Cost Of Bailout Hits $8.5 Trillion - (www.prisonplanet.com) - The total cost of funds committed to the bailout in its various guises has now hit $8.5 trillion dollars, up from $7.7 trillion in just two days after the federal government committed an additional $800 billion to two new loan programs on Tuesday. The total amount of funds now committed equals a figure that represents 60 per cent of the U.S. gross domestic product. Millions of Americans with savings accounts and pensions will ultimately pay the price because, as the San Francisco Chronicle admits today, “The Fed lends money from its own balance sheet or by essentially creating new money.” Just another reminder that the private, run for profit, Federal Reserve has the printing presses cranked on overdrive in order to bailout Wall Street and the big banks, while the homeowner and the middle class see their savings devalued out of existence. “If you print money all the time, the money becomes worth less,” warns Diane Lim Rogers, chief economist with the Concord Coalition, but its an empty threat to delirious traders and investors drunk on a record stock market rally after the government pumped more fake liquidity into the bloated bubble.
Rubin, Weil, Pandit, Prince: Many to Blame for Citi Debacle, None Owning Up - (finance.yahoo.com) – Good video. Let’s start by saying that Pandit has only been on the job for 1 year. It has to go back to crooked Sandy Weill, Robert Rubin, and Prince. Citigroup CEO Vikram Pandit appeared on The Charlie Rose Show last night, where he steadfastly declined to take responsibility for the firm's predicament. "As I got into this job about 11 months ago, I came in with a set of assets were which unduly concentrated against the U.S. residential market, and we have been working down steadily," Pandit said, effectively laying the blame at the feet of his predecessor Chuck Prince. Prince, who became CEO of Citigroup in 2003 and then chairman in 2006, certainly deserves a share of the blame for the company's use of leverage and other decisions that ultimately left the bank at the mercy of the U.S. government. But as with any debacle of this magnitude, there's plenty of blame to go around. What about Sandy Weil, the architect of Citi's "supermarket" strategy and the man who handpicked Prince to succeed him? Then there's board member and former Treasury Secretary Robert Rubin, who has received over $100 million in compensation from Citi in 10-plus years, according to the New York Post. "I don't feel responsible, in light of the facts as I knew them in my role," Rubin told the New York Times back in April. "In hindsight, there are a lot of things we'd do differently. But in the context of the facts as I knew them and my role, I'm inclined to think probably not."
LandAmerica Financial Group Files Ch.11 BK - (news.yahoo.com/s/nm) - Title insurer LandAmerica Financial Group Inc (LFG.N) said it has filed for bankruptcy protection and its bigger rival Fidelity National Financial Inc (FNF.N) will buy two of its underwriting units.
Massachusetts Turnpike Big Dig 'Swaps' Backfire - (online.wsj.com) The financial crisis is causing a big row in Massachusetts over tolls. The Massachusetts Turnpike Authority, already the object of local scorn for cost overruns incurred in the infamous Big Dig road project, faced further public wrath in recent weeks when it proposed a $100 million a year toll increase covering Boston's bridges and tunnels. At the tunnels outside Logan International Airport, cash tolls would double to $7. Looming large among the reasons the authority needs the cash are three "interest rate swap" contracts related to the Big Dig that were sealed with UBS AG, Lehman Brothers Holdings Inc. and J.P. Morgan Chase & Co. The deals have gone wrong for the state, adding to its interest burden and confronting it with up to $467 million in potential fees if the firms opt to pull the plug on the contracts. "Did anyone know what they were doing?" asks Alan LeBovidge, who walked into the mess a year ago when he became the Turnpike Authority's executive director. Maybe, he says, his predecessors "should have been nice and conservative. It's like going to Las Vegas."
Bell Canada Bombshell Hits Hedge Funds - (www.nytimes.com) Some event-driven hedge funds won’t have much to be thankful for tomorrow. Wednesday’s news that Bell Canada’s $50 billion leveraged buyout — the largest in history — is in jeopardy will likely hammer several big funds that were gaining confidence the deal would close on Dec. 11. Among the big names that owned Bell Canada shares are hedge funds Paulson & Company, D.E. Shaw and S.A.C. Capital. An arbitrage fund run by BNP Paribas also held about $129 million worth of Bell Canada stock at the end of September, according to public filings. Other funds that held a substantial amount of shares as of Sept. 30 included Chesapeake Partners, Mason Capital Management, York Capital Management and Highbridge Capital Management. Bell Canada shares were down as much as 40 percent in premarket trading after the telecom giant said Wednesday that a preliminary report by the auditor KPMG found that “given current market conditions,” it would not remain solvent once it took on the $33 billion in debt needed to take it private.
Ailing London Hedgie Panicked - (www.nypost.com) Troubled London hedge fund manager RAB Capital is gearing up to pull the plug on several of its portfolios that invest in hedge funds, known as funds of hedge funds, The Post has learned. The move highlights the trouble encroaching on the funds of hedge funds industry. Among the funds RAB Capital is liquidating in the coming months is the RAB Multi Strategy Fund, a fund of hedge funds that invests solely in RAB Capital's proprietary funds - some of which have proven to be the worst performing in the industry this year. The RAB Multi Strategy, together with its more levered version known as the RAB Multi Strategy Enhanced, manages about $200 million in assets, down from at least $400 million earlier this year. It's down roughly 28.8 percent this year, according to a letter the fund distributed yesterday to its investors.
Economic woes hit Ireland hard - (www.latimes.com) That growth was most visible on the Dublin riverfront, where a new breed of developers transformed this city of cozy pubs with a slew of new luxury condos, wine bars and grade-A office space. Fueled by low interest rates on euro loans and a flood of Eastern European immigrants who came to work in the sprouting restaurants and factories of Dublin, Cork and Shannon, house prices in some areas of Ireland jumped as much as 500% in a decade. "The problem, you see, is that things got out of hand," said developer Mike Wallace. "The money was too cheap and incentives to build too great. The effect was the opposite of European integration. We became more like America and less like Europe. That has got to change." Today, Wallace has three prime parcels of land that he'd like to build on. Despite a national housing glut, the properties are in highly coveted areas, but most banks are refusing to lend. Banks that are willing to do so are charging interest rates -- once so low as to promote overbuilding -- that are too high to make any building project worthwhile. "We can't seem to get it just right," he said. Part of the problem is that European monetary policy, which once worked in favor of fast growth in Ireland, is now working against it. Over the last decade, analysts say, European Central Bank interest rates were probably too low for the likes of Ireland, contributing to a massive credit bubble here that has all but collapsed in recent months.
Extreme Makeover at Morgan Stanley - (www.nytimes.com) Two months ago, Morgan Stanley, one of the grandest names on Wall Street, transformed itself into an old-fashioned bank holding company in a desperate bid to survive the financial crisis. But now this new Morgan Stanley faces an even bigger challenge: figuring out where to go from here. Goldman Sachs, its perennial rival, is in the midst of a similar metamorphosis, and both firms face a somewhat uncertain future. Drawing up the roadmap at Morgan Stanley are Walid A. Chammah and James P. Gorman, who are not only co-presidents but also potential rivals to succeed John J. Mack as chief executive.
Mr. Chammah is trying to re-engineer Morgan Stanley’s vaunted investment banking operation for leaner times, which means cutting jobs — lots of them. Since July the firm has announced plans to eliminate 16 percent of its work force.
Solvency Issues May Jeopardize Bell Canada Deal - (www.nytimes.com)
Dividends Cut Fastest Since 1950s as Citigroup Conserves Cash - (www.bloomberg.com)
BCE Takeover in Doubt - (online.wsj.com)
Home prices keep plunging; L.A. sees some of the sharpest declines - (www.latimes.com)
Fed Aid Sets Off a Rush to Refinance - (online.wsj.com)
U.S. Mortgage Rates Drop Most in Seven Years on Fed Debt Plan - (www.bloomberg.com)
Beyond the Ivied Halls, Endowments Suffer - (www.nytimes.com)
U.S. Mortgage Rates Drop Most in Seven Years on Fed Debt Plan - (www.bloomberg.com)
EU Proposes 200 Billion-Euro Stimulus Against Crisis - (www.bloomberg.com)
China Slashes Lending Rate to Support Slowing Economy - (www.bloomberg.com)
Japan engulfed - (www.ft.com)
Brazil's housing boom shows cracks - (www.latimes.com)
U.K. Consumer Spending Declines as Economy Shrinks - (www.bloomberg.com)
A Global Downturn Puts the Brakes on China’s Industry - (www.nytimes.com)
U.S. Initial Jobless Claims Fell to 529,000 Last Week - (www.bloomberg.com)
Consumer Spending in U.S. Falls 1%, Most in 7 Years - (www.bloomberg.com)
U.S. Durable Orders Fall Twice as Much as Forecast - (www.bloomberg.com)
Food Prices Expected to Keep Going Up - (www.nytimes.com)
U.S. Moves to Revive Consumer Lending - (www.washingtonpost.com)
Fed Risks ‘Spitting in the Wind’ With New $800 Billion Pledge - (www.bloomberg.com)
Americans' Food Stamp Use Nears All-Time High - (www.washingtonpost.com)
Americans' Gloom Reverberates - (online.wsj.com)
Home prices keep plunging; L.A. sees some of the sharpest declines - (www.latimes.com)
Seattle home prices fall nearly 10% in third quarter - (seattletimes.nwsource.com)
Tiffany lowers outlook as profit tumbles - (www.marketwatch.com)
Porsche sees sales declining sharply in 4 months through November as crisis bites - (www.chicagotribune.com)
Tiffany posts lower profit; economy hits US sales - (www.reuters.com)
AIG receives $40 billion from government program - (biz.yahoo.com/ap)
Holiday travel will be down this year as economic slump continues - (www.chicagotribune.com)
Toyota Suffers First Credit Rating Cut in 10 Years Amid Slump - (www.bloomberg.com)
Sunday, November 30, 2008
Friday, November 28, 2008
The following is a list of store closings after Christmas 2008 - Probably best to avoid gift certificates for any of these stores:
- Circuit City - already closed some stores (filed Chapter 11)
- Ann Taylor- closing 117 stores nationwide
- Lane Bryant, Fashion Bug ,and Catherine's - closing 150 stores nationwide
- Eddie Bauer - closing 27 stores, more after January
- Cache - closing all stores
- Talbots - closing all specialty stores
- J. Jill - closing all stores (owned by Talbots)
- Pacific Sunwear - closing all stores (also owned by Talbots)
- GAP - closing 85 stores Footlocker - closing 140 stores, more after January
- Wickes Furniture - closing all stores
- Levitz - closing all remaining stores
- Bombay - closing all remaining stores
- Zales - closing 82 stores, 105 more after January
- Whitehall - closing all stores
- Piercing Pagoda - closing all stores
- Disney - closing 98 stores, more after January.
- Home Depot - closing 15 stores (1 in New Brunswick, NJ )
- Macys - closing 9 stores after January
- Linens and Things - closing all stores
- Movie Galley - closing all stores
- Pep Boys - closing 33 stores
- Sprint/Nextel - closing 133 stores
- JC Penney closing undetermined number of stores after January
- Ethan Allen - closing 12 stores.
- Wilson Leather - closing all stores
- Sharper Image - closing all stores
- K B Toys - closing 356 stores
- Loews - closing some stores
- Dillard's - closing some stores
Where Was Geithner in Turmoil? - (www.nypost.com) Yes, good question. As usual, the guy who was supposed to be watching the crooks in NYC is the punk getting rewarded. But Mr. Geithner’s involvement in several ultimately ill-fated efforts to buttress the American financial system is the very reason some Wall Street C.E.O.’s — a number of whom spoke on the condition of anonymity for fear of piquing the man who regulates them — question whether he’s up to the challenge. “We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,” said Christopher Whalen of Institutional Risk Analytics. “Throw in the Bear Stearns/Maiden Lane fiasco for good measure,” he said. “All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.” Ouch. “He was in the room at every turn of the crisis,” said another executive who participated in several such confidential meetings with Mr. Geithner. “You can look at that both ways.”
Britain to lift top income tax rate to 45 percent, cut sales tax temporarily to boost growth - (www.chicagotribune.com) The British government cut the basic sales tax Monday to help boost consumer spending as the economy slides into recession, and proposed a higher rate of income tax for the biggest earners if it is re-elected. In his pre-budget report to legislators, Treasury chief Alistair Darling said the Value Added Tax (VAT) will be reduced to 15 percent — the lowest level allowed under European Union laws — from the current 17.5 percent until the end of 2009 in an attempt to kick-start the economy ahead of the crucial Christmas trading period. The cut will be effective on Monday.
Perot’s Parkcentral Fund Closes as Credit Freezes - (www.bloomberg.com) Parkcentral Capital Management LP, an investment firm that manages money for the family of former U.S. presidential candidate H. Ross Perot, is liquidating a fixed-income hedge fund because it’s “no longer viable.” Parkcentral Global Hub Ltd.’s assets fell as much as 40 percent to $1.5 billion this year through October. The fund is selling remaining holdings to pay creditors, Eddie Reeves, a spokesman for the Plano, Texas-based firm, said in an e-mailed statement today. Perot, 78, who ran unsuccessfully for U.S. president in 1992, and members of his family are the fund’s biggest investors. The bankruptcy of Lehman Brothers Holdings Inc. in September triggered a selloff in corporate bonds as investors fled any holding with a hint of risk. Fixed-income hedge funds lost 17 percent this year through October, according to data compiled by Chicago-based Hedge Fund Research Inc. “The worst isn’t over,” said Michael Dubin, New York- based president at The LongChamp Group Inc., which invests in hedge funds. “Credit just isn’t flowing. I wouldn’t be too surprised if we see further funds go bust.”
IMF Loans Total $41.8 Billion in November, ‘Busiest’ Month Ever - (www.bloomberg.com) The International Monetary Fund this month lent more money to cash-strapped governments than it has in the past five years combined. The IMF agreed this month to $41.8 billion in loans, approving $16.4 billion for Ukraine, $15.7 billion for Hungary, $2.1 billion for Iceland and $7.6 billion for Pakistan. Financing is in the works for Serbia, Turkey, Belarus and Latvia, turning eastern Europe into a regional ward of the IMF the way Southeast Asia was a decade ago.
Goldman, Morgan Stanley Lead Banks Selling FDIC-Guaranteed Debt - (www.bloomberg.com) Goldman Sachs Group Inc. plans to sell $5 billion of notes backed by the government, while Morgan Stanley and JPMorgan Chase & Co. are preparing offerings, as banks take advantage of a new U.S. program to guarantee debt. The three New York-based banks are the first to start offerings since the Federal Deposit Insurance Corp. last week completed rules to strengthen its guarantee. The backing gives the banks the ability to sell AAA rated debt, attracting investors after being unable to sell bonds since September.
Mortgage approvals halved since 2007 - (www.ft.com) Mortgage approvals fell by more than half from a year earlier in October, according to data from the British Bankers' Association, which underlined the extreme pressure on the housing market. Compared with the month of September, the number of mortgage approvals for house purchases fell slightly from 23,383 to 21,584 in October. The number of approvals for other purposes was similar to September. Consumer credit was subdued, rising by just £0.3bn, and personal deposits were flat.
Universities retrench as endowments suffer from financial crisis - (www.iht.com) Some universities in the United States are trying to sell chunks of their portfolios privately as their endowments swoon with the markets. Among institutional investors, school endowments aggressively embraced private equity, real estate partnerships, venture capital, commodities, hedge funds and other so-called alternative investments during the past few years. Endowments with more than $1 billion in assets reported 35 percent of their holdings in these types of investments last year, a much greater portion than big public pension funds, for example. Now they are balking. The value of some of these investments has fallen, and they are not easily shed because there is no public market, as there is for stocks. Worse, private equity and venture capital funds often require investors to put up additional capital over time. Cash may now be in short supply at schools facing budget pressures and investment losses. The University of Virginia in Charlottesville, which has a $4.2 billion endowment, posted a letter on its Web site saying that it might explore the sale of some of its private equity holdings and will sell some other assets.
Rogers Says Dollar to Be `Devalued,' Buys Commodities - (www.bloomberg.com)
Emerging-Market Debt Trading Tumbles to Lowest in 5 1/2 Years - (www.bloomberg.com)
BHP Abandons $66 Billion Rio Tinto Bid as Commodities Collapse - (www.bloomberg.com)
More companies cut back on their dividends - (www.usatoday.com)
UK to suffer 'severe' recession - (news.bbc.co.uk)
King Says British Banks May Still Need More Capital - (www.bloomberg.com)
Brazilian Farm Credit Dries Up, Forces Growers to Reduce Crops - (www.bloomberg.com)
China Needs to ‘Rebalance’ Economy, World Bank Says - (www.bloomberg.com)
Fed to Buy $600 Billion of GSE Debt, Set Up ABS Loan Program - (www.bloomberg.com)
U.S. Unveils New Programs to Ease Credit - (www.nytimes.com)
U.S. Economy Shrank 0.5% in 3rd Qtr, Most Since ’01 - (www.bloomberg.com)
Citigroup Bailout Charts New Course for U.S. Government Rescues - (www.bloomberg.com)
Outlook Grows More Dire for Housing Market - (www.nytimes.com)
U.S. Economy: Home-Price Drop Accelerates, GDP Falls - (www.bloomberg.com)
Treasury, Fed Said to Unveil Plan to Bolster Consumer Financing - (www.bloomberg.com)
It's cash for maxed-out customers - (www.chicagotribune.com)
Citi's Relentless Quest for Growth - (www.washingtonpost.com)
For Retailers, 'Tis the Season To Be Nervous - (www.time.com)
Saving Citi May Create More Fear - (www.nytimes.com)
Buffett to offer details on derivatives - (www.iht.com)
Freddie Mac Increases Home Loan Support - (www.washingtonpost.com)
Citigroup's Uneasy Victory - (www.businessweek.com)
Steelmaker warns up to 2,444 layoffs at Ind. plant - (www.chicagotribune.com)
A Rough Ride in Collectible Cars - (online.wsj.com)
Another Crisis, Another Guarantee - (www.nytimes.com)
Thursday, November 27, 2008
After Withholding Employee Vacation Payouts, Mervyn's Execs In Line For Potential Bonuses - (www.cbs5.com) You've undoubtedly heard about the Mervyn's chain shutting down. CBS 5 Investigates looks into why former employees are going without back vacation pay, yet executives are in line to receive vacation pay plus bonuses. They're the people who made Mervyn's, Mervyn's. People like Kathi Finley of Castro Valley. "It truly felt like a family," Finley said of the closing chain. Former employee Randy Spengler said, "There was always that Mervyn's-cared feeling." Economics professor Eugene Muscat of the University of San Francisco said the company was unique. "Mervyn's had a clientele and customers and staff that were family friendly," he said. But Muscat said all that changed when Mervyn's was sold. "It wasn't purchased to be continued as a family operation," he said. Muscat said that's because private equity firms bought the company and split off the real estate, essentially renting the stores back to Mervyn's and making it difficult for the stores to remain profitable. "That meant that those store managers were now carrying a much higher burden and had to work that much harder to be able to make the stores profitable, and it was a very slippery slope," said Muscat. Mervyns slid into bankruptcy and the chain is now going out of business. Eight former Mervyn's employees told CBS 5 Investigates how they felt when they heard the news. Their answers ranged from words such as "shocked" and "devastated" to describing a feeling of being "socked in the stomach."
Millionaires get farm payments; nobody checking - (www.iht.com) A sports team owner, a financial firm executive and residents of Hong Kong and Saudi Arabia were among 2,702 millionaire recipients of farm payments from 2003 to 2006 — and it's not even clear they were legitimate farmers, U.S. congressional investigators reported Monday. They probably were ineligible, but the Agriculture Department can't confirm that, since officials never checked their incomes, the Government Accountability Office said. The Agriculture Department cried foul: It said the investigators had access to Internal Revenue Service information on individuals that the department is not permitted to see. The investigators said the problem will only get worse, because the payments they cited only covered the 2002 farm bill subsidies. The 2008 farm legislation has provisions that could allow even more people to receive improper payments without effective checks, they said. There are three main types of payments: direct subsidies based on a farmer's production history; countercyclical payments that kick in when prices are low and disappear when they recover; and a loan program that allows repayment in money or crops.
Treasury extends mutual fund guarantee program - (www.contracostatimes.com) The government is extending a program to bolster the money-market mutual fund industry. The Treasury Department on Monday said the program, which provides guarantees for the popular investment products, will now run until April 30. The temporary program had been slated to expire on Dec. 18. The department said it is taking the action "to support ongoing stability in this market." Treasury set up the temporary program in September—a time of intense financial market turmoil—that led skittish investors to pull money out of the funds. The government is tapping a $50 billion fund created during the Depression to temporarily provide the guarantees. Funds pay a fee to participate in the program. Treasury last week agreed to be a buyer of last resort to assist in the liquidation of the Reserve Fund's U.S. Government Fund due to "unique and extraordinary circumstances." Under the arrangement, the fund has been given 45 days to find buyers for its assets. After that, the Treasury will step in and buy any remaining shares to ensure that each shareholder receives $1 for every share they own. Treasury said last week it did not anticipate taking similar action for any other mutual funds.
Citigroup Bailout Raises Viability Questions For Entire Banking System – (Mish at globaleconomicanalysis.blogspot.com) Still more details are emerging from the weekend bailout of Citigroup. And in what is no surprise in this corner, it appears Citigroup is not well capitalized and Faces Pressure to Slim Down. The government rescue of Citigroup Inc. reversed the perilous slide of the company's stock, but pressure is mounting on its executives and directors to do even more to stabilize the financial giant. Citigroup executives acknowledged Monday that the government made it clear in weekend negotiations that it expects the company to continue to reduce its appetite for risk, and to seriously weigh more drastic actions, including possibly breaking up the company. "This is a reprieve, but it's not a complete pardon," said another person familiar with the matter, referring to the government rescue plan. "Nobody's confused about that." The company faces swelling losses on loans that aren't covered under the government's loss-sharing agreement, which amounts to insurance on a $306 billion pool of assets. Under the plan, Citigroup will shoulder the first $29 billion in losses on that pool. After that, three government agencies will absorb 90% of any remaining losses, which amounts to $249 billion.
Icelanders demand PM resignation, clash with police - (www.guardian.co.uk) Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country. It was the latest in a series of protests in the capital since the financial meltdown that crippled the island's economy. Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down. "They don't have our trust and they are no longer legitimate," Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament. A separate group of 200-300 people gathered in front of the city's main police station demanding the release of a young protester being held there, Icelandic media reported. Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid. Iceland's three biggest banks -- Kaupthing, Landsbanki and Glitnir -- collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF). This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system. Despite the loans, Iceland faces a sharp economic contraction and surging unemployment while many Icelanders also risk losing their homes and life savings.
Why Isn't Anyone in Jail? - (finance.yahoo.com) Good accompanying video. FBI formed alliance with leading perpetrators so none of big bankers have been prosecuted. In the aftermath of the corporate scandals earlier this decade, investor confidence was (partially) restored by a parade of "perp walks" of fallen chieftains like Ken Lay, Bernie Ebbers, and Dennis Kozlowski. But nearly two years into the bursting of booms in housing and mortgage securities, scant few related arrests have been made — and most of those have been focused on individual mortgage brokers vs. major industry leaders. "There is no poster child [for the housing scandal] because you need to investigate, and you need to bring cases and we haven't done either against the major players," says William Black, Associate Professor of Economics and Law at the University of Missouri — Kansas City and a former federal regulator. Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis and blew the whistle on the "Keating Five" in 1989, says investigations have shown fraud incidence of 50% at (once) major subprime lenders like IndyMac and Countrywide.
Goldman, GE, GM Invite Us to Buy Rigged Bonds - (www.bloomberg.com) The fleecing knows no end. Take a look at GM's 8.375 percent bond due in July 2033, and feast your eyes on the new world of American capitalism. Yesterday's price, at about 15 cents on the dollar, tells you the market believes GM will last long enough to make a little less than two years' worth of interest payments. Were it not for the chance of a government bailout, in lieu of an imminent Chapter 11 bankruptcy filing, the bonds would trade for much less. And there lies the truth about what America's capital markets have become: a rigged game. You can see it all over. Nobody who knows anything about General Electric Co. actually believes it's a AAA credit. And yet the raters at Moody's Investors Service and Standard & Poor's continue to give GE their highest mark. Meanwhile, the company just landed government insurance for as much as $139 billion of debt for its lending arm, GE Capital Corp., which also is rated AAA. If GE were really that strong, it wouldn't need the help.
Cramer: Not Another Dime for Home Builders - (www.cnbc.com) For once, I agree partially with Cramer, although we all know the real root cause of this mess wasn’t the homebuilders but the Fed, Treasury and the big banks. How about the outrageous request from homebuilders asking Congress for a 250 billion dollar stimulus package. These are the very companies that got us into this mess are now begging at the federal trough for a quarter of a trillion dollars so they can build more homes. "This package had better be deep-sixed immediately," demanded Cramer as giving these companies money is the worst possible thing he believes they could do given the house price depreciation that has threatened the global economy. "They want $250 billion? You know what? They owe us $250 billion for the damage they've caused to our economy. We need the homebuilders do go under. We don't want them pumping out any more homes. This is the absolute height of outrage," said Cramer. Cramer can't believe these guys had the guts to even ask and it must be stopped. "I'm happy to give these companies money to stop building homes or to dismantle their existing inventory (or dismantle themselves), but letting them live another day and keep building houses is like dropping napalm on the US economy. No thank you." added Jim.
U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit - (www.bloomberg.com) The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.
FHA-Backed loans: The Next Subprime Crisis Looms - (www.spiegel.de) The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more. As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers -- many of them the very sorts of firms that helped create the current financial crisis -- are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means. You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy. Foreclosures have spiked in the wake of the subprime crisis, leading to a number of businesses, like this one in Rio Vista, CA, having to close. For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100-percent-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.
Government unveils Citigroup bailout - (msnbc.msn.com)
Housebuilders Next In Line To Beg For Bailout Funds - (www.nuwireinvestor.com)
The Truth About Bailouts - (www.seekingalpha.com)
S. Florida can't count on international investors - (www.dailybusinessreview.com)
Go West, Foreclosure Man - (norris.blogs.nytimes.com)
Foreclosures, delinquencies skyrocketing among 'prime' borrowers - (www.latimes.com)
Housing Market Forecast: No Gain, More Pain - (www.moneymorning.com)
Good housing bubble book from a fellow bubble blogger - (www.amazon.com)
Rubinomics Recalculated - (www.nytimes.com)
Credit and Credibility - (www.pbs.org)
Ron Paul: The Austrians Were Right - (www.house.gov)
Interest rates and money supply are connected - (www.idahostatesman.com)
Inflation and the Dollar's crash - (www.youtube.com)
Four Bad Bear Markets - (www.dshort.com)
The US Tax Code Map - (www.taxmap.org)
Bay area house prices plunge - (themessthatgreenspanmade.blogspot.com)
Falling prices a bitter pill for houseowners - (sfgate.com)
The housing market has downshifted AGAIN - (moneyandmarkets.com)
Why buy a house? Behold, the biggest myth of the American Dream - (sfgate.com)
Worst of financial crisis yet to come: IMF chief economist - (breitbart.com)
Futures Show House Prices Continuing To Plummet - (seekingalpha.com)
Treasury Yields Drop to Record Lows as Recession Concern Rises - (bloomberg.com)
How deep a recession? - (csmonitor.com)
U.S. power, influence will decline in future - (cnn.com)
The death of the dollar? - (news.bbc.co.uk)
The black hole in financial markets - (atimes.com)
Economist blames Fed for downturn - (kansas.com)
Suddenly, Stricter Appraisals - (nytimes.com)
Collapse of 25-year debt surge not just economic cycle - (philly.com)
Citigroup plight follows familiar plot - (guardian.co.uk)
Failed Bank List - (fdic.gov)
These People Are Burying Their Cash - (smartmoney.com)
Buy a toaster and get a free bank! - (patrick.net)
Wednesday, November 26, 2008
Citigroup, U.S. in Talks to Create 'Bad Bank' - (online.wsj.com) Citigroup Inc. is nearing agreement with U.S. government officials to create a structure that would house some of the financial giant's risky assets, according to people familiar with the situation. While the discussions remains fluid and might not result in an agreement, talks were progressing Sunday toward creation of what would essentially be a "bad bank." That structure would help Citigroup cleanse its balance sheet of billions of dollars in potentially toxic assets, these people said. The bad bank also might absorb assets from Citigroup's off-balance-sheet entities, which hold $1.23 trillion. Some of those assets are tied to mortgages, and investors have worried such assets could cause heavy losses if they land on the company's balance sheet. Citigroup also has about $2 trillion in loans, securities and other assets on its balance sheet as of Sept. 30. Behind the push is a broad effort to shore up faith in the New York company, which saw its stock price tumble by 60% last week to a 16-year low.
Citigroup: Gov't Looks to Buy $100 Billion In Bad Assets - (www.cnbc.com) The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.
McCarver: I Lost $1M Because Of Broker's Error - (www.nypost.com) Baseball great and Fox Sports broadcaster Tim McCarver claims he lost about $1 million from his investment account after his broker failed to heed his instructions and keep his money in conservative investments, his lawyer told The Post. McCarver, 67, has initiated an arbitration case against Morgan Keegan & Co., based in the broadcaster's hometown of Memphis, for allegedly misleading him on just where his money was invested, said the lawyer, Dale Ledbetter, a childhood pal. "He was told his investments - made with money he was setting aside for his children and retirement - were tantamount to buying CDs and [safe] bonds," Ledbetter said. Instead, Ledbetter said, "the funds were invested in the worst of the worst. When similar products went down 4 percent, 5 percent or 6 percent, these bonds went down 70 percent to 90 percent. "Tim was very conservative with his money because he grew up not having any," Ledbetter told The Post. "His dad was a policeman in Memphis and I knew his dad. Tim didn't earn much in his early career playing baseball." Fortunately, McCarver quickly yanked a chunk of his Morgan investment as the dicey investments started to slide - but he's still in the hole for more than $1 million, said Ledbetter, who has 100-plus other clients with similar claims against Morgan.
Goldman Traders Still Eyeing '08 Bonuses - (www.nypost.com) While the top management of Wall Street banks are being pressured to forego bonuses in light of the companies' acceptance of billions of dollars in TARP money, traders are being told they will still be getting millions in bonuses - albeit less than they got last year. "At a partner meeting last Wednesday, I breathed a sigh of relief we were told we would be getting bonuses," said one Goldman Sachs partner, who has been a trader for the firm for more than 20 years and has helped the firm score record profits and recruit blue-chip pension fund clients, like Calpers.
Buffett's Liquidity Is Pinched - (www.nypost.com) ORACLE OF OMAHA'S BET ON S&P FEELING PRESSURE. WARREN Buffett, perhaps the world's greatest value investor, should be licking his chops just about now. With his Berkshire Hathaway stockpiling billions in cash, the Oracle of Omaha should be in a perfect position to snap up some good investments - like the additional $400 million stake he bought in cash-strapped USG Corp. on Friday. But Buffett is not as liquid as he would like to be. Here's why. Back in April, Buffett revealed that he sold put options against four stock indices, including the S&P 500. He claimed, in Berkshire's annual report, that the company got $4.5 billion in premiums for the contracts - which are exercisable only upon their expiration in 15 and 20 years. Sure, Buffett was able to invest the $4.5 billion, but now that the S&P is tanking, Berkshire will have to hold cash in reserve to meet this potential monster obligation. And that means less cash to invest. Which isn't a good thing for someone so adept at spotting bargain equities and so eager to pounce. Buffett's potential constraints came to mind recently after On the Money spotted a rule-change proposal that was filed with the Securities and Exchange Commission - to increase to 15 years the maximum term for FLEX options. While we don't know who is behind the rule-change proposal, it could very well be the company that bought the now-very-valuable 15-year S&P 500 put option from Buffett. Extending the terms for FLEX options would create a market for the options and allow the company to cash in on its bet. By some estimations, that $4.5 billion contract is now worth 10 times that - or $45 billion. But the company is unable to cash in on the bet because the companies that, under more normal circumstances, would be able to buy the contract - Goldman Sachs, Morgan Stanley, JPMorgan Chase - have all had their wings clipped.
New Fears Arise in Michigan - (www.nytimes.com) The bad news keeps coming to Michigan, a state long stuck in recession and at ground zero in the national economic downturn. But unlike in months and years past, there are no exceptions to the despair, not even here among the bucolic resort communities along Lake Michigan. The flailing auto industry is important here, but so is furniture building, tourism, the retail trade and construction — pieces of the economy long buffered from the downturn in Detroit. Now waves of layoffs are sweeping towns around here in wine country and elsewhere across the state, swelling the ranks of the unemployed just as tens of thousands of those already of out of work fear running out of unemployment benefits. “You just sit and you worry,” said Pat Weber, a construction administrator in Fennville who was laid off more than a year ago. “In the last year, I’ve put in for more than 100 jobs. I stopped counting after 110. It’s just so defeating.”
Builders Make Plea for Federal Aid - (online.wsj.com) Critics Warn That Propping Up Housing Demand Will Only Prolong Market's Woes. Struggling U.S. auto makers left Washington empty-handed after weeks of pleading for a handout, but that hasn't deterred home builders from stepping up to lobby Congress for help. But any federal assistance would require policy makers to figure out how to stimulate demand for housing -- the problem at the root of the global financial meltdown -- without artificially propping up home values. Some economists fear federal intervention to help homeowners may instead encourage more overbuilding. Above, unfinished homes in Carlsbad, Calif. The builders' lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won't recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner's mortgage rate. Congress resisted a similar effort to pass a larger tax credit earlier this year, instead creating a $7,500 credit for new-home purchases that had to be paid back over 15 years, effectively extending an interest-free loan. Builders are promoting the campaign with full-page newspaper advertisements, but face an uphill battle, with critics suggesting the proposal is too expensive and that it too heavily promotes home purchases rather than addressing loan modifications for delinquent homeowners.
Home Cheat Home – Rangel Double-Deals - Reaped DC Home Perk While Bending Apple Rental Rules - (www.nypost.com) Harlem Rep. Charles Rangel took a "homestead" tax break on a Washington, DC, house for years while simultaneously occupying multiple rent-stabilized apartments in New York City, possibly violating laws and regulations in both cases. The situation raises a number of potential problems for the congressman, including: * New York City law requires that tenants use rent-stabilized apartments as their primary residence. * DC's real Property Homestead Deduction Act also requires that a property receiving the benefit be a primary residence. * Tax lawyers told The Post that a property owner cannot have two primary residences - or take advantages provided to primary residences at two different addresses simultaneously. * DC's law also requires that the owner of a property benefiting from the tax break be a personal-income taxpayer in DC. District law exempts members of Congress from paying personal DC income tax, but they must pay property tax. The DC rules state that "by maintaining a residence in his home state and actively voting there, [a member of Congress] is demonstrating that he continues to be a part of the body politic of his home state . . . The Member is a domiciliary of his home state. Because he is not domiciled in the District, the Member cannot claim the District's homestead deduction."
Banking Regulator Played Advocate Over Enforcer - (www.washingtonpost.com) When Countrywide Financial felt pressured by federal agencies charged with overseeing it, executives at the giant mortgage lender simply switched regulators in the spring of 2007. The benefits were clear: Countrywide's new regulator, the Office of Thrift Supervision, promised more flexible oversight of issues related to the bank's mortgage lending. For OTS, which depends on fees paid by banks it regulates and competes with other regulators to land the largest financial firms, Countrywide was a lucrative catch. But OTS was not an effective regulator. This year, the government has seized three of the largest institutions regulated by OTS, including IndyMac Bancorp, Washington Mutual -- the largest bank in U.S. history to go bust -- and on Friday evening, Downey Savings and Loan Association. The total assets of the OTS thrifts to fail this year: $355.7 billion. Three others were forced to sell to avoid failure, including Countrywide. In the parade of regulators that missed signals or made decisions they came to regret on the road to the current financial crisis, the Office of Thrift Supervision stands out. OTS is responsible for regulating thrifts, also known as savings and loans, which focus on mortgage lending. As the banks under OTS supervision expanded high-risk lending, the agency failed to rein in their destructive excesses despite clear evidence of mounting problems, according to banking officials and a review of financial documents. Instead, OTS adopted an aggressively deregulatory stance toward the mortgage lenders it regulated. It allowed the reserves the banks held as a buffer against losses to dwindle to a historic low. When the housing market turned downward, the thrifts were left vulnerable. As borrowers defaulted on loans, the companies were unable to replace the money they had expected to collect.
Driving Profits Down - (www.nypost.com)
Pacific Rim Leaders Vow Further ‘Extraordinary’ Steps on Crisis - (www.bloomberg.com)
Saudi Arabia Cuts Repo Rate, Reserve Limits, SBB Says - (www.bloomberg.com)
Banking Regulator Played Advocate Over Enforcer - (www.washingtonpost.com)
Citigroup Pays for a Rush to Risk - (www.nytimes.com)
That Money Isn’t Leaving the Vault - (www.nytimes.com)
Strategies for Car Shopping in a Time of Tighter Credit - (www.nytimes.com)
For Luxury Brands, Less Money to Spend on Ads and Spectacles - (www.nytimes.com)
Midwest States Cut Spending in Hurry - (online.wsj.com)
Big Three’s Troubles May Touch Financial Sector - (www.nytimes.com)
Plan Begins to Emerge to Rescue Citigroup - (www.nytimes.com)
Citigroup, Fed Said to Weigh Plan to Limit Losses - (www.bloomberg.com)
Citigroup Pays for a Rush to Risk - (www.nytimes.com)
Detroit Looks to Sales Incentives - (online.wsj.com)
Economy has new-car dealers shifting to used-car focus - (www.dallasnews.com)
That Money Isn’t Leaving the Vault - (www.nytimes.com)
Strategies for Car Shopping in a Time of Tighter Credit - (www.nytimes.com)
Red Flags Flying at Mega-LBOs - (www.nytimes.com)
Dividends Replace P/Es as Stock Guides - (online.wsj.com)
Investors rush to quit buy-out funds - (www.ft.com)
Banks 'ignored warnings' - (www.ft.com)