Month: March 2008

Economics Update

It’s been a busy day today, largely due to the imminent collapse of Carlyle Capital, the investment bank of the Carlyle group.

Lenders are seizing its assets:

By yesterday the fund had defaulted on $16.6 billion of debt and said it expected to default soon on its remaining debt. The fund’s $21.7 billion in assets were exclusively in AAA mortgage-backed securities issued by Fannie Mae and Freddie Mac, traditionally considered secure and conservative investments, which it was using as collateral against its loans.

They could not meet margin calls, and their share price has fallen 90%. See also here.

Paul Krugman has a very amusing comment, that the “Carlyle Group should have stuck to what it knows. It’s great at the merchant of death thing; at investment banking, not so much“.

It’s not entirely accurate, but still really funny, I used to work for the Carlyle Group, but they sold me to buy Dunkin Donuts. Seriously. They sold United Defense, where I worked 2003-2006, to BAE Systems.

In any case, the collapse of the Carlyle Capital has the market worrying about other possible collapses, with the Times of London reporting that, “Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve“.

This has also hit US currency with the dollar falling to a 12 year low vs the yen and an all time low vs. the Euro, see here, and here.

The Yen has fallen below ¥100:$1.00, ant the Euro hit a new record of €1.000:1.5625. We are talking big time ugly, and there is still the Yen carry trade, where people borrow low interest Yen and invest the money at higher interest elsewhere, that takes a hit when the Yen strengthened.

The falling dollar also drove the price of oil up to a new record, over $111/bbl, and is part, if not most of the reason that gold broke $1,000.00/oz as a part of the flight from the dollar and concerns about inflation.

There will be more pain.

Speaking of pain, retail sales fell in February by the largest month to month amount in 5 years, 1.1%. The preliminary numbers showing an increase that I reported a week ago were apparently just that, preliminary.

Note that this does not correct for inflation, so it’s even worse.

In it efforts to restructure, Chrysler is completely shutting down for 2 weeks in July, that’s everyone who is getting the vacation, not just the guys on the line for retooling. They are claiming that it will, “boost productivity and efficiency”, but my guess is that a lot of folks people will have their vacations extended to forever.

Finally, no monoliner insurer bad news today, or perhaps I missed in in everything else going on, but Countrywide Financial continues to see climbing foreclosures, with the Frbruary rate of 1.64% being more than twice that of a year ago of 0.80%.

I really think that the deal for Bank of America to buy them will fall through, because what looked like a decent deal a few months ago is increasingly looking like a significant overpayment.

Senator Looking at Lavish Lifestyles of Televangelists

The thing that the media will cover, of course, is the expensive cars, private jets, and so on that many of these “prosperity preachers” have.

There is actually a very real issue here. Churches, unlike every other 501(c)3 tax exempt organization, is not required to file a publicly accessible 990 form.

I incorporated a 501(c)3 tax exempt organization and chase the paperwork through the IRS in 1990 as a non-lawyer, Arisia.

When I was involved in running it, gross revenues were less than $50,000/year, and now it’s probably less than $200K/year.

For any church, considering building, maintenance, salaries and benefits for, preacher, secretary, education director, and janitor, you are well above $500K on anything but the tiniest church.

It’s too expensive for them, but it’s not too expensive for us.

They object to form 990s because they do not want their parishioners to know that they are wasting their money on their own inflated lifestyles.

Check out the Trinity Foundation a Christian reform organization that has been talking about this for years.

McCain’s Other Pet Bigot

It’s not just Hagee.

Even closer to McCain is Televangelist Rod Parsley, who believes that America was founded with the purpose of destroying Islam.

It appears he knows nothing of the Treaty of Tripoli.

Art. 11. As the Government of the United States of America is not, in any sense, founded on the Christian religion; as it has in itself no character of enmity against the laws, religion, or tranquillity, of Mussulmen; and, as the said States never entered into any war, or act of hostility against any Mahometan nation, it is declared by the parties, that no pretext arising from religious opinions, shall ever produce an interruption of the harmony existing between the two countries.

But bigots tend to believe whatever they want to believe.

Bigotry is, after all the Republican party has these days.

Clinton and Obama Split Over Florida and Michigan – New York Times

There seems to be a divergence of opinion on what to do do with Florida and Michigan between the campaigns.

Basically, the preferred solution for the Clinton Campaign is to seat them as is, with a revote being second, while the Obama Campaign, favors (in no particular order), not seating the delegates, splitting the delegates 50/50, or holding a caucus.

Not surprising, they both chose alternatives which they believe benefit them most.

A mail revote is eminently doable, and has the advantage of keeping the troublemaker Republicans in Michigan who vote for the weakest candidate, because mail only goes to registered Democrats.

The time frame is doable too. 3 weeks to get the money, 3 weeks to do the printing and mailing.

Total costs would likely be in the high single digit million dollar range.

There is only one that I find truly offensive, and it’s not refusing the delegates seating. After all, rules are rules, and the legislators in FL and MI knew what they were getting into when they voted for this.*

It’s the 50/50 split. The idea behind this, and the person putting this forward is Chris Dodd, not the Obama campaign, is that the will of the voter does not matter (that is that the 50/50 vote split means), but that the political movers and shakers get to hobnob as delegates at the convention.

It means no democracy, but lots of corrupt patronage.

*Truth be told, I have a little sympathy for the Florida Legislators. They had the date move attached to paper trails on ballots, which needs to be done in a state like Florida.

The HELOC Trap for Banks

It seems that banks are having a problem with 2nd mortgages and Home Equity Lines of Credit (HELOC).

Because these loans are 2nd in line after the initial mortgage, an increasing number of consumers are simply not paying. With their home under water, they know that a foreclosure on these loans will recover no money at all, so instead, they are paying the 1st mortgage and credit cards.

It is, for example, hitting JP Morgan, which did not do subprime lending to any large degree.

More On Olbermann after Sleeping on It

Still impressed with the delivery and the sincerity, but he should not have referenced Orlando Patterson’s unhinged, and quite frankly bigoted screed, he clearly complains that some of the children “appear Latino” on the stock footage, in which he finds a the ad analogous to “Birth of a Nation”.

His comment was intense, well delivered, and sincere, it was, however, in this specific instance, which was less than 1/5 of this special comment, was wrong.

Economics Update

Well, gasoline prices hit all-time high today, and oil prices hit another record too.

Interesting thing though, at the start of the day, prices were down on increased inventories.

Oil Prices are rising because the dollar is falling now.

In the ever entertaining world of monoliner insurance, MBIA and Fitch Ratings are in a pissing contest. MBIA dropped them as a ratings service, because Fitch thinks that they should be downgraded.

MBIA and AMBAC’s debt is junk in reality, no matter what S&P, Moody’s, or Fitch says.

Speaking of Moody’s, they are forecasting a big drop in earnings, down from $2.17-$2.25/share to $1.90-$2.00, which tanked their stocked.

The GSE’s stock tanked too, with Fannie Mae falling 6% and Freddie Mac falling 3%. It turns out that the relaxed lending limits has the market spooked that this will lead them into more losses, which, of course, it will.

If I had to make a bet between Fannie and Freddie, I’d go with Freddie though. their CEO has a good grasp on reality, he thinks that the housing market is only 1/3 of the way to the bottom.

I’m a bit more of a bear than he is, but I think that Richard Syron is a member of the reality based community.

Despite the rate cuts, and the talk out of the Fed about more rate cuts, mortgage rates are up, and applications are down as a result.

In the more general doom and gloom scenarios, I present the following:

Citigroup is having to pump $1 billion into six of its internal hedge funds. I guess that they have to sell another piece of themselves to some Arab sovereign wealth fund.

Finally, we have ING New Zealand suspending withdrawals from two of their CDOs.

New Zealand???? New F#$@ing Zealand? Whisken Tango Foxtrot.

The meltdown is now fully global.

Clinton Camp Stepping Away From Ferraro

Pretty tepid steps away though, “We disagree with her,” said spokesman Howard Wolfson.”

I’m sorry, I want to draft Gore or Howard Dean at this point.

At the very least, it appears that the Obama Campaign is learning to bitch slap back.

And of course, Olbermann, who has been hatin on Hillary since before Super Tuesday has a Special Comment.

Between real racism (Ferraro), phony accusations of Racism, gay baiting, and just all around stupidity, I’m tempted to write in Howard Dean in November.

Judith Miller in Drag

Well, it looks like Judith Miller style neocon warmongering is not dead at the New York Times. Yes, we now have new members of the Leonard Pinth-Garnell school of journalism, William Broad and David Sanger.

Short version of the story, is that the NIE saying that Iran had halted nuke weapons work is bunk, and they may have a nuke by next year.

This, along with Fallon’s firing, is a pretty good indicator that Bush and His Evil Minions want to bomb Iran before Jan 21 2009.

This is why the two Democratic nominees need to say specifically that any order to attack Iran in the absence of a congressional authorization would be an illegal order, and that, if elected, they would prosecute soldiers who obey illegal orders.

Those nuclear warheads that were “misplaced” a few months back were not “misplaced” it was an attempt to stage them for a nuclear first strike.

Thanks to Digby for the catch.

Independent Appraisers May Cost Home Buyers More

Andrew Cuomo cut a deal with the GSE’s to require independent appraisers, and since the GSE’s buy up and resell about 70% of the mortgages out there, this is thankfully going to become the norm.

CNN Money is now warning that independent appraisers will end up increasing mortgage fees, particularly since now each lender needs a separate appraisal.

The financial press is very big on showing these costs, but they are still far less than the costs that are currently being incurred by all of us as a result of the housing bubble.

Warren Buffett Buying Railroads

Buffet does not always back winners, but his record is remarkably good, so the fact that he is buying into BNSF is significant.

Given that energy prices are only going up, and that rail is the most energy efficient mode of ground transport (maybe Buffet should look at Barge companies too), it seems like a no brainer.

Over the road long haul trucking is more expensive, at least when one factors out the subsidized roads, and more polluting, so the long term prognosis for the industry is good.

FWIW, I’m not a rail buff*, though I was a locomotive structures engineer at GE Transportations for a couple of years in the 1990s, but I think that it is an industry and a technology that has been under utilized in the US.

*Rail buffs are the folks who staked out the prototype shop at GE to see the new AC6000 on tests in 1996.
Damn!!! It does seem that I’m the Kevin Bloody bacon of employment, doesn’t it.

Net Neutrality as Anti-Trust

The Judiciary Committee has had hearings on this.

It’s a good sign, but I think that it’s more inside baseball than anything else. Specifically, has been before Ed Markey’s Subcommittee on Telecommunications and the Internet of the Energy and Commerce Committee, and in order to get it in front of the Justice Committee, they are looking at putting it in antitrust legislation.

The fact that two committees are now competing to get this passed is a good sign for network neutrality legislation.