Month: February 2009

Huh???? Judd Gregg Drops Out As Commerce Secretary

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OK, this is a surprise to me, and it appears to be one to the White House, where a source described themselves as blindsided by Gregg’s announcement.

The folks at TPM suggest that it might be that Gregg was the target of a wall of noise from the increasingly moribund Republican party in New Hampshire, or perhaps that the reason that he accepted the post in the first place was to run the Census, and Obama taking it out from beneath him made him change his mind, though this raises the question, “why now?” when it has been clear for a week.

I dunno, maybe someone has pictures of him with a goat. He’s a Republican, after all.

Economics Update

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Well, the obvious lede here is the weekly initial jobless claims, which dropped 8000 to 623,000, still well within OMFG territory, and the four-week moving average, which is to my mine a better and less noisy metric, jumped from 583,500 to 607,500, while continuing claims rose to 4.81 million…..Ouch.

We have some more numbers for the real estate bloodbath too, with the NAR reporting that median home prices declined in Q4 of 2008 by 12.4% as compared to Q4 of 2007.

Foreclosures fell in January, but this is largely because the GSEs have put a temporary moratorium.

More telling is the fact that foreclosures and short sales accounted for 45% of sales in Q4.

Mortgage rates are down this week to 5.16%, which is still above the 4 and change percent from last month, so I do not expect this to do much to the market.

We do have a bright spot, with , it was +1% over December as opposed to the expected -.8%, but look as the chart on the right shows, it’s still very grim.

It’s worth noting that some of the increase is because retail gasoline prices have been trending higher (bottom chart), which along with increased spending for food and for clothing, were largely responsible for the increase.

In currency, the Yen and the dollar strengthened as investors fled to their relative safety, and in energy, oil fell below $34/bbl on high inventories and low demand.

Competition For Thee and Not for Me

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As part of his initiative to make state government more efficient, New Jersey Governor, and former chief of Goldman Sachs, John Corzine is is looking to mandate competition for almost all goods and services that are purchases.

But, there is one exception, municipal bonds….You know, where companies like Goldman Sachs make an awful lot of money managing the sales of these instruments, and competitive bidding does save money:

Competitive bond offerings force banks to line up on an advertised day and submit the lowest interest-cost bid to win underwriting business. In a negotiated sale, states and cities decide in advance which banks will market the bonds. Underwriters have promoted the no-bid method, saying it allows them to get the best prices for issuers by tailoring the debt to specific types of investors.

Bid sales saved issuers 17 to 48 basis points, “on average and all else equal,” according to a study published in the Winter 2008 issue of the Municipal Finance Journal. A basis point is 0.01 percentage point. On $100 million of debt, the savings mean $1.7 million to $4.8 million less interest over the life of a 10-year bond.

I guess that his buddies at Goldman Sachs are suffering under the restrictions Obama has placed on executive compensation.

We Were Played By Hank Paulson and His Evil Minions&trade on TARP?

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I think that we’ve all seen the video (below) where Rep. Paul Kanjorski (D-PA) said on CSPAN that there was a run on the money markets, and we were hours away from a complete meltdown of the financial system.

The money quote, if you don’t want to watch the vid, is, “If they had not done that, their estimation is that by 2 p.m. that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.”

The New York Post, the right wing flagship of Rupert Murdoch’s media empire, and there are no on the record sources, though there is a cool graphic with Marlon Brando from Apocalypse Now (right).*

So, not only is the story completely based on anonymous sources, but there are no other contemporaneous reports of this happening.

Enter Felix Salmon of Portfolio.com, who looks at the underlying data, and finds out that it never happened. There was no massive run on the banks.

There were a lot of redemptions to the tune of tens of billions of dollars a day, not trillions per hour.

So, how did this bit of disinformation get out, and why did it get out to a paper not known for financial reporting in the financial capital of the world?

Inquiring minds want to know.

*As a purveyor of news, the New York Post sucks, but I do like their headlines and the way that they spice up their graphics.

Whiskey Tango Foxtrot!?!?!?!?

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It appears that officials in the Department of Defense are denying Barack Obama access to information on Binyam Mohamed’s torture and abuse.

No, this isn’t a typo, someone in the DoD is refusing to turn over information to the President of the United States of America:

Clive Stafford Smith, the director of the legal charity Reprieve, which represents Ethiopian-born Binyam Mohamed, sent Obama evidence of what he called “truly mediaeval” abuse but substantial parts were blanked out so the president could not read it.

In the letter to the president [PDF] , Stafford Smith urges him to order the disclosure of the evidence.

Stafford Smith tells Obama he should be aware of the “bizarre reality” of the situation. “You, as commander in chief, are being denied access to material that would help prove that crimes have been committed by US personnel. This decision is being made by the very people who you command.”

It is understood US defence officials might have censored the evidence to protect the president from criminal liability or political embarrassment.

George Orwell and Franz Kafka are now spinning in their graves at sufficient velocity to power all of Belarus.

Zimbabwe: Tsvangerai Sworn in as PM

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So, Tsvangirai is finally PM, though, rather tellingly, his acceptance speech was not carried on state radio or TV.

Note that arrests by ZANU-PF aligned elements in the state security apparatus, and there is apparently an arrest order out for deputy agriculture minister nominee, Roy Bennett, and human rights lawyers have been placed arrested.

Meanwhile, treason charges against Tendai Biti have been dropped, which is a good thing, as the nominee for Finance Minister.

Truth be told, considering the state of finance in Zimbabwe, I might have gone with jail time.

On a less snarky note, Biti might very well be the person bets positioned to counterbalance Robert Mugabe, because he is the one who determines when, and how, civil servants get paid, and with Zimbabwe moving to abandon its own currency, the decision of who gets paid in $Z, and who gets paid in USD or Euro or Rand would be a very good way to create real disincentives for those agencies most willing to do Mugabe’s dirty work.

There are some new structures in place intended to create a more transparent and less political state security apparatus, but I am not optimistic that this will make much of a difference.

Media Consolidation

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Barry Righoltz’s book Bailout Nation has been dropped by McGraw Hill, largely because he refused to soft pedal the ratings agencies role in the financial crisis, and McGraw Hill owns the largest of the ratings firms, Standard & Poors.

They claimed stylistic issues with his first description, which called the ratings agencies, “Pimps to the fixed-income fund managers’ Johns,” which to my mind is a fairly accurate description. (He did come out with an alternate chapter, which, while slightly milder in language, was even more damning, because it was more extensively sourced)

As Mr. Ritholtz himself notes, “The problems came not from Legal, but from Corporate within McGH. Legal had not even finished reviewing the manuscript at this time.“

If you wonder why newspapers and magazines are “dying”, it’s because of crap like this, where conglomerates allow other corporate issues to water down their content.

Senate Committee Approves Hilda Solis

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If you recall the Republicans have been blocking a vote because they are demanding that she recuse herself from anything involving the Employee Free Choice act, even though a labor secretary is supposed to, you know, support labor, and passage of the bill is an explicit goal of Barack Obama.

After all this, she was approved by a voice vote in a meeting lasting perhaps 2 minutes.

The ‘Phants are really a bunch of dickwads.

Classier Than George W. Bush

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Chinese Premier Wen Jiabao, who after having a shoe thrown at him by Martin Jahnke, has, “requested British authorities dismiss charges against Jahnke and pardon him for his act of protest.”

Yes, the Chinese have the moral high ground over George W. Bush, who appears to think that the arrest, continued detention, torture, and threat of a long prison sentence against his shoe thrower, Muntazer al-Zaidi does not merit comment.

Not Enough Bullets: The Whole Damn Banking Industry

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Tom Randall, Alex Nussbaum and Peter Robison at Bloomberg News talk about how awful the Obama salary cap for bank executives on the Federal dole is. Their lede:

Eric Langan could run a U.S. bank, based on his $494,713 salary last year, according to President Barack Obama. Langan would rather stay in his job, overseeing 18 strip clubs as chief executive officer of Rick’s Cabaret International Inc.

Well, Mr. Langan actually made a damn profit in 2008.

So they are claiming that $½ million, “may not buy a seasoned executive for a major U.S. financial institution.”

These are the folks who bankrupted the United States, and continue to pay themselves obscene bonuses.

Wanting to hire one of them for your bank is like betting on the Washington Generals when they play the Harlem Globetrotters.

I would also note that Mr. Langan’s job is a lot harder than your senior bank executives. He has to deal with people who stalk the dancers, and how to handle security, and hiring responsible bouncers, etc.

Besides, who is hiring in banking right now.

House-Senate Stimulus Bill Reports Out

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That was fast, I think that the deal may have been negotiated on the way to the conference room.

Basic changes are (unless otherwise noted, changes are from the House):

  • Size, down from the $820 billion (House) to $838 billion (Senate) 50 789 billion.
  • Retains the AMT tax cut put in by the Senate. ($70 billion, not stimulative)
  • Cuts in grants for broadband build out in rural areas remains, but has been trimmed a bit.
  • The Senate tax provisions allowing losses to be carried further forward by businesses was limited to only small (under $5 million/year receipts) businesses.
  • The car purchase tax credit, proposed by my Senator* Barbara Mikulski which would allow consumers to write off interest on auto loans, was shrunk to just cover sales and excise taxes.
  • The house flipping tax credits were trimmed. Instead of a $15,000/10% tax credit, the existing $7500 tax credit, which is actually a loan, it has to be repaid over time, was extended a year.
  • Thank goodness, the house flipping tax credit was a really bad idea.)
  • Individual tax credits were reduced from $500/$1000 per person/couple to $400/$800.
  • Grants to state governments and grants for school repairs were trimmed from $95 bllion to $54 billion.
  • Extend and increase unemployment benefits.

I’m not particularly impressed, but it’s better than doing nothing.

*And I wish that she wasn’t.

Economics Update

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The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

Maybe Because She Didn’t Want Someone Ratting Out Bath Iron Works

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It appears that one of the sticking points on the stimulus package was that Senator Susan Collins insisted on stripping whistleblower protections from contractors from the conference report.

Considering the history waste, fraud, and abuse at BIW, the largest private employer in the state, I could see how the distinguished gentlewoman from Maine might not favor transparency.

New York Dems to Gov. David Paterson: Drop Dead

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Well, it’s clear that New York Governor David Paterson is in trouble.

First, he gets outed as releasing personal information about Caroline Kennedy in order to derail her Senate bid, and now Democrats are rebelling against his budget, because they think that it is stupid to slash services for 90% of the population to the bone in order to keep income tax rates on the rich low.

They are proposing an increase in state tax rates on earnings about $¼ million a year, from 6.85% it goes to 8.25% for $250-500K , 8.97% for $500k-1m , and 10.3% above $1M.

I think that the conflict here is that, following the support after Spitzer left office, Democrats are unsatisfied with Paterson, who has seemed to spend his time cozying up to the state ‘Phants and to Wall Street with his plan or draconian cuts and tax increases or new taxes on sweet drinks and music downloads.

Why? Because he is either a liar or an idiot:

Another question mark concerns Governor Paterson. He has sent mixed signals in private and in public on the matter, saying on the one hand that he thinks raising taxes would cause wealthy people to move out of New York, and on the other hand that all options to plug the budget gap have to be on the table.

Rich people live where they want, and New York City and its environs, and this is where the high-rollers live, already live in one of the most expensive places in the world.

If they wanted to move to save a few bucks, they already would have done so.

Seriously, what are they going to do, move to New Jersey?

My theory is that he wants to have an enormous war chest when the primary rolls around to scary away opponents, and enormous war chest means Wall Street bucks.

Considering the performance of Wall Street in the public mind, and the fact that leading rival, New York State Attorney General Andrew Cuomo, just announced in investigation of Merrill’s recent bonuses, which both makes Paterson look like a turd, and Cuomo look like a hero.

Just Shoot Me!

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It looks like executive pay caps in the stimulus will be dropped because the so-called fiscal hawks think that they will cost too much:

Unfortunately, [Representative Brad] Sherman told me that he believes the executive compensation limits added to the Senate’s stimulus are going to get removed during conference talks with the House. The reason: a new Congressional Budget Office estimate that the pay caps will cost the government $10.8 billion in lost tax revenue over the next 10 years.

“The plan is to take out the executive compensation provisions … and blame the Republicans for setting out the level [of $800 billion]” for the final version of the stimulus, Sherman said.

Gaah!!!!!!!

Another Prediction Goes South: Israeli Elections

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The projected results have Kadima out-polling Likud by one vote, 28 to 27, with Yisrael Beitenu next at 15 seats, and Labor in 4th place at 13 seats, Shas (ultra-orthodox Sephardic party) at 11, with the remaining 26 seats divided amongst 7 other parties who got between 3 and 5 votes.

While I am pleasantly shocked (and once again wrong in my prediction) that Livni out-polled Netanyahu, it’s still even odds that Bibi will be the next PM, as the bloc generally considered right wing numbers 62-63.

In any case, we are now well into coalition politics, which is less clear than an airline’s frequent flier program, as the graphics below hint: