Helicopter Ben: No Visionary

Government Money a Toxic Asset

Remember those "toxic assets" that were clogging the financial system a few months ago? Well, despite all the billions in government bailout programs, they're mostly still there. And in trying to clean up the system, the Obama administration has actually created a new category of toxic assets that banks desperately want to get off their books -- namely the U.S. Treasury's forced infusions of capital.

We'll look at these unintended consequences of the bailout, but let's start by reminding ourselves how the toxic assets mess began. These were bundles of loans that were packaged into securities and then sold off in different slices that supposedly carried tailor-made risks and rewards. But it turned out the credit ratings on the bundles were unreliable, and investors began to fear that they couldn't trust what was inside the wrappers.

The panic began with "subprime" mortgage-backed securities, but it spread to other securities that were backed by student loans, auto loans and the like. These asset-backed securities, as they were known, couldn't be sold -- or even valued reliably -- and the big banks that held them began taking huge write-downs that pushed them toward insolvency.

The Obama administration has struggled to revive the market for asset-backed securities. The problem isn't with securitization, they argue, but with restoring investor confidence. So they have launched a variety of schemes aimed at detoxifying the credit system that developed during the 1990s. Not coincidentally, the U.S. Treasury team during that financial boom included Lawrence Summers and Timothy Geithner, who are now Obama's top financial advisers.

To restart the securitization machine, Treasury and the Federal Reserve have proposed a series of programs with tongue-twister names. They include the Term Asset-Backed Securities Loan Facility (known as "TALF") and the Public-Private Investment Program (known as "P-PIP"). But these programs have had limited success, so far.

The Treasury argues that securitized lending is slowly coming back, thanks to TALF. That program made available up to $200 billion in public loans to support new issuance of asset-backed securities. A Treasury fact sheet boasts that $13.6 billion of these new securities have been issued this month, more than double the combined total for March and April, with $9.6 billion financed though TALF.

That's all fine, but the new issues are a small fraction of the securitized lending that was taking place two years ago -- for the simple reason that investors remain wary of buying and selling the bundles of debt. In the fourth quarter of 2006, the total issuance of asset-backed securities (excluding mortgage-backed securities) was $250 billion; in the fourth quarter of last year, that total was just $5 billion. The market has come back a little from that low point, but not much.

Private lenders are extremely wary of having the federal government as a partner. And this phobia about government money could actually cripple Geithner's plan for public-private partnerships to buy up toxic mortgage securities. After the public flaying of AIG executives' bonuses, financial CEOs became wary of taking P-PIP loans -- fearing that they would be attacked as profiteers or morons, depending on whether they made or lost money. Many analysts predict P-PIP will have few big-name players.

Fear of federal funds has become so acute that leading bankers are competing to see how quickly they can pay back last year's capital infusions from the Treasury. Jamie Dimon, the chief executive of J.P. Morgan Chase and perhaps the industry's most successful banker (a relative term), says he wants to pay the government capital back as soon as possible -- and as for P-PIP, forget it.

Summers and Geithner keep hitting the credit restart button. But what if the securitization process itself is the problem? What if the mistake of the 1990s was that we strapped a casino to our economy, and let the roulette wheel take control? Summers and Geithner may want a better-regulated casino, but is that really the right way to build a new foundation for the economy?

You can argue the question either way, in the abstract. But the future of securitized lending will be decided, in the end, by the markets. The Fed can offer loans to encourage new issues of debt securities, and the Treasury can insist on better labeling for the bundles. But if investors don't want to play the securitization game, it's over. Rather than repackaging, the best solution, as with real toxic waste, may be to bury it.

The writer is co-host of PostGlobal, an online discussion of international issues. His e-mail address is davidignatius@washpost.com.

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/16/AR2009051600844.html

"Lack of" Earnings Chart

What did the long bond do during the great depression?

see attached

FOMC (FED MINUTES) TEXT

Press Release

Release Date: April 29, 2009

For immediate release

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Auditors: Nearly 25% of Companies May Not Be Going Concerns

A research firm predicts 3,589 public companies will report that their auditors doubt they will continue as going concerns.
Sarah Johnson, CFO.com | US
April 22, 2009

The auditors of nearly one-quarter of publicly traded companies feel that the companies may not live out the year.

Auditors have become increasingly doubtful about their clients' ability to continue as going concerns, according to the most recent report on the subject by Audit Analytics, which has tracked the number of such going-concern opinions this decade in a recently released report. With calendar year-end 2008 filings still coming in to the Securities and Exchange Commission, the research firm estimates there will be 3,589 going-concern opinions eventually filed for 2008 annual reports, an increase of 9% compared to last year's total of 3,293 going-concern opinions.

Audit Analytics made this prediction based on a compilation of regulatory filings made as of late March for 2008 10-Ks. Its data suggests auditors' going-concern doubts were more commonplace compared to the previous year. If the firm's estimate is correct, the number of auditors' documented worries about their clients' viability will reach the highest level this decade.

In 2001, 19.2% of companies noted their auditors' going-concern uncertainty. But only 15% had those qualifications in 2003, according to the Audit Analytics report. For 2007 10-Ks, that number rose to 20.9%, reflecting the highest number of going-concern doubts since 2000. Now the total could reach 23.4% percent, the firm's researchers say.

The audit profession has been predicting a surge in the number of going-concern doubts since last fall, when auditors were on the verge of beginning their annual reviews for calendar year-end companies amid the rough economy. Last month, on the heels of General Motors revealing its auditors' going-concern doubts, Grant Thornton CEO Ed Nussbaum told CFO.com there will be "an unprecedented number of going-concern footnote disclosures and clarification from the auditors" forthcoming.

Auditors must consider several factors during their annual client reviews that may signal that a company won't be in existence 12 months from now. Among them: negative recurring operating losses, working capital deficiencies, loan defaults, unlikely prospects for more financing, and work stoppages. Auditors also consider such external issues as legal proceedings and the loss of a key customer or supplier.

Auditors' going-concern evaluations don't stop there. If they have doubts about a company's future, they tend to confer with their client's management and review the company's plans for overcoming the problems noted and decide whether those plans can likely keep the company in business. If they still aren't satisfied, then the auditors will explain why they have "substantial doubt" about the company's ability to stay a going concern in an opinion filed with the company's 10-K.

In late March, when Audit Analytics compiled the data, only 10,895 auditor opinions had been filed for year-end 2008 with the SEC. That means that Audit Analytics' forecast could be off, since the data doesn't account for about 5,000 10-Ks that were still due. Still left to be collected was data from smaller companies, late filers, and foreign filers. But it's likely that companies that have missed the SEC's filing deadlines are dealing with financial issues, possibly involving discussions over a going-concern qualification with their auditors, suggests Don Whalen, research director at Audit Analytics.

To be sure, what the findings mean has yet to be determined . Still unclear is whether audit firms are being more conservative in their forecasts because regulators have indicated they will keep a close watch on going-concern opinions.

Or is it a fact that a higher number of companies have a seriously uncertain financial future? "I'm not really sure what's driving this," Whalen says. "Obviously, there's a lot of economic pressure right now with the credit crunch and the dearth in consumer spending. At the same time, it might be that ... auditors are being a little more cautious in their assumptions."

Accounting firms have been criticized for not reliably raising going-concern red flags for investors before their clients file for bankruptcy protection. Past academic studies have found audit firms have made going-concern qualifications for just over half of the companies that eventually go bankrupt, according to Joseph Carcello, a University of Tennessee professor.

Last fall, in a practice alert, the Public Company Accounting Oversight Board warned auditors that companies' ability to stay viable during the economic downturn would likely slide — effectively putting audit firms on notice that this would be at least one area high on the radar of PCAOB inspectors in the coming year. Further, the board is revising its going-concern rules to align them more with those of the Financial Accounting Standards Board.

Audit Analytics hasn't analyzed whether certain kinds of firms were more likely to issue going-concern opinions than others. Whalen noted, however, that smaller audit firms as well as larger ones have expressed doubts about their clients' viability. "The smaller audit firms are not shying away," he says.

© CFO Publishing Corporation 2008. All rights reserved.

http://www.cfo.com/printable/article.cfm/13525910

What have we learned in the last two millenia??

"The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
– Cicero , 55 BC

Evidently, not a damn thing…

A Visual Guide to Where Your Taxes Go

I know you were expecting a toilet!



http://www.wallstats.com/blog/wp-content/uploads/WallStatsDATlarge.jpg

The Entire World is Feeling this Downturn, Even the Nomads

By GORDON FAIRCLOUGH

TSOGT, Mongolia -- Waves from the global economic downturn hit Sodnomdarjaa Khaltarkhuu when bank officials showed up at his tent on the edge of the Gobi desert and threatened to foreclose on his goats, sheep and camels.

Falling demand for cashmere among recession-hit shoppers in the West is cutting into earnings among nomadic herders in Mongolia, whose goats produce the soft fiber used in high-end sweaters, scarves and coats. The result: herder loan defaults.

Mongolian animal herders are being squeezed in this country's version of a subprime lending crisis.

Mongolia Falls Deeper Into Poverty

Mongolians are calling the current situation a financial zud, invoking a local term for unusually harsh winters that devastate herds. After Mr. Sodnomdarjaa couldn't pay back a $2,700 loan, he says bank officials pressed him to sell his livestock -- which he used as collateral. The bank says he misrepresented the number of animals he owned, which he denies. Now a judge has ordered the seizure of Mr. Sodnomdarjaa's family home -- a tent -- if he doesn't come up with the rest of the money soon.

"We don't have any animals," says Mr. Sodnomdarjaa, sitting in his tent, heated by camel dung burned in a cast-iron stove. "How can we pay?"

Mongolian nomads' troubles show that the ravages of the economic crisis have spread to even the most remote parts of the world. More than a quarter of the households in Mongolia -- which has a population of about 2.6 million -- earn a living raising animals.

The credit crisis on the steppe has root causes similar to those of the subprime mess in the U.S. Some herders, betting on continued strong cashmere prices, borrowed more than they should have, and spent the money on the Mongolian equivalent of conspicuous consumption: motorbikes and solar panels to provide electricity for their tents. Banks, looking to cash in on rural prosperity in the good years, didn't pay enough attention to risk management and lent too freely, some bankers say.

Bankers say pressuring herders to sell animals and moving to foreclose on other collateral are last resorts. "We try our best to have flexible policies," says Daimaa Batsaikhan, deputy chief executive of Khan Bank. He said the bank's own forecasts for cashmere prices last year were "inaccurate" and that the bank has changed its risk-management practices.

He says his bank and other lenders have been working with herders. Khan Bank says it has restructured 7,000, or nearly 11%, of its outstanding herder loans, essentially extending the time borrowers have to repay. Ultimately, though, the money lent to herders is "money deposited by other Mongolians," the banker says, and it is the bank's responsibility to protect their interests.

Many banks have cut back on new lending. And a flood of forced sales has helped drive down prices for animals, skins and meat.

Munkhbat Tsedendorj, a 30-year-old animal dealer, based in Altai, the capital of the province where Mr. Sodnomdarjaa lives, says animals for sale in the city's central market have been fetching about half of what they were before the downturn. "I've been in this business 10 years, and I've never seen anything like it," he says, standing before a blue truck piled with skinned and frozen carcasses of sheep and goats. "They are bankrupting the herders."

Debt is a main topic of conversation here in Tsogt, a settlement of tents, government buildings and a few shops. Sheriffs from the provincial capital delivered a new round of court orders in January, barring defaulters from disposing of their possessions until courts can rule on foreclosure proceedings.

Naranchimeg Sonom, 45, says she had to sell her herd of more than 300 animals to pay off her defaulted loan. Otherwise, she says, the bank would have foreclosed on her tent, known here as a ger, and on the decorative mirror that graces its back wall. She says bank collection officers said: "You are all beggars. Why did you take a loan if you can't pay it back?"

In recent years, commercial banks started competing to extend credit to herders, who typically earn significant cash just twice a year -- in the spring through cashmere and wool sales, and in the autumn through sales of animal skins and meat. The money helped families get through the times in between, usually at a cost of between 2% and 3% in interest per month.

Troubles began when demand for cashmere started falling after the U.S. slipped into recession in late 2007. By last June, the price for cashmere in Mongolia had fallen by more than 33% from a year earlier, hitting about 28,000 togrog, or $19, a kilogram. Prices have dropped further. "Everyone says now that we are just taking care of banks' animals," says Janchiv Nyambuv, a 65-year-old herder who borrowed 500,000 togrogs, or $350, that he must repay in May.

Herders who have sold their herds to repay loans have struggled to find other sources of income. Purevdelger Budkhuu, a 38-year-old widow, says she was forced to sell her family's 128 goats and sheep after she couldn't pay back a six-month loan of $1,270. Now, she and her two children live in a tent near Altai's grimy central market. She says she has looked for work, to no avail, at shops, restaurants and hotels. "I don't know what to do. I can't go back to the countryside because I have no animals," she says. "And I can't stay here because I can't find a job."

Mr. Sodnomdarjaa says he went to a Khan Bank branch at the beginning of 2008 to get a loan to help repay those who had given him animals to start his herd and buy food and clothes for his wife and four children.

Mr. Sodnomdarjaa and his wife, Altantsetseg Tseyentsend, 38, say they intended to repay the loan by selling cashmere and other products from the 90 or so goats and sheep they owned, as well as from another more than 170 animals they were looking after for others. "We'd never taken a loan before" but, Mr. Sodnomdarjaa says, the bank officer he talked to seemed eager to give him money.

The bank says it checked government records of herders' animals, which said Mr. Sodnomdarjaa owned 267 animals and had no reason to doubt their accuracy. The bank said that after Mr. Sodnomdarjaa defaulted, it discovered just 90 of the animals belonged to him. Bank officials said that if they had known that, he wouldn't have qualified for such a large loan. Mr. Sodnomdarjaa denies any wrongdoing and says bank officials in Tsogt never asked him about the makeup of his herd.

When the loan was due, Mr. Sodnomdarjaa says he was unable to pay. He says the bank eventually pushed him to sell his animals. The bank says Mr. Sodnomdarjaa still owes more than 2.7 million togrogs, or about $1,900.

Mr. Sodnomdarjaa says he and his wife are determined to repay the loan and plan to look for construction or mining work. These days, the couple cares for other families' camels. Their only regular compensation is the right to milk the herd. About half the milk, they drink. The other half they sell. Two months' earnings are about enough to buy a sack of flour.

"The kids want to eat meat, but we have nothing to give them," says Mr. Sodnomdarjaa.

Write to Gordon Fairclough at gordon.fairclough@wsj.com

http://online.wsj.com/article/SB124017991210632815.html

Interesting Chart RE: Japan's Quantitative Easing

Which is what we in the US are doing now via Bernanke's Fed purchasing of US treasuries.

Net Worth: This just about says it all

The big news items

Off the wires.. no link

(US) REPORTEDLY, SEC IS WORKING ON UPDATED VERSION OF UPTICK RULE FOR APR 8TH MEETING
- Could include price test which would only allow investors to short stock if Bid price is rising
- Also considering circuit breakers for individual stocks to stop aggressive short selling.



March 23 (Bloomberg) -- U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the Obama administration’s plan to rid banks of toxic assets will spur growth and investor Mark Mobius said a new bull market has begun. Treasuries and the dollar fell.
http://www.bloomberg.com/apps/news?pid=20601087&sid=atgwohr1NWTs&refer=home

Treasury Department Releases Details on Public Private Partnership

http://treasury.gov/press/releases/tg65.htm

Fed may still buy Treasurys, just not now

NEW YORK (MarketWatch) -- The Federal Reserve is likely to hold off on using one of its last weapons to get credit flowing -- buying back Treasury securities from the open market -- because it has already made progress driving interest rates down in markets that would benefit from such a step, investors and strategists say.
When the Federal Open Market Committee releases ita statement on interest-rate policy Wednesday afternoon, culiminating a two-day meeting, members may hew closely to January's statement -- saying, namely, that the Fed retains the option of purchasing Treasurys if conditions warrant.

For the last four months, the Fed has discussed buying Treasurys to exert pressure designed to lower rates on the many corporate, mortgage and consumer loans linked to benchmark government debt. But at the same time, mortgage rates have fallen by a half percentage point, probably thanks to the Fed's purchases of mortgage-related assets.

That drop, according to observers, has had the effect of reducing any sense of urgency about proceeding with Treasury purchases.

"I don't think they will buy Treasurys," said Andrew Harding, chief investment officer in fixed income at Allegiant Asset Management.

"I think they're doing pretty darn well buying mortgages directly," he said.
Keeping their Treasury plans vague would also give Fed officials time to see if similar plans announced last week by the Bank of England and the Swiss National Bank bear fruit, and how markets respond to earlier programs and the swelling issuance of government debt. It has good reason to tread carefully: Buying Treasurys on the open market could lead to higher inflation -- the enemy of Fed and bondholders alike.

For now, the Fed may not feel pressure to tamper with Treasurys because yields are still historically low.

Yields on 10-year notes, widely considered one of the maturities the Fed may buy, have risen only moderately, to 2.97%. This compares to a 2.72% yield in early December, when Fed chief Ben Bernanke first brought up the possibility of Treasury purchases.

But the FOMC may again bring up purchases as a possibility, as the central bank has in recent statements.

"The Fed doesn't want to rule anything out, and they want to keep their options open," said Michael Pond, Treasury strategist at Barclays Capital.

A sharp rise in yields coinciding with a plunge in Treasury prices, perhaps sparked by the Fed's massive debt issuance this year, could be the tipping point for the Fed to buy government debt.

"They would probably consider it if 10-year yields went up considerably," Pond said, adding that it's uncertain if that level would be 3.50% or 4%. "But it's certainly not 3%," he said.

Lots of talk

At its last policy meeting on Jan. 28, the FOMC said it stood "prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."

Ten-year yields ended that day at 2.66%, having rebounded somewhat from much lower levels at the end of 2008, when Treasurys benefited from a massive flight to safety amid a darkening economic outlook and a spreading contagion in financial markets.

Treasury yields have continued to rise as the government is almost constantly auctioning more debt to finance all its recovery efforts, making investors demand higher rates to hold the debt.

Still, Bernanke seemed to back off the inclination to buy Treasurys in testimony during congressional hearings earlier this month. He didn't even mention it in his prepared remarks on March 3.

Asked why he didn't want to start buying Treasurys after the previous FOMC meeting, Bernanke responded: "You have to solve the problem you've got" -- a reference to the mortgage securitization market.

Mortgage rates fall

Indeed, the New York Fed jumped into that market and started buying debt sold by the big mortgage finance agencies, including Fannie Mae and Freddie Mac, in January. It also started buying the mortgage-backed securities bundled by the agencies.

So far, the Fed has bought a total of $217 billion in mortgage-backed securities, according to market researcher Wrightson ICAP. That's not quite half the amount it originally said it would spend in that market.

Both steps positioned the Fed as buyer in secondary mortgage markets that had seized up but are vital to enabling lenders to make new mortgages. Lenders sell many of their loans to institutional investors, and higher rates charged by these investors to hold pooled mortgage loans make it harder for originators to offer lower rates on new mortgages.

In a sign that the purchases are driving down rates and encouraging private investors to also step in, the gap's dropped in just a few months between Treasurys and the rates that the agencies and mortgage-backed securities have to carry to make them attractive.

Yields on mortgage-backed debt dropped to 0.87 of a percentage point more than Treasurys, down from 1.90 points in December, and are near the lowest seen since late in 2007, according to a Merrill Lynch index.

Agency debt spreads, meanwhile, have fallen to 0.76 of a point from 1.05 points in mid-December, according to Merrill. That makes it that much cheaper for the housing entities to fund their purchases of individual mortgages and securitize them into bundles more desirable to many more investors.

"It's given a great deal of stability to mortgage markets, and a lot of confidence is building in that asset class," Harding of Allegiant said.

Lower capital-markets costs for mortgage originators and the mortgage agencies have helped drive down interest rates charged on home loans.

Thirty-year rates fell to 5.03% in the most recent week from 5.53% in early December, according to averages compiled by Freddie Mac. And the rates on 15-year mortgages -- popular for refinancing homes, something else the Fed wants to encourage -- also have dropped dramatically, to 4.64% from 5.33%, in the same time.

If yields rise...

Still, some say the Fed should still consider buying Treasurys directly from the market -- not just at the government's auctions, as it does now to manage its accounts.

Such an action would help lower mortgage rates further, by bringing down the yield those spreads are based on, as well as help the myriad of other securities and markets that are priced off Treasurys, including corporate bonds.

"It can help cap yields because all risk spreads go off Treasurys, so it would serve as an anchor pulling everything down," said Max Bublitz, chief strategist at SCM Advisors.

"It's inevitable that it's going to come," he said.

If that's so, the only question is at what yield would the Fed to deem it necessary to intervene or what other conditions would need to be in force. Conviction about the inevitability of intervention may alone be serving as a cap on bond yields.
"Why tip your hand when you don't need to?" Bublitz asked.

One of the factors that may push yields up to that point could be the Treasury Department's continued need to issue debt: Analysts expect more than $2 trillion in U.S. debt could be sold in fiscal 2010, the fiscal year that started last October.
That could shoot even higher if Congress approves further stimulus funding of some kind, said David Glocke, head of Vanguard's Treasury and taxable money-market group.

"If it looks like Congress will pass another stimulus package, the additional supply in the pipeline will force interest rates higher and increase the risk that the Fed steps in to set a ceiling," he said.

For their part, congressional leaders have given mixed signals as to how seriously they might embrace further stimulus following the recent enactment of a $787 billion package.

Testing the waters

The Fed also has the luxury of watching how its overseas counterparts fare in their effort to bring rates lower by buying debt from the secondary market.
Britain's central bank began buying U.K. debt last week, buying 2 billion pounds worth. The debt, known as gilts, rallied following the announcement, pushing 10-year gilt yields down to 2.97% from 3.64% before the announcement. See previous story on U.K. purchases.

Those kinds of improvements "will encourage the Fed to keep this potent option on the table," said Tony Crescenzi, chief bond-market strategist for Miller Tabak & Co.

The Swiss National Bank also said last week it would begin buying franc-denominated corporate bonds. See previous story on Swiss central bank plans.
The act of a central bank buying its own government's bonds is usually taken on as a way of further lowering borrowing costs once the central bank has already lowered its benchmark rate virtually as much as possible.

The concern is that the practice could ultimately lead to higher inflation, which makes it harder for businesses to grow and erodes the value of bonds' fixed returns. The Fed has to weigh that risk with its desire to help the U.S. economy out of a possibly severe recession.

For Bernanke and the FOMC, the most immediate risk now lie in managing expectations. Ahead of the last meeting, the bond market expected the Fed to take steps toward buying Treasurys.

It was disappointed when the Fed simply talked about it.
"What doesn't work is just saying that details will follow," Harding said.

By Deborah Levine, MarketWatch

http://www.cbonds.info/all/eng/news/index.phtml/params/id/426882

Commercial Mortgage Backed Securities

Might be breaking out of their trading range and heading higher, which is not good. The financial tsunami just keeps spreading....

http://www.markit.com/information/products/category/indices/cmbx/history_graphs.html

Who is Financing the US?

Link: http://www.treas.gov/tic/mfh.txt

Carribean Banking centers is probably a combo of, drug/cartel/mafia money, tax haven/hedge fund money, and a number of wealthy indiviudals i.e. George Soros.

US Savings Rate Trend Change

Currency Destruction

The details of the good bank/bad bank plan have yet to be revealed, but it's important to remember one important point: Any program initiated by the government is a zero sum game, at best. The government can't create wealth/productivity; it can only transfer wealth from one entity to another.

A government given the power to create money (debt) out of nothing, as our current financial system has been allowed to do since the creation of the Federal Reserve (particularly after Bretton Woods) results in the destruction of the value of the currency. Thomas Jefferson would label our current system unconstitutional.

The plan is a derivation of all the previous plans, with a new name and a new sponsor - the FDIC. Does anyone believe the FDIC can manage bad assets any better than the private market did? What the FDIC can do, with the help of the government, is create money (debt) to buy bad debt (I'm not going to call them “assets”). But what price do they pay the banks for it?

If a bad loan has a 50% chance of being paid back, perhaps its market value is $0.60 on the dollar. If the government pays $0.40 on the dollar for it they have a reasonable chance of getting the value back (as long as the situation does not deteriorate further).

But if the government buys the bad debts at $0.40 from banks, banks will have to take huge losses and possible go bankrupt. This is because they have no capital left to absorb those losses. I would guess the government would have to pay $0.75 on the dollar for banks to be able to transfer/break-even. This is probably what the government is thinking. So the chances of getting that money back for taxpayers is very poor.

To increase those odds, the government will then transfer wealth from the productive ones among you to those who have to pay back that debt. They will pay the healthcare and education and give poor jobs to people in debt. They will borrow the money to do this from our children. Essentially they will create money today and worry about paying it back later. When you create money, you devalue the money.

This is what the government plan is: To further destroy the value of the currency to try to help people and the economy. But remember: An economy is based on production, not the ability to borrow. The standard of living is based on wealth, which is created by production or income generation, not the ability to borrow that wealth from someone else.

We were borrowing from the rest of the world to keep our standard of living high. Now we're increasingly borrowing from our children, who will eventually experience either much higher taxes or a much lower dollar; either will lower their standard of living.

But my words will fall on deaf ears. Policy is settling in. We just confirmed a Secretary of the Treasury who was directly responsible, as head of the New York Federal Reserve, for monitoring proper capital at all of our money center banks. They failed, because they didn't have enough capital to support the vast lending they were doing. Geithner isn't going to change his tune.

The one thing we can be sure of: The more government says these plans will “get us back on track to long-term 'healthy' economic growth," the less that will be true. We're only sustaining a too-high standard of living at the expense of our children.

The more the government pays over the real price for bad loans, the less deflation (debt destruction) there will be and the quicker hyper-inflation (currency destruction).

Mr Practical

Merrill Lynch's David Rosenberg: Top 10 Issues

1) There is no sign yet of a bottom for the housing market
2) Protectionism risks abound
3) Banks remain impaired - all options are on the table
4) Fiscal stimulus to cushion the hard landing
5) The case for gold
6) Mortgage applications ≠ approvals
7) Federal Home Loan Banks have their own problems
8) State governments raising tax bill
9) Earnings estimates getting cut – still more to go
10) Capital markets still in a lock-down

https://www.gpcresearch.ml.wallst.com//common/emailLink/pdf.asp?SSS_29510936E2505A0F1EFECD0A2C64FE8A&pdf=pdf/Dave_s_Top_Ten.pdf

List - Quite a few Ponzi Schemes Collapsed in the Last Couple Weeks

07:55 AM CST on Wednesday, January

The Securities and Exchange Commission sued a Lamesa, Texas, man Tuesday, alleging he ran a $45 million Ponzi scheme in West Texas.

The suit alleges that Rod Cameron Stringer, 43, fooled investors into giving him millions by advertising annual returns as high as 61 percent and that he failed to invest a substantial portion of the money he's been given.

[url http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-localbriefs_21bus.State.Edition1.e6c66f.html]

January 22, 2009
In these busy times for battling Ponzi schemes, the federal prosecutors have charged a Philadelphia-area fund manager with defrauding investors of $50 million.

The criminal mail fraud charges against Joseph Forte follow similar charges levied by the Commodities Future Trading Commission and Securities and Exchange Commission last month. According to the regulators, Forte approached federal authorities in December as his alleged scam fell apart and confessed.

[url http://www.finalternatives.com/node/6681]

Citing her "devastating impact on a community that can least afford it," a judge Tuesday sentenced an Altadena woman to more than 12 years in federal prison for orchestrating a $17.8-million Ponzi scheme that preyed largely on middle-class African American investors.

[url http://www.latimes.com/business/investing/la-me-scam21-2009jan21,0,6828491.story]

As in Bernard Madoff's alleged $50 billion Ponzi scheme, Bradford Bleidt stole $32.6 million by persuading those with social ties to give him money to "invest." In Bleidt's case, his victims were fellow Masons in the Boston area who typically had saved money for years while working at blue-collar jobs.

[url http://www.abajournal.com/news/investors_in_32.6m_ponzi_scheme_win_only_cameraderie_boston_bank_not_liable]

On Jan. 6, the suit says, they were abruptly informed Riolo's firms had become insolvent and ceased operation.


It is not clear how many people invested with Riolo or how much money may be lost. One investor said she thinks total losses could exceed $50 million.

Riolo's attorney, Bart Houston, could not be reached for comment Monday despite two phone calls to his office and an e-mail.A security guard at the gated community of The Oaks of Boca Raton, where Riolo lives in a $1.2 million home, said Riolo did not want to speak with a reporter.

[url http://www.palmbeachpost.com/business/content/local_news/epaper/2009/01/20/0120ponzi.html]


IDAHO FALLS, Idaho — The Idaho Department of Finance has begun investigating a possible Ponzi scheme involving as much as $50 million, an officials says.

Marilyn Chastain, securities bureau chief for the agency, told the Post Register the target of the investigation is a local business operator, Daren Palmer, who is linked with Trigon Group Inc.

[url http://www.foxnews.com/story/0,2933,480750,00.html]

OMAHA, Neb.: An alleged Ponzi scheme by a Grand Island insurance agency that recently filed bankruptcy listing more than $100 million in debt is being investigated.

Attorney General Jon Bruning on Tuesday authorized the State Patrol's investigation into First Americans Insurance Service and its three principals: James Masat, Stella Levea and Kenneth Mottin. The patrol is working with the departments of insurance and banking to piece together how more than $100 million disappeared — with Bruning believing some of it may have been paid out to other investors.
[url http://www.iht.com/articles/ap/2009/01/21/america/Securities-Probe.php]

Velocity of Money Hurling Towards Zero (never happened before)

I'm not looking forward to finding out what happens when it hits zero.

see link: http://research.stlouisfed.org/fred2/series/MULT

Average decline: -0.077
Average decline with the outliers removed (-0.229 and -0.18): -0.040

Average case:
0.838
0.762
0.685
0.608
0.532
0.455
0.378
0.302
0.225
0.148
0.072
-0.005

7/1/2009 ( D Day)

Average without outliers:
0.875
0.835
0.795
0.754
0.714
0.674
0.634
0.594
0.554
0.514
0.473
0.433
0.393
0.353
0.313
0.273
0.233
0.192
0.152
0.112
0.072
0.032
-0.008

12/2/2009 (D Day

Doing a simple linear progression, we get 915/29 or 31.55 X 2 weeks.
63.1 weeks. That's April 3, 2010.

Maybe BHO will be able to reverse this with policy changes. Maybe the lump in the snake will pass through and enter the economy. Maybe we will spend trillions, MULT will drop to 0.350 or such and just hover their for years, then slowly rise with time. Maybe, and I hope so.

According to Charles Schwab's Chief Investment Strategist

While diplomatic, she is warning of several things.

- debts to pay debts
- government bailouts
- huge deficits
- treasury bubble
- possible trade problems

One interesting thing I heard her talk about was the difference between nominal interest rates and "real interest rates."

She compared the early 80s to now. Despite inflation and high nominal rates, real interest rates were relatively low.

Right now, despite incredibly low nominal rates, "real interest rates" are high. The example she gave was would you pay 17% interest to buy something appreaciating at 11% a year? The real rate = 6%.

If you are paying 5% on an asset that is depreciating at 17% a year the real interest rate is 22%. (I actually though it would be 12%, but she clearly said 22%)

Seems to me thats the real danger of "deflation." You are paying back with more expensive dollars.

Four Bad Bears Chart Update

30-Year Mortgage Under 5 Percent For First Time Ever

The benchmark 30-year mortgage fell below 5% for the first time ever in Freddie Mac's weekly rate survey as economic weakness continued to push interest rates lower, the mortgage agency said Thursday.

http://finance.yahoo.com/real-estate/article/106450/30-Year-Mortgage-Under-5-Percent

Irish govt to nationalize Anglo Irish Banks

NEW YORK (MarketWatch) -- The Irish government plans to take steps to fully nationalize Anglo Irish Banks, saying that a recapitalization of the bank is "not appropriate", and that the state is the only potential owner, Dow Jones reported on Thursday. The news service reported that the government said the bank remains solvent, and that all its employees will keep their jobs.
http://www.marketwatch.com/news/story/Irish-govt-nationalize-Anglo-Irish/story.aspx?guid=%7BB5CD7BD7%2D6FEE%2D49DB%2D9E3D%2D3B008716A2BA%7D&dist=hplatest

A LOT More $$$ for Bank of America

Breaking news on www.cnbc.com

Government Guarantees for Bank of America to Be Between $100 Billion-$200 Billion, CNBC Has Learned (story developing)

Highlights of Dems $825 Billion Stimulus Plan

Rough list of items via Reuters:

Highlights of US Democrats' $825 bln stimulus bill
(Reuters) - Democratic leaders in the House
proposed an $825 billion economic stimulus
package Thursday.
The legislation is expected to be discussed by two House
committees as early as this week with the aim of sending a
final bill to the White House by mid-February. The Democrats'
bill would offer $275 billion in tax cuts and $550 billion in
investments to create jobs. Highlights include:

HIGHWAYS, RAIL, TRANSPORTATION
.. $30 billion for highway construction.
.. $31 billion to modernize federal and other public
infrastructure with investments that lead to long-term energy
cost savings.
.. $19 billion for clean water, flood control, and
environmental restoration investments.
.. $10 billion for transit and rail to reduce traffic
congestion and gas consumption.
.. $3 billion for airport improvement projects to improve
safety and reduce congestion.
.. $1.1 billion to improve speed, capacity of intercity
passenger rail service.
.. $6 billion to buy buses and equipment for public
transportation.
.. $2 billion to modernize existing transit systems.
.. $1 billion for grants for new commuter rail projects.

STATES, EDUCATION
.. $79 billion in state fiscal relief to prevent cuts to key
services.
.. $39 billion to local school districts, public colleges
and universities distributed through existing state and federal
formulas.
.. $15.6 billion to increase Pell grants for college
students.
.. $6 billion for higher education modernization.

ENERGY
.. $11 billion for research and development, pilot projects,
and federal matching funds to modernize electricity grid.
.. $8 billion for loans for renewable energy power
generation and transmission projects.
.. $6.7 billion for renovations and repairs to federal
buildings.
.. $2 billion for the Advanced Battery Loan Guarantee and
Grants Program, to support U.S. manufacturers of advanced
vehicle batteries.
$2.4 billion for carbon capture and sequestration
technology demonstration projects.

HEALTH CARE
.. $87 billion to states, increasing through the end of FY
2010 the share of Medicaid costs the Federal government
reimburses all states by 4.8 percent, with extra relief tied to
rates of unemployment
.. $30.3 billion to extend health insurance coverage to
unemployed beyond 18 months provided under current law.
.. $3 billion to fight preventable chronic diseases, the
leading cause of deaths in the United States, and infectious
diseases.
.. $3.75 billion for new construction of hospitals and
ambulatory surgical centers.
.. $4.1 billion to provide for preventative care and to
evaluate the most effective healthcare treatments.

BROADBAND, TECHNOLOGY
.. $6 billion to expand broadband Internet access for
businesses in rural underserved areas.
.. $20 billion for health information technology to prevent
medical mistakes, provide better care to patients and introduce
cost-saving efficiencies.
.. $400 million for the Social Security Administration to
replace its computer center.
.. $245 million for the Farm Service Agency to upgrade its
IT to handle workload increases.
.. $276 million for the State Department to upgrade its
technology platforms to meet stricter security needs.

HOUSING
.. $4.2 billion to help communities buy, rehabilitate
foreclosed, vacant properties to create affordable housing.
.. $1.5 billion to help local communities build and
rehabilitate low-income housing using green technologies.
.. $5 billion for public housing repair and modernization,
including critical safety repairs.
.. $6.2 billion to help low-income families reduce their
energy costs by weatherizing their homes.

UNEMPLOYMENT BENEFITS
.. $27 billion to continue the unemployment benefits
program, providing up to 33 weeks of extended benefits through
Dec 31, 2009.
.. $4 billion for job training including formula grants for
adult, dislocated worker, and youth services.

ENVIRONMENT
.. $800 million to clean up hazardous and toxic waste sites
that threaten health and the environment.

WATER RESOURCES
.. $4.5 billion for environmental restoration, flood
protection, hydropower, and navigation infrastructure.
.. $6 billion for loans to help communities upgrade
wastewater treatment systems.
.. $2 billion for loans for drinking water infrastructure.

MISCELLANEOUS
.. $10 billion for science facilities, research, and
instrumentation.
.. $3.1 billion for projects on federal lands such as
visitor facilities, trail restoration, preservation of historic
buildings, rehabilitation of abandoned mines and oil fields.
.. $2.1 billion in repairs to military facilities.
.. $1.2 billion for new construction and $154 million for
renovations to improve military housing.
.. $650 million for extending a coupon program to help
Americans convert the TV sets to receive digital transmission.
.. $430 million for new direct lending and loan guarantee
authorities for small businesses to make loans more attractive
to lenders and free up capital.
.. $100 million for rural business grants and loans to
guarantee $2 billion in loans for rural businesses.

SCHWARZENEGGER SAYS CALIFORNIA FACES INSOLVENCY WITHIN WEEKS

"The truth is that California is in a state of emergency. Addressing this emergency is the first and greatest thing we must do for the people," he said during a relatively brief address to a joint session of the Legislature. "The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off."

Schwarzenegger warned that California, the world's eighth largest economy, faces insolvency within weeks if lawmakers fail to close the widening deficit.

State financial officials said California will run out of cash in February. If that happens, it will have to send IOUs to state contractors and taxpayers expecting refunds.

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/01/14/state/n175940S09.DTL&type=politics

= Return of SCRIPS?

What You Should Know Before Going to America (For the Japanese )

I thought this was an interesting view of some of the differences between our cultures. It's some travel suggestions for Japanese visiting America.

I'm going back to the US for Christmas tomorrow! Yay!


* The yen is very strong against the dollar right now. This will make goods in America seem very cheap -- an excellent opportunity for shopping! However, remember to be polite in your use of money -- America is in the middle of economic malaise right now, and Japanese people with wads of money in their hand might be looked on with envy. Besides, if you are obviously wealthy in an American city, you may be robbed.

* For our valued customers who work in the automotive industry [#1 employer where I live], we advise discretion. If you must say where you work, the preferred phrasing is [English] "I work at the car company".

* Most Americans are very polite, particularly outside of the big cities. However, outside of the big cities, everyone owns guns. Inside the big cities, almost everyone owns guns. Let's be polite together!

* If you go shopping at an American department store, they will ask you if you want to open a credit card account. They are *not* asking whether you want to use a credit card. This may seem strange but it is an American custom to offer customers a credit card, in order to make them spend more money. We suggest politely declining offers of credit cards. You may have to politely decline several times. Don't think of this as rude, the Americans have to do it too.

* Most Americans think we look like Chinese or Koreans. Try not to be too offended.

* Most Americans will think that a Japanese person standing on the street is an American, unless they are holding a camera. If you are not comfortable speaking English, you might try bringing along a camera to say "I am a tourist, please don't expect me to speak English." Except, don't try this in the big cities -- tourists get mugged in big cities.

* Americans have a social institution called a "gratuity". Basically, the price on the menu at any place which serves food is not the real price. The real price is 20% higher. You have to calculate 20%, write it under the subtotal, and sum to arrive at the real price. Taxis work the same way. It is considered very rude not to pay the "gratuity".

* In general, Americans consider it impolite to discuss politics. However, this January Obama will become the new president, and many people are excited! If they ask you what you think of him, a safe answer is [English] "Obama is really cool." or [English] "Obama speaks so well. Not like me. Hehe." Be very careful when pronouncing his name. O BA MA, just like Obama City. [Ask me later. Hilarity abounds.]

* Most big cities have Japanese food available. You may have to look hard, though -- ask your hotel for some place to eat tempura. Restaurants which say they serve sushi probably only serve makizushi, like California rolls. (Americans think California rolls are [English] "sushi".) If a restaurant says [English] "Asian" they really mean Chinese. They are probably not really Chinese, either.

* Ladies: if you shop for clothes, ask for where to find [English] "petite". It means normal sized. Ladies who are petite may have difficulty finding clothes which fit in America, except at specialty shops.

* McDonalds: Has no teriyaki burger in America. Portions are bigger and food is cheaper. Sometimes the person taking the order does not speak English. Please relax! They probably understand the set menu, although it is called [English] "combo", and you can hold up the number with your hands as shown. [Snip of chart for how Americans count on their fingers, which is actually different than how Japanese people count on their fingers, hence the need for a chart.]

Now, if you'll excuse me, I have to finish work and start packing. Toothbrush, shirts, camera, bullet-proof vest, wad of monopoly money, you know, the bare necessities.

Year on Year Retail Sales Worst Ever Recorded

Rumor Mill: New Housing Plan to Be Announced

Of course with any rumor, take it for what it is.

"I've seen documentation and has been promised that .gov WILL be offering $10k-$20k buyers assist. cash & 2% first yr 3% 2nd yr and 4% thereafter 30yr mortgages & that previous defaults will not affect FICO to the degree that would keep people from re-buying - plan will be fully implimented within 9 months."

Non Borrowed Reserves Back in the Black

We're saved! /sarcasm off



= Some sort of accounting chicanery at the Fed. Apparently, when you borrow money from the Fed and dump it back at the Fed to gain free interest, it magically becomes a non-borrowed reserve.

Check out the column labeled "reserve balances with F.R. banks" in the 3rd chart of the H3 release. Zero that column out and they're around $600 billion in the hole, which sounds about right.

http://www.federalreserve.gov/releases/h3/Current/

Germany to ban excessive borrowing

"Germany will amend its constitution to ban excessive public borrowing and set up a strict repayment schedule for the public deficit caused by its latest fiscal stimuli, chancellor Angela Merkel said on Tuesday, underlining Berlin’s rising concern about the erosion of fiscal discipline in Europe."
http://www.ft.com/cms/s/0e87d8ee-e182-11dd-afa0-0000779fd2ac,dwp_uuid=7c485a38-2f7a-11da-8b51-00000e2511c8,print=yes.html

p.s. the US all ready has this (the debt ceiling that keeps being raised every few months) so it's basically worthless.

pps Germany's debt to GDP ratio is much worse than ours.

For the younger crowd

Three Ideas That Should Scare The Hell Out Of You

Great article by Mish.

Things are looking pretty bleak. There is bad news in housing, the stock market, commercial real estate, jobs, and wages . Unfortunately, no matter how bad things are, someone always comes along to propose a "solution" that is guaranteed to make the situation much worse. Please consider the following ideas.

continue at:
http://globaleconomicanalysis.blogspot.com/2009/01/three-ideas-that-should-scare-hell-out.html

Archive of Charts

These are some charts I've saved. Sometimes nothing can quite describe an issue like a graph.

(Change in GDP)

(Outstanding CDS Contracts)

(Commercial sq footage for selected countries)

Ohio's Unemployment Fund Empty

The state's unemployment-compensation fund is expected to spit out its last few dollars today or Monday, triggering a federal bailout to ensure that weekly benefits to jobless Ohioans continue.
Skyrocketing job losses and years of collecting less in unemployment taxes than the fund paid out in benefits are to blame, state officials said.

"There are just a crushing number of claims," said Bob Welsh, deputy director of Ohio's unemployment-compensation system.

The state paid claims to 248,000 jobless workers in the last week of December, a 63 percent increase from the same week a year earlier.

But borrowing from the feds can come with a hefty price tag. The state projects that if changes are not made to Ohio's unemployment-compensation system, the fund's deficit will grow to nearly $3.3 billion by 2016, and after nine years of borrowing, the state will owe $1 billion in interest.

http://www.dispatchpolitics.com/live/content/local_news/stories/2009/01/09/copy/comp_fund.ART_ART_01-09-09_A1_Q0CG35P.html?adsec=politics&sid=101

Fed sees extended economic decline

Tuesday January 6, 3:16 pm ET By Chris Isidore, CNNMoney.com senior writer

The U.S. economy is likely to deteriorate further this year and unemployment will rise into 2010, according to the latest forecasts from the staff of the Federal Reserve.

This bleak forecast was presented to Fed policymakers when they met last month and lowered interest rates to near zero. Low interest rates are one key tool the central bank uses to try to spur economic activity.

According to the minutes from that meeting, the central bank is now predicting that gross domestic product, the broadest measure of economic activity will fall in 2009.

"I think that the Fed is really very scared right now -- like everybody else -- and they want to pull out all the stops," said David Wyss, chief economist for Standard & Poor's.

The Fed indicated that most members at its meeting expected a slow recovery to begin in the second half of the year, but that unemployment would still rise "significantly" into 2010.

Employers cut 1.9 million jobs over the first 11 months of 2008, which took the unemployment rate up to 6.7%. The December report will be released by the Labor Department Friday and economists surveyed by Briefing.com expect a loss of 475,000 jobs and that the unemployment rate will rise to 7%, which would mark a 15-year high.

The Fed cited a multitude of problems dragging down the economy besides rising unemployment, including stock market declines, low consumer confidence, weakened household balance sheets and tight credit conditions. It said business spending is also likely to fall due to weak retail sales and the credit crunch.

In addition, some members of the Fed expressed concerns that the economy could worsen even more than currently expected.

"Meeting participants generally agreed that the uncertainty surrounding the outlook was considerable and that downside risks to even this weak trajectory for economic activity were a serious concern," the Fed said in the minutes.

If the current recession, which began in December 2007, lasts throughout 2009, that would make it the longest U.S. economic downturn since the Great Depression.

Wyss said he thinks there is now little debate among policymakers about the problems in the economy and the need to take unprecedented action.

"They're already jumping, they're just asking how high," said Wyss.

The minutes also showed that some Fed members are now more worried about the threat posed by deflation, or falling prices, than they are about inflation. Deflation can slow economic activity dramatically since it could lead to businesses to cut their production plans in the wake of lower prices.

The Fed also revealed more details about other moves it plans to make to boost the economy now that it has lowered rates as far as it can.

According to the minutes, the Fed anticipates completing previously announced purchases of $600 billion in debt and mortgage backed securities from firms such as Fannie Mae and Freddie Mac by the end of June 2009. The plan to buy back these securities has already helped to lower mortgage rates in recent weeks.

http://biz.yahoo.com/cnnm/090106/010609_fed_minutes.html?printer=1

New US orders at lowest level since 1948

US manufacturing activity contracted at its sharpest pace for nearly 30 years in December, a closely watched survey suggested on Friday, underscoring the downward momentum in the economy at the turn of the year.

The Institute for Supply Managers survey index declined from 36.2 in November to 32.4, much worse than expected, while new orders and production measures hit their lowest level since the survey began in 1948.

The release of the figures coincided with manufacturing data that highlighted the synchronised decline in economic activity around the world.

http://www.ft.com/cms/s/0/c1952148-d8ff-11dd-ab5f-000077b07658.html

Say Hi to "TIP"

WASHINGTON (AP) -- The Treasury Department opened the door Friday to using a Citigroup-style rescue package to help other troubled financial institutions.The financial lifeline thrown to Citigroup Inc. in late November involved backing billions in risky assets and providing the banking giant with a fresh capital infusion.

Treasury said participation by other companies in such a program would be weighed on a case-by-case basis. Treasury said it would consider, among other things, whether the "destabilization" of a financial institution could threaten the viability of creditors and others. It also would weigh the extent to which the institution faced a loss of confidence because of the troubled assets it held.The information was contained in guidelines for the initiative, dubbed the Targeted Investment Program, unveiled on Friday.

Separately, a new program that provides government backing for a financial institution's potential losses from risky assets will be used sparingly, the department said. Congress required that the insurance program be created as part of the $700 billion financial bailout package enacted in October."This program will be applied with extreme discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly," the department said. "It is not anticipated that the program will be made widely available."

The department said it is exploring using the program to address guarantee provisions that were part of the Citigroup rescue package. The program provides guarantees for troubled assets held by a financial institution that would otherwise risk a loss of market confidence.

Treasury said it would determine eligibility for the program on a case-by-case basis. In accordance with the law, any assets to be guaranteed must have been originated before March, 14, 2008.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=77115

The end of the 70-year empire

1. Accordingly, he built Fannie into what former congressman Jim Leach, a Republican from Iowa and longtime Fannie gadfly, calls “the greatest, most sophisticated lobbying operation in the modern history of finance.”

2. He may be right. John McCain was embarrassed last summer by revelations that his campaign manager, Rick Davis, had served as the president of the Homeownership Alliance, an advocacy group for Fannie and Freddie Mac, Fannie’s smaller brother. The “revolving door,” as people call it, between the Hill and Fannie and Freddie spun so quickly that it’s actually more surprising when someone isn’t on the list than when they are. Rahm Emanuel served on Freddie’s board! Right-wing godfather Grover Norquist lobbied for Fannie! Newt Gingrich was a consultant for Freddie, and Ralph Reed was a consultant for Fannie!

3.Johnson became the head of the compensation committee, making him the closest thing Hank Paulson had to a boss.

4. the deal Alexander Hamilton cut with Thomas Jefferson and James Madison back in 1790. Jefferson and Madison agreed that the nation would assume the debt of the states; Hamilton agreed that the capital of the country would not be in New York, but rather on the Potomac. “This was a very wise move,” says Gensler, “because for about two centuries it separated the nation’s financial capital from its political capital.” Then he chuckles a little. “It worked until Fannie Mae and Freddie Mac came along.”

5. Or, as former Fannie chief lobbyist Bill Maloni, whose Friday-night poker games for Washington power players were the stuff of legend

6. Not surprisingly, ofheo was a notoriously weak regulator. For almost three years, from February 1997 to September 1999, the agency didn’t even have a director. “The goal of [Fannie’s] senior management was straightforward: to force ofheo to rely on [Fannie itself] for information and expertise to such a degree that Fannie Mae would essentially be regulated only by itself,” wrote ofheo in a report years later.

7. They issued thousands of press releases, which usually featured a local politician prominently assisting Fannie in some good housing-related deed.

8. “ ‘Have you seen our initiative for the handicapped?’ It might have only been for a few dozen loans, but our intent mattered.”

9. The G.S.E.’s also became the place for ex-politicians to work. The Washington Monthly once declared that after he left the White House, Bill Clinton should go to Fannie because “scoring an executive post at Fannie Mae is recognized around establishment Washington as the equivalent of winning the lottery.” After all, where else could you make Wall Street–type money with no financial skills?

10. Frank Raines, who took over from Johnson as C.E.O., told investors that “the future’s so bright that I’m willing to set as a goal that our earnings per share will double over the next five years.”

11. In 2000 the head of Fannie’s office of auditing gave a speech to the company’s internal auditors. “By now, every one of you must have 6.46 branded in your brains,” he said. “You must be able to say it in your sleep, you must be able to recite it forwards and backwards, you must have a raging fire in your belly that burns away all doubts, you must live, breathe, and dream 6.46 After all, thanks to Frank, we all have a lot of money riding on it.”

12. “All the V.P.’s in the company looked at each other and said, ‘How is that going to happen?”’ says a former executive.

13. As the critics became more vehement, Fannie’s responses became ever tougher. Its customers, including major banks, who were terrified of its rapid growth and Raines’s grand plans, set up a group called FM Watch, which began its own anti-G.S.E. lobbying effort. Fannie responded by comparing FM Watch to Slobodan Milošević, the Serb dictator who was charged with crimes against humanity for his role in the Balkan wars.

14. In 2002, Karl Rove invited Raines to Bush’s economic summit in Waco. Raines still keeps a “Doonesbury” cartoon on his wall that features an admiring Bush saying, “Franklin can tell you … ”

15. Congressman Barney Frank, a Massachusetts Democrat and longtime supporter of the G.S.E.’s,

16. Paulson did not believe that the G.S.E.’s were the bogeymen of the financial system. After all, they had been major clients of his for years, and the ties between Goldman and Fannie ran deep. “I was aghast,” says a longtime G.S.E. foe, expressing a common attitude. “Here we were fighting trench warfare with Fannie and Freddie, and Paulson says, ‘Let’s cut a deal and say we won.’ Some of us really did believe they were a house of cards.”

17. These were often referred to as private-label securities, or P.L.S.’s, because they bypassed Fannie and Freddie and didn’t have the G.S.E. imprimatur. As a result, Fannie and Freddie, which had always been selective as to which mortgages met their criteria for purchase, saw their market share plunge. Shareholders and customers were begging them to dive into this new, highly profitable world.

18. “We’re rushing to get back into the game,” Mudd told analysts in the fall of 2006. “We will be there.”

19. Even so, “is there anything dumber than the suggestion that the institutions to rescue the U.S. mortgage market are institutions that are leveraged 60 to 1 and only own U.S. mortgages?”

20. In other words, Fannie dove into Alt-A not because of its mission but because of its bottom line—and because its executives feared that Fannie would become irrelevant if it continued to say no to this brave new world.

21. Slipped in was a provision that exempted Fannie’s and Freddie’s boards from shareholder lawsuits—which was an enormous threat—if they agreed to conservatorship in time of crisis.22. Paulson’s bazooka to help Fannie and Freddie failed.

23. “We’ve closed the book on 70 years of housing policy in this country.”

24. government officials refuse to confirm that the U.S. actually guarantees Fannie’s and Freddie’s debt. Instead, they say there is an “effective guarantee”—which means nothing in a market as untrusting as this oneFinally:

25. Maybe the truth is that, as one person puts it, “everyone was still scared of Fannie Mae and Freddie Mac"

http://www.vanityfair.com/politics/features/2009/02/fannie-and-freddie200902

China's Exports in Collapse Mode

My Laid-Off Life

I arrived at the office at 8 a.m. like every other morning, and I saw my boss in the hallway. He said an HR person had called him, and he was concerned. A half-hour later, he was laid off. Then an HR rep called me in. People around me noticed my body language; I was unable to speak. HR read the “laid-off script” to me. I’d worked with these people for eleven years. Some looked sad; they couldn’t make eye contact. I just sat there thinking of how to tell my wife the bad news and being scared of not having health insurance—we have two small children and one on the way.
Now my work is finding work. I sit at home, behind my computer. When I was first laid off, I would go to a chat room with all unemployed people. I thought, Wow, I’m not the only one, and it was comforting, but now, after two months, it’s just depressing.
Recruiters call about new positions, but it’s always the same old story. They say you are a great fit, and then you don’t hear from them for days. Nothing pans out. I feel helpless, like a failure. It’s your manhood, you know? I’m the only provider at home.
I’ve been anxious, so I scheduled a doctor’s appointment. He said, “Go to the gym, do yoga, meditate. Just relax; everything will be okay.” But it’s hard to relax. I go to the gym to try to clear my mind, but it makes me crazy. All the flat screens have talking heads reporting on the failures of the economy. There’s a church around the corner, and when the bells go off I imagine I’m in France. I’ve never been there, but I’ve seen enough movies to conjure a picture. I can almost forget about the mortgage and the $75,000 line of credit that my bank just closed on me. But then that dump truck rumbles past and spits me back into my reality.
I can’t believe how expensive everything is. A box of diapers is $45, but the little girl has to go, right? I used to buy my clothes in Bloomingdale’s and Macy’s, but at Target I pay less than $100 for a suit. I tried to feed our dog the cheaper generic brand. He threw up; I guess you can’t go cheap on everything.
My wife is very supportive, but she’s not used to the fact that I’m home all the time. When she tells the kids to do something, they go, “Daddy, Daddy, Daddy!” and run to me. She’s losing some of her grip on them, and it causes friction.
But the kids are like my therapy. I’m starting to realize the importance of health and family. I’m bonding with them more. They are so innocent. They don’t care if Daddy has a job or not. To them, I’m just Daddy.

http://nymag.com/news/business/53153/?f=most-commented-24h-5

GOLD: Should you involve yourself?

Many people have been proclaiming that gold/silver is going to be the "new bull market" for 2009. They state that "fiat currencies, have always in the entire history of the world failed". (that bit is actually true) They say that the Fed/Treasury is pushing unGodly amounts of cash into the economy (true) and that ben's helicopter is going to splash so much cash on to the world economy that Gold as a the old "reserve currency" will make a comeback. They say that (eventually) inflation will make the value of gold rise in comparison to it's fiat counterpart. (false, for the near/medium term).

Lets get beyond the bs. The bottom line is this. Monetary inflation may give some bouyancy to precious metals, but the FACT is that gold is only a good hedge against GEOPOLITICAL RISK. Many gold bugs fail to point out that the 1980's gold spike corresponded with the Iran hostage crisis, and they fail to note that gold's decline followed when the Iran hostage situation began to end, in ~1981. If you have been following gold/silver lately you should be able to note that the spikes have come when geopolitical tensions flared i.e. Russie/Georgia, India/Pakistan, Israel/Palestine. AND Besides, we are entering what looks to be a Deflationary (with a capital D) depression (start thinking that the best investment may be the bank of Sealy).

The reality for the vast majority if people is this, the best investment for 2009 will be very simple in comparison to previous years, the best investment will be 1. holding on to your cash and 2. keeping your job. I will delve into the fundamental reasons why these two options are by far your best financial issues to focus on. Prudence, saving, and your grandparent's wisdom will come back with a vengeance in '09 and the ones that heeded this advice will be thankful. This I can promise with a large degree of certainty.

THERE WILL BE A TIME TO JUMP ON TO THE NEXT BULL MARKET BUT THE TIME IS NOT NOW.