Month: March 2009

Not Enough Bullets, AIG Yet Again

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This time it appears that AIG is paying either $165 million, or $450 million to senior employees of their financial products division, the one which bankrupted the firm through their credit default swap (CDS) business.

It appears that the treasury, who, you know, manages AIG on behalf or the taxpayers, who now own of 80% of the bankrupt in everything but name only firm, were told by AIG president Edward Liddy that these were contracts, and so they had to honor them:

[Obama economic guru Larry] Summers said the government would examine its options, but he acknowledged it might not be able to terminate prior bonus agreements.

“We are a country of law. There are contracts. The government cannot just abrogate contracts,” he said in an interview Sunday on ABC’s “This Week.”

AIG is already scheduled to pay $121.5 million in incentive payments for 2008 to senior executives and 6,400 of its employees. And AIG is laying out another $619 million for 2009 in retention payments to more than 4,000 employees.
Total expected payments amount to almost $1.2 billion.

Somehow, the contracts signed with auto workers must be renegotiated, but those signed with failed and incompetent financial executives must be supported.

Seriously, the US government claim of impotence in the face of a contract is a reflection of the fact that Mssrs. Summers and Geithner are creatures of the corrupt financial industry on Wall Street, and cannot see beyond this.

If I had to choose between Vladimir Lenin and Timothy Geithner at Treasury, I would be very hard pressed to choose.

Gripen NG AESA Radar in Flux

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Originally, SAAB had contracted with Thales for its AESA antenna to be integrated with the Gripen NG, and while this will happen, Thales is refusing to make this available for production variants, because they are heavily tied into the Dassault Rafale, so far winless in export competitions, and the Gripen is competing against it for the Indian MMRCA and the Brazilian fighter competition.

This is further complicated by the fact that while the Thales system is compatible with the existing signal processor from the Saab PS-05 MSA radar already flying on the JAS-39 C, some of the successors would likely require that that this be changed, increasing integration costs.

So SAAB is casting about for another radar, hopefully one that is US content free, so as to avoid US export restrictions.

Well We Know Where Were Goin, But We Dont Know Where Weve Been*

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So, it appears that we have yet another aspect of NASA’s Orion moon program, the heat shield, where the original material, Phenolic Impregnated Carbon Ablator (PICA) has been replaced with an updated version of Avcoat, which was used in the original Apollo capsule.

The PICA heat shield was delivered late, and looked to be overkill for what should be the primary mission of the spacecraft, low earth orbit, with a focus on servicing the space station.

This is a reversal from the decision made in 2006 by both NASA and Lockheed-Martin, the prime contractor, to go with PICA, and that should have been the end of the story, only the preliminary design review (PDR) also scheduled for that year has still not been held, and Avcoat showed lighter weight than the original, along with significant reductions in the toxic substances used in its manufacture.

Confused? So is NASA, so it seems.

*The first two lines of the Talking Heads song Road to Nowhere. It’s a metaphor for NASA.

Ceramic Composites Starting to Find Way Into Engines

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Production verification ceramic matrix composite vane

Well, we now have another reason to support a 2nd engine for the JSF, it appears that the GE/Rolls-Royce F-136 alternate engine will be the first production engine to use ceramic composites. (paid subscription required)

Right now, they are looking at using it on stationary parts of the engine, “vanes, shrouds, combustor liners,” though there is investigations of using it on rotating parts too.

There is both a significant weight savings (Nickel is heavy), and a reduction and/or elimination of the need for cooling air.

We Forgot How To Make Trident Missile Warheads?

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It appears that someone neglected to properly record how to make a super-secret, and highly toxic, substance called “Fogbank”, which is thought to be a, “thought by some weapons experts to be a foam used between the fission and fusion stages,” of the warhead.

Not only was the old facility to make Fogbank demolished, but, “Vital information on how Fogbank was actually made had somehow been mislaid”, or perhaps never recorded, because the stuff is so super-secret.

Un-dirtyword-believable.

Big River

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So, it’s finally opening night for the Reisterstown Theater Project’s production of Big River, a musical based on Mark Twain’s classic Huck Finn.

My wife is not up to going to the theater today, so we will see it tomorrow.

My daughter is in the chorus, and she has one line, and she loves being in the play, though I think that if she wants to do this again, we will wait until school is out, because with rehearsals, homework, etc. she is running herself ragged.

It’s an amateur production, though it’s fairly well done, with the strongest actor playing the runaway slave Jim.

Economics Update

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Well, it looks like bank failure Friday is going to be busy, with 200 Federal Deposit Insurance Corp. (FDIC) agents descending on Puerto Rico, and a report that BankUnited has halted attempts to raise capital, which indicates a fair number of bank seizures, or at least serious investigations, and BankUnited is a fairly big bank.

On the brighter side, we had the Consumer Sentiment Index rise in March.

In the meantime, people are still buying very little, so international trade is falling, including the US trade deficit, which fell to a 6 year low.

Part of this is that banks are increasingly unwilling, or charging more, to issue letters of credit to shippers, which makes shipping more difficult and expensive.

This is being mirrored by the tepid response to the Federal Reserve/Treasury program, the TALF, which has pushed back its start date because of the low number of interested parties.

In energy, we have oil falling on weak demand.

In currency, we have the dollar falling on the good consumer confidence numbers, which slows the “flight to safety.”

Jon Stewart: The Best Financial Journalist in America

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Hell, maybe the best journalist in America, or at least the best interviewer. Jon Stewart really gets it.

Jon Stewart interviews Jim Cramer of CNBC (I saw it last night on TV):

The Criminality is Systemic

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So, it appears that Eric Holder is looking to crack down on financial fraud.

This makes sense, what with about half a dozen large Ponzi schemes popping up in the past few months, but if they are serious, they will discover quite a lot under that rock, because there are very few people at senior levels in US investment banking who would not be targeted for criminal investigation under a strict reading of the laws.

Sarkozy Fromally Announces France’s Return to NATO Command

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While France has been a part of the mutual defense guarantees for something like 60 years, it left the command structure in 1966 because Charles de Gaulle wanted more independence from the US.

Sarkosy has now Sarkozy announced that France’s military will once again be formally integrated into NATO’s command structure.

I’m not sure if this will last, given that the opposition, and no small number of his own party, are rather hostile to the idea.

Signs of the Apocalypse

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Signs of the Apocalypse, I Agree With Paul La Monica, who I generally find trite and relentlessly upbeat, when he says that mark to market is not a problem, but rather that the problem is that the banks made sh$% loans and created sh%$ derivatives, and did not hold enough capital.

That being said, he is not as inventive in his lede as David Reilly, who says that, “Elvis Lives, and Mark-to-Market Rules Fuel Crisis,” and notes that even now, only a fraction of the big sh$%pile is marked to market:

Of the $8.46 trillion in assets held by the 12 largest banks in the KBW Bank Index, only 29 percent is marked to market prices, according to my analysis of company data. General Electric Co., meanwhile, said last week that just 2 percent of assets were marked to market at its General Electric Capital Corp. subsidiary, which is similar in size to the sixth-biggest U.S. bank.

What are all those other assets that aren’t marked to market prices? Mostly loans — to homeowners, businesses and consumers.

Loans are held at their original cost, minus a reserve that banks create for potential future losses. Their value doesn’t fall in lockstep with drops in market prices.

Yet these loans still produce losses, thanks to the housing meltdown and recession. In fact, bank losses on unmarked loans are typically bigger than mark-to-market losses on securities like bonds backed by mortgages.

They both make the point that mark to model to a large created this crisis, by encouraging banks to create risky pieces of crap that no one wants to buy, though this reality is not preventing Congress from pressuring regulators to relax the rules on mark-to-market.

This stuff is worth pennies on the dollars, and the banks are insolvent. Let’s recognize reality and move on.