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
Wednesday, January 28, 2009
Friday, January 23, 2009
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
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
Thursday, January 22, 2009
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]
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.
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.
- 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.
Friday, January 16, 2009
Thursday, January 15, 2009
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
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
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)
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.
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?
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.
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.
Wednesday, January 14, 2009
Tuesday, January 13, 2009
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."
"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/
= 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.
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.
Monday, January 12, 2009
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
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
Sunday, January 11, 2009
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)
(Change in GDP)
(Outstanding CDS Contracts)
(Commercial sq footage for selected countries)
Friday, January 9, 2009
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=101Tuesday, January 6, 2009
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
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
Friday, January 2, 2009
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
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
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
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
Thursday, January 1, 2009
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
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.
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.
CALIFORNIA - IF YOU LIVE THERE, GET OUT!
If you expect you'll be getting a refund from California when you file your 2008 state income tax return, be prepared: you may instead receive a "registered warrant." Translation: an IOU. California is rapidly running out of money. Blame it on the state budget deficit that continues to bleed billions of dollars from California's reserves. Facing inadequate credit to make up the difference, California's Controller John Chiang warns that by the end of February, the nation's most populous state may not be able to pay some of its debts, and instead be reduced to issuing those creditors IOUs."My office has projected that, in approximately 60 days, there will be insufficient cash available to meet all expenditures reflected in the 2008-09 Budget Act," stated a Tuesday letter from Controller Chiang to the directors of all state agencies. "To ensure that the State can meet its obligations to schools, debt service, and others entitled to payment under the State Constitution, federal law, or court order. California may begin, as early as February 1, 2009, issuing registered warrants...commonly referred to as IOUs...to individuals and entities in lieu of regular payments."
http://www.msnbc.msn.com/id/28448852
PS. If California were a sovereign nation it's GDP would rank as the eighth largest in the world.
http://www.msnbc.msn.com/id/28448852
PS. If California were a sovereign nation it's GDP would rank as the eighth largest in the world.
US stocks suffer worst year since Great Depression
The worst annual performance for Wall Street stocks since the Great Depression ended with a modest rally on the final day of trading as the Federal Reserve pushed ahead with its plan to buy mortgage-backed securities.
The central bank’s plan to buy up to $500bn of mortgage bonds by the middle of 2009 helped spur a 1.4 per cent gain on the day for the S&P, which finished 2008 at 903.25.
The Dow Jones Industrial Average and Nasdaq Composite Index added 1.3 per cent to 8,776.39 and 1.7 per cent to 1,577.03, respectively. Volumes were thin as many traders remained away from their desks ahead of the New Year holiday.
For the year, the S&P 500 dropped 38.5 per cent, marking its worst run since a marginally higher drop of 38.6 per cent in 1937. The Dow lost 33.8 per cent, its worst annual decline since the index fell 52.7 per cent in 1931.
“It was beyond most people’s comprehension that such a thing could happen,” said Marc Pado, chief market strategist at Cantor Fitzgerald. “No one thought the short-term could be this destructive.”
The financial sector was the worst performing, down 57 per cent overall, in a year in which several institutions ended up part-owned by the state to prevent a collapse of the system.
Some equity was all but wiped out, such as that of Lehman Brothers, whose collapse in September sent shockwaves throughout financial markets across the globe.
Shares in other banks that survived without a forced sale or bankruptcy nevertheless sustained losses of epic proportions.
Citigroup, which told employees on Wednesday that its chief executive and other executives would forgo 2008 bonuses, finished the year down 77.2 per cent at $6.71. Bank of America sank 67 per cent to $14.08.
Goldman Sachs and Morgan Stanley, among several institutions to become bank holding companies, were off 60.8 per cent and 69.8 for the year, respectively.
As fears over the future of the nation’s financial institutions mounted, so too did concerns of a deep and long-lasting global recession.
The material and energy sectors sank 47.1 per cent and 35.9 per cent respectively in a year of extraordinary highs and lows that ultimately saw the worst annual performance for commodity markets since modern records began.
Alcoa was among the hardest hit, down 69.2 per cent at $11.26. ExxonMobil was the best performing energy stock – but still lost 16 per cent.
Towards the end of the year, the fate of the car industry – vital to the US economy – weighed heavily on investor concerns. Other than AIG, the insurer bailed out by the US government, General Motors was the worst performer on the Dow, off 87.4 per cent for the year.
Shares in GM dropped 15.8 per cent to $3.20 on Wednesday after participation in a debt swap by GMAC, the motor group’s financing arm, fell short of its target.
Traditionally defensive sectors failed to provide much of a safe haven. Consumer staples, health care and utilities were the best performing sectors, yet still lost 17.7 per cent, 24.5 per cent and 31.6 per cent, respectively.
Merck, the pharmaceuticals group, lost 47.7 per cent over the year.
Other well known blue chips also endured huge falls as fears grew that companies could find difficulty securing financing and earnings would be hit by plummeting demand. Boeing and Microsoft tumbled 51.7 per cent and 46.2 per cent respectively over the year.
Despite the carnage across much of the market, some stand out names enjoyed double digit growth. Wal-Mart was one of two stocks on the Dow Jones Industrial Average to find positive territory, up 18 per cent at $56.06. The other, McDonald’s, rose 5.6 per cent over the year to $62.19.
Yet the year’s best performers were merger and acquisition targets, such as Wrigley, acquired by Mars; Anheuser-Busch, purchased by InBev; and UST, bought by Altria.
The S&P advanced 20 per cent from an 11 year low hit in November in a so-called ‘Santa-Claus rally’ towards the end of the year.
Volatility soared to record levels in 2009. The closely-watched Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, twice jumped above 80 towards the end of the year, nearly double previous highs.
Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/bd25ac02-d73a-11dd-8c5c-000077b07658.html
The central bank’s plan to buy up to $500bn of mortgage bonds by the middle of 2009 helped spur a 1.4 per cent gain on the day for the S&P, which finished 2008 at 903.25.
The Dow Jones Industrial Average and Nasdaq Composite Index added 1.3 per cent to 8,776.39 and 1.7 per cent to 1,577.03, respectively. Volumes were thin as many traders remained away from their desks ahead of the New Year holiday.
For the year, the S&P 500 dropped 38.5 per cent, marking its worst run since a marginally higher drop of 38.6 per cent in 1937. The Dow lost 33.8 per cent, its worst annual decline since the index fell 52.7 per cent in 1931.
“It was beyond most people’s comprehension that such a thing could happen,” said Marc Pado, chief market strategist at Cantor Fitzgerald. “No one thought the short-term could be this destructive.”
The financial sector was the worst performing, down 57 per cent overall, in a year in which several institutions ended up part-owned by the state to prevent a collapse of the system.
Some equity was all but wiped out, such as that of Lehman Brothers, whose collapse in September sent shockwaves throughout financial markets across the globe.
Shares in other banks that survived without a forced sale or bankruptcy nevertheless sustained losses of epic proportions.
Citigroup, which told employees on Wednesday that its chief executive and other executives would forgo 2008 bonuses, finished the year down 77.2 per cent at $6.71. Bank of America sank 67 per cent to $14.08.
Goldman Sachs and Morgan Stanley, among several institutions to become bank holding companies, were off 60.8 per cent and 69.8 for the year, respectively.
As fears over the future of the nation’s financial institutions mounted, so too did concerns of a deep and long-lasting global recession.
The material and energy sectors sank 47.1 per cent and 35.9 per cent respectively in a year of extraordinary highs and lows that ultimately saw the worst annual performance for commodity markets since modern records began.
Alcoa was among the hardest hit, down 69.2 per cent at $11.26. ExxonMobil was the best performing energy stock – but still lost 16 per cent.
Towards the end of the year, the fate of the car industry – vital to the US economy – weighed heavily on investor concerns. Other than AIG, the insurer bailed out by the US government, General Motors was the worst performer on the Dow, off 87.4 per cent for the year.
Shares in GM dropped 15.8 per cent to $3.20 on Wednesday after participation in a debt swap by GMAC, the motor group’s financing arm, fell short of its target.
Traditionally defensive sectors failed to provide much of a safe haven. Consumer staples, health care and utilities were the best performing sectors, yet still lost 17.7 per cent, 24.5 per cent and 31.6 per cent, respectively.
Merck, the pharmaceuticals group, lost 47.7 per cent over the year.
Other well known blue chips also endured huge falls as fears grew that companies could find difficulty securing financing and earnings would be hit by plummeting demand. Boeing and Microsoft tumbled 51.7 per cent and 46.2 per cent respectively over the year.
Despite the carnage across much of the market, some stand out names enjoyed double digit growth. Wal-Mart was one of two stocks on the Dow Jones Industrial Average to find positive territory, up 18 per cent at $56.06. The other, McDonald’s, rose 5.6 per cent over the year to $62.19.
Yet the year’s best performers were merger and acquisition targets, such as Wrigley, acquired by Mars; Anheuser-Busch, purchased by InBev; and UST, bought by Altria.
The S&P advanced 20 per cent from an 11 year low hit in November in a so-called ‘Santa-Claus rally’ towards the end of the year.
Volatility soared to record levels in 2009. The closely-watched Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, twice jumped above 80 towards the end of the year, nearly double previous highs.
Copyright The Financial Times Limited 2008
http://www.ft.com/cms/s/0/bd25ac02-d73a-11dd-8c5c-000077b07658.html
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