Month: February 2009

Economics Update

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Well, the Conference Board’s consumer confidence report came out and it is starkly grim, dropping to a record low of 25, lower than had been predicted.

BTW, it’s not just us, German business confidence has fallen, and Standard & Poor’s lowered Latvia’s debt rating to junk.

This means that German businesses have no confidence in the new future, and no one has any confidence in Latvia.

Even the New York Stock Exchange is getting in the act, looking at temporarily suspending a requirement of a $1/share price in order to avoid delisting….I call it a Citi Special, though the two most prominent companies at risk of delisting right now are AIG and Ford.

The fact that the Case-Shiller numbers for the top 20 real estate markets show a price decline of 18.5% year over year, has a lot to do with that.

In currency, the dollar fell a bit, while in energy, oil rose.

The “Stress Testing” of the Big Banks is a Lie

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I’m shocked, shocked to find that gambling is going on here!

As Atrios notes, this is, “just overpaying for sh&%pile.“

Statement from the Treasury
Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized.:

A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments. “We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital.

Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.

The conversion feature will enable institutions to maintain or enhance the quality of their capital. “Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.”

(Emphasis is from FT Alphaville, not the original)

I don’t know about you, but it appears to me that Timothy Geithner has absolutely no intention of applying the normal standards of solvency to any of the big banks.

We have this further reinforced by this lovely quote:

Said one high-level official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”

So that’s Geithner’s and by extension Barack Obama’s official policy: privatize profits, and nationalize losses.

(H/T Naked Capitalism for finding the quote)

BTW, just when you thought that Geithner could not get his tongue any further up Wall Street’s anus, we have news that he wants to loan massive amounts of money to hedge funds, to encourage them to buy large pieces of the sh%$pile.

By Dagon’s doughnuts, if this is that bad, we need to nationalize preprivatize the banks tomorrow.

I’m Speechless (Scummy Bank Edition)

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It appears that a number of states have moved to debit cards for unemployment applications, and the banks that have been contracted the service are nickel and diming the recipients with fees (see also here).

Even better, the banks in question are TARP recipients.

I will note that the banks are already making millions in interest on the “float” on the accounts sitting there, and if you call to complain, they charge you for that too.

Quoting Bruce Cockburn, If I had a rocket launcher, some son-of-a-bitch would die.”

Citi’s Plan to Get Bailed out….Again

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Once again, I can’t believe it, but I’m quoting Henry Blodgett, and he runs the numbers on the proposed conversion of preferred stock to common stock:

And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports. The reports add that Citigroup’s goal here is to keep the US’s ownership under 50%, so this won’t be a de facto nationalization.

Well, that’s nice for Citigroup…and another ream-job for taxpayers.

Citigroup’s common equity is currently worth $10 billion. If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%.

Basically, preferred stock is very similar from an accounting standpoint, to debt, while common stock is assets….What’s more in the process of writing off debt to assets, the taxpayer is expected to take a 50% haircut.

So the way for the banks to stay out of government hands is for the government to own the banks.

Citi also wantsother sovereign investors, such as, “Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation, and the Kuwait Investment Authority,” to take part in a similar debt to equity swap, though it is not clear if they are being asked to take a similar haircut.

It appears that the US government, particularly treasury are, “open to considering a request to so do,” because placing an insolvent bank, which is what we have with Citi, in receivership is, at least according to Timothy “Eddie Haskell” Geithner evil beyond belief.

Someone needs to explain to Mr. Geithner that he is no longer an employee of the New York banks, as he was when he was president of the Federal Reserve Bank of New York.

White House Push-Back On Pentagon Insubordination

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Obama’s people are demanding that all Pentagon staffers working on the budget sign a non-disclosure agreement:

…

In an undated non-disclosure agreement obtained by Defense News, the administration tells defense officials that “strict confidentiality” must be practiced to ensure a “successful” and “proper” 2010 defense budget process.

…

The pledge covers any data about the 2010 budget, including: “planning, programming and budgeting system documents and databases, and any other information” that concerns the administration’s internal discussions about “the nature and amounts of the president’s budget for fiscal year 2010, and any supplemental budget request during the current fiscal year.”

…

“Under no circumstances will I disclose such information outside the Department of Defense and other government agencies directly involved in the defense planning and resource-allocation process, such as the Office of Management and Budget,” the agreement said.

I’m not sure if this is just paranoia, a recognition that there are a lot of Bushies burrowed in the bureaucracy who will work against this, or a realization that the Pentagon is completely out of control as an organization.

Maybe it’s all three.

When Lebanon is A Safe Haven for Your Money….

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You know that we are completely boned:

Instead, the silver-haired banker became a hero by playing it very, very safe. In 2005, he defied pressure from the Lebanese business community and bucked international trends to issue what now looks like a prophetic decree: a blanket order barring any bank in his country from investing in mortgage-backed securities, which contributed to the most dramatic collapse of financial institutions since the Great Depression.

So as major banks in America and Europe were shuttered or partly nationalized and thousands of people in the U.S. financial sector were laid off, Lebanon’s banks had one of their best years ever.

Billions in cash continue to pour in to the relative safety of Lebanese savings accounts, with comfy but not extravagant yields of 6%. A nation shunned for years as the quintessential failed state has become a pretty safe bet, or as safe a bet as investors are likely to find in this climate.

Lebanon as safe haven….I have a real problem wrapping my head around this.

Bad Idea Stopped, For Now

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It appears that the Congressional Democrats killed a proposal to convene a special Social Security task force, at least in the near term.

There will not be any announcement of such a body at the “fiscal responsibility summit”, and this is a good thing.

The solvency of Social Security is the least of our worries right now, the public already pushed back on this in 2005 when Bush tried it, and people are looking at their 401(k)s right now, and want no part of privatization.

Handing off social security to wall street is a bad idea.

Expanding the sorts of wages covered by social security, and dropping the earnings limit may not be a good thing, but the “a bipartisan group take up the issue and devise a plan” people like Representative Ellen O. Tauscher, chairwoman of the New Democrats coalition, have one plan:

  • Give the money to Wall Street.
  • Extract campaign contributions from Wall Street Bankers.

Further raising the retirement age, reducing benefits, and/or handing the money to investment bankers, which is what the “Social Security Reformers” really want is a bad idea.

Just look at Chile’s privatized pensions.

The problem is 40 years in the future, and if one were simply to drop the cap on the employers portion of social security taxes, and expand the wages that are covered, there are an awful lot of wages to fat-cats that don’t count, and the problem is solved.

The Mess That Greenspan Made: The Great Inflation Moderation that Wasn’t

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Tim at The Mess That Greenspan Made has a great post on how the Federal Reserve, and Alan “Bubbles” Greenspan, succeeded in making a laughing stock of inflation results through the use of imputed rent (owner’s equivalent rent) in the CPI data.

Not only is inflation higher, but the swings in inflation, driven as they are by the aggressive policies of the Federal Reserve to drive down wages manage inflation, are much more extreme.

In essence, as I’ve noted before the Fed has made itself look good.

BTW, you can get more information, in mind numbing detail, from Shadow Stats.

Governor Andrew Cuomo

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Because we just had New York Governor David Paterson confirm that he let his people loose to smear Carolyn Kennedy, to the New York Times, no less:

For the first time, Gov. David A. Paterson acknowledged Friday that he personally ordered his staff to contest Caroline Kennedy’s version of events in the hours after she withdrew from consideration to be United States senator.

However, Mr. Paterson said that he was bewildered when his staffers subsequently unleashed harsh personal attacks against Ms. Kennedy, saying he merely wanted them to challenge the assertion from Ms. Kennedy’s camp that she had been his first choice to replace Hillary Rodham Clinton.

Let me be the first to say to you that you are lying through your teeth.

You could have picked up the phone, and talked to any paper on the record, and it would have ended this, but you leaked it via your staff, and considering what your staff said, through staffers who were clearly given marching orders to slime her.

Not choosing Caroline Kennedy as Senator was the right course of action.

She is intensely private, generally uninvolved in politics, and shows all indications of being worse on the campaign trail than her cousin, Kathleen Kennedy Townsend.

That being said, you did not have the guts to say that to her face, or to tell the people of New York the truth, which is pathetic.

Economics Update

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The Federal Reserve Bank of Chicago’s National Activity Index showed a small bump in January, though it should be noted that December was an absolut disaster, so I’m callijng dead cat bounce, particularly since the 3 month moving average is at a record low.

It also appears that the gift that keeps on giving, AIG, is looking for more welfare from the government.

The US government already owns 70% of the company. How about giving all of senior management the boot….TODAY.

BTW, it appears that the rising levels of derfault on commercial real estate are giving Atlanta Federal Reserve Bank President Dennis Lockhart the willies. He says that it is keeping him up at night.

Meanwhile, the go-go free market capital of the Arab world, Dubai, has just gotten a bailout from the United Arab Emirates following the failure of its bond offering.

Dubai has done its level best to cast itself as the banking sector of the Arab petro-states in the region, and now it looks like things are going bad there too.

Not only are there problems with bond offerings, but thousands of expats are fleeing the country, because they have lost their jobs, and under the law there, they face debtors prison.

Meanwhile, it appears that oil spiked above $40 on Friday, but it’s below $40/bbl again.

In currency, the dollar gained against both the Yen and Euro.

The Yen is down largely on concerns about declining exports will effect Japan’s export driven economy.

The concern with the Euro is that the former Warsaw Pact and Soviet States that were absorbed (too soon) in the optimism that followed the fall of the Berlin Wall are beginning to resemble Iceland, or Ireland, or Argentina.

I will be posting on Citi, and “stress testing”, later.

European Aerospace Aggressively Pursuing Indian LCA Program

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With its indigenous Kaveri engine repeatedly delayed, India is looking to foreign engines to power light combat aircraft (LCA), the Tejas, and Eurojet is pitching its EJ200 as a competitor to the GE F414, and they are promising some, “special sauce”, thrust vectoring.

Unspoken in this bid to power the diminutive delta is the concerns that the Indian government has regarding ITAR restrictions which could hamstring sales to other nations.

This is also what is driving India’s interest in procuring an AESA radar from EADS for an upgraded version of the fighter.

AESA And Typhoon

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It looks like Eurofighter is considering adding an AESA radar to the Typhoon that has mechanical scanning.

The neat trick here is that instead of simply strapping an AESA radar to the pitch and yaw actuators, they mount the radar at an angle, and then rotate the array to get a wider field of view.

About a year and a half ago, I posted about the Russians looking at something similar, though their idea used the existing actuators of a plane array radar.

I don’t believe that in either case the actuators would respond as quickly as those on a more conventional radar, because the AESA is heavier than a slotted plate array antenna, but the electronic response of the AESA within a narrower band is literally hundreds of times faster than that.

Both would achieve the same thing, a very large field of view, though I think that Eurofighter’s concept looks like it is much more amenable to reduction of head on radar cross section.

Mechanically, this is a lot simpler to do, though you need slip rings for both power and signal, and a rather complex fitting for cooling, as all current AESAs need liquid cooling.

More F-22s Appear to Be Coming

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The reports appear to indicate that the USAF will get 60 More F-22s, at a price tag of around $800-900 billion, though it appears that it will remain firmly in the “not for export” category.

Won’t be much use for the military, and it’s really expensive, the the wild blue yonder types are ecstatic right now.

How about if instead of the planes, we just chip in and rent them a hooker?

That way the taxpayer won’t be quite so f%$#ed.

An End to Pilots?

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The Airforce will graduate its first class of unrated pilots to operate the MQ-1 Predator drone this summer.: (paid subscription required)

The first group of nonrated U.S. Air Force pilots who are being trained to fly MQ-1 Predator missions is expected to graduate by the end of the summer.

The Air Force selected 10 active-duty nonpilot (unrated) captains to be the first of two groups to receive unmanned aircraft system (UAS) training. Once qualified, they will be a beta test group for Air Force leadership to see how nonrated pilots perform at the controls of UASs. The Army has proceeded with UAS flight operations using nonrated pilots, while the Air Force has come under fire for slow training of its UAS pilots, maintainers and sensor operators.

It makes sense.

Modern UAVs are sufficiently automated that the role of the operator is far closer to that of a gunner than it is a pilot.

It’s interesting how it’s going. My guess is that the USAF fought this every step of the way, just like they fought UAVs when they first came out.

The white scarf must cut off blood to the brain.

High Speed Helos Looks to Boost Speed in Tests

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Piasecki helicopter is looking to demonstrat higher speeds in its vectored-thrust ducted propeller (VTDP) X-49 Speedhawk demonstrator. (paid subscription required)

They are currently installing a 3rd engine to power the propulsor, and expand the envelope to 193 kts (223 mph).

In the meantime, Sikorsky is looking toward taking its X-2 advancing blade helicopter to about 250 kts (288 mph). It’s already powered up the propulsor on the ground, and they look to open the envelope slowly, as this is a privately funded project.

Interestingly enough, it appears that they may exceed 250 kts in test at some point, as the manager of advanced programs notes, “We are comfortable getting to a 250-kt. cruise. The dash speed will be higher.”

I can see one or both of these technologies as a replacement for the A-10, which is a fine aircraft, but the US Air Force has wanted it dead for 30 years, and they only grudgingly address the close air support needs of ground troops.