Friday, October 31, 2008

"From each according to his abilities..."

The Treasury and the FDIC are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said. The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower's ability to repay.

So these folks get to own a house WORTH MUCH MORE THAN MINE (I know this because if their mortgage were the size of mine, they could pay it with an unemployment insurance check) and PAY LESS for it. George Bush - member of the US Communist Party? Who knew?

GDP Contracts

GDP fell 0.5% in the third quarter, in line with expectations.

Thursday, October 30, 2008

Delta acquires Northwest

It's called a merger, but really it's an acquisition. Delta closed the deal today and became the world's largest airline.

Wednesday, October 29, 2008

Big Surprise

Fed lowers fed funds rate 50 bp to 1%. Who didn't see that coming?

Tuesday, October 28, 2008

Another form letter from my senator

Thank you for contacting me regarding H.R.1424, the Emergency Economic Stabilization Act. I appreciate your thoughts and the opportunity to respond.

The House and Senate approved this bipartisan financial package designed to stabilize credit and restore confidence in U.S. financial markets. This legislation is critical to allowing us to unclog the financial markets, free up credit to the average American and over time restore the American economy to what it has been and always will be - the best entrepreneurial capitalistic system in the world.


This is like the converse of a statement that Fidel Castro made a few years ago: "We are going to use capitalism to destroy capitalism." Now our idiot senators and representatives are telling us that they are going to destroy capitalism in order to save capitalism. Government owning 20% of the largest banks in the country is not "entrepreneurial" or "capitalistic."

While this legislation will not be a quick fix, it does address the core problem of mortgage-backed securities. As it is implemented, it will begin to stabilize the market and free up capital for the credit markets. The legislation authorizes the Treasury Secretary to immediately use up to $250 billion to purchase distressed assets from institutional investors.

Except we've already spent hundreds of billions, and not ONE MBS has been purchased yet.

If needed, the Secretary may then access an additional $100 billion to purchase these distressed assets but only with presidential approval. An additional $350 billion may be accessed if the president first wins approval from Congress.

The legislation includes a number of provisions to ensure oversight by Congress and accountability to the taxpayers, including prohibitions on executive compensation to ensure bad actors are not rewarded. Specifically, companies that receive more than $300 million from this plan will have limits placed on their top five executives. These limits include a ban from receiving a "golden parachute" as well as limits in the tax deductions executives may take on compensation over $500,000.

Who cares about the top five executives when everybody downstream of them is getting billions. At Goldman Sachs the average bonus is $216K, at Morgan Stanley it's $138K. You are taking MY money (I don't make $138K in total compensation, let alone bonus) and giving it to GS and MS employees. How dare you, you socialist? If I wanted a socialist to represent me, I would have voted for a socialist.

The legislation also continues the suspension of "mark-to-market" accounting rules that is already in place today. The bill does not allow bankruptcy judges to restructure the terms of existing mortgage loans. Additionally, it does not provide funds for affordable housing community organizers such as ACORN.

This bill does precisely the one thing that we can do to help unlock the credit markets and help the average working Georgian, the average Georgia retiree, and the average Georgia child who is looking to the future to benefit from what right now is a very difficult situation. This financial crisis has cost people their jobs and put small businesses at risk. It has ransacked individual retirement accounts and frozen the credit available for businesses, home purchases and car purchases. The people affected by the legislation sent us to Washington to make these kinds of tough decisions. I am glad the majority of the members of Congress did not simply turn a blind eye and hope for the best.


Sincerely, Johnny Isakson

Truly The End of Days

Barclays is seeking investments from two state-backed Russian banks in an effort to boost its capital. The British bank has spoken to OAO VTB and OAO Sberbank about potential capital injections, but it wasn't clear Monday if Barclays' efforts had been successful. Barclays said it would raise £6.5 billion ($10 billion) from private sources to meet government capital benchmarks.

Didn't know state-backed Russian banks were considered private sources these days.

Dow up 889 points

Dow up 889 points, its sixth (NOT its second like the press are reporting, points don't matter, only percents matter) largest increase in history...

March 15, 1933: 8.26 points, or 15.34%, to 62.10
Oct. 6, 1931: 12.86, or 14.87%, to 99.34
Oct. 30, 1928: 28.40, or 12.34%, to 258.47
Sept. 21, 1932: 7.67, or 11.36%, to 75.16
Oct. 13, 2008: 936.42, or 11.08%, to 8,387.61
Oct. 28, 2008: 889.35 or 10.88%, to 9,065.12
Oct. 21, 1987: 186.84, or 10.15%, to 2,027.85
Aug. 3, 1932: 5.06, or 9.52%, to 57.22
Feb. 11, 1932: 6.80, or 9.47%, to 78.60
Nov. 14, 1929: 18.59, or 9.36%, to 217.28

Today's News

Foreign ministers, finance ministers, and central bank presidents from Argentina, Chile and Venezuela and others attended the meeting to discuss a crisis which is threatening to severely hurt regional and global economic growth. Foreign Minister Celso Amorim of Brazil said at a press conference that there was a general consensus for the need for reform in "the architecture and the procedures of the international financial system." He did not elaborate on what kind of changes the officials were in favor of or exactly what they had discussed. But he stressed the importance of the region's states pulling together to better weather global financial storms that may lie ahead.

The IMF may soon lack the money to bail out an ever growing list of countries crumbling across Eastern Europe, Latin America, Africa, and parts of Asia, raising concerns that it will have to tap taxpayers in Western countries for a capital infusion or resort to the nuclear option of printing its own money. IMF's work in countries such as Turkey is only just beginning. The Fund is already close to committing a quarter of its $200bn reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia.

Five straight quarters of losses and a 70% slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses. Goldman Sachs and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down only 28% from a year ago. Even some employees at Lehman Brothers, which declared the biggest bankruptcy in US history last month, will get the same bonus they received a year ago. The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards. Goldman, the biggest and most profitable Wall Street firm, has set aside about $6.85 billion for bonuses, or an average of $210,000 for each employee, down 32% from $339,000 a year ago. Morgan Stanley, the second-biggest securities firm, has $6.44 billion for bonuses, or $139,000 per person, down 20% from last year. The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

Iceland's central bank on Tuesday unexpectedly hiked its key lending rate by six percentage points to 18% in a massive reversal of policy. 15%? Down to 12%? Up to 18%? We don't have a freaking clue what we're doing.

Boeing-IAM Deal

Boeing, on the heels of a tentative agreement to settle a strike with its machinists, immediately faces contract negotiations with its engineer and technical workers union, an effort promising to be just as heated and contentious as the one that prompted the machinists to walk out for seven weeks. Boeing and the IAM tentatively agreed to settle the strike by 27,000 employees in Washington, Oregon and Kansas.

The union said it endorsed the deal that includes no additional cost-shifting to workers for healthcare benefits[*], preserves the company's pension plan, and guarantees a 15% pay increase for each member over the life of the four-year agreement. They will also receive yearly lump-sum payments that could total up to $8,000. Further, the union was able to extract an agreement from Boeing to protect nearly 2,200 facility jobs and an additional 2,920 jobs related to materials delivery and inventory process, as well as expand the scope of its subcontracting review.

For Boeing's part, the manufacturer said it was able to retain flexibility to manage its business, a hint to its increased reliance on outsourcing. It was also able to secure a longer-term contract than in prior years, crucial for a company with a poor record of suffering production halts during labor-contract negotiations.


[*] Sweet deal. I just did open enrollment and my HMO premium went up 16%!

Monday, October 27, 2008

Laffer

No one likes to see people lose their homes when housing prices fall and they can't afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house's value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

[...]

Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932.

http://online.wsj.com/article/SB122506830024970697.html

Wow, good insights. I wish somebody had said that before now.

The parade continues...

On Friday unveiled a $7.7 billion investment in PNC. Over the weekend, Capital One and Regions unveiled investments of $3.55 billion each. The new members inducted into the club Monday include the #10 bank in the country SunTrust who will get $3.5 billion, as well as KeyCorp ($2.5 billion), Comerica ($2.25 billion), Northern Trust ($1.5 billion), and Huntington Bancshares ($1.4 billion).

Saturday, October 25, 2008

European countries with two quarters of negative growth

Denmark showed a contraction of 0.6% following a 0.2% contraction. Estonia showed a contraction of 0.9% following a 0.5% contraction. Latvia showed a contraction of 0.2% following a 0.3% contraction.

Who knew GWB was a communist?

The Treasury Department is considering buying equity stakes in insurance companies, a sign of how the government's $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries. The availability of US government cash in the middle of a global credit squeeze is drawing requests from insurance firms, auto makers, state governments and transit agencies. While Treasury intended for the program to apply broadly, the growing requests could put a strain on the $700 billion, a sum that only last month stunned lawmakers. MetLife, Prudential and New York Life are interested in exploring a sale of equity stakes to the government, according to people familiar with the matter.

Aside from the socialist aspects, it's clear that Paulson has no clue what he's doing. First the money is to buy mortgage backed securities, then it's to capitalize banks, now it's to capitalize insurers. Does he have the first idea what to do? Why did Bush give him a blank check?

Here's Michelle Malkin's take on this: http://michellemalkin.com/2008/10/25/bailout-creep-what-the-hell-is-hank-paulson-up-to-now/

Argentina trying to seize pension assets

Argentina wants to seize private pension assets to prop up their disastrous government finances, which have been devastated by socialist policies. Just what you need to solve the problems of a socialist economy - more socialism.

http://online.wsj.com/article/SB122567336191591913.html

Mrs. Kirchner defended her decision to seize the pension assets by asserting that the market is too risky for retirement savings, and that the returns earned by private-sector fund managers are not adequate. That's quite a claim considering that the average annual return of Argentina's private-sector pension managers over the past 14 years is 13.9%. But it is even more absurd if one compares the private-sector returns to those of the government's pay-as-you-go social security system over four decades.

If we're not careful, that could happen here.

Friday, October 24, 2008

Are they kidding?

A wide range of sweeping changes to the 401(k) system were proposed Tuesday at a hearing on how the market crisis has devastated retirement savings plans.

Chief among them was eliminating $80 billion in tax savings for higher-income people enrolled in 401(k) retirement savings plans. This was suggested by the chairman of the House Committee on Education and Labor. “With respect to the 401(k), it appears to be a plan that is not really well-devised for the changes in the market,” Rep. George Miller, D-Calif., said. “We’ve invested $80 billion into subsidizing this activity,” he said, referring to tax breaks allowed for 401(k) contributions and savings. With savings rates going down, “what do we have to start to think about in Congress of whether or not we want to continue and invest that $80 billion for a policy that is not generating what we … say it should?” Mr. Miller said.

Congress should let workers trade their 401(k) assets for guaranteed retirement accounts made up of government bonds, suggested Teresa Ghilarducci, an economics professor at The New School for Social Research in New York.

When workers collected Social Security, the guaranteed retirement account would pay an inflation-adjusted annuity under her plan. “The way the government now encourages 401(k) plans is to spend $80 billion in tax breaks,” which goes to the highest-income earners, Ms. Ghilarducci said. That simply results in transferring money from taxed savings accounts to untaxed accounts, she said. “If we implement automatic [individual retirement accounts] or if we expand the 401(k) system, all we’re doing is adding to this inefficiency,” Ms. Ghilarducci said.

Today's News

PNC is buying National City. At least another FDIC intervention was averted.

UK's economy posted a third quarter 0.5% GDP decrease. US releases its figures next Thursday October 30. Economist consensus is -0.3%, but I think it will be much worse, between -0.5% and -1%.



Europe still hasn't figured out what it's doing about this mess. The central bank of Sweden cut its interest rate to 3.75%, a drop of a half percentage point. The Riksbank demonstrated that it is focusing on boosting the economy rather than inflationary problems. The cut was the second policy easing of the month, and the bank expects to decrease the rate by another half point during the next six months. Meanwhile, Denmark's central bank raised its benchmark lending rate from 5% to 5.5% to boost the krone. It seems like they are damned if they do (raise rates and the risk of recession skyrockets) and damned if they don't (and their currencies get clobberred). No wonder the US$ and the yen are looking like safe havens.


The yen rose to 94.77 per US dollar, the highest in 13 years. Of course, that means their trade surplus is getting hammered. I mean, really REALLY hammered. It was down 94% for September. That is not good for their export-driven economy. It seems they are also in a damned if you do, damned if you don't scenario.

As of last night's close Japan's Nikkei 225 index stands at 7649, a level not seen since 1981. So the conventional wisdom expedient of claiming that "stocks always outperform bonds over X years" is false, at least for X < 28.

Thursday, October 23, 2008

Today's News

Credit rating agencies put the global financial system at risk because they had to be lapdogs, not watchdogs, to survive, Moody's CEO Raymond McDaniel testified on Capitol Hill yesterday. The three major agencies were caught in a race to bottom, forced to lower their standards in an attempt to maintain their market share. That race to the bottom was very lucrative in the short-run for the companies, but disastrous for the global economy in the long haul.

So exactly why isn't Mr. McDaniel in jail for fraud? Or at the very least forced out of his company in disgrace? Why is he still the CEO of anything? Disgraceful! Disgusting!

Desperate to preserve its currency peg to the euro, Hungary raised its interest rate by 3 percentage points to 11.5%, raising the possibility that other Eastern European states will have to follow to head off collapse of their currencies.

Of course, they may save their currencies at the cost of very deep recessions. Now is not the time to be raising rates.

Greenspan testified today before Congress. I see a lot of finger-pointing in an attempt to preserve his legacy. Well, sorry, Mr. Greenspan, but the jury is in. You are an idiot. To think that once upon a time I admired the job he was doing. I -- unlike him -- am not afraid to admit that I made a mistake. Have a Coke and a smile and STFU and let the rest of us figure out how to clean up the mess you left us.

Wachovia had a $23.9 billion third-quarter loss, essentially eviscerating four years of earnings. They took took an $18.8 billion goodwill impairment. Together with last quarter's goodwill impairment, they have essentially written down their 2005 Golden West acquisition to zero. What a bonehead move! The bank also added $6.6 billion in provisions for credit losses. This combined with last quarters credit loss provision increase is approximately equal to the "profits" for all of 2006 and 2007 proving that those year's profits were almost completely illusory accounting artifacts.

Merrill Lynch CEO John Thain said he expects "thousands'' of job losses from the bank's takeover by Bank of America. Most of the cuts will fall in information technology, operations , and finance, Thain said in a Bloomberg Television interview. "We haven't mapped it out in terms of actual number of people, but we are committed to saving $7 billion across the combined platforms, and that will be a challenge,'' Thain said. "Between our two companies it will be clearly thousands of jobs.''

Goldman Sachs is preparing to cut about 10% of its 32,500 employees.

Commercial Real Estate is Next

Think about it...

Hotels? Who is going to be travelling in this recession?

Office space? Companies are going to be cutting back personnel and needing less space?

Malls? Fuggedaboutit!

Tuesday, October 21, 2008

Wacky Sarkozy idea

French President Nicolas Sarkozy called on European nations to create sovereign wealth funds as part of a "United European response" to the broadening economic crisis. In a speech to the European Parliament, Sarkozy said member states should use the funds to snap up stakes in cheap domestic industries to ensure "European companies are not bought up by non-European capital while their stock exchange values are low."

Um ... excuse me, but don't you need actual wealth to create a sovereign wealth fund? How is Sarkozy proposing to create this fund ... by increasing his already large deficit or by taxing folks who could otherwise make these investments themselves? Stupid idea of the month, in a month that has seen more than its share of stupid ideas.

Monday, October 20, 2008

Some Beat Down Stocks

Percentages reflect drops from their respective 52 week highs.

GM -88%
Sun (JAVA) -79%
CBS -66%
News Corp (NWS) -62%
Yahoo (YHOO) -62%
Starbucks (SBUX) -59%
GE -54%

Linens N Things

In chapter 7 liquidation.

Friday, October 17, 2008

Goodbye Letter

No, not mine.

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866% betting against the subprime collapse. Last month, he shut things down, claiming dealing with his bank counterparties had become too risky. Today, Lahde passed along his "goodbye" letter.

One paragraph in particular resonated with me and will resonate with anybody who over the last couple of years has - like me - asked WHO ARE THESE MORONS running Wall Street?

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades.

The hits just keep on coming

U.S. banks expected to use rescue money for all but loans
U.S. banks will probably use their money from the government to buy weaker competitors, avoid painful cost-cutting measures or simply as a cushion to help them through the downturn, experts said. Some of the money may eventually get into the economy through lending, but that is not likely before the end of the next quarter. Even with capital from the government, analysts said, the American banking industry still needs to raise about $275 billion to cope with anticipated losses.
[International Herald Tribune by way of the CFA Newsletter]

Wednesday, October 15, 2008

Fiscal Conservatism



http://firesaxby.com/

9th worst market drop since 1929

Dow down 733 points (7.87%), its 9th worst day in history (and 7th worst since 1929). I wish the stupid press would stop reporting the meaningless "fact" that it's the 2nd worst point drop in history.
Oct. 19, 1987-22.60
Oct. 28, 1929-12.80
Oct. 29, 1929-11.70
Nov. 6. 1929-9.90
Aug. 12, 1932-8.40
Oct. 26, 1987-8.00
Oct. 15, 2008-7.87
July 21, 1933-7.84
Oct. 18, 1937 -7.75
Oct. 9, 2008-7.33

The Dow is now at 8578, exactly where it was last Thursday. My TV had told me that the bulls were in charge. Stupid TV.

ETA: A lot of sources give the above list as worst drops ever, but that is incorrect. There were drops of 8.7% in 1899 and 8.3% in 1907 that are not represented above.

Tuesday, October 14, 2008

Markets Down

Of course, yesterday's rally in the US turned out to be short lived. This has been followed up by drops in Asia.

The Nikkei 225 Average fell 0.8% to 9372
The broader Topix index fell 1.5% to 942
Australia's S&P/ASX 200 fell 0.8% to 4300
New Zealand's NZX 50 index fell 1.2% to 2914
South Korea's Kospi fell 1.5% to 1347

How is this any different from what Chavez is doing?

According to the WSJ, some of the big banks were unhappy about the government taking equity stakes but acquiesced under pressure from Paulson in a meeting yesterday.

The Plan... (work in progress)

Here's how Paulson is investing your money ... with absolutely no accountability. I cannot believe that a non-elected official has this much power.

Citigroup
J.P. Morgan
B of A
Wells Fargo
$25 bn
$25bn
$25bn
$25bn

Goldman
MS
State Street
B of NY
$10bn
$10bn
$2bn
$3bn

Edited to add:
The numbers are downright scary; the numbers above didn't look too big at first, but here's how they stack up as a percentage of the outstanding common equity of those companies:
Citigroup = 25/86 = 29%
JP Morgan = 25/164 = 15%
BofA = 25/141 = 18%
WF = 25/111 = 23%
GS = 10/44 = 23%
MS = 10/35 = 29%
BNY = 2/35 = 6%
SSB = 3/21 = 14%

Edited a second time to add the percentages in terms of book shareholder equity (as of 9/30):
GS = 22% (WSJ)
JP Morgan = 19% (WSJ)
Citigroup = 18% (WSJ)
BofA = 25/186 = 13%
WF = 25/73 = 34%
MS = 10/46 = 22%
BNY = 2/32 = 6%
SSB = 3/16 = 19%

Iceland Down 77%

Iceland's benchmark stock index plunged 77% as trading resumed after a three-day suspension and the nationalization of the country's largest banks. Kaupthing, Glitnir and Landsbanki Islands collapsed this month with debts equivalent to as much as 12 times the size of Iceland's economy. The three banks accounted for about 76% of the ICEX 15 Index's value prior to the nationalization. The OMX Iceland 15 Index fell 2324 to 680 as of 2:07 pm local time. Four of the 13 other stocks in the index didn't trade. Trading was halted since October 9 after the gauge lost 30% in nine days as the country's financial system collapsed. Iceland started talks in Moscow today to secure an emergency loan of as much as 4 billion euros ($5.47 billion) from Russia.

Just goes to show that halting trading to prevent bad results just brings on ever worse results alter on.

Monday, October 13, 2008

Asia up again

Nikkei 13.0%
Topix 12.7%
Singapore 6.6%
Taiwan 5.5%
Seoul 5.3%
Sydney 5.1%
Hong Kong 4.1%

Sovereign Bank acquired by Spain's Santander

Sovereign Bancorp is being acquired by Spain's Banco Santander after losing almost $1 billion mostly from mortgage-related investments.

Morgan Stanley saved?

Investors are relieved that Morgan Stanley's investment from Mitsubishi Financial did not turn sour in the end, even if it means the Japanese bank managed to extract a slightly sweeter deal. Morgan Stanley shares surged 87% after it received a $9B investment from Mitsubishi UFJ Financial Group in exchange for a 21% stake in the firm. The deal, which came a day earlier than expected, was modified a little to provide more downside protection to Mitsubishi by switching to an investment of preferred shares only, instead of a mix of common and dividend-yielding shares.

I'm not sure this is a "sweet" deal for Mitsubishi. Sure it's better than originally negotiated, but at Friday's share price Mitsubishi could have bought more than half of Morgan Stanley.

Governments buying stock directly in banks

The administration will use perhaps as much as $250bn US of the $700bn US bailout program recently passed by Congress to purchase stock in U.S. banks, providing the banks with desperately needed capital, the official said.

The UK government unveiled an injection of £37bn ($63bn) into Britain's biggest high street banks.

German Chancellor Angela Merkel outlined a rescue package up to 80 billion euros ($109bn) to be used to recapitalize the German banking sector.

I'm amazed that anybody (other than socialists) thinks this is a good idea.

The Bulls Are In Charge?

That was the headline today after the Dow's 936 point increase. It is the fifth largest increase in history...

March 15, 1933: 8.26 points, or 15.34%, to 62.10
Oct. 6, 1931: 12.86, or 14.87%, to 99.34
Oct. 30, 1928: 28.40, or 12.34%, to 258.47
Sept. 21, 1932: 7.67, or 11.36%, to 75.16
Oct. 13, 2008: 936.42, or 11.08%, to 8,387.61
Oct. 21, 1987: 186.84, or 10.15%, to 2,027.85
August 3, 1932: 5.06, or 9.52%, to 57.22
Feb. 11, 1932: 6.80, or 9.47%, to 78.60
Nov. 14, 1929: 18.59, or 9.36%, to 217.28
Dec. 18, 1931: 6.90, or 9.35%, to 80.69

Notice that 6 of the top ten increases occurred in the 1929-1932 period during which the DJIA plummeted from 381 to 41 (89%!).

Here's a graph of that period, suggesting it is at least possible that the latest "bull" is nothing of the sort.



And lest anybody think stock markets always recover in a reasonable amount of time, here's a picture of the Japan stock market over the last 25 years, which has been in a definite secular bear market, the absurd bounce up to 40,000 in the late 1980s notwithstanding.

The Subprime Primer

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true

Europe and Asia up

Hang Seng up 10.2%
Shanghai up 3.7% at 2074 after dropping as low as 1931
Sensex up 7.4%
Sydney up 5.6%
South Korea's Kospi up 3.8%
Singapore's Straits Times up 6.7%

London 4,256.90 +324.84
Paris 3,531.50 +355.01
Frankfurt 5,062.45 +518.14
DJ Stoxx 225.37 +20.42

Saturday, October 11, 2008

Here's an idea...


Isn't it possible that the problem lies not with the plunge over the last few weeks (painful as it's been) as with the unreasonable increase over the last four years. Not unlike housing pricing, although obviously to a much lesser extent.

Stupidest Poll Ever

When will stock markets hit a bottom?
Within a few days 13%
Within a week 18%
Within a month 53%
They already have 16%
Total responses to this question: 97266

Friday, October 10, 2008

GM

No, not another story about how GM is trading at the same price it had back in 1950.

GM reportedly has held preliminary talks to acquire Chrysler, against the backdrop of an increasingly bleak decline for the auto industry. Reports on Friday night by The Wall Street Journal and the New York Times both cited unnamed people familiar with discussions between the two automakers. GM has been in talks with Cerberus Capital Management, which owns 80.1% of Chrysler and 51% of GMAC. Cerberus proposed a swap in which GM would acquire Chrysler's automotive operations, and in turn give Cerberus its remaining 49% stake in GMAC, the Journal reported.

Apparently the rumor from February 2007 wasn't wrong, just ahead of its time. But I don't understand the logic of this deal. Two weak players merging never solves anything.

Further Socializing

Paulson gave some new details of the emerging plans by the U.S. federal government to inject capital directly into a "broad array" of financial firms. He said that officials are working on a "standardized program that is open to a broad array of financial institutions" and the Treasury is working as quickly as possible to nail down the details and get the recapitalization plan running. The government wants to "do it right. The plan is to attract private capital to complement the government's funds, he said. Paulson went out of his way to say existing shareholders would be protected, and that the government would only make the purchases through a "broadly available equity program" without any voting power, "except with the market standard terms to protect our rights as investors."

Another Wild Ride

After trading in a 1000-point range that had it down nearly 700 points after the opening bell, the Dow Jones Industrial Average closed down 128 points (1.5%) at 8451, down nearly 1900 points (18.2%) for the week. That's eight consecutive losing sessions (down 2400 points), and seven consecutive triple-digit losses. The broader S&P 500 declined 10.6 points (1.2%) to finish at 899.3, giving it a weekly loss of 18.2%.

But you know who is doing WAY worse than the overall market? Blackstone. They closed today at $8 a share, down an amazing 74% from their offering price of $31 just over one year ago.

Wells Fargo emerges victorious

Citi walked away from its fight to buy Wachovia, clearing the way for Wells Fargo to acquire Wachovia, transforming Wells Fargo from a regional player focused on the West Coast to a national retail-banking powerhouse. Citi said it will no longer seek injunctive relief to block Wells Fargo but will pursue a $60 billion claim against Wells Fargo and Wachovia for breaching an agreement that gave it the exclusive right to negotiate with Wachovia. With Citi bowing out, Wells Fargo looks set to acquire Wachovia in a $11.7 billion all-share deal.

I like this deal; not only is it better for Wells Fargo and better for Wachovia shareholders and better for the taxpayer because of the lack of a FDIC backstop, I think it's also good for consumers to keep Wachovia banking operations integrated with the brokerage business.

About the only group this is not good for is Citi shareholders.

More on Iceland

Iceland seized the nation's last major independent bank, shutting down currency trading and effectively rendering the krona worthless on world markets, as the collapse of Iceland's financial system accelerated. Prime Minister Geir Haarde, who warned this week of "national bankruptcy," said Iceland's finance minister, Arni Mathiesen, will be in Washington this weekend for International Monetary Fund / World Bank meetings, but he would not say whether an IMF bailout is in the works.

Dow down 700 this morning

Although it has recovered somewhat and is "only" down 269 points right now.

Is Morgan Stanley going to make it?

Financial stocks have generally risen modestly today. The sole exception seems to be Morgan Stanley. Shares traded as low as $8.70 this morning, but recovered somewhat and are down about 25% at last check. Shares fell 26% yesterday. The stock hasn't been under $9 since April 26, 1995.

Updated at 11:58:
MS is trading at $7.48, down 4.97 (-40%). It's possible that Goldman Sachs will be the last man standing. GS never loses, especially with their man Paulson calling the shots.

Decoupling? What decoupling?

The hell is everywhere...

Europe:
The pan-European Dow Jones Stoxx index fell 7.5% to 205
French CAC index fell 6.8% to 3208
German DAX index fell 7% to 4544
UK FTSE index fell 8.5% to 3948

Asia:
Nikkei fell 9.6% to 8276, its lowest close since May 2003
Japan's broader Topix index fell 7.1% to 841
Hang Seng Index fell 7.2% to 14,797
China's Shanghai Composite fell 3.6% to 2001
Australia's S&P/ASX fell 8.3% to 3961
New Zealand's NZX index fell 4.7% to 2805
South Korea's Kospi fell 4.1% to 1241
Thailand's SET Index fell 8.7% to 457
India's Sensex fell 5% to 10,766

Thursday, October 09, 2008

Yahoo at $13

That Microsoft offer doesn't look so bad now, does it? They were idiots for not ripping that $31 a share out of Ballmer's hands before he came to his senses.

Who are these morons?

And why do they have jobs?

Ladenburg Thalmann analyst Richard Bove cut his price target for Morgan Stanley shares to $19 from $44. But, wait a second - Morgan Stanley is trading at $12.

1) Is Bove saying he expects MS to climb from $12 to $19 (over 50%)? Doubtful!
2) How low did the stock have to drop before he cut his ridiculous $44 target?

Why does any company have these bozos on staff? Do they think ANYbody listens to them? What is the point?

Nikkei 225 Plunges

On 1/1/1984, the Nikkei 225 stood at 9927. Today -- almost 25 years later -- it stands at 8262. So before accounting for dividends, the Nikkei has lost almost 1% a year for 25 years. That is the fate that awaits the US, thanks to our misguided credit policies of the last couple of decades.

Dow Down 679 points

Dow down 679 points (7.33%), its 9th worst day in history.
Oct. 19, 1987-22.60
Oct. 28, 1929-12.80
Oct. 29, 1929-11.70
Nov. 6. 1929-9.90
Aug. 12, 1932-8.40
Oct. 26, 1987-8.00
July 21, 1933-7.84
Oct. 18, 1937-7.75
Oct. 9, 2008
-7.33
Oct. 5, 1932-7.15


The Dow is now at 8579, down 2272 points in just the last seven sessions. It is down 5700 points (40%) from its high, just 1 year ago.

Anniversary

Today is the five-year anniversary of the low point of the 2000-2002 bear market on 10/9/2002.

Coincidentally, it is also the one-year anniversary of the high point of the 2002-7 bear market on 10/9/2007.

C'est la vie!

One Year Anniversary of Peak


The Socializing of the Economy Continues

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks' balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones. [Source: International Herald Tribune]

1) An interesting (and self-serving) interpretation of the Act. Nobody in Congress envisioned buying direct stakes in banks. The bill was supposed to be about buying securities from their portfolios.

2) When in history has socializing an economy ever made anything better?

Wednesday, October 08, 2008

Government

Corruption

Another $38B for AIG

Pretty soon, we'll be talking real money here. Evoking its emergency powers to combat financial market stress, the Federal Reserve said it was lending $37.8 billion in additional cash to troubled AIG.

Hey look! It's a roller coaster!


Dow has sixth losing session in a row, down 190 points to 9258.

Emergency Rate Cut

Fed lowers fed funds rate and dicount rate 0.5% each in an emergency meeting. This was coordinated with rate cuts by the UK, Sweden, China and the European Central Bank.

Tuesday, October 07, 2008

Really bad PR

The committee on Oversight and Government Reform held a hearing on Tuesday to address and examine downfall of AIG, the world’s largest insurance company. The committee planned to discuss the financial excesses and regulatory mistakes that led to AIG’s government bailout. One of the items discussed was AIG’s expenditure of $440,000 for a corporate retreat at the St. Regis Monarch Beach resort in LA. These funds were spent on Sept. 22, a week after the Federal Reserve extended an $85 billion emergency loan to AIG to keep it from going bankrupt due to insurance liabilities. According to the receipt from the St. Regis, the eight-day company retreat was a lavish one -- $139,000 was spent on hotel rooms, while even more money -- $147,301 -- was spent on banquets. Another $23,380 was spent on undisclosed spa treatments and another $6,939 was spent on golf. A full $9,980 was spent on room service and food and cocktails at the hotel lounge.

This is exactly why government bailouts are unethical thefts of my tax money. It's bad enough when they do it with their own shareholder's money, but with taxpayers funds at risk?

Response from Representative Gingrey

Thank you for contacting me regarding your opposition to H.R. 1424, the Emergency Economic Stabilization Act of 2008. As your Congressman, I appreciate hearing your thoughts and welcome every opportunity to be of service.

As you may be aware, Congress first began consideration of the proposal offered by Treasury Secretary Hank Paulson the week of September 22. The House of Representatives defeated a modified version of the proposal on September 29 by a vote of 228 to 205, while the Senate passed its version of the proposal on October 1 by a vote of 74 to 25. On Friday, October 3, the House of Representatives agreed to the Senate version of the bill by a vote of 263 to 171, and the President signed it into law shortly thereafter.

While I do believe that we need to ensure the economic security of our nation and its people, I voted against both the initial House version and the later Senate version which ultimately was enacted. I do not believe they were the right approaches to address this crisis, and I could not support a bill that aimed to save our free-market economy by sacrificing the very free-market principles that sustain it.

Without question, our country is facing very difficult economic challenges. Though inaction was not an option, I firmly believe that in this instance, Congress had an obligation to not only act quickly, but also correctly. I believed that Congress could have created a premium-based insurance program for mortgage-backed securities where the businesses participating-and not the taxpayer-would pay the premiums. I also support suspending the capital gains tax for two years to spur economic growth and investment here in America.

Additionally, I was very troubled that this legislation did more to treat the symptoms rather than cure the underlying disease that caused this economic crisis. While there is a lot of blame to go around, there is no question that Freddie Mac and Fannie Mae are in desperate need of reform and should be transitioned back into private sector organizations. Congress must address the root problem of this crisis to ensure that it never happens again; the legislation twice presented to the House failed to do this.

Dow down another 500 points

Dow at 9447, down almost 1400 points and an incredible 12.8% in 4 sessions.
1-Oct-08 10,831.07
2-Oct-08 10,482.85 (-3.2%)
3-Oct-08 10,325.38 (-1.5%)
6-Oct-08 9,955.50 (-3.6%)
7-Oct-08 9,447.11 (-5.1%)

S&P500 below 1000 for first time in five years; Nasdaq at five year low too.

Trying to outdo the Carter era

These guys are trying their damnest to give us runaway inflation at the same time we have a deep recession. Bless their hearts.

The Federal Reserve announced it is going to buy commercial paper in an effort to restart a market that has virtually shut down in recent weeks. In another unprecedented move to combat the credit crunch, the Fed said it would set up a special purpose vehicle to purchase three-month unsecured and asset-backed commercial paper. Lending in the commercial paper market has shrunk in recent weeks given the turmoil in financial markets. The Fed said that the Bush Administration believed the move was necessary and will make a special deposit with the central bank to support the facility. The Fed did not give an estimate of how much commercial paper it would purchase.

Iceland

Icelandic government acts to avert economic collapse. The Icelandic parliament approved legislation that gives the government broad authority over the country's banks, including the ability to force them to merge or sell off subsidiaries as well as the ability to seize assets. The government is expected to fully nationalize Landsbanki and Glitnir soon, while a third bank, Kaupthing, was forced to accept state loans. Iceland's currency, the krona, lost 30% of its value against the US dollar in the past 30 days and 80% against the euro over the last year. Inflation has exploded to 14%. Interest rates are at 15%+.

MarketWatch has this to say...

It's hard to imagine a less politically popular move, but the way things are headed the first recipient of the $700 billion bailout money that Treasury Secretary Hank Paulson has to spend could very well be Iceland, which is in a financial meltdown.

Best Places to Launch a Career

1 Ernst & Young 3300 hires, $50-$55K
2 Deloitte & Touche 2000 hires, $55-$60K
3 PricewaterhouseCoopers 3600 hires, $50-$55K
4 Goldman Sachs 900 hires, $60-$65K
5 KPMG 3200 hires, $50-$55K

Monday, October 06, 2008

Stupid is as stupid writes

Oh, the sweet irony of these two items appearing side by side in the AJC today...

Now that the crisis is easing, who is to blame for the great gasoline shortage of 2008? Well, let’s think about that from the economic perspective of basic supply and demand. Gov. Perdue signed an executive order on Sept. 12 enacting Georgia’s gas-gouging statute. What happened then?

There was not as much gasoline to go around as before the hurricane, but there was still plenty of gasoline. There was no shortage in Oregon, in Wisconsin, in Ohio. Let’s say that you owned a company that delivered gasoline. Say you owned 5,000 trucks. Now let’s say that you could have gotten $6, $7 or $8 per gallon in Atlanta, but only $4 or $5 in Oregon, Wisconsin or Ohio. In other words, you could have made big profits in Atlanta. Don’t you think you might have diverted some of your trucks to Atlanta? But what if you could have gotten only $4 per gallon in Atlanta, about the same as in Oregon, Wisconsin or Ohio? Was it worth it to divert some of your trucks from their regular routes? Of course not! No big profits meant no gasoline trucks driving to Atlanta. Is this all becoming clearer? Perdue and his consumer affairs office decided to play God with the price of gasoline so Atlanta didn’t receive needed gasoline supplies. That’s the supply side.

Now let’s think about the demand side. There was not enough gasoline around town to match the amount the buyers would like to buy at $4 a gallon, but there was enough to match the amount people would buy at $6, $7 or $8 dollars a gallon. People were exactly right to line up and top off their tanks. There was not enough gasoline to go around because the price was stuck at $4 a gallon! At $4 a gallon, I was still taking my usual Sunday drive to the mountains and all of you were still taking your football trips or whatever you do, if you could find gasoline. But some of you could not get to work. At $8 a gallon, however, I would not take my Sunday drive and others would cut back, too. The gasoline that we did not use would have been there for the rest of you to get to work. There would have been no need to top off our tanks because there would have been no shortage. Would it have been terrible to pay $8 for a gallon of gasoline in the short term? Well, two weeks ago, if I were to have offered you $8 to sit in a car line for two hours you probably would have told me your time was worth more than that. So you decide: would you rather let the price go up to its natural level and not have to spend five or six hours per week searching and waiting for gasoline, or do you like the Perdue way of controlling how gasoline is distributed in Atlanta?

And right next to it this letter to the editor...

In a letter “Prices too low to limit demand,” a reader opines the reason we have a gas shortage in Atlanta is because our gas is too cheap. At first I thought, “that’s crazy, we are paying 40 to 50 cents more per gallon than anyone else in the U.S.” But then I thought, how brilliant the reader must be.

Using this same line of thinking, we can end homelessness and world hunger simply by raising the prices on food and homes! If we make bread $10 per loaf, surely more people will have access to it —- and if homes were to rise in price, say to California levels, our streets in downtown Atlanta would be empty!

Back to reality: The shortage was caused because a panic was created by a combination of no information by our leaders and no preconceived plan to deal with such a situation. People will continue to hoard until they see gas stations without plastic bags over their pumps as a daily occurrence.

Now, I'm all for diversity of opinion in the letters page. But when a letter's premise is so absurd that reading it makes my brain hurt, I have to wonder who is the editor who let this letter see the light of day?

Nikkei below 10,000

The Nikkei 225 Average dropped below the 10,000-point level for the first time since December 2003, dropping as low as 9,916 during the session. It currently is trading at 10,148 (-324.63).

35-year old to head TARP

Paulson announced Neel Kashkari, a close advisor, has been tapped to lead the $700 billion mortgage rescue effort. A former banker at Goldman Sachs, Kashkari has been assistant secretary for international economics. He came to Treasury along with Paulson in July 2006. Kashkari's new title is interim assistant secretary for financial stability. Kashkari, 35, holds two master's degrees. The first is an MS in engineering and the second was an MBA in finance.

You have to be kidding me! Leaving aside for now the continuing invasion of our economy by Paulson's Goldman Sachs associates, they are putting a 35 year old in charge of $700B!!?? I have more experience in finance than this guy!

Dow down 795 points

What happened? I thought this effin' bill was supposed to solve everything. My senator specifically told me that the stock market dropped 778 points because we didn't pass this turkey of a bill. Well, the market has now dropped 1200+ since its high mid-Friday when the House took up its second vote on the bill.

Every senator and representative who voted for this appalling communist takeover of a huge sector of our economy should resign now. Of course they won't. I can hear it already ... "it would have been much worse if we hadn't passed the bill." It must be nice to live in la-la land where you can make non-provable statements unchallenged and there are no consequences for your actions.

Since they won't resign, I hope the voters take advantage of their opportunity in just a few weeks to at least assign blame where it belongs. Regardless of your party, I urge you to vote anti-incumbent. Maybe the next batch of bozos we vote in will be more careful.

Bank of America Settlement

Bank of America and 11 US states reached an $8.4 billion accord under which BofA will modify troubled mortgages and enable nearly 400,000 Countrywide clients to keep their homes. The program is designed to resolve claims that several state attorneys general had filed against Countrywide. The program's goal, BofA said in a statement, is to enable borrowers who financed their homes with subprime loans or pay-option adjustable-rate mortgages to hang on to those homes. For BofA, "the cost of restructuring these loans is within the range of losses we estimated when we acquired Countrywide," CFO Joe Price said in a statement. The plan will reduce interest and principal on the mortgages by $8.4 billion. The program applies to mortgages serviced by Countrywide and originated before Dec. 31, 2007. The target borrowers are those who occupy their homes as their principal residences and "who are seriously delinquent or are likely to become seriously delinquent as a result of loan features, such as rate resets or payment recasts," BofA said. How will BofA ensure that the mortgage workouts will keep people in their homes? One method is to ensure that first-year payments of principal, interest, taxes and insurance will equal 34% of the borrower's income. The modified loans' interest rates will adjust with "minimal risk of payment shock and redefault," BofA said.

Bank of America's settlement is another solution that leaves some people feeling like injured parties, namely borrowers making good on their debt. BofA said it would modify $8.4 billion in subprime, adjustable rate or pay-option mortgages originated by Countrywide to let borrowers stay in their homes. The deal is obviously a win for buyers facing foreclosure. It's also a manageable loss for BofA which built the cost of this deal into its purchase price of Countrywide earlier this year. But this plan, despite its virtues, carries the same flaws as the Troubled Asset Relief Plan just enacted by Congress and really any sweeping plan designed to limit mortgage losses. It leaves responsible people holding the bag. While responsible homeowners who have cut the family budget and made good on payments despite the declining value of their homes, troubled borrowers will be able to refinance through the FHA, get lower interest rates or get a reduction in principal for pay-option mortgages.

ETA (4:14pm)

Bank Of America to sell $10 bln in common stock - MarketWatch

Market can't possibly have a good reaction to that, can it? They are essentially issuing new equity to settle a lawsuit?

ETA (10/27)

Some details of how specific mortgages may be reset:

Interest rates may be reset as low as 2.5%

Prepayment penalties and late fees will be waived

Upside-down borrowers may have principal reduced

Things bad in Europe

Hypo Real Estate got a second rescue package valued at €50 billion from the German government. A first rescue package failed, prompting Chancellor Angela Merkel to vow not to let the property lender fail. Hypo has a €400 billion balance sheet.

The pan-European Stoxx 600 index closed down 7.6% at 242.

The German DAX 30 index closed down 7.1% to 5387, the French CAC-40 index dropped 9% to 3712, the UK FTSE 100 index closed down 7.9% to 4589, and the Russian RTS index slumped 19.1% to 866 before trading was suspended.

Sunday, October 05, 2008

Nine Fortune 200 Companies

Have imploded in this financial crisis. Global 500 rankings indicated in parenthesis.

#13 (# 35) AIG $110B
#31 (#100) Merrill Lynch $64B
#38 (#113) Lehman Brothers $59B
#39 (#120) Wachovia $56B
#55 (#161) Fannie Mae $43B
#56 (#162) Freddie Mac $43B
#100 (#318) Washington Mutual $26B
#108 (#352) Countrywide Financial $23B
#156 (N/A) Bear Stearns $16B

This is going to get interesting

A New York judge issued an emergency injunction that extended Citi's exclusivity agreement with Wachovia over Wachovia's objection. The markets don't need this kind of confusion right now. Just get 'er done - Citi or Wells Fargo doesn't much matter at this point.

Follow-up (10/6):
Wells Fargo appeared to have the upper hand in its battle with Citigroup for the chance to take over Wachovia thanks to two court rulings in its favor. A New York appellate court overturned an earlier decision to block Wells Fargo's acquisition of Wachovia. In a separate ruling a North Carolina court issued a temporary restraining order preventing Citi from enforcing the claimed exclusivity agreement.

Friday, October 03, 2008

Baby Boomers

The early Baby Boomer generation (1946-1955) has taken it all.
  • Their parents had meager (or no) employer provided retirement benefits; Boomers had generous defined benefit pensions PLUS retiree medical benefits; their kids will have 401(k)s with pathetic returns as the effects of the "age wave" kick in.
  • Their parents had the Great Depression; Boomers had the greatest economic expansion in history; their kids will have a decades-long recession like Japan's "lost decade" only longer.
  • Their parents had ditch digging jobs under Roosevelt's jobs program; the Boomers had great jobs; their kids will have the jobs that are not outsourced to India
  • Their parents' government ran a balanced budget; the Boomers' government ran a deficit almost every year of their adult lives; their kids will be saddled with tens of trillions of dollars of debt

However the Boomers need to remember that the next generation needs to keep paying taxes for Social Security and Medicare to maintain them in the style to which they have become accustomed. However, these programs (particulary Medicare) will be bankrupt before that next generation can use them, so Boomers should tread lightly. In the next 10 years, this country is going to have generational warfare that will make the "class warfare" that our politicans often mention seem like high tea at the Ritz.

Dow dropped 436 points


I thought this bill was supposed to be great for the stock market. When the vote started in the House the DJIA stood at +279. It closed the day at -157. What happened?

171 Representatives who make me proud

Aderholt
Akin
Altmire
Bachmann
Barrow
Bartlett (MD)
Barton (TX)
Becerra
Bilbray
Bilirakis
Bishop (UT)
Blackburn
Blumenauer
Boyda (KS)
Broun (GA)
Brown-Waite, Ginny
Burgess
Burton (IN)
Butterfield
Buyer
Capito
Carney
Carter
Castor
Cazayoux
Chabot
Chandler
Childers
Clay
Conyers
Costello
Courtney
Culberson
Davis (KY)
Davis, David
Davis, Lincoln
Deal (GA)
DeFazio
Delahunt
Diaz-Balart, L.
Diaz-Balart, M.
Doggett
Doolittle
Drake
Duncan
English (PA)
Feeney
Filner
Flake
Forbes
Fortenberry
Foxx
Franks (AZ)
Gallegly
Garrett (NJ)
Gillibrand
Gingrey
Gohmert
Goode
Goodlatte
Graves
Green, Gene
Grijalva
Hall (TX)
Hastings (WA)
Hayes
Heller
Hensarling
Herseth Sandlin
Hill
Hinchey
Hodes
Holden
Hulshof
Hunter
Inslee
Issa
Jefferson
Johnson (GA)
Johnson (IL)
Johnson, Sam
Jones (NC)
Jordan
Kagen
Kaptur
Keller
King (IA)
Kingston
Kucinich
Lamborn
Lampson
Latham
LaTourette
Latta
Linder
Lipinski
LoBiondo
Lucas
Lynch
Mack
Manzullo
Marchant
Matheson
McCarthy (CA)
McCaul (TX)
McCotter
McDermott
McHenry
McIntyre
McMorris Rodgers
Mica
Michaud
Miller (FL)
Miller (MI)
Moran (KS)
Murphy, Tim
Musgrave
Napolitano
Neugebauer
Nunes
Paul
Payne
Pearce
Pence
Peterson (MN)
Petri
Pitts
Platts
Poe
Price (GA)
Rehberg
Reichert
Renzi
Rodriguez
Rogers (MI)
Rohrabacher
Roskam
Rothman
Roybal-Allard
Royce
Salazar
Sali
Sánchez, Linda
Sánchez, Loretta
Scalise
Scott (VA)
Sensenbrenner
Serrano
Shea-Porter
Sherman
Shimkus
Shuler
Smith (NE)
Smith (NJ)
Stark
Stearns
Stupak
Taylor
Thompson (MS)
Tiahrt
Turner
Udall (CO)
Udall (NM)
Visclosky
Walberg
Walz (MN)
Westmoreland
Whitfield (KY)
Wittman (VA)
Young (AK)
Young (FL)

It's a done deal...

The $700B bailout made it through the House by a wider margin than expected, 263-171. The really sad part is that the government is going to lose their shirt on these purchases sticking us with the tax bill PLUS it isn't goint to do anything and we're going to slide into a deep recession anyway. Leave it to the government to get it wrong.

Each one of us just invested thousands in a huge money-losing mutual fund. The only consolation is that MAYBE (although I doubt it) this bill will help out the economy enough that our net worth will drop less than it otherwise would have, enough to offset the expense of this bill. Of course, how on Earth would one measure such a thing. No accountability.

At least I'm happy to report that my representative Phil Gingrey voted against this steaming pile of cow dung. He has my full support - vote, volunteer time and campaign contribution.

Lining up...

Once the federal spigot is open, everybody is going to line up to get theirs...

California may need a $7 billion emergency loan from the federal government to pay for "teachers' salaries, nursing homes, law enforcement and every other state-funded service" this month, Gov. Arnold Schwarzenegger warns. California is running short on cash, he warns in a letter sent to Treasury Secretary Henry Paulson. State Treasurer Bill Lockyer issued a statement a day earlier saying because of the national financial crisis, California "has been locked out of credit markets for the past 10 days." "Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the federal Treasury for short-term financing," Schwarzenegger wrote. The governor warned that a number of states are facing the same cash flow crunch this month, but that his state is "so large that our short-term cash flow needs exceed the entire budget of some states." Schwarzenegger said his state would attempt to sell "$7 billion in Revenue Anticipation Notes for short-term cash flow purposes in a matter of days." Lockyer said that unless the national economic crisis subsides and California can secure private short-term loans "the state's cash reserves would be exhausted near the end of October. Payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service would stop or be significantly delayed," Lockyer said. "And California's 5,000 cities, counties, school districts and special districts would face the same fate."

Crooks - all of them

Critics of Paulson's effort to put together a financial bailout worry that the he is getting too much of his advice from aides who were his colleagues at Goldman Sachs, where he was the CEO before joining the Bush administration in 2006. Paulson has recruited three former Goldman execs—Ken Wilson, Ed Forst and Dan Jester—in recent weeks to help him create and execute a bailout plan. A fourth, retiree Steven Shafran, is one of Paulson's "senior advisers." Treasury spokeswoman Michele Davis said Wilson and Jester joined Treasury as advisers in August; Forst, who left Goldman this summer to become a senior administrator at Harvard, joined Paulson's crisis squad in September. "This is a time when the American people need all the experts at Treasury that they can get," Davis said, adding that the ex-Goldmen are getting paid "de minimis" as "contractors." A senior commercial banker, who asked for anonymity discussing bailout politics, said that the relationship between the investment business, which will be a major beneficiary of any bailout, and the Treasury team is "very incestuous." A GOP congressional adviser, who also asked for anonymity, said Paulson's Goldman-heavy kitchen cabinet "narrow[s] their window of input."

Nobody mentioned conflicts of interest, so I will. This is a crock of shit and it stinks.

Crooks - all of them

The Center for Responsive Politics, a Washington nonprofit group that studies money and politics, reports that on average, lawmakers who voted in favor of the bailout bill have received 51% more in campaign contributions from sources in the finance, insurance and real estate industries (FIRE, for short) — over their congressional careers than those who opposed the emergency legislation.

In this election cycle, the 140 House Democrats who voted for the bailout bill collected 78% more from the FIRE industries than the Democrats who opposed it. Over their careers, they collected 88% more, the data show.

On the Republican side, the gap was smaller. Republicans in the House that voted yes on the bailout bill got an average of 23% more in contributions from the FIRE industries in this election cycle than House Republicans who voted against it. In the long run, they got 53% more.

Of the 37 Democrats that sit on the House Financial Services Committee, 25 voted for the bill, including the committee chairman, Barney Frank of Massachusetts. He received nearly $800,000 this election cycle from sources in the FIRE industries. Of the 33 Republicans on the committee, 8 voted for the bill. The ranking Republican member of the committee, Spencer Bachus from Alabama, was among those who voted in favor. He has received $822,000 from the FIRE industries this election cycle and $3.7 million since 1989.

Response from Senator Chambliss

Thank you for contacting me regarding the turmoil in our financial markets and the actions taken by the United States Treasury as they pertain to several leading financial institutions. It is good to hear from you.

This is the most serious and critical domestic issue I have dealt with in my 14 years in Congress. We have been betrayed by many people and by abuse of the system. Now we have two significant choices to make - do nothing or take action.

I strongly believe that doing nothing will destroy the financial security of millions of Americans and possibly lead us into a depression. [BOOGA BOOGA]
I just as strongly believe the bill as now negotiated will arrest the crisis and begin to turn our economy around.

The bill that I voted for is not a bailout. H.R. 1424, "The Emergency Economic Stabilization Act," is crafted to address the crisis; restore security for the American taxpayer; and return our nation to the strongest economic power in the world. And in the process this bill enables us to root out and punish those who cheated us all.

Call it anything you want; the bill you voted for IS a bailout. I am so sick of this "politics of meaning" bullshit.

I know that my vote in favor of this package was not the politically popular thing to do, but this is not a popularity contest. This is about the future of our country and the future that my children and grandchildren will inherit. I have absolutely no doubt in my mind or my heart that my vote in support of this measure was the right thing for our economy, for Georgians, and for our country.

My first reaction was one of anger and frustration. How could this happen in the strongest economy in the world? How could the best financial system in the world fail? After calming down, I realized the seriousness of the situation and the consequences of Congress failing to act.

The Treasury Department submitted a proposal to Congress requesting authority to purchase troubled assets from financial institutions. This program was intended to address the root cause of the market stresses by removing these assets from the financial system.

I did not support the original proposal submitted by the Administration because it did not address the critical needs of the American taxpayer, community banks, retirees, and small businesses and it concentrated too much power in a small group to administer the plan.

As the conversations in Washington and across the nation continued over how to address the challenge before us and as the details of the problems in our financial sector were revealed daily, I became convinced that something had to be done and done soon.

Moreover, when the House rejected the plan, the economy suffered a $1.2 trillion dollar blow in the stock market, which only made more apparent the impact this credit crunch is having on Main Street . Specifically, in some cases, Georgia community banks are unable to make auto loans.

Who cares? That's what the market does, especially recently. It gyrates for no apparent reason, disconnected from economic fundamentals. It has since recovered most of that loss.

Below are details of the legislation:

TAXPAYERS ARE PROTECTED. In its current form, the legislation before the Senate protects taxpayers in many ways. Accountability, safeguards, and oversight measures are numerous. There will be transparency, public reports, and triggers to end the program if, for some reason, it is not effective or end the program early if it is more successful. Moreover, I worked to negotiate a mechanism to stop all transfers of taxpayer funds if necessary. That said , I believe this legislation will be effective.

ALL of this is meaningless if Treasury overpays for these securities, which is almost a mathematical certainty. Everything about this bill makes it almost IMPOSSIBLE for Treasury to pay a fair market price.

NOT A BLANK CHECK. I opposed the President's initial request to simply give a blank check to Secretary Paulson. I also opposed the second version submitted by the President and Congressional Democrats that would have given taxpayer money to liberal groups such as ACORN. Let me be clear - this current bill, the bill in the Senate, is not a blank check for anyone. First, it allows the release of $250 billion to purchase these toxic loans. Then, Congress can release another $100 billion but only with Presidential involvement and certification that it is necessary. And only if absolutely necessary and again with Presidential certification and Congressional approval, the remaining $350 billion could be released. However, I do not believe the entire $700 billion authorized will be necessary or used.

[It absolutely IS a blank check, just a smaller blank check than in the original proposal.]

NO GOLDEN PARACHUTES. CEOs and other executive officers who drove their companies into the ground will not be able to walk away with millions leaving taxpayers holding the bill. Those companies that choose to participate in the program will be subject to strict compensation limits.

NO NEW GOVERNMENT SPENDING. The language is clear - all revenue generated through the repayment of any assets purchased and any sold must be used to pay down the national debt. No money will go to pork projects, new government spending, or liberal groups such as ACORN.

HELP FOR MAIN STREET . As this crisis continues, community banks are being affected more and more. Car loans and home loans, even to those with good credit, are drying up. People are losing their retirement savings. Small businesses are now having difficulty getting loans to make payroll or grow their business to create new jobs. If we allow this to continue, jobs will be lost, more retirement accounts will be impacted, and credit will get even tighter.

PUNISH CRIMINALS. The Federal Government is actively investigating cases of fraud and abuse. Where wrongdoing is found, the perpetrators, including, if implicated, members of Congress will be brought to justice. We have already seen subpoenas issued for records at Fannie Mae and Freddie Mac. This bill demands cooperation with the Federal Bureau of Investigation (FBI) and I expect we will see more subpoenas and criminal prosecution.

ADDRESS THE UNDERLYING CAUSE WHILE WE TREAT THE SYMPTOMS. We are seeing the symptoms now - lack of trust in the banking industry, daily tightening of the credit markets, losses in personal retirement accounts - and while this legislation addresses those issues, it also goes further to treat the cancer that got us here. This legislation authorizes the Securities and Exchange Commission (SEC) to modify the 'mark to market' accounting procedures that magnified this crisis by forcing banks to mark down the value of assets they had no intention of selling in the near future. This mark down of value caused a corresponding loss of value to the institutions. The SEC has already begun the process to modify this procedure.

RETURN TRUST IN THE BANKS. By increasing the FDIC protection on bank accounts from the current $100,000 to $250,000, taxpayers and bank customers can once again trust that their money is safe in the bank of their choice.

DEBT REPAYMENT. Toxic loans will be purchased at a discount and 100% of the monies repaid to the government will go to reduce the debt we incur in this process. While we shouldn't expect full repayment, it is possible that all of the money expended will be repaid.

PROTECT OUR NATIONAL SECURITY. If we do not act and this crisis spreads like a cancer to every segment of our economy, it will destroy not only taxpayer savings but it will erode our ability to fund our military, supply our troops with the resources they need, and protect our homeland.

NO TIME FOR POLITICAL FINGER POINTING. There is plenty of blame to go around but now is not the time to throw stones, now is the time to address this crisis and get our economy moving again.

FOR THE COUNTRY; NOT POLITICAL POPULARITY. This is not a popularity contest, this is a crisis. And since this crisis began, I have had numerous conversations with economists, community bankers, small business owners, and taxpayers. I have weighed the costs of inaction versus the costs of unpopular action. I support this bill because it is good for the country, it is the right thing to do today for taxpayers and tomorrow for my children and grandchildren, and it is necessary to get our economy moving again.

Strong capital markets are vital to a prosperous U.S. economy and given the renewed focus of our regulators and market participants, I remain confident in our financial markets and our overall economy.

However, history warns us against inaction by hard lessons learned. Delaying to act would be a repeat of the mistakes of the 1920s, when thousands of banks failed before significant confidence was restored to our financial markets.
[BOOGA BOOGA]

Meaningless double-speak. I expected better.

Blindfold? Cigarette?

I'm starting to think pink slips are too good for Paulson and Bernanke. Read this; these guys make a lot of sense...

The $700 billion rescue that the House considers today reflects the unintended consequences of decisions made by Paulson and Bernanke since March. Beginning with the orchestrated purchase of Bear Stearns by JPMorgan Chase, each step was a bold effort to forestall a collapse of the financial system. The economy grew in the first two quarters of this year, and financial distress eased for a while after the Bear Stearns rescue. Still, each decision to bail out or not created more instability, leading to further runs on securities firms, banks and insurers. "Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations and now a managing director at Portales Partners LLC in New York. "This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.'' Paulson and Bernanke insist that the program to buy troubled mortgages and other securities is needed to revive lending and restore stability to markets. What they haven't discussed is the risk that they inadvertently make matters worse. By creating a government pool of distressed real-estate and bad debt, they could depress the housing market further. Risk may become even more concentrated through a wave of bank mergers that, if unsuccessful, would stick taxpayers with an even higher bill.

WTF?

Wells Fargo and Wachovia agreed to a $15 billion merger that highlights the buyer's strong balance sheet and aspirations to expand its presence in the eastern US. The bold move casts doubt on the status of a transaction between Wachovia and Citigroup involving the former's banking and mortgage businesses announced last Monday. Citi, however, issued a strongly worded statement contesting the new deal. The Wachovia-Citi deal, engineered with the help of the FDIC, carries a price tag of $2.1 billion. Wells Fargo would pay 0.1991 of a share of common stock in exchange for each common share of Wachovia, a ratio that values Wachovia at $7 a share based on Wells Fargo's Thursday closing price. "This deal enables us to keep Wachovia intact and preserve the value of an integrated company, without government support," said Wachovia CEO Robert Steel in a press release.

Wells Fargo expects to face about $74 billion in losses and write-downs when it acquires Wachovia and its troubled portfolios loans of loans. Wells Fargo's top executives made the comments during a conference call with investors, and said the deal will close in this year's fourth quarter. Wells Fargo CFO Howard Atkins said his company doesn't know yet how many of those losses and write-downs it will take up front when the deal closes, and how many it will tack on to earnings reports over the coming quarters. Atkins said the combined Tier 1 capital ratio of the combined companies will be about 7.5% - or lower than Wells Fargo's current Tier 1 ration of 8.2%.

Citigroup said that a proposed bid for Wachovia by Wells Fargo violates an exclusivity agreement that Citi had with Wachovia. "Wells Fargo's conduct constitutes tortious interference with the Exclusivity Agreement," Citi said in a statement. Citigroup demanded that Wachovia and Wells Fargo abandon a $15 billion stock swap deal that was announced earlier in the day. Citi said it "has substantial legal rights regarding Wachovia and this transaction."

Wachovia is a carcass; Wells Fargo and Citi are just picking it over. Of course the Wells Fargo deal is much better for WB stockholders and better for shareholders. But mark my words: If this deal does not go through for Citi, Citi is a walking dead man.

Wednesday, October 01, 2008

25 Senators who make me proud

Allard (R-CO)
Barrasso (R-WY)
Brownback (R-KS)
Bunning (R-KY)
Cantwell (D-WA)
Cochran (R-MS)
Crapo (R-ID)
DeMint (R-SC)
Dole (R-NC)
Dorgan (D-ND)
Enzi (R-WY)
Feingold (D-WI)
Inhofe (R-OK)
Johnson (D-SD)
Landrieu (D-LA)
Nelson (D-FL)
Roberts (R-KS)
Sanders (I-VT)
Sessions (R-AL)
Shelby (R-AL)
Stabenow (D-MI)
Tester (D-MT)
Vitter (R-LA)
Wicker (R-MS)
Wyden (D-OR)

This turkey of a bill passed in the Senate 74-25 (Kennedy was ill and unable to vote) and is now headed back to the House. And to add insult to injury, they appended it to a POS mental health parity bill (since the Senate cannot initiate revenue or spending bills). I despise all 74 of the senators (40 democrats, 34 republicans) who voted for this crap. I guess I'm voting Libertarian in November since both McCain and Obama voted for it. And although I am not prone to vote Democratic, I will be voting for Chambliss's opponent Martin (D).

ETA (10/3):
I sent two emails to Sen. Chambliss; the first was the original letter that I posted here and the second was to chastise him for this vote. I
received two responses. IT WAS THE SAME DAMN FORM LETTER.

Another reason to oppose Paulson plan

As if another was needed.

Credit-card debt is on the brink of imploding and will be the next storm to hit the fragile finance industry, an investment research firm predicted this week. According to Innovest StrategicValue Advisors, banks will charge off $18.6 billion in delinquent credit-card accounts in the first quarter of 2009 and $96 billion in all of 2009, more than double the research firm's forecast for all of this year. Innovest projects that amount would be high enough to damage some of the biggest card issuers. Credit-card charge-offs are "defying gravity" when compared with the problems in the mortgage market, according to Gregory Larkin, senior banking analyst for Innovest. But that will change as they catch up with mortgage charge-offs, which have spiked eightfold since the third quarter of 2007.

After they're done buying up $700B of mortgage backed securities, they are going to come back and rape your wallet again in order to buy credit card debt, student loan debt, and whatever the hell else strikes their fancy.