Year: 2009

Economics Update

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So, the new unemployment numbers are out, and once again, they are brutal, with adjusted initial claims hitting 667,000, up 36,000 from last week, and the less noisy 4-week moving average hit 639,000, up 19,000, while the continuing claims are at 5,112,000.

As Calculated Risk notes, the 4-week moving average is the highest since 1982, and the continuing claims are the highest ever recorded, though both are somewhat better when normalized against total workforce size. (Graph at CR)

We also saw durable goods orders fall to a 6 year low, and new-home sales fell in January, the lowest number since records started to be kept in 1963.

We also have banks cratering with the FDIC list of problem banks up 50% in Q4 of 2008.

BTW, it’s hitting the export driven economies of Asia even harder, with Singapore’s Q4 GDP falling at a 16.4% annual rate.

We also have oil down following the announcement of production cuts by the UAE, and the dollar is down, for reasons that are not entirely clear to me.

Looks Like We Will Have the Zombie Banks Around for a While

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Because when you look at the Treasury’s terms of their Capital Assistance Program, (Treasury link)it’s clear that they are propping up Citi, the weakest of the Zombie banks, because it’s purchasing preferred stock, and “These shares can convert at the firm’s discretion (with the approval of their regulator) into common equity if needed to preserve lending in worse-than-expected economic environment at a conversion price set at a 10% discount from the prevailing level of the institution’s stock price as of February 9, 2009.”

Why February 9, 2009? Because that’s the day before Citi’s common share price fell off a cliff.

If they go back any further, it makes it transparently clear that Citi is insolvent, and Timothy “Eddie Haskell” Geithner is trying to avoid placing it into receivership…So….More zombie banks.

If you want any confirmation that they won’t nationalize pre-privatize the big banks ever, you need only look at Bernanke lobbying for a weakening of the mark to market rules, so that they can call the valueless sh^% on their books a pony.

It appears that everyone is doing their level best to duplicate the mistakes of the Japanese in the early 1990s.

Citi is trading at less than $3/share. BoA ain’t doing much better. Their shareholders are already wiped out. This is about letting senior management keep their jobs, even after they mismanaged our finance system out of existence.

If There Is An Organization More Capable of Sabotaging Itself Than Fatah…

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It appears that there was a deal to open the borders to Gaza. It seems to have involved a prisoner release by Israel and the PA in exchange for the release of Gilad Shalit, but PA walked away from the deal, “because the Fatah officials believed it would weaken them.”

These guys really don’t have a clue. If Hamas releases Shalit, is ready to release Shalit, even with a significant release by the Israelis is going to be a net minus for Hamas, because it removes a bargaining chip from their hand, and because it means that they have negotiated a deal.

But the leadership of the PA is so damn timid, they snatch defeat from the jaws of victory.

Ford Is Going Bankrupt

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And existing shareholders will be wiped out.

How do I know this?

Because Ford has concluded negotiations with the UAW to allow them to fund their health care trust fund with stock.

If there is anything that I am sure of, it is that when equity in a company is used as a benefit for rank and file workers, they will be wiped out, along with other share holders, in a bankruptcy.

Call me a cynic, but just ask the United Airlines pilots.

Being Batsh%$ Insane is a Reason to Fire a CEO

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Case in point, Bank of America CEO Kenneth Lewis, who is now saying that Merrill-Lynch and Countrywide Financial are, or will be “stars” this year:

Bank of America Corp. Chief Executive Officer Kenneth Lewis said Merrill Lynch & Co. and Countrywide Financial Corp., the two acquisitions that some analysts say helped push down the bank’s share price, have been “stars” so far this year.

Lewis, speaking today in a Bloomberg Television interview from his Charlotte, North Carolina, headquarters, said Merrill will be “a thing of beauty” over the long term. Merrill, the New York-based securities firm, lost $15.8 billion in the fourth quarter.

Ummm….This guy is ready for the rubber room….Seriously.

Economics Update

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More brutal numbers on home sales, with sales of existing homes falling to a 12 year low.

Note also that existing home sales are becoming a bigger part of home sales in general, as foreclosures and other distressed sales make up a bigger part of the market.

Of course this can’t compare to the financial putrescence that is AIG, which just failed on an asset sale.

It wanted to use the proceeds to pay down some of its debt to the US government, but could not because of a lack of bidders. No one wants their crap.

BTW, Ken Lewis’s gift keeps on giving to Bank of America, because Merrill-Lynch lost $15.84 billion in Q4, about $500 million more than predicted.

There was an unexpected decline in gasoline stocks that drove oil higher today, while the poor housing news and the declines in the stock market have driven the dollar up as people look for safe havens.

McCain Gets Punk’d

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McCain decided to to take a shot at Obama regarding the escalating cost of the new Presidential helicopter, the VH-71, which has suffered massive cost overruns (as a result of Bush and His Evil Minions™ gold plating the mofo):

Said the president’s former Republican rival, “Well, thank you, Mr. President. And thank you for doing this…Just one area that I wanted to mention that I think consumed a lot of our conversation on procurement, it was the issue of cost overruns in the Defense Department. We all know how large the defense budget is.”

And, McCain noted, “your helicopter is now going to cost as much as Air Force One. I don’t think that there’s any more graphic demonstration of how good ideas have — have cost taxpayers an enormous amount of money.”

Meow…..That’s a slam, right?

Not so much:

Said Obama, “I’ve already talked to (Defense Secretary Robert) Gates about a thorough review of the helicopter situation.”

Added the president, to laughter, “the helicopter I have now seems perfectly adequate to me. Of course, I’ve never had a helicopter before. So, you know, maybe — maybe I’ve been deprived and I didn’t know it.But I think it is a — it is an — an example of the procurement process gone amuck, and — and we’re going to have to fix it.”

I think that he was expecting this from someone, and had just the response to make the accuser look small and petty.

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.