You Can Spend Your Way Out of a Recession [View article]
An interesting read for a slow weekend.:
"TARP Profit: The Lies Get Bigger and Bigger Tim Cavanaugh | September 2, 2009, 8:24pm
Cherry-picked news doesn't come much cherrier than the tale of the TARP profits. If you believe The New York Times, the eight strongest banks covered in the Troubled Asset Relief Program (that's the $700 billion bailout approved last October) have paid back taxpayer money with interest. To stretch the slight return on investment from a very tiny part of the program into "profit," Timesman Zachery Kouwe engages in some mighty opaque language:
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.
"By no means a full accounting" is putting it mildly. In Matt Taibbi's description, this figure is "sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up." Profit is what you make on top of your initial investment, so if you're talking about $4 billion on a $700 billion outlay, that's a little more than 0.5% -- more than Wells Fargo pays its depositors in interest, but nothing to write home about. In the event, the $700 billion is nowhere near to being recouped, and big chunks of it are tied up in losers like Bank of America, Wells Fargo, Citibank, and others.
The really disturbing thing is not that the case for TARP profits is so forced and hard to believe, but that it's being made at all. FDIC Chairwoman Sheila Bair believes 500 banks are in danger of failing; other estimates have put the figure closer to 1,000, and the list of problem banks keeps growing. If the government were even pretending the TARP was designed to shore up the banking system there would be no talk of profit because every penny the big banks paid back would be going back out to reward some other collection of incompetent losers.
If the Treasury really wanted to make the case for TARP it would make clear that none of that money should ever come back, because it was all a handful of dust in a vast sinkhole that has swallowed about $15 trillion in national net worth since the return to economic reality began in 2007. (That vast figure also helps explain why the Treasury and the Fed haven't been able to inflate salaries, consumer prices, producer prices, or anything else except the number of dollars in currency markets.)
Other reactions to the TARP profit story include Taibbi's:
Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven't retired their obligations yet, it's crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.
The other reason for that is that it's only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities - the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed's purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there's the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don't know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg's FOIA request for those records actually goes through.
Rolfe Winkler at Reuters:
A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money...
The trouble is the popular view that TARP was the bailout. That very unpopular $700 billion program got all the attention because it was an easy story to tell a general audience. It had a big ugly price tag; it was debated very publicly in Congress; and, most important, the list of recipients and their take was made public all at once...
But the bailout was much larger than TARP. There is FDIC's debt guarantee program, which still backs over $300 billion worth of financial sector debt; there are the Federal Reserve's emerging lending facilities, which have showered hundreds of billions of cash on banks in exchange for, well, we don't know what. There was the AIG bailout, which gave the company tens of billions more. There were changes in fair value accounting rules, which permitted banks to hide losses, and there is stupendous support for the housing market, which has rescued banks from huge write-offs.
All of these and more make up the implicit too-big-to-fail guarantee that the biggest financials have all received. The total cost won't be known for years, and the price tag is likely to be enormous.
Former Treasury Secretary Hank Paulson, in a typical meltdown of grammar and sense quoted by the Times' DealBook blog (and dig the supremely loaded language in the first paragraph):
Of course, the government's chief priority was to stabilize the teetering financial system, not necessarily to maximize profit. Now, the worst of the crisis is past, and the rewards from avoiding a widespread financial meltdown are incalculable.
"You do not stop a financial panic by putting capital and offering capital at the banks on the terms - the only terms that is available in the middle of a crisis," former Treasury Secretary Henry M. Paulson Jr. said at a Congressional hearing in July.
The Atlantic Business Channel:
I'm with Yglesias. TARP might not have been perfect, but it provided clutch funds for teetering banks during the darkest hours of the recession, and its early returns are positive. Not bad for a ongoing government working through the most complicated financial crisis we've ever seen.
And back with the grownups, Barry Ritholtz:
My definition of an investment profit is simple: You take the money you have invested, and if adds up to more that what you began with, well, then, you have a profit.
Let's say on the other hand, you own 20+30 positions; 5 of them are higher than where you purchased them, and all the rest deeply in the red. Net net, your portfolio is down immensely. Most rational investors would hardly call that investment a "profit."
Looking just at early TARP repayments means that we are ignoring a) the rest of the TARP; and b) the majority of other expenses, guarantees, loans capital injections, and outright spending that has taken place...
The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages."
What this is more appropriately described as is a return of capital; to call this a profit is to ignore trillions of dollars in taxpayer monies that have been spent, lent, guaranteed, drawn against and otherwise consumed in what will likely be the greatest transfer of wealth in the planet's history." reason.com/blog/show/1...
Cited above: Friday, September 25, 2009 Problem Bank List (Unofficial) Sept 25, 2009 by CalculatedRisk on 9/25/2009 07:36:00 PM This is an unofficial list of Problem Banks.
Changes and comments from surferdude808:
Another week with significant changes to the Unofficial Problem Bank List as the FDIC released its enforcement actions for August. We will not get another release from the FDIC until the end of October.
The Unofficial Problem Bank List grew by 23 institutions to 459 and aggregate assets total $297.2 billion, up from $294 billion last week. During the week, we added 25 institutions to the list while we removed 2 because of failure. The failures were Irwin Union Bank and Trust Company ($2.8 billion) and Irwin Union Bank, F.S.B. ($518 million).
The largest asset additions include First Mariner Bank ($1.3 billion), Baltimore, MD; Anchor Mutual Savings Bank ($657 million), Aberdeen, WA; and NexBank ($560 million), Dallas, TX.
For the other 23 additions, the average asset size is $178 million. The additions are concentrated in handful of states including Minnesota (5), California (4), Washington (4), and Georgia (3), which all continue to see banks with large CRE or C&D lending concentrations come under enforcement action.
The list includes 2 new Prompt Corrective Action orders the FDIC issued against American United Bank ($112 million), Lawrenceville, GA; and Bank 1st ($109 million), Albuquerque, NM. It is long overdue for the agencies to start issuing more PCA orders.
One other interesting item this week is that the FDIC issued a Cease & Desist order on August 31st against Georgian Bank ($2.2 billion), Atlanta, GA, which was closed today. We typically remove failures from the subsequent week’s list but, in this case, we did not add Georgian Bank otherwise aggregate assets would have been $299.4 billion. The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.
See description below table for Class and Cert (and a link to FDIC ID system).
For a full screen version of the table click here.
The table is wide - use scroll bars to see all information!
Go here and you can see the list of bank that are unofficially on the bad list. Estimates of upwards of 1000 banks.
It is not just bringing back the Glass-Stegall Act, it is about splitting up the banks into the pre-Glass-Steagall repeal size (re-set to 1999). The government says these banks are now too big to split-up and instead want to provide more oversight to the Federal Reserve.
There is the small problem of what to do with the toxic anchors these banks are dragging. Which part of the bank would take the toxic assets with them? For example, at last estimate BofA was thought to have about 50 trillion in toxic assets (give or take a trillion).
How much of these toxic assets can be pushed through the PPIP program on to the backs of the taxpayer remains to be seen. The mark to market accounting is something that needs to be looked at in the valuation of these toxic derivatives. It has the potential for great mischief in the valuation of these toxic derivatives that are basically guaranteed by the taxpayer. Will it provide cover if these assets are "suddenly" discovered to be worthless?
Re-instate the Glass-Steagall Act which served us well since the 1930's until it was repealed in 1999. The repeal paved the way for the savings and investment banks to join and build the massive mortgage bundled derivatives. There are those in the government that say re-instating Glass-Steagall is not viable as these banks are now too big to separate. On the other hand, the Government say these same banks are too big to fail. Never too big to bail-out at taxpayer expense.
The 900 pound Gorilla in the room remains what to do with the trillions of toxic assets these banks still carry. If the banks are separated who carries the toxic load? Should they be shown the door to the bankruptcy court?
Today in Commodities: The Herd Is Moving [View article]
Not quite a slow news day:
"In yet another step to internationalize the yuan as a global currency, China will be selling yuan-denominated bonds on the international market for the first time.
This could be a new option for fixed-income investors, including central banks, who want to diversify away from the dollar.
AP: The 6 billion yuan ($876 million) bond sale is slated for Sept. 28, the ministry said. Hong Kong is Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.
The yuan, also known as the renminbi, or people's money, does not trade on global markets despite China's huge foreign trade, but Beijing is gradually expanding its use abroad.
It will be interesting to see what yield these bonds end up offering, and if central banks bite.
Given the consensus view that the yuan is artificially undervalued versus the dollar, longer-term Chinese bonds are likely to be appealing for their currency appreciation potential, in addition to their interest income. We expect a strong a response." www.businessinsider.co...
I think it was a ruling by the 9th Circuit Court for the Delta Smelt that has caused the water to be rationed as they are an endangered species. Also, the Smelt had a great law firm Hook, Line & Sinker, LLP.
Regardless, there are signs along the I-5 in California saying Congress created a dust bowl. Considerate of them as what would a Depression be without a dust bowl?
There are so many fragile pieces to the economy that when one piece fails the masses will follow. Not sure if it will be commercial real estate, pensions, bank failures, consumer bankruptcy, and the potential list goes on. Once the herd starts to move it will be a stampede.
Massive amounts of undisclosed toxic assets still remain on the banks books hidden by mark to market. The PPIP, which is the butt end of the Tarp program to pass the banks debt to the public, is not off to a good start. In addition I understand that 95% of all mortgages in this Country are now government (insert taxpayer) backed through Fannie, Freddie and Ginnie.
But the jobless numbers come out, unemployment continues to climb to record highs and the market goes up. Rejoice, the Legendary Jobless Recovery is at hand.
On Sep 02 02:38 AM Econ 101 wrote:
> Invest in real assets...Food, drink and arms to protect ourself from > those that would take from you. Be it the Crips or Bloods or the > US congress. 40% of the San Juaquin valley wasnt in production because > of a water shortage.
FDIC's Private Equity Rule: So Much Can Go Wrong [View article]
I understand that Congress basically put a gun to the FDIC's head and required that these changes be made. Seems like Chicago style politics is catching on. There is much going on behind the curtain. Easier to do this if it does not have to be debated in Congress. This information has nothing to do with the FDIC's decision on this issue? Oh, that's right we do not have the information.
"The Federal Reserve is fighting hard to keep details about the $2 trillion in emergency loans it has made during the financial crisis from seeing the light of day. And now it seems the Federal Deposit Insurance Corp. also has started playing the game of keeping secrets from the public.
The American Banker earlier this week reported that the FDIC is holding back on disclosing information about failed bids for troubled banks the government agency has taken over. The industry newspaper reports the FDIC is delaying the processing of Freedom of Information Act requests seeking such information, while the agency reviews its disclosure policy.
The FDIC announcement is disturbing because it comes at a time that the FDIC has been forced to close banks at a brisk clip and just put in place a plan for allowing private equity firms to bid on bank assets. (Full disclosure: my wife used to be an editor for the American Banker).
The FDIC’s position on releasing information about failed bids is not as sweeping as the Fed’s opposition to a Bloomberg News lawsuit seeking access to information about the $2 trillion in emergency loans. But as The Audit, a Columbia Journalism Review blog, point outs, the FDIC’s stance is another move towards “creeping government secrecy.”
Of all the financial regulators, I’ve been the most supportive of FDIC Chair Sheila Bair. I’ve praised her for not being afraid to take positions that offend the nation’s bankers. But on this issue of disclosure, Bair is doing a disservice not only to her reputation, but the public’s right to know." blogs.reuters.com/comm.../
On Aug 28 01:12 AM Moon Kil Woong wrote:
> Trade4alpha: Given the current market environment where agencies > rain money down on people to gain power I guess she doesn't have > much choice. It's nice to see competition exists even in the bureaucracy > lol. > > Big Bubbette: Congress gave out their authority a long time ago. > They simply don't want to be responsible for anything aside handouts > too their friends. And even then, only when the Press isn't looking. > The existence of the Federal Reserve is proof of that. > > Ergo: Yes, I fully support a Seeking Alpha private equity bank. The > only think is we would probably be admonished by the FDIC for failing > to make loans that default like they did to best performing bank > in the US which also has no mortgage loan defaults. > > Graham and Dodd Investor: It is odd since Sheila Bair up to this > point has been the one rational person in the banking industry. It > may have something to do with the fact the government is preventing > her from raising FDIC premiums to reflect real risk and prevent her > agency from running out of money. As it is going, she will soon have > to ask the government for loans and thus will become in thrall to > the Treasury and FDIC which is trying to take away the FDIC's power. > It is hard to ask for money and be nice to a guy like Geithner who > swears at you in a public forum. Given that option I guess I understand > her change of heart a bit better. > > The sad point is the government ought to be toghtening requirements > for becoming a bank not loosening them. This is just one more step > in the wrong direction, no matter what the reasoning is.
FDIC's Private Equity Rule: So Much Can Go Wrong [View article]
So why are these decisions not being made by Congress? Mark to Market was passed by the Financial Accounting Standards Board. Now the FDIC further eroding the lines. It is a slippery slope. Is this to provide plausible deniability to Congress and leaves the decision making process murky?
If Obama is not able to get cap and trade passed will the boom in solar be more of a bust, even with the massive investment in green technology in the stimulus bill? Will there be a push after the recess to get cap and trade passed in the US before the Copenhagen Accord in December 2010 to push forward the plan for a global taxation scheme?
Let's look back at one of several bills Senator Obama put forth:
"Obama’s Global Tax Proposal Up for Senate Vote:
A nice-sounding bill called the "Global Poverty Act," sponsored by Democratic presidential candidate and Senator Barack Obama, is up for a Senate vote on Thursday and could result in the imposition of a global tax on the United States. The bill, which has the support of many liberal religious groups, makes levels of U.S. foreign aid spending subservient to the dictates of the United Nations... Jeffrey Sachs, who runs the U.N.'s "Millennium Project," says that the U.N. plan to force the U.S. to pay 0.7 percent of GNP in increased foreign aid spending would add $65 billion a year to what the U.S. already spends. Over a 13-year period, from 2002, when the U.N.'s Financing for Development conference was held, to the target year of 2015, when the U.S. is expected to meet the "Millennium Development Goals," this amounts to $845 billion. And the only way to raise that kind of money, Sachs has written, is through a global tax, preferably on carbon-emitting fossil fuels. " www.aim.org/aim-column.../
The path to solar and green technology is hazy and how cap and trade plays will impact it.
Meanwhile, there is enough shale oil in the US to meet our energy needs for the next 250 years. Any stimulus money invested to try and develop this technology to protect the long term interests of the Nation?
Colonial Bank Failure Highlights the Problem [View article]
"Bank Failures in the United States Written by Bob Chapman
Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.
We had a bank go on Thursday and now we have a continuation of the Friday Night FDIC Financial Follies.
Federal and state regulators closed two small Arizona banks Friday evening, but depositors won't feel any pain.
Phoenix-based Community Bank of Arizona and Union Bank in Gilbert were shuttered, with deposits of both institutions purchased by Oklahoma-based MidFirst Bank.
Regulators also closed three other banks elsewhere around the country on Friday, raising the year-to-date total to 77.
Much to their dismay, Americans learned last year that they ‘owned’ Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too. Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this ‘phenomenal growth.’ Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.
This past week the Dow fell 0.5%, S&P 0.6%, the Russell 200 fell 1.5% and the Nasdaq 100 fell 0.4%. Banks rose 0.8%, as broker/dealers fell 2%. Cyclicals fell 1.6%; transports 1.2%; consumers 0.2%, as utilities gained 0.2%. High tech fell 0.4%; semis 1.3%; Internet 0.6% and biotechs 0.2%. Gold bullion lost $6.50 and the HUI gold index fell 2.4%.
Two year T-bill yields fell 24 bps to 0.96% and the 10’s fell 29 bps to 3.57%, as German bunds fell 19 bps to 3.31%.
Fed credit expanded $11.4 billion. Fed foreign holdings of Treasury and Agency debt rose $5.5 billion to a record $2.816 trillion. Custody holdings for central banks rose at a 19.3% rate ytd and yoy up 17.6%.
M2 narrow money supply fell $42 billion to $8.324 trillion, having expanded at a 2.6% rate ytd and 17.6% yoy.
Total money fund assets declined $12.8 billion to $3.594 trillion. The dollar fell 0.2% last week to 78.79.
Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.
We are in a five month bear market rally that has carried the Dow from 6600 to 8500, where we believed it would end, and on to almost 9400. This constitutes a 50% move in the Dow from mid-March and a 6.2% move for the year, while the economy experiences the worst economic and financial debacle since the “Great Depression.” This rally is quite similar to the rallies of 1930 and 1932 - so do not get fooled as investors did. This is the time to be selling if you are still in the market or have cash value life policies or annuities.
Recent data shows us there is if anything only a slight flattening to the downside. Retail sales continue to fall in spite of cash for clunkers as thousands of used car dealers go out of business because the clunkers are being destroyed rather than being resold. In fact, July sales fell the most since March. That is certainly not a green shoots event. Even consumer confidence fell to the lowest level since March.
July foreclosure figures were at a record 360,149, up 7% on June and up 32% yoy. In addition bankruptcies were up 34% yoy.
There was positive news out of Asia and Europe, as a flattening out seemed to be occurring there as well. Needless to say, a wide array of governmental and stock market pundits tell us the recession is over. This is the same group that told us that eight months after the fall, one year after the highs and 1-1/2 years after the credit crisis began that the recession was over. A crisis caused by banks and Wall Street, the result of which was they’re being bailed out by the Federal Reserve and our government.
Wholesale inventories have fallen and that is normal when consumers are buying less. Capacity utilization is still terrible even though vehicle production has increased abnormally. We do not for a second believe the doctored non-farm productivity figures, just as we cannot believe unemployment, CPI and PPI numbers. Incidentally, all countries are fudging their figures.
Household consumption will continue to fall as residential real estate inventory builds and prices recede another 20%. We are only leveling out because of massive reflation and those who believe in recovery will be sadly disappointed. Consumption is falling and any recovery will fizzle because we have shipped 75% of our manufacturing capability overseas under free trade, globalization, offshoring and outsourcing.
The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.
The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.
Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.
In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis. [More social engineering. As we have seen since WWII all efforts to create such housing have turned into slums and most had to be destroyed.]
One of the biggest banks in Florida has been shut down by regulators and its assets sold to a rival in a move that underlines the continued frailty of the American banking and property sectors.
Colonial Bank, which was based in Alabama but had flourished in the central Florida property boom, had $25 billion (£15 billion) in assets.
It is the largest American bank to fail since Washington Mutual collapsed at the height of the credit crunch last September, and the fifth-largest American bank failure ever, according to analysts.
Colonial was shut down on Friday by the Federal Deposit Insurance Corporation (FDIC), the government agency that provides a safety net for the customers when banks get into difficulties.
The FDIC said Colonial’s 346 branches, which are spread across five states, and most of its assets had been transferred to one of its rivals, BB&T. The switch will make BB&T, based in North Carolina, America’s eighth-biggest bank.
The FDIC revealed that it was expecting to take a hit of about $2.8 billion in making good Colonial’s losses. The agency has struck a deal that will see it share part of the losses if the loan books it has sold to BB&T turn bad.
Reader’s Digest Association Inc. said it will likely file for Chapter 11 bankruptcy protection under an agreement with a majority of its secured lenders to reduce debt by 75 percent to $550 million.
Senior secured lenders will exchange a “substantial portion” of $1.6 billion in debt for equity, the publisher said today in a statement. Some of them will provide a $150 million bankruptcy loan, debtor-in-possession financing, to ensure the company has enough liquidity during its reorganization.
The publisher of the pocket-sized magazine that claims the world’s largest readership went private in March 2007, in an agreement with an investor group led by Ripplewood Holdings LLC that saddled it with $1.6 billion in debt just before the advertising market slumped. The magazine’s ad sales slipped 7.2 percent to $121.2 million in the first half from a year earlier, according to Publishers Information Bureau data.
Manufacturing in the New York region grew in August for the first time in more than a year, reinforcing signs the worst recession since the 1930s is nearing an end.
The Federal Reserve Bank of New York’s general economic index climbed to 12.1, higher than forecast and the first expansion since April 2008, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.
The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.
The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. The Fed is “paying very close attention,” Chairman Ben S. Bernanke said in congressional testimony last month.
The U.S. recession is ending “right now,” said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc.v [From her lips to God’s ears. Last time she made such a prediction she was wrong for 5 years. What a loser.]
Six months after President Obama launched a $787 billion plan to right the nation's economy, a majority of Americans think the avalanche of new federal aid has cost too much and done too little to end the recession.
A USA TODAY/Gallup Poll found 57% of adults say the stimulus package is having no impact on the economy or making it worse. Even more —60% — doubt that the stimulus plan will help the economy in the years ahead, and only 18% say it has done anything to help improve their personal situation.
That skepticism underscores the challenge Obama faces in trying to convince the public that the stimulus has helped turn the economy around. It also could complicate the administration's plans to overhaul the nation's health care system.
"This is a wake-up call for the administration." says House Minority Whip Eric Cantor, R-Va. "People see the stimulus hasn't worked, and now you want to lay on over $1 trillion in a health care plan."
The administration declined to comment on the poll results.
China's $200 billion sovereign wealth fund, which lost big on its ill-timed 2007 Morgan Stanley and Blackstone bets, plans to invest up to $2 billion in U.S. mortgages as it eyes a property market rebound, two people with direct knowledge of the matter said Monday.
China Investment Corp plans to soon invest in U.S. taxpayer-subsidized investment funds that will acquire "toxic" mortgage-backed securities from the nation's banks. CIC believes these assets are a safer bet than buying into the U.S. Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF), the people with direct knowledge said.
CIC is in talks with nine U.S. Treasury-designated Public-Private Investment Plan managers, the sources said.
They include: AllianceBernstein Holding, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo, Gordon & Co LP with GE Capital Real Estate, a unit of General Electric Co; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; Trust Company of the West, a unit of Legg Mason; RLJ Western Asset Management LP, a venture formed by Legg's Western Asset Management unit; and Wellington Management Co LLP.
CIC is expected to decide this month which of the nine PPIP managers will handle its investments in mortgage-backed securities under the PPIP plan, the sources said.
A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.
Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.
There has been a decline in short interest -- borrowed shares sold but not yet repurchased -- which some analysts see as a warning. Some investors sell short to profit from price declines, and some say the recent rally has been supported by the reversing of short positions.
For brokerage Jefferies & Co., a significant increase in insider selling transactions as well as a decrease in short interest across most sectors of the S&P 500 demonstrates the weathering of the bear market rally.
Short interest fell in mid-July and firms with insider selling activity outnumber those with buying activity two to one, according to research firm InsiderScore.com.
"Both of those (factors) lends to our general thesis" that the equity market rally is running on borrowed time, said Patrick Neal, head of U.S. equity strategy at Jefferies & Co.
CIT Group Inc., the commercial lender seeking to avert collapse, reported a wider-than-expected loss as more customers defaulted on loans.
The ninth consecutive quarterly net loss was $1.62 billion, or $4.30 a share, New York-based CIT said in a regulatory filing. Nine analysts had estimated a per-share loss of $1.53.
CIT Chief Executive Officer Jeffrey Peek is negotiating with bondholders and considering asset sales to stave off bankruptcy.
The lender, which provides financing to almost a million small- and mid-sized businesses, has lost more than $5 billion in the past nine quarters as bad debts soared and the company was cut off from the commercial-paper market, its traditional source of funding.
"I don't think there's any good news to come in terms of credit quality," said Sameer Gokhale, an analyst with KBW Inc.
Former Goldman Sachs computer programmer Sergey Aleynikov, who was charged last month with stealing sophisticated trading software, wants his criminal case dismissed.
At a hearing in Manhattan federal court on last week, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare "deferred prosecution" agreement.
Such deals are a form of probation in which prosecutors agree to dismiss criminal charges, provided a defendant doesn't break the law for as much as 18 months.
Laura Blankfein and her friend Susan Friedman, wife of another Goldman honcho, Richard Friedman, caused a huge scene at Super Saturday in the Hamptons last weekend when they arrived at the event before the noon start time and balked at waiting in line with the other ticket-holders.
“Their behavior was obnoxious. They were screaming,” said one witness. Blankfein said she wouldn’t wait with “people who spend less money than me.”
GOLDMAN SACHS WIVES LAURA BLANKFEIN AND SUSAN FRIEDMAN MAKE SCENE ON LINE IN HAMPTONS- New York Post
I can’t believe I didn’t see this before. Laura Blankfein going mental over having to wait on line at a charity dinner… this is like the most awesome thing ever.I can just imagine her the next morning, complaining to Lloyd while shining his head with Turtle Wax before he goes off to work.
Meanwhile this is more recent news, apparently:
Police in East Hampton, N.Y., arrested the wife of longtime Goldman Sachs hedge fund guru Ray Iwanowski for drunk driving, according to The New York Post.
Jane Iwanowski, 48, crashed her BMW into a tree in July. A police report stated an intoxicated Iwanowski “was unable to walk or stand,” when questioned while at a hospital.
Fun times in the fast lane!
Manhattan office sales came to a near standstill in the first half, with less than one-tenth the average number of transactions seen during the same period in the previous five years, CB Richard Ellis Group Inc. said.
Three office buildings valued at more than $30 million sold from January to June, down from an average of 32 in the first six months of the prior five years, said the Los Angeles-based firm, the largest publicly traded commercial real estate broker.
Buyers and sellers remain far apart on bids while low interest rates on existing loans mean many sellers can afford to wait, CB Richard Ellis said. The Federal Reserve yesterday extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the real- estate industry from rising defaults and falling prices.
Housing starts in the U.S. unexpectedly fell in July, pulled down by multifamily dwellings, while single-family starts which make up most of the industry rose to the highest level since October.
The 1 percent decline in starts to an annual rate of 581,000 was the first drop in three months and followed a 587,000 rate in June, the Commerce Department said today in Washington. Construction of single-family houses, which account for 75 percent of the industry, rose 1.7 percent to a 490,000 rate, today’s report showed.
Single-family home construction has been rising since March, a sign that falling home values and stimulus efforts such as a tax credit for first-time buyers are starting to reverse the housing meltdown that triggered the financial crisis. While the economy is forecast to grow this quarter, foreclosures, tight credit and job losses will temper the recovery.
“We’ve formed a bottom but probably only have limited upside, with unemployment too high to boost demand” much higher than current levels, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Single-family construction is probably getting some help from the $8,000 tax credits. We expect construction to make a positive contribution to GDP growth in the second half.”
Wholesale prices in the U.S. fell more than forecast in July as energy costs receded, capping the biggest 12-month drop on record and showing inflation will not be an immediate concern for Federal Reserve policy makers.
The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices unexpectedly fell 0.1 percent.
Treasury International Capital flow data shows foreign investors bought $90.7B of US financial assets in June, more than triple May’s $19.4B. Net buying of US govies totaled $101.5B, the biggest buying binge since the data series commenced in 1977. Foreigners sold $22.6B of govies in May.
China bought $26.3B of US govies in June; Japan bought $34.6B and the UK bought $50.2B. We wonder what favors were called or pledged?
National chain store sales fell 0.7% in the first two weeks of August versus the previous month, according to Redbook Research's latest indicator of national retail sales released Tuesday.
The latest numbers are starkly different from recent weeks because they don't include Wal-Mart Stores Inc. (WMT), which said last month it would no longer provide monthly sales figures.
The fall in the index was compared to a targeted 0.6% drop.
The Johnson Redbook Index also showed seasonally adjusted sales in the period were down 4.4% from August 2008, compared to a targeted 4.3% fall.
Redbook said that on an unadjusted basis, sales in the week ended Saturday were down 4.5% from the same week in 2008 after a 4.2% decline the prior week.
The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index was down 0.9% in the week ended Saturday from its level a week before on a seasonally adjusted, comparable-store basis.
On a year-on-year basis, retailers saw sales decrease 0.6% in the latest week.
Home construction unexpectedly fell in July along with building permits, according to data that provides a weaker picture of the housing sector than in the past couple of months.
Housing starts fell 1.0% to a seasonally adjusted 581,000 annual rate compared to the prior month, the Commerce Department said Tuesday.
The report is more dismal than previous reports that had suggested some stability in the housing market. June housing starts, for instance, climbed 6.5% to 587,000, revised from an originally reported 3.6% increase to 532,000.
The 1.0% dip in July housing starts was a surprise. Economists surveyed by Dow Jones Newswires expected a 2.7% increase.
Housing starts were 37.7% lower than the pace of construction in July 2008.
Monsanto Co., the world’s largest seed maker, plans to charge as much as 42 percent more for new genetically modified seeds next year than older offerings because they increase farmers’ output.
Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co., will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace.
The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study.
Researchers at the University of Houston's C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices.
The study identified 141 companies with such advantageous options-granting practices that the researchers concluded they were highly likely to have been involved in backdating. Ninety-two of those companies never were publicly
Ex-Brocade Communications Systems CEO Gregory Reyes' conviction for backdating stock-option grants was reversed by an appeals court that cited prosecutorial misconduct and ordered a new trial.
A three-judge federal panel said yesterday a prosecutor knowingly made false statements to the jury in closing arguments. The government lawyer said Brocade's finance department was ignorant of the backdating, after executives told investigators they knew of the practice, the court said. [Some 600 executives were guilty of doing the same thing. A handful were fined and had to pay their profits back, the rest were not prosecuted. Reyes was picked out to be the goat, so that the public could be satisfied that something was being done bout the fraud and theft by senior management in hundreds of companies. It just shows you again the corruption of the SEC and our court system.]
Swiss Bank UBS to Divulge at Least 4,450 Account Names
A deal finalized Wednesday between the United States and Switzerland paves the way for a potentially historic disclosure of Swiss bank secrets: the names of thousands of Americans suspected of using secret accounts to hide money from the IRS
Swiss Bank UBS to Divulge at Least 4,450 Account Names
Under the agreement, UBS -- Switzerland's largest bank -- is expected to turn over the names of Americans who controlled 4,450 accounts that are currently open or have been closed.
The secret accounts at one point held as much as $18 billion, the IRS said.
"We will be receiving an unprecedented amount of information," IRS Commissioner Doug Shulman told reporters Wednesday morning.
The settlement follows a long-running effort by the U.S. government to penetrate Swiss bank secrecy and catch tax evaders.
The U.S. government had been seeking a federal court order demanding that UBS identify the holders of 52,000 accounts. The Swiss government vowed to prevent such a disclosure, leading to weeks of negotiations.
Switzerland was fighting to preserve the reputation for privacy that has made its banking industry a global powerhouse and a pillar of the Swiss economy.
The deal includes concessions that might make it easier for Switzerland to argue that its tradition of secrecy survived the battle.
The United States agreed to narrow its request.
More importantly, the United States agreed to drop its federal lawsuit against UBS and pursue the information through a Swiss legal channel under a tax treaty between the two countries.
The U.S. government tried to use that channel last year but got nowhere. Switzerland has agreed to handle the request differently this time.
Switzerland has not explicitly promised to identify the holders of the 4,450 accounts, but the two sides said that is the expected result, suggesting that the new U.S. request is mainly a formality and the outcome is preordained.
Under Swiss law, the affected depositors would have the opportunity to contest the release of their names and account information. But that, too, could be a hollow exercise. Under an interpretation of U.S. law, they might be required to disclose such appeals to the Justice Department, rendering moot any attempt to remain anonymous.
In February, to avoid criminal prosecution, UBS agreed to pay the U.S. government $780 million and admitted that it schemed to defraud the United States by helping Americans hide money from the IRS. At that time, the Swiss provided the names of 200 to 300 American depositors, which shows how much farther Switzerland is moving on the issue.
Some details of the settlement were not disclosed. The criteria the U.S. government used to narrow its request remain under wraps. That leaves UBS depositors guessing as to their personal risk of exposure and keeps them under pressure to seek leniency by turning themselves in to the IRS.
It could also obscure any shift in Switzerland's bank secrecy standards.
In the end fundamentals will win out. What we are seeing now is the end of the short covering rally - an unwinding of bearish positions. Be as it may, the stock market certainly doesn’t reflect the fundamentals of future economic performance. In addition, the Fed does not seem at all interested in ending quantitative easing or stopping the overall increase in money and credit. The predominance of government market manipulation complicates things further. As we can see anything can and will happen. The central bank has described the economy as stagnant, so we ask how can the stock market attract enthusiasm? Then again almost two years ago the market hit 14,168 on the Dow just in front of the worst economic downturn since the “Great Depression.
The bottom line is that markets do not represent economic reality.
We believe as we said in the China section, watch the Chinese and Asian markets. If they break downward you can expect western markets to do the same. Do not get sucked in by the short-term technicals, because the government is manipulating all markets short term. The world markets remain tenuous at best. How can there be euphoria when 12-1/2% of all mortgages are in foreclosure and 25% are under water in their mortgages? We have 20.8% U6 unemployment and 1/7th of all housing units are without tenants. The rally is absurd at best. Almost all corporate operating earnings are lies, particularly those of financial firms.
The European and US markets last week found the real GDP figures attractive as real GDP fell only 0.1% in the second quarter. The first quarter was minus 2.5%. Those figures were assisted by subsidizing the purchase of vehicles, showing the unreality of it all. This in time will lead to massive distortions in their economies, just as cash for clunkers will in the US.
As we predicted in January the stimulus package wouldn’t be enough and $2 trillion more would be needed in 2009, an election year, and that now is seriously being discussed behind the scenes. We are looking at a $2 trillion budget deficit more than triple $388.62 billion just a year ago. This is not 1982 when price earnings were in single digits. Today trailing earnings are 24 times. Top revenues are plunging, interest rates can only rise, and in our new fascist economy government manipulates our markets. Could it be any worse?
The “experts” are again heralding a recovery as retail sales fell 0.8% in July and sporting goods sales fell 1.9%. That is as unemployment climbs. We see no recovery in sight.
Keep in mind inflation can only be caused by a central bank creating money and credit and deflation and contraction are caused by lack of aggregate creation. Two years ago we entered monetary crisis. The amount of money and credit creation has been the greatest in history. We saw 14-5/8% inflation and now we see 5%. More interesting is that what once was M3 has just dropped from 18% to 4% and if that persists for two more months we could enter deflationary depression. On the other hand the TMS, True Money Supply, another index shows aggregate creation at 17%. These two indexes diverged in a similar manner between 2006 and 2008. The TMS has been the better gauge. As an aside you remember that the European Central Bank lowered their M4 from 7.8% to 4.7%. Something is afoot because these falls in aggregates have to be coordinated. There is no such thing as coincidence with these criminals.
Mainstream economists do not have a clue to what is going on. They, like central banks, were caught off guard by the ferocity of deflation over the past six years. It could be that central banks have lost control. We will see in time. The reduction in M3 and M4 can only mean the US, UK and Europe are trying to cool down the massive influx of liquidity they have created. Few realize what is going on and there is a good chance the central banks could lose control totally. Whether they realize it or not, two years ago the system collapsed. Their Ponzi scheme worldwide is being exposed for what it is. That is why HR 1207, the bill to audit and investigate the Fed, is so important; it will uncover how the bankers and Wall Street have looted Americans for almost 100 years under a phony debt scheme. People will be made to understand that banks in the fractional banking system lend money they create out of thin air. That isn’t only the Fed, but your local bank as well. Then bankers receive compound interest on that fiat money; that you get to pay. Do you now more clearly see how you have been ripped off? You will find few places that will tell you this simple truth, so you can understand it. Bankers deliberately leveraged themselves 50 times deposits so that the system could collapse. They arranged for you the public to bail them out so they could survive, and at the same time bring the world economy to its knees, so that they could force you to become enslaved to world government.
Private investors in the UK had bought $85.5 billion in Treasuries in March and $50.2 billion in June. That is not hedge funds out of the Channel Islands; it has to be our Federal Reserve as buyers.
The second quarter of 2009 set a new record for the number of corporate defaults, with 82 non-financial events of default, consisting of 16 names in media and entertainment. Those losses were $254 billion, far larger than the $102 billion spread among 69 defaults in all of 2008.
Due to the decline in jobs and income and “without exotic financing, buyers can’t reach out of their affordability bands like they could from 2002-2007. Investors won’t reach out of their rental return band in order to chase a bid. This dynamic has isolated millions of houses above the median income/rent ratios in cities across the nation and will lead to significant house price compression.”
Most people cannot ‘trade up’ to more expensive houses. This inhibits the housing cycle. To try to contain the damage, the Federal Reserve said Monday that it will extend into 2010 a program to help investors buy commercial property loans. But some say that will have limited impact.
Unwilling to seize devalued properties in a moribund market, lenders have foreclosed on fewer than 10% of the loans, says Real Capital Analytics. That's prolonging the crisis by keeping properties from being resold at lower prices, says New York real estate lawyer Edward Mermelstein.
A bigger problem: the nearly $1 trillion in short-term commercial mortgages slated to mature by the end of 2010. With property owners unable to refinance, even solid loans could go into default.
To ease that crunch, the Federal Reserve is extending a program to lend investors up to $200 billion to buy assets backed by commercial mortgages and consumer loans. The program, which has lent just $29.6 billion, was to expire by year's end.
John Williams provides this insight: Unusual Numbers Pending in the Poverty Survey? The annual poverty report, which includes estimates not only of poverty, but also national income distribution and national health insurance coverage, is based on a survey that is piggy-backed on the March household survey (unemployment, etc.). The report usually is released in mid-August, but the Census Bureau advised on July 31st that, "National income and poverty data from the CPS [household survey] will be released the week of Labor Day [September 10th]. This is in response to feedback that releasing the data in late August was not optimal for data users and journalists reporting on the findings."
I never have known competent data users or journalists to request data later rather than earlier. Given the current healthcare program being pushed by the Administration, one has to wonder if there are any politically uncomfortable results in the pending survey, where a delay could result in the data being excluded from the debate. Another possibility is that the delay would give the Census Bureau time to "get it right," a phrase purportedly used by President Lyndon Johnson when he sent drafts of initial GNP (now GDP) reporting he did not like back to the Commerce Department, for revision. www.shadowstats.com www.australia.to/index...
Are these guaranteed by the taxpayer? Anyone else think China buying these debts places US at risk should the assets not be worth what they pay for it? (Not that we are not deep in that hole already.) They pay $100.00 for something someone values at $1,000.00. It is found to be worthless and the buyer gets paid back $900.00 by the guarantor? How will mark to market figure in to this valuation?
This program is not receiving much coverage for how much risk is involved. B of A is said to have close to 50 trillion in toxic assets they are sitting on, there is more out there. A light needs to be shined on this program before it is kicked off.
Should this debt be washed in this program or be sent to a bankruptcy court?
"HONG KONG (MarketWatch) -- China's $200 billion sovereign wealth fund, China Investment Corp., is preparing to invest up to $2 billion in U.S. mortgage securities under the U.S. Treasury-backed Public-Private Investment Plan (PPIP), according to a media report Monday.
The Beijing-based fund, which is funded by cash from China's foreign exchange reserves, is in talks with at least a dozen PPIP managers and sub advisors, according to a Reuter's report, which cited sources it did not identify.
The report said CIC has yet to select any companies but is likely to finalize a decision before the end of August.
China Investment Corp. was eager to participate in real estate securities because it believes the U.S. property market will start to recover later this year in a gradual fashion, the reports cited its sources as saying. " www.marketwatch.com/st...
Markets Aren't as Benign as They Look [View article]
How are we doing on HR 1207? Find a Town Hall Meeting nearest to you. Stand up, engage and participate.
"American spirit emerging By John Browne
Despite growing concerns about the growth in Federal Reserve spending, voiced this week by none other than famed investor Warren Buffett, Washington seems determined to keep its foot on the money-pumping accelerator for as long as it can. But even though Washington continues to ignore the realities, alarm bells are beginning to ring at town halls across the country.
Last week, the Fed left its key short-term rates frozen at 0 to 0.25%, enabling banks to borrow at near zero and reap spreads as high as 6% to 24%. The Fed also continued its policy of paying interest on banks' reserves, further boosting Wall Street's bottom line. The government has decided to save the banks, no matter how much the public has to suffer.
Worse still, the administration has been largely silent over the obscene bonuses paid by banks to the very executives whose casino mentality caused a financial crisis that the International Monetary Fund now estimates has cost the world some US$7 trillion. At financial firms that have received bailout money, it has been estimated that thus far in 2009 bonuses paid to executives have exceeded profits.
However, with the pedal still hitting the metal, the Fed has begun to discuss plans of a so called "exit strategy" that would pave the way toward higher interest rates.
These statements of economic neutrality were based upon the Fed's impression that the recession is ending. But the Fed has not yet taken any meaningful actions to curb its potentially inflationary policies.
For now, mere words are enough to encourage American stock markets, but only briefly. More recently, US equity investors gradually are facing up to the fact that, while stock prices rose recently by some 45%, earnings, although "ahead of estimates", have fallen by almost 30%, despite savage cost cutting and deep inventory depletion. The more important top-line revenues have fallen by about 15% and free cash flows are tumbling in response. The public, who feel the vicious bite of "real" 20% unemployment (rather than the official rate of 9.8%), are becoming increasing distrustful of big government and deeply resentful of its increasing grasp of their lives. The cracks are beginning to show.
A key element of the Barack Obama administration is its 1,000-page healthcare reform bill. Despite the impossibility of reading, let alone understanding, the legislative behemoth, Obama tried forcefully to push it through Congress in just two weeks.
And, despite the clear failure of government healthcare in many parts of the world, including domestically in Massachusetts, the administration is still looking to move ahead with a public option plan.
The public is not yet willing to play ball. While much of the biased media paint the rowdy town hall meetings across the country as merely the clumsy machinations of the Republican Party, the events are revealing the deep misgivings average Americans have about the growth of government. If this movement spreads, it could have a dramatic and healthy effect on the American economy in the long-term.
At their core, Americans hold individual freedom and self-reliance dear. Therefore, by nature, they are not socialists and resent big government. To them, the actions of the administration, supported by a compliant Congress, are clear: use massive amounts of public funds to support the financial elite, maintain massive entitlement spending to secure votes, and extend the grasp of big government through healthcare and other measures. Their anger is justified.
President Obama campaigned on political "change" and an end to the abuse of taxpayers. So far, he has massively increased government entitlement spending and has failed to loosen Congress's firm grasp of the pork barrel.
It may be that the deep resentment expressed in town halls will embolden ordinary people to pressure Congress to stop the train. If that happens, America will begin the long and painful road towards economic restructuring, individual freedom and enterprise. Under those conditions America would represent a great investment opportunity.
John Browne is senior market strategist, Euro Pacific Capital. Euro Pacific Capital commentary and market news is available at www.europac.net It has a free on-line investment newsletter"
You Can Spend Your Way Out of a Recession [View article]
"TARP Profit: The Lies Get Bigger and Bigger
Tim Cavanaugh | September 2, 2009, 8:24pm
Cherry-picked news doesn't come much cherrier than the tale of the TARP profits. If you believe The New York Times, the eight strongest banks covered in the Troubled Asset Relief Program (that's the $700 billion bailout approved last October) have paid back taxpayer money with interest. To stretch the slight return on investment from a very tiny part of the program into "profit," Timesman Zachery Kouwe engages in some mighty opaque language:
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.
"By no means a full accounting" is putting it mildly. In Matt Taibbi's description, this figure is "sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up." Profit is what you make on top of your initial investment, so if you're talking about $4 billion on a $700 billion outlay, that's a little more than 0.5% -- more than Wells Fargo pays its depositors in interest, but nothing to write home about. In the event, the $700 billion is nowhere near to being recouped, and big chunks of it are tied up in losers like Bank of America, Wells Fargo, Citibank, and others.
The really disturbing thing is not that the case for TARP profits is so forced and hard to believe, but that it's being made at all. FDIC Chairwoman Sheila Bair believes 500 banks are in danger of failing; other estimates have put the figure closer to 1,000, and the list of problem banks keeps growing. If the government were even pretending the TARP was designed to shore up the banking system there would be no talk of profit because every penny the big banks paid back would be going back out to reward some other collection of incompetent losers.
If the Treasury really wanted to make the case for TARP it would make clear that none of that money should ever come back, because it was all a handful of dust in a vast sinkhole that has swallowed about $15 trillion in national net worth since the return to economic reality began in 2007. (That vast figure also helps explain why the Treasury and the Fed haven't been able to inflate salaries, consumer prices, producer prices, or anything else except the number of dollars in currency markets.)
Other reactions to the TARP profit story include Taibbi's:
Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven't retired their obligations yet, it's crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.
The other reason for that is that it's only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities - the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed's purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there's the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don't know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg's FOIA request for those records actually goes through.
Rolfe Winkler at Reuters:
A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money...
The trouble is the popular view that TARP was the bailout. That very unpopular $700 billion program got all the attention because it was an easy story to tell a general audience. It had a big ugly price tag; it was debated very publicly in Congress; and, most important, the list of recipients and their take was made public all at once...
But the bailout was much larger than TARP. There is FDIC's debt guarantee program, which still backs over $300 billion worth of financial sector debt; there are the Federal Reserve's emerging lending facilities, which have showered hundreds of billions of cash on banks in exchange for, well, we don't know what. There was the AIG bailout, which gave the company tens of billions more. There were changes in fair value accounting rules, which permitted banks to hide losses, and there is stupendous support for the housing market, which has rescued banks from huge write-offs.
All of these and more make up the implicit too-big-to-fail guarantee that the biggest financials have all received. The total cost won't be known for years, and the price tag is likely to be enormous.
Former Treasury Secretary Hank Paulson, in a typical meltdown of grammar and sense quoted by the Times' DealBook blog (and dig the supremely loaded language in the first paragraph):
Of course, the government's chief priority was to stabilize the teetering financial system, not necessarily to maximize profit. Now, the worst of the crisis is past, and the rewards from avoiding a widespread financial meltdown are incalculable.
"You do not stop a financial panic by putting capital and offering capital at the banks on the terms - the only terms that is available in the middle of a crisis," former Treasury Secretary Henry M. Paulson Jr. said at a Congressional hearing in July.
The Atlantic Business Channel:
I'm with Yglesias. TARP might not have been perfect, but it provided clutch funds for teetering banks during the darkest hours of the recession, and its early returns are positive. Not bad for a ongoing government working through the most complicated financial crisis we've ever seen.
And back with the grownups, Barry Ritholtz:
My definition of an investment profit is simple: You take the money you have invested, and if adds up to more that what you began with, well, then, you have a profit.
Let's say on the other hand, you own 20+30 positions; 5 of them are higher than where you purchased them, and all the rest deeply in the red. Net net, your portfolio is down immensely. Most rational investors would hardly call that investment a "profit."
Looking just at early TARP repayments means that we are ignoring a) the rest of the TARP; and b) the majority of other expenses, guarantees, loans capital injections, and outright spending that has taken place...
The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages."
What this is more appropriately described as is a return of capital; to call this a profit is to ignore trillions of dollars in taxpayer monies that have been spent, lent, guaranteed, drawn against and otherwise consumed in what will likely be the greatest transfer of wealth in the planet's history."
reason.com/blog/show/1...
Cited above:
Friday, September 25, 2009
Problem Bank List (Unofficial) Sept 25, 2009
by CalculatedRisk on 9/25/2009 07:36:00 PM
This is an unofficial list of Problem Banks.
Changes and comments from surferdude808:
Another week with significant changes to the Unofficial Problem Bank List as the FDIC released its enforcement actions for August. We will not get another release from the FDIC until the end of October.
The Unofficial Problem Bank List grew by 23 institutions to 459 and aggregate assets total $297.2 billion, up from $294 billion last week. During the week, we added 25 institutions to the list while we removed 2 because of failure. The failures were Irwin Union Bank and Trust Company ($2.8 billion) and Irwin Union Bank, F.S.B. ($518 million).
The largest asset additions include First Mariner Bank ($1.3 billion), Baltimore, MD; Anchor Mutual Savings Bank ($657 million), Aberdeen, WA; and NexBank ($560 million), Dallas, TX.
For the other 23 additions, the average asset size is $178 million. The additions are concentrated in handful of states including Minnesota (5), California (4), Washington (4), and Georgia (3), which all continue to see banks with large CRE or C&D lending concentrations come under enforcement action.
The list includes 2 new Prompt Corrective Action orders the FDIC issued against American United Bank ($112 million), Lawrenceville, GA; and Bank 1st ($109 million), Albuquerque, NM. It is long overdue for the agencies to start issuing more PCA orders.
One other interesting item this week is that the FDIC issued a Cease & Desist order on August 31st against Georgian Bank ($2.2 billion), Atlanta, GA, which was closed today. We typically remove failures from the subsequent week’s list but, in this case, we did not add Georgian Bank otherwise aggregate assets would have been $299.4 billion.
The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.
See description below table for Class and Cert (and a link to FDIC ID system).
For a full screen version of the table click here.
The table is wide - use scroll bars to see all information!
Go here and you can see the list of bank that are unofficially on the bad list. Estimates of upwards of 1000 banks.
www.calculatedriskblog.../
The FDIC is looking at tapping a line of credit with the Treasury. Wonder if they have a mileage plan with that line?:
www.bloomberg.com/apps...
IMF Reform, and Why It Should Move to Europe [View article]
New Banking Issues on the Horizon [View article]
There is the small problem of what to do with the toxic anchors these banks are dragging. Which part of the bank would take the toxic assets with them? For example, at last estimate BofA was thought to have about 50 trillion in toxic assets (give or take a trillion).
How much of these toxic assets can be pushed through the PPIP program on to the backs of the taxpayer remains to be seen. The mark to market accounting is something that needs to be looked at in the valuation of these toxic derivatives. It has the potential for great mischief in the valuation of these toxic derivatives that are basically guaranteed by the taxpayer. Will it provide cover if these assets are "suddenly" discovered to be worthless?
The Coming Consequences of Banking Fraud [View article]
Economic Donkeys [View article]
The 900 pound Gorilla in the room remains what to do with the trillions of toxic assets these banks still carry. If the banks are separated who carries the toxic load? Should they be shown the door to the bankruptcy court?
Why U.S. Government Should Cut Federal Workers' Lavish Compensation [View article]
1. World's third largest employer: UK Health Care Bureaucrats. www.timesonline.co.uk/...
Today in Commodities: The Herd Is Moving [View article]
"In yet another step to internationalize the yuan as a global currency, China will be selling yuan-denominated bonds on the international market for the first time.
This could be a new option for fixed-income investors, including central banks, who want to diversify away from the dollar.
AP: The 6 billion yuan ($876 million) bond sale is slated for Sept. 28, the ministry said. Hong Kong is Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.
The yuan, also known as the renminbi, or people's money, does not trade on global markets despite China's huge foreign trade, but Beijing is gradually expanding its use abroad.
It will be interesting to see what yield these bonds end up offering, and if central banks bite.
Given the consensus view that the yuan is artificially undervalued versus the dollar, longer-term Chinese bonds are likely to be appealing for their currency appreciation potential, in addition to their interest income. We expect a strong a response."
www.businessinsider.co...
Is a Crash Impending? [View article]
Regardless, there are signs along the I-5 in California saying Congress created a dust bowl. Considerate of them as what would a Depression be without a dust bowl?
There are so many fragile pieces to the economy that when one piece fails the masses will follow. Not sure if it will be commercial real estate, pensions, bank failures, consumer bankruptcy, and the potential list goes on. Once the herd starts to move it will be a stampede.
Massive amounts of undisclosed toxic assets still remain on the banks books hidden by mark to market. The PPIP, which is the butt end of the Tarp program to pass the banks debt to the public, is not off to a good start. In addition I understand that 95% of all mortgages in this Country are now government (insert taxpayer) backed through Fannie, Freddie and Ginnie.
But the jobless numbers come out, unemployment continues to climb to record highs and the market goes up. Rejoice, the Legendary Jobless Recovery is at hand.
On Sep 02 02:38 AM Econ 101 wrote:
> Invest in real assets...Food, drink and arms to protect ourself from
> those that would take from you. Be it the Crips or Bloods or the
> US congress. 40% of the San Juaquin valley wasnt in production because
> of a water shortage.
FDIC's Private Equity Rule: So Much Can Go Wrong [View article]
"The Federal Reserve is fighting hard to keep details about the $2 trillion in emergency loans it has made during the financial crisis from seeing the light of day. And now it seems the Federal Deposit Insurance Corp. also has started playing the game of keeping secrets from the public.
The American Banker earlier this week reported that the FDIC is holding back on disclosing information about failed bids for troubled banks the government agency has taken over. The industry newspaper reports the FDIC is delaying the processing of Freedom of Information Act requests seeking such information, while the agency reviews its disclosure policy.
The FDIC announcement is disturbing because it comes at a time that the FDIC has been forced to close banks at a brisk clip and just put in place a plan for allowing private equity firms to bid on bank assets. (Full disclosure: my wife used to be an editor for the American Banker).
The FDIC’s position on releasing information about failed bids is not as sweeping as the Fed’s opposition to a Bloomberg News lawsuit seeking access to information about the $2 trillion in emergency loans. But as The Audit, a Columbia Journalism Review blog, point outs, the FDIC’s stance is another move towards “creeping government secrecy.”
Of all the financial regulators, I’ve been the most supportive of FDIC Chair Sheila Bair. I’ve praised her for not being afraid to take positions that offend the nation’s bankers. But on this issue of disclosure, Bair is doing a disservice not only to her reputation, but the public’s right to know."
blogs.reuters.com/comm.../
On Aug 28 01:12 AM Moon Kil Woong wrote:
> Trade4alpha: Given the current market environment where agencies
> rain money down on people to gain power I guess she doesn't have
> much choice. It's nice to see competition exists even in the bureaucracy
> lol.
>
> Big Bubbette: Congress gave out their authority a long time ago.
> They simply don't want to be responsible for anything aside handouts
> too their friends. And even then, only when the Press isn't looking.
> The existence of the Federal Reserve is proof of that.
>
> Ergo: Yes, I fully support a Seeking Alpha private equity bank. The
> only think is we would probably be admonished by the FDIC for failing
> to make loans that default like they did to best performing bank
> in the US which also has no mortgage loan defaults.
>
> Graham and Dodd Investor: It is odd since Sheila Bair up to this
> point has been the one rational person in the banking industry. It
> may have something to do with the fact the government is preventing
> her from raising FDIC premiums to reflect real risk and prevent her
> agency from running out of money. As it is going, she will soon have
> to ask the government for loans and thus will become in thrall to
> the Treasury and FDIC which is trying to take away the FDIC's power.
> It is hard to ask for money and be nice to a guy like Geithner who
> swears at you in a public forum. Given that option I guess I understand
> her change of heart a bit better.
>
> The sad point is the government ought to be toghtening requirements
> for becoming a bank not loosening them. This is just one more step
> in the wrong direction, no matter what the reasoning is.
FDIC's Private Equity Rule: So Much Can Go Wrong [View article]
First Solar Sell-Off Is Overdone [View article]
Let's look back at one of several bills Senator Obama put forth:
"Obama’s Global Tax Proposal Up for Senate Vote:
A nice-sounding bill called the "Global Poverty Act," sponsored by Democratic presidential candidate and Senator Barack Obama, is up for a Senate vote on Thursday and could result in the imposition of a global tax on the United States. The bill, which has the support of many liberal religious groups, makes levels of U.S. foreign aid spending subservient to the dictates of the United Nations...
Jeffrey Sachs, who runs the U.N.'s "Millennium Project," says that the U.N. plan to force the U.S. to pay 0.7 percent of GNP in increased foreign aid spending would add $65 billion a year to what the U.S. already spends. Over a 13-year period, from 2002, when the U.N.'s Financing for Development conference was held, to the target year of 2015, when the U.S. is expected to meet the "Millennium Development Goals," this amounts to $845 billion. And the only way to raise that kind of money, Sachs has written, is through a global tax, preferably on carbon-emitting fossil fuels. "
www.aim.org/aim-column.../
The path to solar and green technology is hazy and how cap and trade plays will impact it.
Meanwhile, there is enough shale oil in the US to meet our energy needs for the next 250 years. Any stimulus money invested to try and develop this technology to protect the long term interests of the Nation?
dailyreckoning.com/oil.../
Colonial Bank Failure Highlights the Problem [View article]
Written by Bob Chapman
Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.
We had a bank go on Thursday and now we have a continuation of the Friday Night FDIC Financial Follies.
Federal and state regulators closed two small Arizona banks Friday evening, but depositors won't feel any pain.
Phoenix-based Community Bank of Arizona and Union Bank in Gilbert were shuttered, with deposits of both institutions purchased by Oklahoma-based MidFirst Bank.
Regulators also closed three other banks elsewhere around the country on Friday, raising the year-to-date total to 77.
Much to their dismay, Americans learned last year that they ‘owned’ Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too. Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this ‘phenomenal growth.’ Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.
This past week the Dow fell 0.5%, S&P 0.6%, the Russell 200 fell 1.5% and the Nasdaq 100 fell 0.4%. Banks rose 0.8%, as broker/dealers fell 2%. Cyclicals fell 1.6%; transports 1.2%; consumers 0.2%, as utilities gained 0.2%. High tech fell 0.4%; semis 1.3%; Internet 0.6% and biotechs 0.2%. Gold bullion lost $6.50 and the HUI gold index fell 2.4%.
Two year T-bill yields fell 24 bps to 0.96% and the 10’s fell 29 bps to 3.57%, as German bunds fell 19 bps to 3.31%.
Fed credit expanded $11.4 billion. Fed foreign holdings of Treasury and Agency debt rose $5.5 billion to a record $2.816 trillion. Custody holdings for central banks rose at a 19.3% rate ytd and yoy up 17.6%.
M2 narrow money supply fell $42 billion to $8.324 trillion, having expanded at a 2.6% rate ytd and 17.6% yoy.
Total money fund assets declined $12.8 billion to $3.594 trillion. The dollar fell 0.2% last week to 78.79.
Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.
We are in a five month bear market rally that has carried the Dow from 6600 to 8500, where we believed it would end, and on to almost 9400. This constitutes a 50% move in the Dow from mid-March and a 6.2% move for the year, while the economy experiences the worst economic and financial debacle since the “Great Depression.” This rally is quite similar to the rallies of 1930 and 1932 - so do not get fooled as investors did. This is the time to be selling if you are still in the market or have cash value life policies or annuities.
Recent data shows us there is if anything only a slight flattening to the downside. Retail sales continue to fall in spite of cash for clunkers as thousands of used car dealers go out of business because the clunkers are being destroyed rather than being resold. In fact, July sales fell the most since March. That is certainly not a green shoots event. Even consumer confidence fell to the lowest level since March.
July foreclosure figures were at a record 360,149, up 7% on June and up 32% yoy. In addition bankruptcies were up 34% yoy.
There was positive news out of Asia and Europe, as a flattening out seemed to be occurring there as well. Needless to say, a wide array of governmental and stock market pundits tell us the recession is over. This is the same group that told us that eight months after the fall, one year after the highs and 1-1/2 years after the credit crisis began that the recession was over. A crisis caused by banks and Wall Street, the result of which was they’re being bailed out by the Federal Reserve and our government.
Wholesale inventories have fallen and that is normal when consumers are buying less. Capacity utilization is still terrible even though vehicle production has increased abnormally. We do not for a second believe the doctored non-farm productivity figures, just as we cannot believe unemployment, CPI and PPI numbers. Incidentally, all countries are fudging their figures.
Household consumption will continue to fall as residential real estate inventory builds and prices recede another 20%. We are only leveling out because of massive reflation and those who believe in recovery will be sadly disappointed. Consumption is falling and any recovery will fizzle because we have shipped 75% of our manufacturing capability overseas under free trade, globalization, offshoring and outsourcing.
The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.
The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.
Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.
In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis. [More social engineering. As we have seen since WWII all efforts to create such housing have turned into slums and most had to be destroyed.]
One of the biggest banks in Florida has been shut down by regulators and its assets sold to a rival in a move that underlines the continued frailty of the American banking and property sectors.
Colonial Bank, which was based in Alabama but had flourished in the central Florida property boom, had $25 billion (£15 billion) in assets.
It is the largest American bank to fail since Washington Mutual collapsed at the height of the credit crunch last September, and the fifth-largest American bank failure ever, according to analysts.
Colonial was shut down on Friday by the Federal Deposit Insurance Corporation (FDIC), the government agency that provides a safety net for the customers when banks get into difficulties.
The FDIC said Colonial’s 346 branches, which are spread across five states, and most of its assets had been transferred to one of its rivals, BB&T. The switch will make BB&T, based in North Carolina, America’s eighth-biggest bank.
The FDIC revealed that it was expecting to take a hit of about $2.8 billion in making good Colonial’s losses. The agency has struck a deal that will see it share part of the losses if the loan books it has sold to BB&T turn bad.
Reader’s Digest Association Inc. said it will likely file for Chapter 11 bankruptcy protection under an agreement with a majority of its secured lenders to reduce debt by 75 percent to $550 million.
Senior secured lenders will exchange a “substantial portion” of $1.6 billion in debt for equity, the publisher said today in a statement. Some of them will provide a $150 million bankruptcy loan, debtor-in-possession financing, to ensure the company has enough liquidity during its reorganization.
The publisher of the pocket-sized magazine that claims the world’s largest readership went private in March 2007, in an agreement with an investor group led by Ripplewood Holdings LLC that saddled it with $1.6 billion in debt just before the advertising market slumped. The magazine’s ad sales slipped 7.2 percent to $121.2 million in the first half from a year earlier, according to Publishers Information Bureau data.
Manufacturing in the New York region grew in August for the first time in more than a year, reinforcing signs the worst recession since the 1930s is nearing an end.
The Federal Reserve Bank of New York’s general economic index climbed to 12.1, higher than forecast and the first expansion since April 2008, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.
The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.
The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. The Fed is “paying very close attention,” Chairman Ben S. Bernanke said in congressional testimony last month.
The U.S. recession is ending “right now,” said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc.v [From her lips to God’s ears. Last time she made such a prediction she was wrong for 5 years. What a loser.]
Six months after President Obama launched a $787 billion plan to right the nation's economy, a majority of Americans think the avalanche of new federal aid has cost too much and done too little to end the recession.
A USA TODAY/Gallup Poll found 57% of adults say the stimulus package is having no impact on the economy or making it worse. Even more —60% — doubt that the stimulus plan will help the economy in the years ahead, and only 18% say it has done anything to help improve their personal situation.
That skepticism underscores the challenge Obama faces in trying to convince the public that the stimulus has helped turn the economy around. It also could complicate the administration's plans to overhaul the nation's health care system.
"This is a wake-up call for the administration." says House Minority Whip Eric Cantor, R-Va. "People see the stimulus hasn't worked, and now you want to lay on over $1 trillion in a health care plan."
The administration declined to comment on the poll results.
China's $200 billion sovereign wealth fund, which lost big on its ill-timed 2007 Morgan Stanley and Blackstone bets, plans to invest up to $2 billion in U.S. mortgages as it eyes a property market rebound, two people with direct knowledge of the matter said Monday.
China Investment Corp plans to soon invest in U.S. taxpayer-subsidized investment funds that will acquire "toxic" mortgage-backed securities from the nation's banks. CIC believes these assets are a safer bet than buying into the U.S. Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF), the people with direct knowledge said.
CIC is in talks with nine U.S. Treasury-designated Public-Private Investment Plan managers, the sources said.
They include: AllianceBernstein Holding, with sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo, Gordon & Co LP with GE Capital Real Estate, a unit of General Electric Co; BlackRock Inc; Invesco Ltd; Marathon Asset Management LP; Oaktree Capital Management LP; Trust Company of the West, a unit of Legg Mason; RLJ Western Asset Management LP, a venture formed by Legg's Western Asset Management unit; and Wellington Management Co LLP.
CIC is expected to decide this month which of the nine PPIP managers will handle its investments in mortgage-backed securities under the PPIP plan, the sources said.
A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.
Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.
There has been a decline in short interest -- borrowed shares sold but not yet repurchased -- which some analysts see as a warning. Some investors sell short to profit from price declines, and some say the recent rally has been supported by the reversing of short positions.
For brokerage Jefferies & Co., a significant increase in insider selling transactions as well as a decrease in short interest across most sectors of the S&P 500 demonstrates the weathering of the bear market rally.
Short interest fell in mid-July and firms with insider selling activity outnumber those with buying activity two to one, according to research firm InsiderScore.com.
"Both of those (factors) lends to our general thesis" that the equity market rally is running on borrowed time, said Patrick Neal, head of U.S. equity strategy at Jefferies & Co.
CIT Group Inc., the commercial lender seeking to avert collapse, reported a wider-than-expected loss as more customers defaulted on loans.
The ninth consecutive quarterly net loss was $1.62 billion, or $4.30 a share, New York-based CIT said in a regulatory filing. Nine analysts had estimated a per-share loss of $1.53.
CIT Chief Executive Officer Jeffrey Peek is negotiating with bondholders and considering asset sales to stave off bankruptcy.
The lender, which provides financing to almost a million small- and mid-sized businesses, has lost more than $5 billion in the past nine quarters as bad debts soared and the company was cut off from the commercial-paper market, its traditional source of funding.
"I don't think there's any good news to come in terms of credit quality," said Sameer Gokhale, an analyst with KBW Inc.
Former Goldman Sachs computer programmer Sergey Aleynikov, who was charged last month with stealing sophisticated trading software, wants his criminal case dismissed.
At a hearing in Manhattan federal court on last week, defense attorney Sabrina Shroff said she will seek to persuade prosecutors to enter into a rare "deferred prosecution" agreement.
Such deals are a form of probation in which prosecutors agree to dismiss criminal charges, provided a defendant doesn't break the law for as much as 18 months.
Laura Blankfein and her friend Susan Friedman, wife of another Goldman honcho, Richard Friedman, caused a huge scene at Super Saturday in the Hamptons last weekend when they arrived at the event before the noon start time and balked at waiting in line with the other ticket-holders.
“Their behavior was obnoxious. They were screaming,” said one witness. Blankfein said she wouldn’t wait with “people who spend less money than me.”
GOLDMAN SACHS WIVES LAURA BLANKFEIN AND SUSAN FRIEDMAN MAKE SCENE ON LINE IN HAMPTONS- New York Post
I can’t believe I didn’t see this before. Laura Blankfein going mental over having to wait on line at a charity dinner… this is like the most awesome thing ever.I can just imagine her the next morning, complaining to Lloyd while shining his head with Turtle Wax before he goes off to work.
Meanwhile this is more recent news, apparently:
Police in East Hampton, N.Y., arrested the wife of longtime Goldman Sachs hedge fund guru Ray Iwanowski for drunk driving, according to The New York Post.
Jane Iwanowski, 48, crashed her BMW into a tree in July. A police report stated an intoxicated Iwanowski “was unable to walk or stand,” when questioned while at a hospital.
Fun times in the fast lane!
Manhattan office sales came to a near standstill in the first half, with less than one-tenth the average number of transactions seen during the same period in the previous five years, CB Richard Ellis Group Inc. said.
Three office buildings valued at more than $30 million sold from January to June, down from an average of 32 in the first six months of the prior five years, said the Los Angeles-based firm, the largest publicly traded commercial real estate broker.
Buyers and sellers remain far apart on bids while low interest rates on existing loans mean many sellers can afford to wait, CB Richard Ellis said. The Federal Reserve yesterday extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the real- estate industry from rising defaults and falling prices.
Housing starts in the U.S. unexpectedly fell in July, pulled down by multifamily dwellings, while single-family starts which make up most of the industry rose to the highest level since October.
The 1 percent decline in starts to an annual rate of 581,000 was the first drop in three months and followed a 587,000 rate in June, the Commerce Department said today in Washington. Construction of single-family houses, which account for 75 percent of the industry, rose 1.7 percent to a 490,000 rate, today’s report showed.
Single-family home construction has been rising since March, a sign that falling home values and stimulus efforts such as a tax credit for first-time buyers are starting to reverse the housing meltdown that triggered the financial crisis. While the economy is forecast to grow this quarter, foreclosures, tight credit and job losses will temper the recovery.
“We’ve formed a bottom but probably only have limited upside, with unemployment too high to boost demand” much higher than current levels, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Single-family construction is probably getting some help from the $8,000 tax credits. We expect construction to make a positive contribution to GDP growth in the second half.”
Wholesale prices in the U.S. fell more than forecast in July as energy costs receded, capping the biggest 12-month drop on record and showing inflation will not be an immediate concern for Federal Reserve policy makers.
The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices unexpectedly fell 0.1 percent.
On Monday, the Fed monetized $7.016B of 4s thru 7s. www.newyorkfed.org/mar...
Treasury International Capital flow data shows foreign investors bought $90.7B of US financial assets in June, more than triple May’s $19.4B. Net buying of US govies totaled $101.5B, the biggest buying binge since the data series commenced in 1977. Foreigners sold $22.6B of govies in May.
China bought $26.3B of US govies in June; Japan bought $34.6B and the UK bought $50.2B. We wonder what favors were called or pledged?
National chain store sales fell 0.7% in the first two weeks of August versus the previous month, according to Redbook Research's latest indicator of national retail sales released Tuesday.
The latest numbers are starkly different from recent weeks because they don't include Wal-Mart Stores Inc. (WMT), which said last month it would no longer provide monthly sales figures.
The fall in the index was compared to a targeted 0.6% drop.
The Johnson Redbook Index also showed seasonally adjusted sales in the period were down 4.4% from August 2008, compared to a targeted 4.3% fall.
Redbook said that on an unadjusted basis, sales in the week ended Saturday were down 4.5% from the same week in 2008 after a 4.2% decline the prior week.
The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index was down 0.9% in the week ended Saturday from its level a week before on a seasonally adjusted, comparable-store basis.
On a year-on-year basis, retailers saw sales decrease 0.6% in the latest week.
Home construction unexpectedly fell in July along with building permits, according to data that provides a weaker picture of the housing sector than in the past couple of months.
Housing starts fell 1.0% to a seasonally adjusted 581,000 annual rate compared to the prior month, the Commerce Department said Tuesday.
The report is more dismal than previous reports that had suggested some stability in the housing market. June housing starts, for instance, climbed 6.5% to 587,000, revised from an originally reported 3.6% increase to 532,000.
The 1.0% dip in July housing starts was a surprise. Economists surveyed by Dow Jones Newswires expected a 2.7% increase.
Housing starts were 37.7% lower than the pace of construction in July 2008.
Monsanto Co., the world’s largest seed maker, plans to charge as much as 42 percent more for new genetically modified seeds next year than older offerings because they increase farmers’ output.
Roundup Ready 2 Yield soybeans will cost farmers an average of $74 an acre in 2010, and original Roundup Ready soybeans will cost $52 an acre, St. Louis-based Monsanto said today in presentations on its Web site. SmartStax corn seeds, developed with Dow Chemical Co., will cost $130 an acre, 17 percent more than the YieldGard triple-stack seeds they will replace.
The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study.
Researchers at the University of Houston's C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices.
The study identified 141 companies with such advantageous options-granting practices that the researchers concluded they were highly likely to have been involved in backdating. Ninety-two of those companies never were publicly
Ex-Brocade Communications Systems CEO Gregory Reyes' conviction for backdating stock-option grants was reversed by an appeals court that cited prosecutorial misconduct and ordered a new trial.
A three-judge federal panel said yesterday a prosecutor knowingly made false statements to the jury in closing arguments. The government lawyer said Brocade's finance department was ignorant of the backdating, after executives told investigators they knew of the practice, the court said. [Some 600 executives were guilty of doing the same thing. A handful were fined and had to pay their profits back, the rest were not prosecuted. Reyes was picked out to be the goat, so that the public could be satisfied that something was being done bout the fraud and theft by senior management in hundreds of companies. It just shows you again the corruption of the SEC and our court system.]
Swiss Bank UBS to Divulge at Least 4,450 Account Names
A deal finalized Wednesday between the United States and Switzerland paves the way for a potentially historic disclosure of Swiss bank secrets: the names of thousands of Americans suspected of using secret accounts to hide money from the IRS
Swiss Bank UBS to Divulge at Least 4,450 Account Names
Under the agreement, UBS -- Switzerland's largest bank -- is expected to turn over the names of Americans who controlled 4,450 accounts that are currently open or have been closed.
The secret accounts at one point held as much as $18 billion, the IRS said.
"We will be receiving an unprecedented amount of information," IRS Commissioner Doug Shulman told reporters Wednesday morning.
The settlement follows a long-running effort by the U.S. government to penetrate Swiss bank secrecy and catch tax evaders.
The U.S. government had been seeking a federal court order demanding that UBS identify the holders of 52,000 accounts. The Swiss government vowed to prevent such a disclosure, leading to weeks of negotiations.
Switzerland was fighting to preserve the reputation for privacy that has made its banking industry a global powerhouse and a pillar of the Swiss economy.
The deal includes concessions that might make it easier for Switzerland to argue that its tradition of secrecy survived the battle.
The United States agreed to narrow its request.
More importantly, the United States agreed to drop its federal lawsuit against UBS and pursue the information through a Swiss legal channel under a tax treaty between the two countries.
The U.S. government tried to use that channel last year but got nowhere. Switzerland has agreed to handle the request differently this time.
Switzerland has not explicitly promised to identify the holders of the 4,450 accounts, but the two sides said that is the expected result, suggesting that the new U.S. request is mainly a formality and the outcome is preordained.
Under Swiss law, the affected depositors would have the opportunity to contest the release of their names and account information. But that, too, could be a hollow exercise. Under an interpretation of U.S. law, they might be required to disclose such appeals to the Justice Department, rendering moot any attempt to remain anonymous.
In February, to avoid criminal prosecution, UBS agreed to pay the U.S. government $780 million and admitted that it schemed to defraud the United States by helping Americans hide money from the IRS. At that time, the Swiss provided the names of 200 to 300 American depositors, which shows how much farther Switzerland is moving on the issue.
Some details of the settlement were not disclosed. The criteria the U.S. government used to narrow its request remain under wraps. That leaves UBS depositors guessing as to their personal risk of exposure and keeps them under pressure to seek leniency by turning themselves in to the IRS.
It could also obscure any shift in Switzerland's bank secrecy standards.
In the end fundamentals will win out. What we are seeing now is the end of the short covering rally - an unwinding of bearish positions. Be as it may, the stock market certainly doesn’t reflect the fundamentals of future economic performance. In addition, the Fed does not seem at all interested in ending quantitative easing or stopping the overall increase in money and credit. The predominance of government market manipulation complicates things further. As we can see anything can and will happen. The central bank has described the economy as stagnant, so we ask how can the stock market attract enthusiasm? Then again almost two years ago the market hit 14,168 on the Dow just in front of the worst economic downturn since the “Great Depression.
The bottom line is that markets do not represent economic reality.
We believe as we said in the China section, watch the Chinese and Asian markets. If they break downward you can expect western markets to do the same. Do not get sucked in by the short-term technicals, because the government is manipulating all markets short term. The world markets remain tenuous at best. How can there be euphoria when 12-1/2% of all mortgages are in foreclosure and 25% are under water in their mortgages? We have 20.8% U6 unemployment and 1/7th of all housing units are without tenants. The rally is absurd at best. Almost all corporate operating earnings are lies, particularly those of financial firms.
The European and US markets last week found the real GDP figures attractive as real GDP fell only 0.1% in the second quarter. The first quarter was minus 2.5%. Those figures were assisted by subsidizing the purchase of vehicles, showing the unreality of it all. This in time will lead to massive distortions in their economies, just as cash for clunkers will in the US.
As we predicted in January the stimulus package wouldn’t be enough and $2 trillion more would be needed in 2009, an election year, and that now is seriously being discussed behind the scenes. We are looking at a $2 trillion budget deficit more than triple $388.62 billion just a year ago. This is not 1982 when price earnings were in single digits. Today trailing earnings are 24 times. Top revenues are plunging, interest rates can only rise, and in our new fascist economy government manipulates our markets. Could it be any worse?
The “experts” are again heralding a recovery as retail sales fell 0.8% in July and sporting goods sales fell 1.9%. That is as unemployment climbs. We see no recovery in sight.
Keep in mind inflation can only be caused by a central bank creating money and credit and deflation and contraction are caused by lack of aggregate creation. Two years ago we entered monetary crisis. The amount of money and credit creation has been the greatest in history. We saw 14-5/8% inflation and now we see 5%. More interesting is that what once was M3 has just dropped from 18% to 4% and if that persists for two more months we could enter deflationary depression. On the other hand the TMS, True Money Supply, another index shows aggregate creation at 17%. These two indexes diverged in a similar manner between 2006 and 2008. The TMS has been the better gauge. As an aside you remember that the European Central Bank lowered their M4 from 7.8% to 4.7%. Something is afoot because these falls in aggregates have to be coordinated. There is no such thing as coincidence with these criminals.
Mainstream economists do not have a clue to what is going on. They, like central banks, were caught off guard by the ferocity of deflation over the past six years. It could be that central banks have lost control. We will see in time. The reduction in M3 and M4 can only mean the US, UK and Europe are trying to cool down the massive influx of liquidity they have created. Few realize what is going on and there is a good chance the central banks could lose control totally. Whether they realize it or not, two years ago the system collapsed. Their Ponzi scheme worldwide is being exposed for what it is. That is why HR 1207, the bill to audit and investigate the Fed, is so important; it will uncover how the bankers and Wall Street have looted Americans for almost 100 years under a phony debt scheme. People will be made to understand that banks in the fractional banking system lend money they create out of thin air. That isn’t only the Fed, but your local bank as well. Then bankers receive compound interest on that fiat money; that you get to pay. Do you now more clearly see how you have been ripped off? You will find few places that will tell you this simple truth, so you can understand it. Bankers deliberately leveraged themselves 50 times deposits so that the system could collapse. They arranged for you the public to bail them out so they could survive, and at the same time bring the world economy to its knees, so that they could force you to become enslaved to world government.
Private investors in the UK had bought $85.5 billion in Treasuries in March and $50.2 billion in June. That is not hedge funds out of the Channel Islands; it has to be our Federal Reserve as buyers.
The second quarter of 2009 set a new record for the number of corporate defaults, with 82 non-financial events of default, consisting of 16 names in media and entertainment. Those losses were $254 billion, far larger than the $102 billion spread among 69 defaults in all of 2008.
Due to the decline in jobs and income and “without exotic financing, buyers can’t reach out of their affordability bands like they could from 2002-2007. Investors won’t reach out of their rental return band in order to chase a bid. This dynamic has isolated millions of houses above the median income/rent ratios in cities across the nation and will lead to significant house price compression.”
Most people cannot ‘trade up’ to more expensive houses. This inhibits the housing cycle. To try to contain the damage, the Federal Reserve said Monday that it will extend into 2010 a program to help investors buy commercial property loans. But some say that will have limited impact.
Unwilling to seize devalued properties in a moribund market, lenders have foreclosed on fewer than 10% of the loans, says Real Capital Analytics. That's prolonging the crisis by keeping properties from being resold at lower prices, says New York real estate lawyer Edward Mermelstein.
A bigger problem: the nearly $1 trillion in short-term commercial mortgages slated to mature by the end of 2010. With property owners unable to refinance, even solid loans could go into default.
To ease that crunch, the Federal Reserve is extending a program to lend investors up to $200 billion to buy assets backed by commercial mortgages and consumer loans. The program, which has lent just $29.6 billion, was to expire by year's end.
John Williams provides this insight: Unusual Numbers Pending in the Poverty Survey? The annual poverty report, which includes estimates not only of poverty, but also national income distribution and national health insurance coverage, is based on a survey that is piggy-backed on the March household survey (unemployment, etc.). The report usually is released in mid-August, but the Census Bureau advised on July 31st that, "National income and poverty data from the CPS [household survey] will be released the week of Labor Day [September 10th]. This is in response to feedback that releasing the data in late August was not optimal for data users and journalists reporting on the findings."
I never have known competent data users or journalists to request data later rather than earlier. Given the current healthcare program being pushed by the Administration, one has to wonder if there are any politically uncomfortable results in the pending survey, where a delay could result in the data being excluded from the debate. Another possibility is that the delay would give the Census Bureau time to "get it right," a phrase purportedly used by President Lyndon Johnson when he sent drafts of initial GNP (now GDP) reporting he did not like back to the Commerce Department, for revision. www.shadowstats.com
www.australia.to/index...
Did Bernanke Save the World? [View article]
This program is not receiving much coverage for how much risk is involved. B of A is said to have close to 50 trillion in toxic assets they are sitting on, there is more out there. A light needs to be shined on this program before it is kicked off.
Should this debt be washed in this program or be sent to a bankruptcy court?
"HONG KONG (MarketWatch) -- China's $200 billion sovereign wealth fund, China Investment Corp., is preparing to invest up to $2 billion in U.S. mortgage securities under the U.S. Treasury-backed Public-Private Investment Plan (PPIP), according to a media report Monday.
The Beijing-based fund, which is funded by cash from China's foreign exchange reserves, is in talks with at least a dozen PPIP managers and sub advisors, according to a Reuter's report, which cited sources it did not identify.
The report said CIC has yet to select any companies but is likely to finalize a decision before the end of August.
China Investment Corp. was eager to participate in real estate securities because it believes the U.S. property market will start to recover later this year in a gradual fashion, the reports cited its sources as saying. "
www.marketwatch.com/st...
Mad over Healthcare Reform Myths [View article]
www.americanseniors.org/
Markets Aren't as Benign as They Look [View article]
"American spirit emerging
By John Browne
Despite growing concerns about the growth in Federal Reserve spending, voiced this week by none other than famed investor Warren Buffett, Washington seems determined to keep its foot on the money-pumping accelerator for as long as it can. But even though Washington continues to ignore the realities, alarm bells are beginning to ring at town halls across the country.
Last week, the Fed left its key short-term rates frozen at 0 to 0.25%, enabling banks to borrow at near zero and reap spreads as high as 6% to 24%. The Fed also continued its policy of paying interest on banks' reserves, further boosting Wall Street's bottom line. The government has decided to save the banks, no matter how much the public has to suffer.
Worse still, the administration has been largely silent over the obscene bonuses paid by banks to the very executives whose casino mentality caused a financial crisis that the International Monetary Fund now estimates has cost the world some US$7 trillion. At financial firms that have received bailout money, it has been estimated that thus far in 2009 bonuses paid to executives have exceeded profits.
However, with the pedal still hitting the metal, the Fed has begun to discuss plans of a so called "exit strategy" that would pave the way toward higher interest rates.
These statements of economic neutrality were based upon the Fed's impression that the recession is ending. But the Fed has not yet taken any meaningful actions to curb its potentially inflationary policies.
For now, mere words are enough to encourage American stock markets, but only briefly. More recently, US equity investors gradually are facing up to the fact that, while stock prices rose recently by some 45%, earnings, although "ahead of estimates", have fallen by almost 30%, despite savage cost cutting and deep inventory depletion. The more important top-line revenues have fallen by about 15% and free cash flows are tumbling in response.
The public, who feel the vicious bite of "real" 20% unemployment (rather than the official rate of 9.8%), are becoming increasing distrustful of big government and deeply resentful of its increasing grasp of their lives. The cracks are beginning to show.
A key element of the Barack Obama administration is its 1,000-page healthcare reform bill. Despite the impossibility of reading, let alone understanding, the legislative behemoth, Obama tried forcefully to push it through Congress in just two weeks.
And, despite the clear failure of government healthcare in many parts of the world, including domestically in Massachusetts, the administration is still looking to move ahead with a public option plan.
The public is not yet willing to play ball. While much of the biased media paint the rowdy town hall meetings across the country as merely the clumsy machinations of the Republican Party, the events are revealing the deep misgivings average Americans have about the growth of government. If this movement spreads, it could have a dramatic and healthy effect on the American economy in the long-term.
At their core, Americans hold individual freedom and self-reliance dear. Therefore, by nature, they are not socialists and resent big government. To them, the actions of the administration, supported by a compliant Congress, are clear: use massive amounts of public funds to support the financial elite, maintain massive entitlement spending to secure votes, and extend the grasp of big government through healthcare and other measures. Their anger is justified.
President Obama campaigned on political "change" and an end to the abuse of taxpayers. So far, he has massively increased government entitlement spending and has failed to loosen Congress's firm grasp of the pork barrel.
It may be that the deep resentment expressed in town halls will embolden ordinary people to pressure Congress to stop the train. If that happens, America will begin the long and painful road towards economic restructuring, individual freedom and enterprise. Under those conditions America would represent a great investment opportunity.
John Browne is senior market strategist, Euro Pacific Capital. Euro Pacific Capital commentary and market news is available at www.europac.net It has a free on-line investment newsletter"