $25 billion loan package to be administered by the Commerce Department and financed in a manner acceptable to the White House. But even on a day of punishing economic news, the leadership vacuum in Washington is such that many prefer to leave any bailout in the hands of the two men who have handled so many already: Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

Also from the link:

“They don’t have a lot of chits here. They have people who are upset at them,” Reid told Politico. “I want to help them. It’s not the companies. I want to help the workers. That’s where I am. The people who work there deserve our attention. But the path has been laid by these bosses who came here yesterday on their corporate jets. … They all flew down here in their corporate jets. It’s just not the right picture.”

Congress wants bailout answers …

… and Paulson is taking the heat. Rightfully so. This whole thing is a disgrace.

I was against it from the get-go, and now that it’s a done deal Paulson and the Treasury Department seem to be no better than a room full of drunk monkeys in handling the process. I wouldn’t let Paulson manage my sock drawer at this point.

From the link:

Members of the House Financial Services Committee grilled Paulson for not doing enough to help distressed homeowners and for failing to force banks that get some of the bailout money to specifically use it to bolster lending to customers, one of the prime reasons behind the rescue package.

“It is essential” that some of the bailout money be used to ease foreclosures, said the panel’s chairman, Rep. Barney Frank, D-Mass., a key player in shaping the package that Congress passed and President George W. Bush signed into law Oct. 3.

Amid fits and starts in the administration’s rollout and direction of the program, “I have to say at this point that public confidence in what we have done so far is lower than anybody would want it to be, to the point where it could be an obstacle to further steps,” Frank lamented.

In a break with the administration, Federal Deposit Insurance Corp. Chairman Sheila Bair, made a fresh pitch for using $24 billion of the bailout pool to help Americans at risk of losing their homes. House Speaker Nancy Pelosi is urging Paulson to support the FDIC plan.

“As foreclosures escalate, we are clearly falling behind the curve,” Bair warned the panel. “Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broader economic health.”

November 17, 2008

SEC ropes a maverick

I think the SEC has much bigger fish to fry than busting Mark Cuban for adding a portion of one percent to his fortune, but I guess those little regulators need a diversion right now to compensate for the ongoing failure of epic proportions that is the Fed, the Treasury, and the rest of the alphabet soup of financial regulatory bodies.

I’m going to go out on a limb to suggest this action totally squashes Cuban’s tiny hope for owning the Chicago Cubs. MLB is that dumb.

From the link:

The Securities and Exchange Commission said Monday that it had charged Mark Cuban, the billionaire Internet entrepreneur and owner of the Dallas Mavericks basketball team, with insider trading for selling 600,000 shares of an Internet search engine company.

The S.E.C. said Mr. Cuban sold the stock in the company, Mamma.com, based on nonpublic information about an impending stock offering. The commission asserted that Mr. Cuban avoided losses in excess of $750,000 by selling his stock prior to the public announcement of the offering.

The commission filed a civil lawsuit against Mr. Cuban in Federal District Court for the Northern District of Texas, accusing him of violating federal securities laws. It said it was seeking to impose financial penalties and confiscate gains from the trades.

In its complaint, the S.E.C. asserted that Mamma.com invited Mr. Cuban to participate in the stock offering in June 2004 after he agreed to keep the information confidential. The S.E.C.’s complaint asserted that Mr. Cuban knew that the offering would be conducted at a discount to the prevailing market price and that it would be dilutive to existing shareholders.

November 12, 2008

Amex hoping for the dole, GM sinking and oil back in fifties

Here’s a little buffet of economic news —

The latest hopeful for corporate socialism? American Express after reorganizing as a bank holding company.

From the link:

American Express Co. is seeking $3.5 billion in funds under the government’s plan to directly invest in financial firms, according to a Wednesday report in The Wall Street Journal citing unnamed sources.

Earlier this week, American Express received approval from the Federal Reserve to become a bank holding company, which is a similar structure to traditional commercial banks. The credit card company now has access to financing from the Fed and the ability to grow a large deposit base.

The increased funding opportunities through government programs, including the potential $3.5 billion investment, could be a huge boost to American Express as one of its primary sources of funding has nearly disappeared amid the ongoing credit crisis.

Crude has dropped below $56 a barrel.

From the link:

The Energy Department said it expects U.S. consumption of petroleum to drop more severely than any time since 1980 next year, with gasoline use dropping by another 3 percent. Its Energy Information Administration on Wednesday said 2009 petroleum consumption is projected to sink by a further 250,000 barrels per day, or 1.3 percent, more twice that projected in its previous outlook.

Also on Wednesday, the International Energy Agency said more than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy.

Light, sweet crude for December delivery fell nearly 6 percent, or $3.50 to settle $56.16 a barrel on the New York Mercantile Exchange, the lowest closing price since January 2007. Oil prices have plunged more than 60 percent in four months from record highs near $150 in July.

And last, but certainly not least, among debate on whether to bail out the Big Three US automakers, General Motors stock closed at its lowest point since 1946 — yes, that’s not a typo nineteen FORTY six.

From that link:

Shares of General Motors plunged another 13% on Tuesday to a 65-year low, closing below the $3 mark for the first time since 1946.

The stock closed Tuesday down 44 cents to $2.92, its lowest close since April 1943.

The Dow Jones industrial average component has lost nearly 40% of its value since Thursday. Shares began their slide on Friday when GM warned that it could run out of cash and posted a $4.2 billion loss.

On Tuesday, the battered automaker unveiled plans to idle nearly 2,000 hourly workers who build engines, transmission systems and body panels, during the first quarter of 2009, according to company spokesman Tony Sapienza. That reduction follows the news, disclosed Friday, that GM will idle another 3,600 hourly workers.

Making matters more complicated, GM will have to keep most of these hourly workers on the payroll during the current labor contract, which runs through September 2011.

October 27, 2008

Well, the “bailout” was a rousing success

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 1:35 pm

Not so much.

From the link:

First, the $700 billion rescue for the U.S. economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.

Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.

But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.

Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners avoid losing their homes in foreclosures.

As the crisis worsens, the government’s reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.

October 23, 2008

Credit remains tight

I hate to be so doom-and-gloom on the economic picture today, but the news is bad, very bad and worse. The little exercise in corporate socialism known as the “bailout.” Let’s call that one a failure so far since the entire purpose was to open inter-bank credit to help prop up ailing financial institutions.

How did that turn out?

The title from the link:

U.S. Banks Still Aren’t Lending

Despite the federal government’s best efforts, banks are hoarding cash. It may be 2010 before the credit climate improves

And from further into the article:

The defensive crouch that Dorner and other bank executives have adopted is creating a quandary for Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and other Washington policymakers who are trying to get credit flowing freely across the economy. The government is reaching deep into its pockets to stimulate the credit markets, most recently with a plan to inject $250 billion into big banks. But while there are small signs of improvement—notably a modest drop in the rate banks charge one another to borrow money—the initiatives are being blunted by banks’ reluctance to loosen their purse strings. Right now the modest uptick in lending is coming mostly from panicked companies drawing down existing lines of credit rather than new loans.

Simply put, banks are hoarding cash, and the influx of government money won’t necessarily change their plans. That’s the case with Citigroup (C), which has shrunk the size of its balance sheet by 13% over the past year and plans to cut even further. “We’re not going to treat [the money from the government] like a windfall and back off of the measures that we have under way to get the company fit,” Citigroup Chief Financial Officer Gary Crittenden told analysts recently.

The industry may be hunkering down for a while. In a recent survey by data firm Reuters LPC, 40% of lenders and loan investors said they didn’t expect the credit climate to improve significantly until 2010, after the worst of the recession has passed. “Lending won’t start until everyone agrees the bottom has been reached,” Richard M. Kovacevich, chairman of San Francisco-based Wells Fargo (WFC) told BusinessWeek in an interview with Maria Bartiromo.

October 3, 2008

House passes bailout on take two

No surprise.

From the WSJ link:

The 263-171 vote was a stark reversal from Monday, when House lawmakers shocked investors and their own leaders by voting against a more narrow version of the plan to buy up distressed assets from financial institutions. That vote sent financial markets tumbling and forced the Bush administration and congressional leadership to scramble and salvage the rescue plan.

The result: a $700 billion bailout for financial firms combined with $152 billion in unrelated tax breaks and broader tools for federal regulators to deal with the growing economic crisis. The Senate passed the bill with a strong, bipartisan tally of 74-25 on Wednesday evening.

October 2, 2008

Bailout news, jobless rate, short selling and rate cuts — oh, my

I’ve done a lot of blogging on the bailout and derided this ongoing process — including banning shorting some stocks (see more below on this) — as “corporate socialism.” I still don’t like the bailout, but now that the Senate passed its revised version I’m guessing the House will go along tomorrow unless the GOP stalwarts feel particularly feisty.

From the second link:

House members are getting another chance to vote on a financial bailout bill that has infuriated millions of voters after the Senate added tax cuts and other sweeteners and passed it handily.

Senators advanced the much-criticized measure in a 74-25 vote late Wednesday, sending it to the other side of the Capitol for a showdown vote expected Friday. The move was calculated to win over enough dissenting House members to get the bill through and reverse Monday’s stunning defeat in the House, party leaders there planned to press rank-and-file members Thursday for the dozen converts they believe they need.

But bailout news isn’t the only story with this ongoing financial crisis. Go below the fold for more on the jobless rate, the latest on shorting and possible additional rate cuts.

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October 1, 2008

Senate version of bailout plan passes

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 11:43 pm

Predictably.

We’ll see what the House does on Friday.

From the link:

In stark contrast to the House rejection of the plan on Monday, a bipartisan coalition of senators — including both presidential candidates — showed no hesitation in backing a proposal that had drawn public scorn, though the outpouring eased somewhat after a market plunge followed the House defeat. The Senate margin was 74 to 25 in favor of the White House initiative to buy troubled securities in an effort to avoid an economic catastrophe.

Only Senator Edward M. Kennedy, who is being treated for brain cancer, did not vote.

The two Senate leaders, Senators Harry Reid, Democrat of Nevada and the majority leader, and Mitch McConnell of Kentucky, the Republican leader, strongly urged their colleagues to approve the plan despite the political risk given public resentment.

Bailout still in DC debate

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 2:04 pm

Looks like the Senate is voting tonight on a bailout version that might be a bit more palatable to the House GOPers, although I’m with the fiscal conservatives who urge calm over freak-out.

After Monday the markets seem to have settled down to a quiet boil. Major money is flowing into T-bills and away from the open market.

Even though there’s a relative calm, I’ve heard the Martini sisters — Ivana and Anita — are still in high demand on Wall Street. Thanks folks, I’ll be here all week. Be sure to tip your waitstaff and come back Friday for the prime rib lunch special.

From the first link:

Senate leaders scheduled a Wednesday night vote on a $700 billion financial bailout package after accepting tax breaks and a higher limit for insured bank deposits in a bid to win House approval and send legislation to President Bush by the end of the week.

Top lawmakers said the Senate proposal, worked out after a day of maneuvering behind the scenes, would include tax breaks for businesses and alternative energy and higher government insurance for bank deposits.

“It has been determined, in our judgment, this is the best thing to move forward,” said Senator Harry Reid, Democrat of Nevada and the majority leader, in announcing the surprise move. The House was expected to vote on Friday.

September 30, 2008

Another bad week for McCain

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 1:25 pm

His numbers are real bad, and I’m sure the internals are even worse. To compound the issue there’s not a wad of hot gum or a steaming pile that he doesn’t step in these days. I’ve heard Trig is now going to debate in place of his mother.

From the Daily Kos link:

McCain Claims Credit For Bailout Before It Failed

Mon Sep 29, 2008 at 03:26:09 PM PDT

How mavericky of John McCain to take credit for the passage of the bailout bill…before it failed:

Sen. John McCain (R-Ariz.) and his top aides took credit for building a winning bailout coalition – hours before the vote failed and stocks tanked.

The rush to claim he had engineered a victory now looks like a strategic blunder that will prolong the McCain’s campaign’s difficulty in finding a winning message on the economy.

September 29, 2008

The bailout — success from the jaws of defeat?

I’ve done some blogging on the bailout — here on today’s failure in the House and here’s a link to more.

It looks like the WSJ thinks the House vote was a blessing in disguise. I agree with them.

From the link:

Don’t Panic.

By throwing out a deeply flawed bailout plan, the House may have created an opportunity to craft a more effective response to the financial crisis.

With credit markets frozen and the Dow Jones Industrials Index plummeting 777.68 points Monday, the 228-205 defeat of the rescue package appears to come at the worst possible time. Plenty of experts think the “no” vote has the power to wipe what little confidence remains in the markets.

But it also could lead policy makers, particularly Treasury Secretary Henry Paulson, to draw up a plan that more directly addresses the factors causing the financial system to fall apart.

The House scuttles bailout plan

And the market takes a big hit.

From the link:

The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample no votes came from both the Democratic and Republican sides of the aisle.

Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home.

The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Bush had used a “call list” of people he wanted to persuade to vote yes as late as just a short time before the vote.

Lawmakers shouted news of the plummeting Dow Jones average as lawmakers crowded on the House floor during the drawn-out and tense call of the roll, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their rank-and-file members to support the deeply unpopular measure.

From the New York Times and news on the Dow freefalling over 400 points on the news.

Update — Dow is down almost 700 points.

I’m glad the vote failed. And no, I don’t think it’s a case of cutting off one’s nose to spite the face. I think it’s a case of a failed administration making one more attempt at a naked and craven power-grab. Get Paulson out of the picture, bring in some adult nonpartisan brains and knock-out a real solution, not some BS version of, “be very afraid and give me unlimited power.”

I think the US public finally woke up, and maybe the GOP did too after the Bush 43 effort at corporate socialism and their presidential standard bearer choosing an unqualified religious nutjob as his running mate.

Go below the fold for additional updates as the situation warrants.

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September 25, 2008

Buffett banks on Goldman Sachs Group

Didn’t blog earlier on Warren Buffett’s foray into the financial crisis morass, but this Wall Street Journal article puts the Berkshire Hathaway deal in the context of Paulson’s proposed $700B bailout.

This is the very first bit I’ve read anywhere that puts some real substance on the issues at hand and why Buffett’s deal is rational in a way the Bush 43 administration’s bailout is not as presently constructed.

From the link:

Berkshire Hathaway‘s investment in Goldman Sachs Group provides a template for how to get the financial system back on its feet.

The problem is, the Bush administration’s $700 billion bailout plan ignores some of the key lessons of Warren Buffett’s deal. Most notably: Capital, or lack of it, is at the heart of the crisis.

The proposed bailout only goes a certain distance in addressing that, so it mightn’t spark the sort of quick confidence rebound its proponents are hoping for. That explains Wednesday’s renewed stress in debt markets.

The realism of the Goldman/Buffett deal is instructive. The market was getting nervous about funding Goldman’s highly leveraged balance sheet. The bank had to adjust and raise expensive capital quickly.

First, Goldman agreed to become a bank-holding company Sunday, giving it greater access to Federal Reserve credit. Then it reduced leverage markedly by raising $10 billion in fresh capital from Berkshire and other investors. It did so even though it meant diluting shareholders by as much as 20%.

In contrast, the government’s bailout plan contains no explicit demands that banks raise capital. If Goldman needed to, others surely do.

September 24, 2008

The no-short list grows

I’ve already put my thoughts on the anti-capitalist move by the SEC to ban the short selling of certain stocks out there. Predictably everyone wants a little protection from the free and open market leading to more companies being added to the no-short list.

Here’s a NYT article via AccountantsWorld covering the very subject.

From the second link:

The list of companies that regulators are protecting from short-sellers keeps growing, as do the questions surrounding it.

By Monday evening, the number of companies on the list rose to nearly 900, from 799 on Friday, when the Securities and Exchange Commission sought to restrict bearish bets against financial companies to help stabilize the markets.

 

Nearly every major bank is now included, along with large insurance companies and others. Trading in bank stocks withered on Monday amid uncertainty over the rules and the sweeping bailout that the Bush administration has proposed for financial companies.

But many questions remain. Some analysts — and a few firms initially left off the list — complained that the initial S.E.C. roster was incomplete.

Want to see just how ridiculous this whole process becomes once the stinky can has been opened? Here’s a bit from later in the article:

By Monday evening, the Ford Motor Company, which also owns a bank, was added to the list.

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