Year: 2009

Barack Obama Just Became Judd Gregg’s (R-NH) Bitch

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You see, a day after being nominated by Obama, Senator Gregg recused himself on all votes on the stimulus package.

The thing is, in order to break a filibuster, you need 3/5 of all senators, so a non vote is the same as a no vote.

So he just announced that he will be voting to support any filibuster on the stimulus package.

First, he demanded that a Republican replace him, and now he has declared that he will support a Republican filibuster.

Now is the time to tell that rat-bastard that you changed your mind, because you heard the rumor about him and the 16 year old boy, Mr. President

Economics Update

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Well, the ADP Monthly Survey estimates that 522,000 jobs were lost in January, and while the Institute of Supply Management’s non-manufacturing index rose, it’s still below 50, 42.9, which means more contraction on the way.

These aren’t official government figures, but those figures, due out Friday, are expected to be grim:

In its report on Friday, the Labor Department is expected to show 525,000 jobs were lost throughout the economy in January and the jobless rate is expected to rise to 7.5 percent.

Meanwhile, the dollar is up on expectation of further Euro zone rate cuts, and oil was down 46¢, continuing its love affair with the $40/bbl price.

Get Used to Saying Governor Cuomo

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Because the New York Times is now calling out David Paterson about leaking damaging information about Caroline Kennedy.

Stupid, really stupid.

It’s clear that Paterson didn’t want Kennedy, and neither did I, but it was well within his purview to simply say, “No”, particularly after her disasterous performance in interviews and her prior lack of involvement in politics, even to the level of voting in primaries.

Going after her with a whispering campaign is stupid, and it makes his chances of losing the next primary much more likely.

Jeebus, this is stupid.

Iran Really Launches a Satellite This Time

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We have both the report from Iran, and a report from JSR that they have observed the satellite and 2nd stage in orbit.

So it appears that they actually did it this time.

If you look at the launch (video below), I notice something odd, no ice, which implies the use of less efficient room-temperature propellants, which makes the technology more applicable to military uses, as it can be stored fully fueled in as silo or on the back of a TEL.*

*Transporter/Erector/Launcher

Kyrgyzstan To Close US Airbase

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President Kurmanbek Bakiyev of Kyrgyzstan Kjust announced his intention to close the Manas air base at a press conference with Russian President Dmitry Medvedev.

He is claiming that the US is not paying enough, and my guess is that the Russian aid also announced influenced him:

Russia, meanwhile, was ready to pay. The Kyrgyz president collected pledges of a $2-billion discounted loan and a $150-million grant. The Russian government also agreed to cancel Kyrgyzstan’s $180-million debt and to build a hydroelectric power plant.

I think that Russia does not want Afghanistan to fall back into the Taliban’s hands, but I also think that they see the bases in former Warsaw Pact and FSU nations as being a deliberate attempt to create a “ring of steel” in order to contain Russia.

I think that there are elements in the US military, and elements in the past administration (Cheney, Rice, etc.) who have been rather strong supporters of the “ring of steel” concept, so it’s not like they are paranoid for nothing.

From a tactical perspective, the loss of Manas is crushing, as it will, leave Pakistan as the only supply route available.

The Devil is in the Details

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Because Obama’s plan to limit executive pay to $500K to TARP recipients will sink or swim on the loopholes.

Larry Summers’ suggestion that, “Executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid,” is one such loophole, because if the restricted stock has dividends, it’s back to the races.

One of the things that needs to be understood is that Wall Street’s excessive salary structure is not just a symptom of the current banking problem, it’s one of the causes, because the excessive leverage and incompetent risk taking made year over year results so remunerative that it encouraged byzantinely complex instruments.

As a note, it’s actually not the executives who will get hit hardest by this:

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

(emphasis mine)

It’s the “compensation consulting firms”, whose business model is to get paid lots of money from CEOs and Boards of Directors to recommend high salaries to those very same CEOs and Boards of Directors, who lose the most.

It sure beats working for a living.

F%$@ing Stupid Idea

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Barney Frank has a good basic idea, that of a federal regulator with the power to regulate all financial transactions with regard to systemic risk, and then he jumps the shark completely by suggesting that this regulatory authority be placed in the Federal Reserve.

Seriously. Much of the Federal Reserve has not only gone native, but are to some degree actually owned by the commercial banks.

Any organization that was headed by Alan “Bubbles” Greenspan 20 years should be kept as far away from managing systemic risk as possible.

It’s like giving an infant a loaded revolver.

Tom Daschle Withdraws as Head of HHS

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Nominally, he withdrew because of tax questions, but there are reports that this New York Times OP/ED convinced him to withdraw.

When even the New York Times realizes that you have functioned as an über lobbyist and calls you on it as game over.

Matt Taibbi was far more colorful in his description of Daschle and his revolving door porfiteering, “Tom Daschle would suck off a corpse for a cheeseburger.”

Economics Update

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To no one’s surprise, the Federal Reserve has extended its multi-trillion dollar so called liquidity facilities another 6 months, better known as the sh$tpile for cash program:

In addition to prolonging the currency swap lines that were due to expire on April 30, the U.S. central bank said it would extend through October 30 a host of other programs providing liquidity to the U.S. commercial paper and money markets, and to large Wall Street firms.

They’ve already spent in excess of 8 trillion dollars bailing out insolvent banks, but they think that more of the same will help.

The Federal Reserve is broken as an institution. It is run by and for the banks.

We also have aggressive stimulus programs ramping up in Australia and Japan.

Meanwhile, real estate and construction continues to be a disaster with US construction falling 1.4% in December and 5.1% for 2008, the largest drop since records began being kept in 1993, and the Homeownership rate has fallen to the 2000 level, so much for Bush’s “Ownership Society….In stead of owning, we got pwn3d.* With current equity losses of US home owner pegged at $3.3 trillion, a new record on vacant homes 19 million.

Even alleged good news in real estate, that the Pending Home Sales Index rose in December is pretty hollow, because, money quote from CR, “The biggest gains were in areas with the biggest improvements in affordability.”

So, if your house prices have dropped by 40+%, as they have in parts of California and Florida then homes might be moving…Otherwise, not so much.

Still real estate is not as bad off as the auto industry, with GM and Chrysler offering buyouts to all of their hourly workers, Ford posting 40.2% drop in January U.S. sales, and GM dropping 49%, Chrysler down 55% LLC, with the Japanese car makers seeing their sales dropping about 30% each

BTW, it appears that China may be headed for a period of economically induced social unrest, because more than one in seven rural migrant workers, more than 20 million, are unemployed.

In a nation that has systematically eliminated its safety net, 20 million pissed off unemployed people can make a lot of trouble.

In energy, I’m not sure if $40/bbl is the bottom, or if OPEC cuts are working, but oil was up today, and it appears that we have found a bottom there.

In currency, there dollar was down as there was less “flight to safety.”

*Leet speak for “owned”.

An Interesting Perspective on the Big Sh%$Pile

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The New York Times has an article on how difficult it would be value the bad financial instruments that banks are holding, and they relate the story of a bond:

But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

(emphasis mine)

Let me make an observation here, if the financial institute thinks that this is worth 97¢, and S&P thinks that it is worth 87¢, then this is a top tranch of bonds. It’s the best of the best, and it most recently traded at a 62% loss.

The banks are completely insolvent, and paying them off is much more expensive than declaring them insolvent, stripping out these assets, and then holding them like the Swedes did.

What’s more, if we go with Timothy “Eddie Haskell” Geithner’s “Bad Bank”, the same people will remain in charge, and because they were bailed out, they, and their successors will leaarn nothing, and so we will seem the same errors, over, and over, and over again.

Seize the banks as insolvent. Break them up into tiny pieces which are small enough to fail, and fire the upper management and stiff the shareholders.

Either that, or we can, as Ripley said in Aliens, “We take off and nuke the entire site from orbit. It’s the only way to be sure,” as

Not Enough Bullets: Can’t Live on $150 to $180,000 Edition

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It appears that for investment banking types an outrageous salary is not enough.

They also need bonuses. Bonuses whether their company makes money or not. Whether their company is on the bederal dole or not.

It’s because….It’s because….I don’t know why, but the rules don’t apply to them.

BTW, the last paragraph of the story is the killer:

“Without a doubt, $18 billion is a lot of money, but it’s a drop in the bucket on Wall Street,” said Gustavo Dolfino, president of the WhiteRock Group, a headhunter for the banks. “These bonuses are down, and the salaries are not enough for these people. They can’t live on $150 to $180,000, so they haven’t saved any money. They put it on credit lines and at bonus time, they thought they’d pay it off.

Median family income is $49K/year, and they cannot live on three times that.

Andred Lahde got it right when he called them, “The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.“

Zimbabwe Government Formed, Etc.

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It appears that their parliament has passed a bill allowing for a unity government, as a result of the strong-arming of former South African president Mbeki and the South African Development Community (SADC).

As I’ve said before, I think that this will work as well as Nkomo’s incorporation into Zimbabwe government, as in not at all.

Meanwhile the EU will maintain sanctions against ZANU-PF officials, even though the
African Union has asked them to be lifted.

This is a good thing. The upper levels of ZANU-PF are nothing more than thieves, and denying them easy access to banks to hide their ill-gotten gains is a good start, particularly when Zimbabwe was just forced to issue new dollars worth a trillion times more than the old ones, because of hyper-inflation.

GDP Numbers Artificially Inflated by TARP

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Barry Ritholtz has the goods.

He notes that the Bureau of Economic Analysis (BEA) notes the effect in their report:

Troubled Asset Relief Program

In October 2008, the Emergency Economic Stabilization Act of 2008 established
the Troubled Asset Relief Program (TARP). Among its provisions, the act authorized the Department of the Treasury to purchase or insure up to $700 billion in assets to alleviate the financial crisis. By the end of the fourth quarter, the program had disbursed $243 billion to banks and other institutions in exchange for shares of preferred stock and warrants. The program also disbursed a $4 billion loan to General Motors in the fourth quarter.

Purchases of financial assets are generally not recorded in the GDP accounts (though they appear in the Federal Reserve’s flow of funds accounts). However, when the Treasury purchases a financial asset (other than a loan) at more favorable terms than are available in private markets, BEA records a portion of the purchase as a capital transfer, calculated as the difference between the actual price paid for the financial asset and an estimate of its market value. This treatment is consistent with the recommendations of the newly updated international guidelines, System of National Accounts 2008. For the fourth quarter, in most cases BEA’s estimates of these capital transfers are based on Congressional Budget Office estimates, which are prepared on a net present value basis. The recording of a capital transfer in the GDP accounts does not affect GDP or net government saving, but does reduce net government lending or borrowing.

(emphasis mine)

You’ll notice that that the BEA is saying that the TARP is just a transfer payment, and hence is not counted as GDP, but I would argue that in overpaying for assets and preferred stock, these expenditures find their way into the numbers indirectly.

Ritholtz says that the effect is close to 8% of Q4 GDP, I’d say a bit less, say 2-4%, because the money finds its way into the economy indirectly and slowly, but in either case, it makes the GDP numbers worse than they seem.

If any bankers want to correct me, please do so.

Not Enough Bullets: The Ever Reliable AIG

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AIG is looking getting more US government aid to unload its dodgy assets because at this point it has only been able to unload about $1b in assets, and that money had to go to retention payments:

So far, AIG has announced sales of only a few smaller businesses that, at least based on deals where a sale price was announced, will earn it a little over $1 billion. That is about what AIG is paying employees in retention payments to keep them from leaving for rivals, which could further erode the value of its units.

They need to pay money to the the very people who ran the company into the ground, in an employment scenario where no one on Wall Street is hiring, because they are worried they might go somewhere else.

I’m not just referring to the people who actually sold insurance here, I’m referring to the people who actually set up the CDS catastrophe that took the company down:

American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

They are not just paying people who were passengers at some car wreck in another division, they are paying the driver of the car that crashed.

What’s more, the driver was drunk, sending a text message, getting a blow job, and speeding at about 150 mph when they plowed into an orphanage.

Again, heads I win, tails you lose remuneration, bonuses to the tune of over a million dollars per employee to the folks who bankrupted the company.