Month: May 2008

Barny Frank is Angry

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After raising the limits for loans that purchased by Fannie and Freddie, which carry a lower interest rate, in February, Barney Frank is now looking into why so few of the new “non-jumbo jumbo” loans have been made.

The raising of the cap from $417,000 to $729,750 was intended to help property move in high cost markets, like Frank’s district.

The simple reason that he is not seeing much in the way of these loans is because banks are not lending to anyone.

We are seeing an unprecedented tightening in mortgage lending standards, and so very few loans are being made.

Murtha Proposes Giving Army $20B to Cancel FCS

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John Murtha, chairman of the Defense Appropriations Subcommittee, has proposed an additional $20 billion to develop FCS* technologies, while canceling the program.

Basically, he’s looking at canceling the most ambitious aspects of the program, and the $20 billion would be used to redirect the program towards nearer term technology.

When I worked on the FCS‡, it was an article of faith that the systems, at least the manned systems, would never be fielded in large numbers, but that the underlying technology would be a part of an upgrade to legacy systems, and it looks like Murtha is of the same mind.

There is a lot to admire in the way of technology, the article mentions the use of robots to investigate IEDs and advanced communications systems, for example, and the initial release of this technology could benefit the troops now, as opposed to the full up system, which may not benefit the troops ever.

*Full disclosure, I worked on the Future Recovery and Maintenance Vehicle, FRMV, “wrecker” variant of the FCS-MGV† from 2003-2006 at United Defense (later BAE Systems after the Carlyle Group sold me to buy Dunkin Donuts.
†Future Combat Systems-Manned Ground Vehicle. These are the ones that are the tanks and APCs. As opposed to the various unnmanned vehicles, networking technologies, etc. that form the full FCS along with the MGVs.
‡Yes, I have worked everywhere. Maybe I can’t hold down a job, but more likely this has been my role as “technical hit man”, where you are parachuted in to take care of a specific need.

The Tanker Saga: Northrop Calls Boeing Incompetent

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Northrop is now saying that Boeing lost largely because they cannot be trusted to deliver on time or on budget. From their press release:

….

Past Performance

A contractor’s past performance on related projects is a critical element in the Air Force’s assessment of competing proposals. Because replacing America’s fleet of aerial refueling tankers is the number one acquisition priority for the Air Force, it paid special attention to Boeing’s assertions that it could complete the contract on time and on budget. While Boeing likes to claim that it has a better track record than Northrop Grumman in building tankers, the Air Force determined that Boeing’s past record actually meant it was riskier to do business with Boeing than Northrop Grumman.

According to an Air Force document assessing the two bids, in program management ” … There was a notable difference between the two offerors. Northrop Grumman received a rating of ‘Satisfactory Confidence,’ while Boeing received a rating of ‘Little Confidence.'”

A rating of little confidence means the Air Force concluded that “Based on the offeror’s performance record, substantial doubt exists the offeror will successfully perform the required effort.” The reasons for the Air Force’s poor rating of Boeing were redacted for business competition reasons.

The Air Force stated that Northrop Grumman received a superior rating because of its “Excellent and satisfactory (risk) ratings on six (other) contracts.” The Air Force document concluded “The higher confidence rating for Northrop Grumman … was a discriminator” because “This difference in the program management provides better overall confidence. Northrop Grumman (was) more advantageous.”

It is worth noting that while Northrop Grumman has built, flown and tested a prototype aircraft and conducted a successful fuel transfer through its boom, Boeing has not yet built, flown or tested its proposed new design KC-767 aircraft. In addition, Boeing has been late in delivering tankers to Italy and Japan. These aircraft are significantly different from the design proposed to the Air Force.

…

If this was said in a bar, fists, and possibly beer bottles would fly.

Economics Update

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People are now shocked that Fannie Mae has posted a $2.51 billion loss and cut its dividend. Do I need to quote Claude Raines in Casablanca?

Oil set another new record, $122.73, before settling at $121.84. Any bets on when we hit $130 for the first time?

Finally, we have this tidbit from the Wall Street Journal

And in a more-worrisome trend, borrowing from these retirement plans is surging. At the end of last year, 18% of workers had loans outstanding from their plans, up from 11% in 2006, according to a survey of 2,011 full-time employees released in February by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV’s Transamerica Life Insurance Co. With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits.

This is a foreseeable consequence of defined contribution plans, and notwithstanding the Randroid utopian claims, it has always been the problem with having people make a bet in which, if they die young, they win.

It’s the YOYO (You’re On You’re Own) society.

Fannie and Freddie at Risk

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With all the hooplah over Congressional action to allow Fannie Mae and Freddie Mac to make more and larger loans, the financial press is just starting to notice that maybe it will mean larger, and perhaps a quicker problems for the GSEs.

I said this when they originally expanded their services to some “Jumbo” mortgages that this was ill advised, and with them controlling about 80% of the mortgage loans bought by investors, this is going to get ugly.

This is Not a Bug, This is a Feature

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One of the consequences of the bellicose and incompetent foreign policy put forth by Bush and His Evil Minions™ is the increasingly paranoid and militaristic foreign policy of Russia.

Perhaps the most extreme example is the return of missiles and tanks to the May Day (Victory Day) parade.

I have concluded that this is not a result of incompetence on the part of Republicans. This is actually one of their goals, because by restarting the cold war, they can create a climate that benefits themselves politically.

Borzou Daragahi and Raheem Salman are F&^%ing Morons

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And so are the US diplomats that they interviewed, because they find it somehow culturally alien that an envelope of cash won’t make everything better with regards to the Blackwater massacre in Baghdad.

As Spencer Ackerman so eloquently states:

If an unaccountable band of politically-connected soldiers-of-fortune shot my mother as she was trying to flee from a traffic circle, and the State Department offered me $5,000 in order to make the incident go away, I would not only be angry, I would be exploring my options for revenge. You don’t have to be an Iraqi to understand this.

If this happened in America, you would have family members demanding the death penalty

$5000 and a meaningless apology does not mean anything them, and it does not mean anything to us.

We are treating them like easily bought off sub humans, and they have legitimate cause to take exception.

The problem is that some of the soldiers in Iraq will die for what the mercenaries did in Iraq.

Bolivian Autonomy Vote Predicted to Pass

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There has been some disorder, but voting proceeded relatively smoothly.

Of course, there is the whole matter of the vote being delayed by the Bolivian electoral commission, so we will see what that means.

While some of the portions of the referendum seem to be fairly standard, at least bu US standards, others, such as the right to control federal land and to sign treaties seem to me to be more of an attempt to dismantle the Bolivian state for the benefit of Exxon-Mobil than anything else.

Most of the rest of Latin America is observing this with undisguised horror, because if this sticks, it lays the groundwork for the dissolution of the existing states.

But American bankers should get some good deals out of all this chaos.

Looks Like Murdoch Won’t Get Newsday

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Sam Zell bought Tribune company, and then couldn’t handle the debt, so he’s looking at selling Newsday, arguably one of the crown jewels of the empire.

A bidding war has erupted, with Rupert Murdoch (NY Post) and Mort Zuckerman (NY Daily News) fighting it out, but now it appears taht cablevision has trumped them both, bidding $650 million as vs. the roughly $580M of Murdoch and Zuckerman.

Newsday has generally had a good reputation for covering its region (Long Island), and it not becoming a part of Murdoch’s Newscorp is a good thing.

Economics Update

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Gee, Alan “bubbles” Greenspan is now saying that we are having an, “awfully pale recession.” Well, I guess he can still afford to eat at the Four Seasons, so it’s someone else’s problem…Neh?

Actually, I’m surprised that he did not use the unexpected growth in the service sector, with the ISM numbers rising to 52 from 49.6 (50 indicates growth).

His goal has always been more to prevent government intervention than giving an accurate assessment anyway, because he believes that preventing government action is the only thing that he can do of value.

Of course, the fact that oil busted the $120 barrier, hitting $120.21/bbl doesn’t bode well for the economy anyway.

Oil is up on supply fears from potential attacks in Nigeria and Kurdistan, along with the dollar weakening because of the Fed rate cuts.

Interest rates in the private sector, however, appear to be on the way up, with 30-year mortgages rates rising despite the Fed rate cuts. Additionally, the Fed is reporting that banks are tightening up on their lending at a historically high rate.

The fact that consumer bankruptcies are up almost 48% year over year in April might have something to do with this, or perhaps the other way around. It’s a chicken egg thing to me.

However, the fact that S&P has decided to stop rating bonds backed up by second mortgages seems to indicate that this still has a way to go on the way down.

The fact that companies cannot refi right now may very well take down ResCap, the 8th largest mortgage lender wing of GMAC:

ResCap, the eighth-largest U.S. residential lender in 2007, today began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities and stave off bankruptcy. To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC, which is owned by General Motors Corp. and an investor group led by Cerberus Capital Management LP.

“There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008,” Minneapolis-based ResCap said in a filing to the Securities and Exchange Commission today.

With all this going on, it’s not surprising that UBS is looking at cutting 8000 jobs.

A-330 MRTT Tanker Grounded for Modifications

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Needless to say, the Boeing rent-a-crowd is probably all over this, but really, this grounding is a normal part of a test program. (Paid Subscription Required)

Basically, they are installing updated plumbing, and setting up a remote station for the boom operator in the cockpit.

Earlier tests have been about verifying the airworthiness of the boom, which it passed in flying colors, with testing of the boom in use being done on a smaller A310 testbed.

The MRTT is almost identical to the KC-45 selected by the USAF.

Iraq, with an Iran Provocation Extra

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4 Marines died today, and Hiro Ibrahim Ahmed, the wife of President Jalal Talabani was the target of an assassination attempt, a roadside bomb targeting her as she went to cultural festival.

Note that this was in Baghdad, not Kurdistan.

I would also point to this story describing a pretty massive buildup at the Al Kut air base, which is just 35 miles from the Iranian border.

I can’t see this as anything but a deliberate provocation, or a prelude to an attack on Iran.

I think that Bush may attack Iran out of a petulant need to leave something else on his successor’s plate.