Should We Bail Out Automakers' $73.20 Per Hour Labor? - (www.seekingalpha.com) The chart (above) shows average hourly compensation for the Big Three ($73.20) and Toyota (TM) ($48.00), compared to average hourly compensation for Management and Professional Workers ($47.57), Manufacturing/Goods Producing ($31.59) and all workers ($28.48), data available here. Should U.S. taxpayers really be providing billions of dollars to bailout companies (GM (GM), Ford (F) and Chrysler) that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?
Maybe the country would be better off in the long run if we let the Big Three fail, and in the process break the UAW labor monopoly, and then let Toyota, Honda (HMC) and Volkswagen (VLKAY.PK) take over the U.S. auto industry, and restore realistic, competitive, market wages to the industry. It might be the best long-run solution.
Lobbyists Swarm the Treasury for a Helping of the Bailout Pie - (www.nytimes.com) When the government said it would spend $700 billion to rescue the nation’s financial industry, it seemed to be an ocean of money. But after one of the biggest lobbying free-for-alls in memory, it suddenly looks like a dwindling pool. Many new supplicants are lining up for an infusion of capital as billions of dollars are channeled to other beneficiaries like the American International Group, and possibly soon American Express. Of the initial $350 billion that Congress freed up, out of the $700 billion in bailout money contained in the law that passed last month, the Treasury Department has committed all but $60 billion. The shrinking pie — and the growing uncertainty over who qualifies — has thrown Washington’s legal and lobbying establishment into a mad scramble. The Treasury Department is under siege by an army of hired guns for banks, savings and loan associations and insurers — as well as for improbable candidates like a Hispanic business group representing plumbing and home-heating specialists. That last group wants the Treasury to hire its members as contractors to take care of houses that the government may end up owning through buying distressed mortgages. The lobbying frenzy worries many traditional bankers — the original targets of the rescue program — who fear that it could blur, or even undermine, the government’s effort to stabilize the financial system after its worst crisis since the 1930s. Among the most rattled are community bankers. “By the time they get to the community banks, there may not be enough money left,” said Edward L. Yingling, the president of the American Bankers Association. “The marketplace is looking at this so rapidly that those who have the money first may have some advantage.”
Business Coalition Asks for Relief from Pension Law - (www.cnbc.com) Business Coalition Asks for Relief from Pension Law. A coalition of 200 businesses and trade groups—including some of the biggest companies in the world—is asking Congress for relief from a two-year-old federal law requiring them to more fully fund their pension plans. The plea is a sign of a growing crisis in defined benefit pension plans, which cover some 40 million people in the public and private sectors, and have been hit hard by the stock market drop and the credit crunch. "The drop in the value of pension plan assets coupled with the current credit crunch has placed defined benefit plan sponsors in an untenable position," according to a draft of a letter from the group to the House Ways and Means Committee, obtained by CNBC. The letter does not identify the specific companies involved, for fear it would alarm employees and investors, according to a spokesman for the ERISA Industry Committee (ERIC), a lobbying group that helped draft the document. Private pension funds owned about $2.72 trillion of stocks at the end of June, and more $1.5 trillion in mutual fund shares, according to Federal Reserve data. Given the market’s subsequent declines, they probably suffered losses of between $700 billion and $1 trillion, according to CNBC estimates. But the federal Pension Protection Act, passed in 2006, includes new, stricter funding rules for pension plans, which the business coalition now says are unrealistic.
Bank group chief tries to spread blame - (www.sfgate.com) Traditional banks have been unfairly blamed for the financial crisis rocking the nation, the president of the American Bankers Association said Monday in San Francisco, blaming instead reckless loans issued by "the highly leveraged and fast-buck crowd." "Frankly, we all have a right to be angry at what has happened," ABA President Edward Yingling said as 1,700 bankers opened their annual conference, which runs through Wednesday. His remarks come when the public is wondering why a $700 billion rescue plan hasn't done more to ease the credit crisis that has followed the housing bust. About $125 billion already has been pumped into the nation's largest financial institutions to encourage global lending between big banks, but critics say the relief hasn't yet reached Main Street. Yingling laid primary blame for the current mess on mortgage lenders, operating under fewer rules, for making loans "good bankers would not make," and using investment firms like Bear Stearns and Lehman Bros. to sell "toxic subprime loans" to investors worldwide - triggering the global financial crisis and credit crunch. In a panel discussion Monday, John Reich, head of the Office of Thrift Supervision, the federal agency that oversees savings and loans, also criticized mortgage lending practices and said the Mortgage Bankers Association had recently contacted his office to discuss federal oversight for these lenders. Reich, a Bush administration appointee, said in retrospect it is clear that questionable mortgages that relied upon stated income, with little or no documentation, had contributed to the chain of events that have caused the current financial crisis. "I regret that I and my colleagues did not act to change these practices . . . until the bottom of the housing market fell out," Reich said Monday.
No Bottom As Second Wave Of Lemmings Jump Off The Cliff - (Charles Hugh Smith at www.oftwominds.com) The second wave of "now is a good time to buy real estate" lemmings has just raced off the cliff to their financial ruin. Sadly, this "housing is now cheap" rush to buy was easily predictable years ago. Not to toot this site's horn, but isn't reality tracking this chart I posted in August 2006? Phase Transitions, Symmetry and Post-Bubble Declines. Doesn't the recent blip up in sales of foreclosed properties look like "Phase 2"? Just as one of many such examples, here's a clip from a recent New York Times article A Town Drowns in Debt as Home Values Plunge: Kenny Rogers, a data security specialist, moved into Mountain House last year, buying a foreclosed property on Prosperity Street for $380,000. But the decline in values has been so fierce that he too is underwater. The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time. But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.
SC Governor asks Treasury to investigate bailout money misuse - (biz.yahoo.com) Rather than asking the Treasury to investigate a SC Bank, the misguided governor should really be asking the country to investigate the Fed and Treasury. South Carolina governor asks US Treasury to probe bank, urges residents to oppose bailout. Gov. Mark Sanford has asked the U.S. treasury secretary to investigate a South Carolina-based bank he suspects is "gaming the system" in its request for federal bailout money. The Republican governor said South Financial Group Inc. -- the largest publicly traded bank headquartered in South Carolina -- seems to be an example of unintended consequences of the bailout. He questioned whether Chief Executive Mack Whittle moved up his previously announced retirement so the bailout could help fund his retirement package, which is valued at $18 million according to a regulatory filing. Sanford said it was a possibility raised by others, and he considers it suspicious. "There's some serious unintended consequences going on out there, with people moving up -- possibly, we don't know this for certain -- possibly, the date of departure," Sanford said in a news conference Monday. "I want to emphasize this is not unique to them, but it is, I think, a very strong example, when somebody takes a share price from $26 down to $4, and yet they get an $18 million payout. In the marketplace, that's not normally what happens."
Congress grew 13 percent richer in 2007 - (www.mcclatchydc.com) Times are tough, but don't worry about most members of Congress making ends meet. Their collective wealth grew by 13 percent last year, leaving them in better shape than most Americans to make it through an economic downturn, according to a new analysis of personal financial reports. Overall, nearly two of every three senators are millionaires. That includes presidential candidates Sen. John McCain, R-Ariz., and Sen. Barack Obama, D-Ill. In the House, 39 percent of all members belong to the exclusive club. Only 1 percent of all Americans are considered millionaires. "With a median net worth of $746,000, most members of Congress have a comfortable financial cushion to ride out any recession," said Sheila Krumholz, executive director of the nonpartisan Center for Responsive Politics, which conducted the study. In the House of Representatives, Rep. Jane Harman, D-Calif., ranks No. 1, with $397 million, followed by Rep. Darrell Issa, R-Calif., with $343 million. Rep Robin Hayes, R-N.C., ranks third, with $173.4 million. House Speaker Nancy Pelosi, D-Calif., ranks sixth, with $62 million. In the Senate, the two Democrats from Massachusetts claimed two of the top three spots. Sen. John Kerry led the pack, with $336 million, while Sen. Edward M. Kennedy ranked third, with $104 million. Sen. Herb Kohl, D-Wis., ranked second, with $241.5 million. Overall, senators had a median net worth estimated at $1.7 million.
US May Lose Its 'AAA' Rating - (www.cnbc.com) The United States may be on course to lose its 'AAA' rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche. "The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system" and the bankruptcy of the government is not out of the realm of possibility, Hennecke said. "In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off," Hennecke told CNBC. In order to solve or stem the economic slowdown, Hennecke suggested the US would have to radically reduce spending across all sectors and recall all its troops from around the world.
OTHER STORIES:
Billion-dollar hedge fund stars face grilling - (www.ft.com) Hedge fund managers who earned more than $1bn last year, including George Soros and Philip Falcone, are being summoned to Capitol Hill on Thursday to testify under oath about the potential risks their firms pose to the broader economy. The hearing before the House oversight committee, headed by Democrat Henry Waxman, marks one of the few instances in which the largely unregulated hedge fund industry will be subject to questions by lawmakers.EDITOR’S CHOICE
Credit terms tied to companies' risk - (www.ft.com)
Spike in Failed Repos Strains Market - (online.wsj.com) Strains are back in the $4.5 trillion Treasury repo market, a little-known part of the financial system where traders and investors lend out securities against short-term cash loans. Repo rates, the cost of borrowing Treasurys in a cash loan, are heading toward zero, indicating some market participants are willing to accept low returns on cash to get their hands on much-needed Treasury securities. The super-low level of federal- funds rate, at 1%, is only adding to the strains, because repo rates tend to track the funds rate.
Ruble Devaluation Concern Triggers Stock Plunge, Rate Increase - (www.bloomberg.com)
Debt Collectors Hit Hard Times - (online.wsj.com) This should be the best of times for America's debt collectors, since never has a society been so in hock. But ironically, much of the debt-collection industry is struggling because there's little cash left to squeeze from strapped consumers. "People joke with me that my business must be great," said Mark Neeb, president of Affiliated Group, an Omaha, Neb., collection agency. "I would say the opposite is true. Our business flourishes when the consumer has money." Debt collectors either work on consignment for creditors, keeping 20% to 25% of what they collect, or buy portfolios of unpaid debt from creditors
Resort for the super rich in trouble - (www.bozemandailychronicle.com) Court documents show the exclusive Yellowstone Club mountain resort in Montana owes an estimated $343 million to creditors such as banks and local contractors. The residential club for the ultra-rich on Monday filed for Chapter 11 bankruptcy protection. The court filing says tight credit markets had made it difficult to raise money both to pay off the club's debts and make needed repairs to the resort. Attorneys for the club are scheduled to appear in federal court in Missoula on Wednesday, to ask for Judge Ralph Kirscher's approval of a $4.5 million loan so the resort can open for the winter season. Founded in 1999, the invitation-only club in the Gallatin Mountains counts Bill Gates and Dan Quayle among its 340 members. It had been planning a sweeping expansion when the credit crisis hit Wall Street. That choked off the club's flow of capital, demonstrating that even the elite are not escaping the nation's economic woes. Critics accuse the club's founders, Tim and Edra Blixseth, of going on a spending spree even as the luxury real estate market stagnated, setting the stage for the bankruptcy filing. Listings of the Blixseths' assets include at least four foreign estates, two luxury jets and fleets of boats and vehicles.
Builder's Selfish Plea: Subsidize House Prices - (norris.blogs.nytimes.com)
Fannie, Freddie Boost Effort to Reward Foolish Borrowers - (www.bloomberg.com)
Fannie: $100 billion ain't enough - (optionarmageddon.ml-implode.com)
The Wealth Effect of House Price Declines - (www.seekingalpha.com)
US House Prices Deflate: It was inevitable - (www.bloomberg.com)
The housing mess: 5 'dumb' questions - (articles.moneycentral.msn.com)
House prices could halve in England - (www.insidehousing.co.uk)
Minsky was prophetic about financial crisis - (www.idahostatesman.com)
Town Drowns in Debt as Home Values Plunge - (www.nytimes.com)
Where Houses Are Worth Less Than the Mortgage - (www.nytimes.com)
Even Law Firms Feel Strain of Layoffs and Cutbacks - (www.nytimes.com)
Armed with Experience: A short sale story - (yourmortgageoryourlife.wordpress.com)
Valley land values plunge 74 percent in third quarter - (www.lvbusinesspress.com) Financial woes, a souring economy and a mortgage mess have taken a heavy toll on valley land values. Southern Nevada third quarter vacant land prices have plummeted nearly 74 percent since last year, Applied Analysis, a local business advisory firm, reports. Median vacant raw land prices were $524,725 per acre at the end of September, or $1,487,932 less than 12 months earlier. It equals average sale prices of $12.05 per-square-foot, which is a $34.15-per-square-foot drop from a year ago. "Fundamentals within the residential, commercial and resort markets have slowed, resulting in elevated vacancies, less consumer demand, and more tentativeness," Applied Analysis principal Brian Gordon said. "The new realities of the market have price points resetting and those who purchased property during the past two years trying to make financial sense of their investments.
Gendell's Tontine Capital to Liquidate Two Stock Hedge Funds - (www.bloomberg.com)
IEA doesn't see peak oil by 2030 - (www.marketwatch.com)
NYSE, Nasdaq short interest continue to drop - (www.reuters.com)
King Says BOE Prepared to Cut Rates Again as Inflation Slows - (www.bloomberg.com)
UK jobless total soars above 1.8m - (www.ft.com)
Russia Debt Risk Jumps After `Clumsy' Ruble Widening, Rate Rise - (www.bloomberg.com)
China's Retail Sales Rise 22% as Crisis Fails to Damp Spending - (www.bloomberg.com)
Iceland’s rescue package flounders - (www.ft.com)
Japan relives its 1990s nightmare - (www.theglobeandmail.com)
Best Buy cuts profit forecast- (money.cnn.com)
G.M., Once a Powerhouse, Pleads for Bailout - (www.washingtonpost.com)
General Growth Dives On Debt Concerns - (www.washingtonpost.com)
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