Category: Finance

Who is Brooksley Born?

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Funny name, but she is a serious regulator. In the late 1990s, she was head of the CFTC, and she warned that the unregulated CDS market was a disaster waiting to happen. For this she was vociferously attacked, and now Bloomberg news has an article about how she has been vindicated.

And who went after her for attempting to regulate Credit Default Swaps (CDS)?

Alan “Bubbles” Greenspan and Larry Summers, who the very serious people inside the beltway are suggesting would be a perfect Secretary of the Treasury.

Economics Update

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Weekly initial unemployment claims are at 516,000, up from 484,000, well above the estimate of 479,000, and the highest number since 2 weeks after the 911 attacks.

With the caveat that weekly unemployment figures have a lot of noise, I would like to segue to a much noisier indicator, the Dow Jones Industrial Average, when fell below 8,000, though it rallied and ended up for the day.

Yean, I know, stock gyrations are really completely noise, but crossing 8K is a big deal for the markets, even if the Dow ended the day up 500+ points.

A better indicator of what is going on in the world is the fact that Germany is now officially in a recession, having experience two consecutive quarters of negative growth.

Calculated Risk’s regular post of credit crisis indicators, a very useful collection of interest rates and interest rate spreads really did not do much today.

That being days, CR does have a nice chart of spreads between 30 Year corporate bonds and treasuries, and it is not pretty:

Of course if you want to be scared, the fact that foreclosures are up 25% year over year, and that Ranieri’s Franklin Bank has filed chapter 7 (liquidation).

They are the 3rd largest lender to fail this year.

Speaking of failures, there is already General Motors, and Goldman Sachs has suspended its rating of the auto maker, which is a polite way of saying, “Absent a bailout, it’s done.”

In the meantime, oil rose at the end of the day, along with the rising Dow, which indicates that oil traders are complete morons who trade on chicken entrails and other spooky omens.

The dollar was mixed today.

IMF Holding Over 300,000 People Hostage

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This is yet another example as to why the IMF is fundamentally an evil and criminal organization that needs to be shut down:

However, the board will not in practice approve the loan until Iceland resolves a conflict with European governments over how foreign savers will be compensated for billions of dollars in losses suffered on their deposits in Icelandic banks, mainly at Landsbanki’s Icesave unit.

Translation, “We will make the loan, but all the money has to go to foreign creditors.”

I may have not given the IMF enough credit earlier.

I thought that they would treat Icenlanders better, because they are white, but not it appears that they are treating Icelanders like N*gg*rs.

I expect a deal for a Russian naval base, along with a Kremlin loan, in the next few months.

News Flash: UK Bankers Are Evil Too

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OK, not really news, but the news that following the Bank of England’s surprise 150 basis point (1.5%) rate cut, banks have continued to increase the interest rates of credit cards.

There is some relief in discovering that it’s not just US bankers. Still, how about taking a few hundred, sending them to Gitmo, and keeping them in solitary until the courts rule, because they are doing more damage to the economy than Osama bin Laden could even imagine.

The Exiled on Larry Summers

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In addition to the War Nerd, pretty much everything from The Exiled Online is pretty amaxing stuff, and I highly recommend it.

Case in point, Mark Ames review of the life and times of Lawrence Summers:

  • In 1991 he authored a memo calling Africa “Under Pulluted.”
  • 1n 1982 he worked on Reagan’s council of economic advisers helping to deregulate banking.
  • In 1990, his policies for economic shock therapy in Lithuania literally had citizens of the Baltic republic killing themselves at twice the rate of other recently liberalized nations, which had the Lithuanians voting the Communists back into power in 1992.
  • His role in corruption, along with protege Andrei Schleifer, in the “liberalization” of the Russian economy.

Let’s be clear here, in any sane place, and Washington, DC is apparently not a sane place, not only would this man not be considered for a public position, but just on the basis of his calling Africa, “Under Polluted”, he would be shunned from polite society.

The man is a corrupt and incompetent ideologue, and the idea that he is being considered as Secretary of the Treasure, and that he was Secretary of the Treasury, leaves me stunned.

Economics Update

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Well, Calculated Risk has your daily inventory of interest ratescredit crisis indicators, and today, they are pretty neutral.

In Hank Paulson and His Evil Minions™ news, he has finally publicly eschewed the idea of buying distressed assets.

I think that the reason for this is that the sales price would either be so low that all of his Wall Street friends would be technically insolvent, or so high as to land his corrupt ass in jail, because the big sh$#pile is near worthless. That’s why there is no market. Wall street cannot handle the truth.

It also looks like he will start requiring some level of private capital to match any bailout money. My translation is that now that he’s bailed out his Wall Street friends, anyone else who wants money needs to work for it.

Of course none of this will do much for the economy, with estimates that holiday sales will drop 1%, the first decrease since 1985, and home values falling for the 7th straight quarter.

What we should be thinking about is not how to rescue Wall Street, but rather how to amputate it from out economy, because these parasites are on a path to destroy more than 10% of US GDP.

Speaking of parasites, it looks like GE capital just got the FDIC to insure $139 billion of their debt. It appears that, “GE’s finance businesses are able to seek FDIC debt coverage because its GE Capital subsidiary also owns a federal savings bank and an industrial loan company, both of which already qualify.”

Like I said, parasites.

In the mean time, recession worries drove oil down again today, to a 21 month low, and it appears that the world thinks that the UK is in worse shape than the US, because not only was the dollar up today, it hit a 6-year high vs. the pound.

If you are worried about a resurgent Russia though, you have less to worry about, with Russia easing up support on the Ruble, which promptly fell.

Bailout II: Bail Harder

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Not my hed, but rather Paul Keil’s, who is reporting that Paulson is disparately looking to get the second half of the 700 billion bailout in his hands, so that he can benefit his Wall Street cronies before someone honest, or Larry Summers, ends up in charge of the Department of the Treasury:

In order to keep tabs on how the Treasury Department is handling the $700 billion bailout, Congress split up the payments. The first $350 billion is dwindling fast. $250 billion was set aside to buy stakes in the nation’s banks (here’s our tally of where that’s going) and yesterday $40 billion went to AIG as part of its renegotiated bailout.

That only leaves $60 billion. The Treasury has not even begun implementing its original plan, to purchase troubled mortgage assets. And with a number of major American institutions — General Motors, GMAC, bond insurers, insurance companies, etc. — pushing for their share of the bailout, that figure is likely to run out soon. Before it does, Treasury Secretary Henry Paulson will be forced to return to Capitol Hill for the second helping. Such a journey is proving increasingly “likely,” the Wall Street Journal ventures.

IMNSHO, if he comes back to congress, he should not be allowed to take a piss without a Congressional staffer looking over his shoulder.

Economics Update

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Well, it’s a bank holiday, so it’s a little bit slow, but the fact that American Express is filing to become a bank holding company, so that it can take part in the Federal Reserve’s sh&%pile for cash program.

My guess would be that they are seeing their default rate going up, and that they can’t find anyone to buy the debt.

In retail, General Growth Properties, the 2nd largest mall operator in the US, said that it may file for bankruptcy protection, and National Wholesale Liquidators filed for bankruptcy.

In other impending bankruptcies, option ARM lender Downey Savings and Loan just said in it’s 10Q that it cannot see a way to avoid being taken over by the Office of Thrift Supervision.

Most of the interest rate indicators were unavailable today because of the holiday, but the LIBOR (the L stands for London) was down a bit again today.

Also from that little island off the coast of France, retail and home sales are heading south quickly there too.

The joys of Anglo-Saxon capitalism, I guess.

In any case, there is no joy in Mudville, if by Mudville you mean the real estate market, so Fannie Mae and Freddie Mac have instituted a new program to modify mortgages to minimize foreclosures.

I still think that bankruptcy changes are the best solution here.

In any case, the impending recession drove oil to a 19 month low, and drove the dollar up, as people tend to flee to the dollar in bad times.

Falling oil is also absolutely killing the Ruble, which appears to be on the brink a devaluation.

The, “He’ll Take Our 401(k)” Myth

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You’ve probably seen the email….Somehow, I mercifully missed screaming that “Bqrack Obama will take your 401(k)/403(b) to finance something….Not quite sure what….Maybe an arms for hostages swap, but that seems to be Republican foreign policy.

Not surprisingly, this is complete crap. Generally the finger is pointed at Education and Labor Committee Chairman George Miller (D-CA) for this scheme, and there are two very small grains of truth.

The first is that Miller he wants to regulate, not take 401(k)s, specifically, he’s talking about reigning in fees, which will mean, of course, lower fees, but also mean less aggressively managed portfolios, because aggressively managed portfolios are more expensive, since aggressively managing anything takes resources.

In the long run, since stuff like S&P 500 funds beat actively managed funds, particularly when fees are taken into account, this would be a good thing, as people who lose their retirement in Emu farms generally run screaming for a taxpayer bailout.

The second grain of truth is that Teresa Ghilarducci has this pet program that she touted as a witness at the hearing: that 401(k) holders be allowed to voluntarily trade in their 401(k)s for a so called, “Guaranteed Retirement Account”. She also suggests that in the long term the pre-tax income features of 401(k)s be abolished and be replaced with a retirement plan with guaranteed payout (which sounds an awful like what social security already is).

It’s guaranteed benefits, as opposed to guaranteed asset, a return to the pensions of old.

I’m not sure of her concept, though on the face of it, it seems to be a better one than the Chilean model, where broker fees, and the market depressing effects of large population echelons end up leaving people with far less than they anticipated.

Of course the real conundrum of defined asset retirement plans is the equation that if you die young, you win.

Erdogan’s Is Right

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It appears that Turkish Prime Minister Recep Tayyip Erdogan is at loggerheads with his business community over whether to go to the IMF for aid.

Erdogan does not want to deal with the IMF, and the moneyed elites do:

“We will not cast our tomorrows into darkness by bowing to IMF demands in such a time of crisis,” Erdogan said on Oct. 26, accusing the IMF of seeking to “squeeze Turkey’s throat” by curbing needed spending programs.

That is a pretty good definition of what the IMF does, at least what it does to non-white countries. You can be sure that the strictures on recents IMF loans to Ukraine, Hungary and Iceland would be far less punitive than anything that Turkey would get, even though, by all standards, Turkey has cleaned up its act over the past few years, culminating in paying off the IMF in 2005.

What is going on here is what Naomi Kline outlines in The Shock Doctrine. Times are bad, so Turkey must return to economic policies that are in reality colonialism with a polite veneer.

One need only look at Malaysia in the Asian financial crisis, which did better because it refused IMF money and directives:

Malaysia stood out as a country that refused IMF assistance and advice. Instead of further opening its economy, Malaysia imposed capital controls, in an effort to eliminate speculative trading in its currency. While the IMF mocked this approach when adopted, the Fund later admitted that it succeeded. Malaysia generally suffered less severe economic problems than the other countries embroiled in the Asian financial crisis.

The long term solution is to tax or otherwise restrict foreign denominated loans because they always result in a crisis in which foreign powers dictate the shape of a local society.

Hank Paulson Needs to Go to Jail

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Well, we already know that Hank Paulson is a big fan of large Wall Street banks taking over their smaller brethren, and now it appears that he broke the law to provide an additional subsidy for bank M&A activity.

Specifically, he “reinterpreted” an obscure section of the tax code, by tax code, I mean law as written by Congress, not regulations issued by the IRS, Section 382, which limits the amount of prior losses you can write down when you take over a company:

More than a dozen tax lawyers interviewed for this story — including several representing banks that stand to reap billions from the change — said the Treasury had no authority to issue the notice.

Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to “carry out the purposes of this section.”

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company’s losses to offset their gains and avoid paying taxes.

(emphasis mine)

This is something that Hank Paulson and His Evil Minions&trade have been lobbying to get for years, and anyone who is not a paid shill of the bank is saying that this was illegal.

He broke the law, and he knowingly did so.

You can talk all you want about criminalizing official behavior, but his behavior is plainly criminal.

Economics Update

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Let’s start with retail, where the inestimable Barry Ritholtz points us to a pretty picture on the retail collapse from the NY Times (click on image for the NY times article):

I would note that the 4 weeks before November 1 are now firmly part of the Christmas season, and the Christmas season is typically 40% of revenue, and 80% of profits.

In related news Circuit City files chapter 11, this should come as no surprise for the people who have followed this sad tale, as was predicted when they laid off senior sales staff and replaced them with clueless low wage drones while issuing large executive bonuses: (Story dated December 22, 2007)

Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing with the Securities and Exchange Commission.

If you don’t have competent sales staff, then why won’t your customers go to the Amazon and Walmart?

Karma, Neh?

In the world of mortgages, we have Fannie Mae Posting a ecord $29 billion loss for the quarter, which is actually worse than it seems, since the last quarter’s profits were largely from banking losses as tax breaks.

It will likely never see those tax breaks, because a profitable year is so far off.

Yesterday, it was monoliner Ambac, today, Moody’s cuts MBIA. No surprise….dead insurers walking.

Meanwhile, in energy, it appears that the House of Saud is actually adhering to the OPEC oil production cuts, which along with China’s announcement of a $586 billion stimulus package should drive commodities up.

The Russians are hoping that it will work, as falling oil prices seems to indicate a devaluation in the Ruble.

So far, it appears to be working, oil finished the day up $4.52/bbl….Good for them, bad for us.

In any case the Chinese stimulus package has had the effect of driving the dollar down, though I’m not sure why…I just don’t know the underlying theory.

Carnegie Taken Over by Swedish Government, to Be Sold

Finally, we have a report from Calculated Risk on credit crisis indicators:

  • Libor down (good)
  • 3 month treasury yields down (bad)
  • TED spread up a smidgen (a smidgen bad)

They also have a nice scare picture of the Federal reserve balance sheet here:

Basically, it’s how much of the sh%$pile that the Fed owns, and this is fracking terrifying.

The Question is, What are They Covering Up

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The Bloomberg News has filed suit in federal court to require the Federal Reserve to disclose the securities received in what I call it’s sh^%pile for cash program.

The Fed is claiming that it’s, “confidential commercial information,” which is (my guess) lawyer speak for worthless garbage.

The Bloomberg followup story notes that, “The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression,” which is a pretty damn good reason for some openness here.

You have to remember that these programs have created new and not fully understood markets, and that the programs in question are directing money toward entities whose business model is to use information asymmetries to generate profits.

A lack of transferency is not the fox running the hen house, it’s Colonel Sanders running the hen house.

GM Warns It May Run Out of Cash Before Year’s End

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I’m not sure if this is real, or some sort of ploy to get money from Paulson, but this is very scary:

General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall “significantly short” of the amount needed by the end of June unless the auto market improves or it raises more capital.

I’m so glad that I’m not in a position to make a call on this.

The Questions that Needed to be Asked

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From, Queen Elizabeth II, of all people.

She visited the London School of Economics (LSE):

Prof Garicano [director of research at the LSE’s management department] said afterwards: “The Queen asked me: ‘If these things were so large, how come everyone missed them? Why did nobody notice it’?”

When Garicano explained that at “every stage, someone was relying on somebody else and everyone thought they were doing the right thing”, she commented: “Awful.”

You see, this is not rocket science.

The only reason that it seems complex is because the people who are trying to fix it, were the ones who caused it in the first place, and they are obfuscating to cover their collective asses.

Economics Update

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Jeebus! The Bank of England cut it’s benchmark interest rate 150 basis points (1.5%)…To 3%.

That’s not strong action, that is TEOTWAWKI panic.

The ECB and the Swiss central bank also cut rates, by 50 basis points…The central banks think that we are in end of the world territory.

As further evidence, we have the ECB’s president saying that there may be more rate cuts.

This from an institution that’s only charter is to fight inflation.

Not surprisingly, all these rate cuts had the effect of sending the Dollar and Yen skyrocketing.

Meanwhile, jobless claims dropped a bit, but only through “Jedi Mind Trick” statistics:

The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, ….

The department revised up its estimate for jobless claims in the prior week to 485,000 from a previously reported 479,000.

So comparing initial estimates, it went up by 2,000, but after the “correction”, it was down by 4000.

In any case, the number sucks, and continuing unemployment claims are the highest that they have been since 1983, when unemployment topped 10%.

It won’t help that retail sales fell to their lowest levels in at least 39 years…..It may be longer, but they only started collecting the statistics in 1969!

Interest rates on interbank lending trending down, but considering all the interest rate cuts, that is pretty unavoidable.

I think that it is more significant that credit card companies were unable to sell bonds at all for the first time since 1993, and when you consider that they charge something north of 20% on carried balances, that is ugly.

BTW, y friends the monoliner bond insurers are back again, with Moody’s cutting Ambac to ‘Baa1’.

It should surprise no one that with massive indications of a deep recession, and the dollar up, oil fell again to $60.77/bbl.