MonkeyBusinessBlog

I'm Gonna Get a Real........ESTATE. NOW!

Hi folks. Thanks Eric for pointing out below what I said about 8 months ago. You know what? That seems to be a common theme here at www.monkeybusinessblog.com . We say stuff and then voila it happens. Well believe it or not I just found a nice new deal. No I'm not going to buy something but I am in the process at this second to moving to a new apartment in NYC. Thats right my pals at Schleppers Moving and Storage are standing right around me and moving the family's belongings in to a truck. Where are we going? Well you remember the Jefferson's from back in the 70s? Well we are "Movin on upppp. To the east side. To a deeeeeeeluxe apartment in the sky-i-iiiii."

Yes we are moving to a building with the same amenities as the one we have now. In a very nice neighborhood. But we are renting. And we are renting for 1 year. The nice people at the new building said hey we'll sign you to a 2 year lease and no change in rent. I said nahhhh I'll take my chances. I think in a year the rent will be even LOWER. So I'll take a 1 year lease thanks. Oh did I tell you what I'm paying versus my old place? 30% less. Like I said just as nice a building maybe even better. So if you are looking at real estate in NYC dont be shy to show some nice lower prices. You might be pleasantly surprised. Oh I didnt find any foreigners trying to outbid me either. I think they have their own issues. So have a good weekend and stay tuned to when I throw a big monkeybusinessblog.com party on my spacious new roofdeck when the weather gets nice. For free.

New York City Real Estate Cratering ? Hmm, I Remember Someone Predicting That A Looooong Time Ago.

It is all the rage now to talk about just how bad real estate is doing in The Big Apple, The City that NEVER Sleeps.....New York City.  In fact a lot of buzz has been created about an article in the New York Times today about folks walking away from $1 million deposits on coops and condo's because it's looking so bleak. Apartment Buyers Abandoning Six Figure Deposits

Well, waaaaay back in July 2008, when everyone was talking about New York City real estate holding its huge 10-year gains because the almighty Euro (remember that?) would have Europeans buying the high end palaces going up all over the City our own Richie Bennett had a different opinion;

You know what I look at a lot of the day? All the construction going on in New York City. Manhattan specifically but its going on in the outer boroughs too. I mean these arent small projects either. Big time high rises. The residential kind. Where you can live. The asking prices? Almost as high as the buildings themselves. The sales results in Manhattan are being looked at very closely every month nowadays. You know what the numbers are saying? Prices are flat to slightly higher in Manhattan. This is after a huge gain for the last 10 years or so. HUGE. Interesting.

Um when we hear these assclown real estate brokers talk about these figures, they always mention how New York City is "different" than other markets due to it being a huge hit with the entire globe's population. They will then drop in the ol' "even if the US buyers arent as aggresive, the FOREIGN buyers are very active in NYC due to the strength of the Euro." That's nice. Its also a bunch of crap.

Look I have some money. I dont have it all and never will. But I can tell you this, 10 years ago when the dollar was really strong and I was looking at investments, I NEVER once said "hey you know what I'd like? A nice pad in London, or Tokyo, or Hong Kong, or Sydney." You know what else? Neither did any of my pals who lived here. Trust me we couldve if we wanted to. This tells me that this "foreign love-in" is gonna stop pretty quickly. You think not? You wanna know who took the NASDAQ market on its last good ride from 4000 to 5000 in about 6 months a few years back? You're damn right. The foreigners. The NASDAQ is at 2265 today. Hiya. They aint been been back since.

So my point is, last year, the financial industry paid about 35% of the wages and salaries in NYC so that they could afford those nice expensive (smallish) apartments. That also doesnt take into account the ancillary (nice word Richie) businesses connected to the financial industry who are now also S.O.L (a technical term meaning in trouble), like printing companies, law firms, computer makers, even the coffee guy. Suffice it to say the number is probably closer to 70% of NYC's wages and salaries tied into the financial industry indirectly or directly.

Now tonight, the legally blind governor of the state of New York, David Paterson, is going to give a type of State of the State address that will be on TV. I got a funny feeling the legally blind Gov. is going to highlight some of these issues like someone who has 20/20 vision. He's gonna come with a big ol' can of whoop-ass ladies and gents. Laying down the cold hard facts. It aint a pretty sight when it comes to things like the budget.

So we have construction out the wazoo, people getting fired left and right from the industry that pays all the bills and is going through a LONG downturn, prices "unchanged" after HUGE gains the last 10 years in Manhattan real estate, and a NYC budget that is a black hole (could mean less cops and other important city services like garbagemen). What does that all spell? We hear at monkeybusinessblog.com think thats a nice SELLING opportunity.

So You Have Two Cows.......

I leave you with this bit of comedy from one of my friends who NEVER calls or writes me anymore...but I still love him.  I will be gone tomorrow watching the mighty Rye Mariner Mites play in the New England March Madness (in February!) Hockey Shootout.  Have a great weekend.

Two Cows

SOCIALISM

You have 2 cows.

You give one to your neighbour.



COMMUNISM

You have 2 cows.

The State takes both and gives you some milk.



FASCISM

You have 2 cows.

The State takes both and sells you some milk.


BUREAUCRATISM

You have 2 cows.

The State takes both, shoots one, milks the other, and then throws the

milk away...



TRADITIONAL CAPITALISM

You have two cows.

You sell one and buy a bull.

Your herd multiplies, and the economy grows.

You sell them and retire on the income.



AN AMERICAN CORPORATION

You have two cows.

You sell one, and force the other to produce the milk of four cows.

Later, you hire a consultant to analyze why the cow has dropped dead.



GOLDMAN SACHS VENTURE CAPITALISM

You have two cows. You sell one and buy a bull.

You sell three of them to your publicly listed company, using letters of

credit opened by your brother-in-law at JPM Chase, then execute a

debt/equity swap with an associated general offer so that you get all

four cows back, with a tax exemption for five cows. The milk rights of

the six cows are transferred via an intermediary to a Cayman Island

Company secretly owned by the majority shareholder who sells the rights

to all seven cows back to your listed company.

The annual report says the company owns eight cows, with an option on

one more.

You sell one cow to buy a new president of the United States, leaving

you with nine cows. The public then buys your bull.

F**k AIG, F**k Their Counterparties and F**K The Whole Cavalry They Rode In On!

I think you know how we feel about this.

By Hugh Son and Zachary R. Mider

Feb. 26 (Bloomberg) -- American International Group Inc. may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter.

The federal guarantees may be included in New York-based AIG’s restructured bailout, which the company plans to disclose next week with fourth-quarter results, according to the person, who declined to be identified because the talks are private.

Regulators who saved AIG in September feared that a collapse of the insurer, which sold swaps to banks including Goldman Sachs Group Inc., would spread losses throughout the global financial system. In November the U.S. committed $30 billion to retire some of the contracts tied to subprime mortgages, while not addressing other swaps tied to corporate loans and European debt.

“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Federal Reserve said in a report in November.

AIG provided protection on more than $300 billion of assets through credit derivatives as of Sept. 30. Credit-default swaps pay the buyer face value on their debt holdings in exchange for the underlying securities if the borrower fails to meet its obligations. It wasn’t immediately clear how many of the swaps would be backed by the U.S., and talks are continuing, the person said.

AIG has posted four straight quarterly losses on swaps tied to U.S. home loans.

Bad Things Happen When You Kick the Game Board Over.

Not long ago I was watching two of my sons playing a game of chess.  One son (I won't disclose which one did what so I won't get yelled at) was losing and he knew it.  I'm not sure if the "other son" realized how close he was to winning but he sure got pissed off when his brother "accidentally" knocked the board off the bed.  They got into a big fight and the son who knocked the board over finally convinced his brother to play again.  I was nearly incredulous when about twenty-five minutes into the game, the same son knocked the board over AGAIN!  Needless to say they don't play chess anymore.  The kid who invested nearly an hour of his time and got cheated twice won't invest another second playing chess with his brother.

I think about this simple story when I think about what is going on in the mortgage securitization market.  Let's forget about the non-Freddie and Fannie world that sprang up in this decade and at its height, probably financed sixty percent of American home financings.  Let's just deal with Freddie Mac and Fannie Mae mortgage backed securities ("MBS").  The market for these securities was the most liquid in the world.  The reason our trading partners who have tremendous trade surpluses with us (like China and Japan) hold vast quantities of these MBS is because the MBS market was the deepest market in the world.  The Chinese could come in and buy $2-$3 billion in a night and make the mortgage market move, all else equal a quarter of one percent at most?  Now that really sucked if you were short MBS versus Treasuries, but in the grand scheme of things, it was a tiny ripple.  If they tried to do that buying German Bunds or Japanese JGBs.....they would have moved those markets POINTS.  Even the U.S. Treasury market would have moved at least double what the MBS market would move.

Anyway, the market for American mortgages, prime credit mortgages was incredibly efficient.  It had been that way since at least the early 1990's.  Because of this efficiency, banks in the United States did not have to hold all these mortgages that they made on their balance sheet.  They could sell them in the form of MBS to all kinds of investors, foreign and domestic.  In return, American's had fantastic access to "cheap" home financing.  When I say cheap, I'm not talking about the insanity of the last four or five years, I'm talking about the first few years of this decade as well as the 1990's.  If the ten-year U.S. Treasury was at 5%, a thirty-year fixed rate mortgage was between 6% and 7%. This access to home finance was the envy of the world.

The basic premise that allowed for this great deal was that the rule of law would be followed.  One rule was that the collateral backing each loan was the borrower's home.  If the borrower defaulted on his mortgage, the home would serve as the primary vehicle to repay the loan.  The home was not allowed to be included under bankruptcy protection.  This was important because under bankruptcy, a judge could determine that if the loan on the home was higher than the value of the home, the difference could be used to reduce the principal of the loan, exposing the lender or investor to unsecured risk.  This is called "cramdown risk".  Now, due to our severe housing crisis, The White House is a strong proponent of covering borrower's primary residences under bankruptcy protection.  This is what we call in the business a "Game Changer".  Others might call it a "Jam Job"!

The other rule that is currently being messed with in the White House's new housing legislation is Freddie Mac and Fannie Mae's Government Sponsored Enterprise (GSE) charter.  As we reported, Tuesday I believe, the plan to allows the GSEs to buy or guarantee loans that have loan to value's of greater than 100% (105% is the current, new limit).  The problem with that is the GSE charter specifically prohibits the GSEs from buying or guaranteeing loans with LTVs greater than 80% without the borrower buying private mortgage insurance.  The new housing plan, in the interest of letting borrowers take advantage of historically low mortgage rates (manipulated by the government's buying of MBS) certainly isn't going to force them to buy expensive private mortgage insurance.  To get around this charter violation, Freddie and Fannie are calling these refinancings....loan modifications.  The only problem with that is, each existing MBS that the old mortgages are in specifically limit the amount of loan modifications that can be done in any one MBS pool.  Why do they do that?  It's there to protect a buyer of a MBS that has a premium.  For instance, par is 100-00.  Most MBS right now trade at prices greater than 100-00.  For example, if you bought a Fannie Mae 5.5% at 103-00, you paid a 3 point premium.  The bad thing that can happen to you when you buy at a 3 point premium is if many of the loans in the MBS prepay.  That's because you paid $103, but you get back $100.  This is a risk that MBS investors take with regard to prepayments, which are driven primarily by refinancing.  Therefore, while investors know they take prepayment risk and adjust accordingly, they are NOT supposed to be taking large loan modification risk.  They know this because it is in the documents of every MBS you buy.  So, if the GSE's are calling their actions under the new housing plan modifications how can they do this?  Simple!  For security purposes they are calling these refinancings!  Sorry investor...you lose!

This gets me back to the thrilling chess games at my house.  The kid who invests time and energy into two games of chess and then essentially gets the rules changed on him arbitrarily by his brother kicking the board over, isn't going to play anymore.  Similarly, the investor who has had the rule of law changed on him, to his disadvantage, arbitrarily, isn't going to play anymore either.  The result will be the end of housing finance in the country as we knew it.  Nobody is talking much about it but they will when the ten-year U.S. Treasury is at 5% and a 30-year fixed rate prime mortgage is at 8.5% or higher and required money down is 40% or more like the rest of the world.  What is that going to do to the housing recovery?  I don't think Treasury or the Office of Management and Budget are putting this little factor into their bank stress tests and economic growth models. 

Completing the Housing Horror Tri-Fecta...New Home Sales Plunge To Record Low.

From Bloomberg News;

Feb. 26 (Bloomberg) -- Sales of new homes in the U.S. plunged in January to a record low as soaring unemployment and mounting foreclosures drove buyers away.

Purchases dropped 10 percent to an annual pace of 309,000, the lowest level since data began in 1963, the Commerce Department said today in Washington. The median price decreased 13.5 percent, the most in almost four decades.

Even as they slash prices, builders are likely to keep losing customers as foreclosures drive down the value of existing homes further, making them comparatively more affordable. The Obama administration is making a priority of keeping more Americans in their homes to stem the collapse in property values at the root of the credit crisis

Wow.  The new home sales number follows Tuesday's Case-Shiller Index dive of 18.5% and yesterday's existing home sales disaster.  The national average of inventory of NEW homes is now 13.3 months.  As we reported yesterday, our friend in Oregon told us total inventory in the great northwest is TWENTY MONTHS!  Additionally, remember that many of the major banks, as well as Fannie and Freddie have imposed foreclosure moratoriums.  The overhang continues to sufficate.

"The Bail Out Boys Are Back"

This is hysterical.  Check this out from The WilliamBanzai7 BlogThe Bailout Boys Are Back

AIG Shows Us The Way Down the Rat Hole

This morning AIG finally provides some value to American taxpayers and policy makers!  The simultaneous headlines of;

**GM Posts $9.6 Billion Loss as Wagoner Seeks More Government Cash.

**AIG Considers Break-Up in Bid to Stay Afloat.

We wrote this on December 10, 2008 when GM and Chrysler came for the first slug of our hard earned dough;

Imagine if you will the following scenario.

1. A company that can cause systemic destruction to the U.S. economy comes hat in hand to Washington.
2. The company tells Washington, "We have a huge cashflow problem.  We need an emergency loan of $85 billion in the next few days otherwise we will have to declare bankruptcy.
3. Washington assesses the risk and realizes that, as distasteful as it is, they have to make the loan.  However, they demand a very high rate of interest and demand an orderly repayment of the loan through an aggressive restructuring plan.
4. Washington lends the company the money, which is almost immediately spent to cover cashflow needs.
5. A few weeks later, the company comes back to Washington and says, "It's worse than we thought.  While we are trying to come up with a restructuring plan to pay you back, we need another $37 billion to plug another cashflow hole or we will have to declare bankruptcy."
6. Washington assesses the risk and now its worse.  Not only will the failure of the company cause great systemic risk, but now they have $85 billion of Washington's money......and it's gone!
7. Washington lends the company another $37 billion.
8. A few weeks later the company comes back to Washington and says, "We've been trying like the dickens to restructure and sell off assets, but the market is just terrible.  Also the rate that you are charging us on the $122 billion is so punitive that it's defeating the purpose of helping us with our cashflow.  Lastly, we need more cash or help to get out of these obligations that are draining more money from us.  We need to restructure our deal or we will have to declare bankruptcy."
9. Washington finds this even MORE distasteful.  However, now they are into the company for $122 billion, the money has been spent and bankruptcy still is not a viable option.  Washington restructures the deal that lowers the spread that the company must pay by sixty-five percent. Washington also reduces the principal of the loan and instead takes an equity position in the company.  Finally Washington pays the breakup costs for those obligations that are draining cash out of the troubled company.
10. Washington now sits, thumb inserted, while the company laughs at them.

Does any of this sound familiar?  It should because that is essentially what we did with AIG.  We gave them money, which they quickly spent, and then led us around by the nose.  Once we lent them the large sum of money we were hooked into that sinking ship in perpetuity.

You really think that when we give GM and Chrysler $15 billion to fund immediate cash needs, with the only collateral being their promise to come up with a real restructuring plan, that; 

1. They are going to come up with anything meaningful in three months when their problems are decades old?
2. If they fail we can clawback $15 billion that has already been spent?  With what cash are they going to pay us back with?

Those who do not heed the mistakes of the past are doomed to repeat them, especially if "the past" is happening right now in front of our eyes!

And now here we are!  AIG is essentially telling us that they can't repay our loans and they can't pay the 10% dividend on our preferred shares.  CEO Edward Liddy is all but handing us the keys to AIG.  This is clearly a "Ghost of Christmas Future" moment!  The ghost is telling us the more money we pour into GM the poorer we get....and the result will be what we tried to avoid in the first place....Bankruptcy and government ownership. 

AIG had to be saved because the stewards of our financial system were fat, drunk and stupid at the switch and failed to see the gigantic systemic risk bubble that AIG had become.  We said here earlier in the week, if they still pose some kind of systemic risk after all we have done....then some very, very senior people like the Secretary of the Treasury and the Chairman of the Federal Reserve need to fall on their swords.....NOW.

GM and Chrysler and soon, probably Ford will be a bottomless cup of need bigger than AIG.  Screw the politics.  Its time for bankruptcy with Treasury providing debtor in possession (DIP) financing (because there's no one else to do it). 

Do Banks Have The Ability to Remove a President if He Loses His Mind?

Section 4 of the twenty-fifth Amendment to The Constitution of The United States states;

Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.

Essentially, what this means is if the President suddenly loses his mind and starts saying things like,

"Gentlemen, in my poker game last night, President Truman told me to nuke Pakistan and his advice was seconded by President Grant.....so get me "the football" and lets get this done."

The Vice President and the rest of the cabinet can declare the President nuts and remove him from office.

Today, in Charlotte,  North Carolina CEO of Bank of America Ken Lewis made these statements;

• Countrywide and Merrill Lynch have been "stars" this year.
• Merrill "Will be a thing of beauty over the long term."
• “Everything we thought is playing out” with regard to the Merrill purchase.

If BofA has ANYTHING remotely resembling our constitution's twenty-fifth amendment they should use it immediately because CEO Lewis has lost his mind!  And here is the proof!

Well...I Guess Everyone Has a Different Idea of Stress!

From Bloomberg News;

Feb. 25 (Bloomberg) -- Regulators set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a review of their balance sheets.  The regulators will complete their so-called stress tests by the end of next month, the Treasury said in a statement in Washington. Supervisors will determine what the appropriate capital buffer will be for each of the 19 firms after analyzing potential losses under two economic scenarios.

“While the vast majority of U.S. banking organizations have capital in excess of the amounts required to be considered well capitalized, the uncertain economic environment has eroded confidence in the amount and quality of capital held by some,” the Treasury said, announcing guidelines for new bank reviews.

Banks will have a choice of raising private capital or accepting taxpayer funds from the Treasury. Any new government money will come in the form of convertible preferred securities, which would acquire voting rights if converted into common stock.  The Treasury said it would release guidelines on how it will handle those voting rights before completing any transactions. The shares would convert either at a bank’s request or at the end of a seven-year period.

Capital Assessments

In their assessments, regulators will incorporate off- balance sheet commitments, earnings projections, risks of the banks’ business activities and the composition and quality of their capital, the Treasury said. Losses will be projected under two economic scenarios. Under the “baseline” scenario, the U.S. economy will shrink 2 percent this year and expand 2.1 percent in 2010. The “alternative more adverse” set of projections has gross domestic product dropping by 3.3 percent this year, with a 0.5 percent expansion in 2010.  Any capital investments made by the Treasury will be placed in a separate trust to manage the government’s investments in financial companies.

Hmmm, 3.3 percent decline in 2009 and a .5 percent expansion in 2010 is the adverse scenario?  If you offered that to me as the worst case I would call you done in a New York minute!  What truly amazes me is I was watching a few minutes of Bernanke's testimony today and a congressman actually asked a really good question.

"Mr. Chairman, if you say that you're not sure what the value of these troubled assets are now, how will you know what they are worth in your stress tests?"

Chairman Bernanke said something like...."Blah, blah, blah-blah...hummina hummina."

Outliers or Out Right Liars?

A very nice piece here by Janet Tavakoli Malfeasance-Not Models-Killed Wall Street

Paul Volker, former U.S. Federal Reserve Board chairman and member of President Obama’s economic advisory team, gave a speech in Toronto on February 11 at the Grano Salon Speakers Series on the U.S. economic crisis. He made the mistake of blaming mathematical models instead of malfeasance as the key source of the financial meltdown:

They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events happen once every hundred years. But we have ‘once every hundred years’ events happening every year or two, which tells me something is the matter with the analysis.

Volker was only partly right; there is something wrong with his analysis. The models would have failed to capture unexpected "hundred year events," the outliers Mr. Volker referred to in his speech, but that was not the cause of the U.S. financial meltdown. There were no outliers; there were outright liars. The models crunched misleading data fed to them by Wall Street’s financiers. The events that keep happening every year or two are the effects of massive unchecked malfeasance.  {hit the link above to read on}

Now it's true that Ms Tavakoli is a little rough on my "man-crush"  Paul Volcker and, from being in the middle of it, think that one gives Wall Street too much credit by saying "the powers that be" knew it was all one big scam.  Nevertheless, a great piece.  I am currently reading Janet's "Dear Mr Buffett.  What an Investor Learns 1,269 Miles From Wall Street"......And I like.

A Note About Business

I see where there's a big hullabaloo about Northern Trust Corp. (a bank) sponsoring the golf tournament this past weekend that was won by Phil Mickelson in fine fashion. Barney Frank and John Kerry (both Massachusetts Democrats) and 17 other Democratic congresspeople are up in arms and want Northern Trust to pay back to the government in a fine, the amount of money it cost them to sponsor this tournament. This is due to them taking TARP money last fall. Interesting.

When I was watching Rep. Frank a few weeks back grilling the bank CEOs in his congressional hearings, I wished (prayed) that when the CEOs were reading their opening statements one of them would read something like, "and Representative Frank I was happy to come to this hearing to find out the answer to this question in front of the fine American people: 'What did you mean when you said in the mid 90s, and I quote, 'i think we need to roll the dice a little more on this subprime housing.' You filthy assclown." Now that would've made some headlines, no?!?! But alas no one did. But you can bet your sweet bippy, Frank said that.

However, CEO Fred Waddell of Northern Trust did a little more polite version of that today in response to all these filthy assclowns complaining and using the word "idiotic" to describe Fred's firm. I commend "Fast Fred" on that. He basically said we didn't want the TARP money in the first place but YOU made us take it. He also went on to say in these bad economic times HEALTHY BANKS should invest in our clients and our communities. He then said that the tournament has raised $3mm for some L.A. charity. Pow Kerry and Frank.  

If you take a look at the stock chart of ticker NTRS (Northern Trust Corp) the last 12 months its down 18%. Not too good. The overall market is down 45%. Citi is down 90%. Looking a little better right? I would argue if the banks on this globe were run the same way Northern Trust is, we wouldn't be nearly in the trouble we are. If these Congressional assclowns didn't have their heads up their rumps, they should be jumping up and down with glee and telling the Northern Trust guys to throw a party or tournament, EVERY FRICKIN DAY, if they want. Instead they do what they only know how to do, go for a political soundbite.  

Come on people this is getting very ridiculous jumping on this petty crap. I'm afraid the problem with this administration is there aren't enough experienced former banking/Wall Street people helping out. That is certainly the case with Rep. Frank and Senator "Fredo" Kerry who haven't had a real job in their lives.That can be a problem in times like these.
 
One final note on this matter that I would like to ask to Mssrs. Frank and Kerry. Do you guys own wallets? What does that mean you ask? Because I dont think you fellas pay for too many lunches or dinners, do you? Guys like lobbyists take you to lunch or dinner or "invite" you to speak at black tie events? Oh, they do? That's good. Is it because they like you? Why dont you disclose how much of that you do assclowns and leave this garbage alone. Now I'm going to sponsor a golf tournament for charity and people will have fun. Keep your TARP money and your mouths shut and try and figure out the housing problems, that you, Mr. Frank, were at the epicenter of causing. Enjoy.

Housing Data Continues to Inspire...............Gag Reflex.

From Bloomberg News;

Feb. 25 (Bloomberg) -- Sales of previously owned U.S. homes unexpectedly declined even as falling prices made them more affordable, signaling that the housing slump is further from a bottom than previously estimated.

Purchases fell 5.3 percent to an annual rate of 4.49 million, the fewest since 1997, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago to a six-year low of $170,300. Distressed properties accounted for 45 percent of all sales.

“This is actually a very disappointing set of numbers,” Ethan Harris, co-head of economic research at Barclays Capital Inc., said in a Bloomberg Television interview. “We’re still in this phase of the recession where it’s really kind of a dramatic pulling back” in purchases of big-ticket items, due to a “tremendous loss of confidence in the economy.”

Now when Ethan Harris says "disappointing" that says something because it's not like he's been calling for a robust bounce anytime soon!  You pile this on top of yesterday's 18.5% drop in the S&P/Case-Shiller index, which has accelerated again, and you just want to hide away with your family, your food, your water and your gold coins! 

On a related note, our friend Jim, a real estate mogul in Oregon, tells us that Oregon currently has a 20 month supply of inventory!  That's not one of the sand states (Florida, Arizona, Nevada, California) either.

Congressional Oversight Panel Rips Treasury's Prosecution of TARP......AGAIN

From Financial Weekly;

In a pointed criticism of the Obama administration’s handling of the financial bailout, the head of a congressional oversight panel said the new Treasury Department plan “lacks crucial details,” especially about how it will treat toxic securities held by banks.

Treasury Secretary Timothy Geithner, like his predecessor Henry Paulson, also has failed to articulate a clear strategy for the $700 billion rescue, said Elizabeth Warren, head of the Congressional Oversight Panel for the Troubled Asset Relief Program. The bailout is now called the Financial Stability Plan.

“These general frameworks do not provide an adequate foundation to oversee Treasury’s activities or to measure the success of the TARP or the Stability plan,” Warren, a Harvard Law professor, told the House Financial Services subcommittee on oversight today.

A Treasury spokesman did not immediately respond to a request for comment.

 

Well, they have changed the name of the bailout didn't they?  I was on a panel yesterday and a lovely young woman (who, by the way, was the 7th person voted off of last years "Apprentice"....that's pretty good I think) politely chastised me for complaining that the Obama Administration hasn't done enough (or really anything regarding the TARP or Financial Stability Plan).  I politely replied that the whole reason Tim Geithner was picked so quickly after the election, and stayed nominated after his tax "issues" was because he has really been working on the problem since it started 18 months ago.  Plans are great, which by the way they still have to come up with, but where's the BEEF??

The first thing I would have done is immediately hired two or three hundred financial professionals, like the ones currently sitting at home after getting laid off, and made a big speech with all these guys, plus the existing regulatory armies behind me.  I would have laid out my plan and told you the specific resources that I was going to bring to bear on the crisis at hand.  That would inspire confidence.  Instead, The Administration comes out with half-formed plans without the real specifics and more importantly the resource requirements to do the job.  It would be like General Eisenhower laying out the plan for D-Day without having decided what beaches he was going to storm and who was going to be doing the storming! 

In fact, I'll do one better.  Right now Geithner reminds me of King Arthur in "Monty Python and The Holy Grail", pretending to be riding a horse across the countryside, but instead of a horse he's just skipping while his trusty servant skips behind him banging two coconuts together to sound like horses!  Here, have a look.

 

Hugh McColl Having a Senior Moment

I'm going to file this one under comedy.  Former Bank of America CEOs(actually former CEO's by way of NCNB, Nations Bank and finally, in McColl's case BofA)  have published a letter today, backing Ken Lewis's decision to buy Countrywide.  From Bloomberg News;

Acquiring Countrywide puts the bank “in a unique position to take advantage of one of the few bright spots in the entire industry right now: the surging market for mortgage financing that is being fed by extremely low interest rates,” Hugh McColl Jr. and Thomas Storrs said in a letter published today in the Charlotte Observer.

Good Lord!  It's not like BofA didn't already have a monster mortgage origination machine.  Buying Countrywide saddles BofA with a $ trillion mortgage servicing portfolio that, while once considered an big asset, is now a big pain in the ass because it costs more (in money and in human resources) to service the $billions of loans in various stages of delinquency or default than the fee the servicing arm gets to perform these functions.  Maybe some of this will be offset once Obama's mortgage rescue plan starts handing out $1,000 per loan modified (and $1,000 a year for three years if the new loan stays current).  Still, between the servicing and the Countrywide law suits,I think if BofA had to do it all over again they just might have passed on the trade.  Just a hunch.

Not To Go On a Rant Here But......

The last couple of days I have been watching this insane play on words that has taken place between The Fed, Congress, The President, bank executives and investors.  "Will the U.S. Government nationalize the banking system?"  Somehow a picture was painted that the government was going to take control of the banking system and somehow run the entire thing from Washington D.C.  Our government has proved beyond a shadow of doubt that it is entirely incapable of running itself, let alone the banking system!  This idiotic spectacle has taken away from the main debate and problem.  What are we going to do with our LARGELY INSOLVENT BANKING SYSTEM?  The time our "leaders" spend jerking around with nuance, is time they need to focus like a laser on;

•  How do we pick the living from the dead? 
•  How do we strengthen the living?
•  How do we dispose of the dead? 

I appreciate that the government is going to run stress tests to determine who is well capitalized and who is not.  However, until we resolve the issue of how to move the $1 trillion or so toxic assets from bank books, the health of our major banks is shrouded in doubt....or worse.  Where is this freaking plan?  Customers with real capital are standing by waiting to purchase assets.  Treasury seems to be fixed on a misguided notion that creating another funding program like the TALF is going to juice up bids on these assets and save the bank's precious capital.  I call this misguided because I have seen this before when I worked at a bank that was trying to dispose of the very same assets we are talking about here.  We were specifically and correctly told;

"We are not interested in moving these assets to hedge funds who need financing to purchase the assets.  If we do that, all we are doing is changing troubled asset risk for hedge fund counterparty risk.  It does not reduce the balance sheet enough and if the asset prices deteriorate further, we may ended up having to take the assets back.  We would rather sell a bond to a "real money" investor at 65-00 than a hedge fund at 70-00.

Additionally, if the government starts handing out cheap term financing to any Tom, Dick or Harry hedge fund, we will sell the first 10% of the assets in question at better than current market prices (and there are market prices....I know this) and then the real money buyers who have real capital to put to work are going to balk at the new, higher levels.  There's already too much uncertainty around the new housing plan, potential bankruptcy or modification cramdown risk, and another other rule changes the government  might execute at a moments notice.  Real capital will bid a bond to get double digit returns in a severe bad case scenario to account for this risk and uncertainty that they cannot control.  If that return goes to zero or negative in that severe bad case scenario because the bonds got bid up too high, they will walk away and we will be left with just the leveraged players who require tremendous amounts of government balance sheet and risk allocation, not to mention man-power and expertise that the government does not have.  We will only get a clearer picture of where we really stand after we start liquidating assets to real money accounts.

I've also been hearing certain congressmen and women from "The Heartland" crowing how their little banks are just fine...they don't need the government.  It's just the big New York banks that got themselves into trouble.  Really?  Have your banks done a lot of commercial real estate lending?  Sure they have.  I've been hearing from good sources that the last couple of years, medium to small size lenders have been throwing money into all kinds of local commercial real estate ventures.  And when they ran out of local lending they branched out into not so local ventures.  I've also been told that the underwriting standards on these loans were about as good as they were the last time they went on a commercial real estate lending binge....the S&L crisis of the 1980's.  A few months ago, Bloomberg published an article saying that the FDIC needed at least $150 billion of new funds to handle the oncoming failures.  And this was BEFORE they raised deposit insurance from $100,000 to $250,000.  At the time (late September) Bloomberg was essentially accused of treason for publishing this.  Now?  You notice that among all the monster headlines you seem to see a few "small" banks going toes up every week?  Unfortunately this will be a flood in the near future.  We can stick our heads in the sand all we want but "The Heartland" is going to need as much money as the big boys are going to need.  You heard it here second!

So call it whatever you want, Nationalization, Short-term nationalization, Recapitalization, Socialization...etc.  Many banks are going to go bye bye and the survivors are going need massive amounts of capital to operate effectively.  None of that is good news for common shareholders for banks.

Housing Plan Running Into Those Pesky Details Again!

Article from Bloomberg News today bringing to light some legal tripwires the Obama housing plan is hitting with regard to Freddie and Fannie's charter. Obama's Mortgage Plan for Freddie, Fannie May Face Legal Snag.  For a group of people (government) that has a heavy overweight in the legal field, they sure do like to ignore the law!  Like Tom Cruise said to Demi Moore in "A Few Good Men", "Oh, that's right..I forgot you were sick the day they taught law in law school!"

The main issue here is that Freddie and Fannie's Government Sponsored Enterprise Charters specifically state that the GSEs will only buy or insure a loan that has a loan to value greater than 80% (meaning the borrower has at least put down 20%) if the borrower obtains private mortgage insurance to resolve the difference.  While the details of the plan have not come out yet (March 4 is the "detail date") it is pretty clear that the plan looks to get around the private mortgage insurance (PMI) issue.  From the Bloomberg article;

The proposal may violate requirements that homeowners put up at least 20 percent of the appraised value of a home or carry mortgage insurance, said U.S. Representative Scott Garrett of New Jersey, the ranking Republican on a panel that oversees the companies.  “I don’t see how that stands in face of what the statute says,” Garrett said in an interview. “It certainly seems as though they need to seek a congressional change, a legislative statutory change.”

The regulators have a plan to avoid this issue.  Here's chief GSE regulator James Lockhart;

Fannie and Freddie’s chief regulator, James Lockhart, has said the changes are exempted from mortgage-insurance rules written into the companies’ charters and won’t require new appraisals. Lockhart said the strategy will make it easier to help struggling homeowners get affordable mortgages.

Regulators will work around that requirement by treating the refinancings as a “modification for charter purposes,” not as new loans, Lockhart, director of the Federal Housing Finance Agency, said in a Feb. 20 letter to a mortgage insurance trade group.   

This is great!  Modification for charter purposes.  They say this because a modification is technically not a new loan.  Therefore, it gets around the charter issue of PMI for loans with LTVs greater than 80%.  However, there's a another problem!  Freddie and Fannie MBS have limits to how many loans can be modified in the pool.  This is there to protect bond holders who pay a premium for a bond and then lose that premium when the bond prepays.  Here's how we get around that;

“The new refinanced loan is treated as a new origination because the old loan is paid off,” said Amy Bonitatibus, a Fannie spokeswoman.

Ahh, so for modification restrictions in existing MBS we call it a refinancing!  Dizzy yet?  Additionally, Freddie and Fannie will not be requiring new appraisals!  Therefore, how will they know if a loan is greater than its new LTV limit of 105%?  They won't!! 

This is going to be a trial lawyers picnic!  Law suits will be flying from every direction.  I know the government is trying to do what they have to do to bring foreclosure relief.  However, shouldn't someone have nipped this in the bud and started working immediately (like back in November) to ready Congress to vote for a amendment to the GSE's charter rather than this ridiculous scheme!

Jeez...I'm telling you I could have done a better job with all this with a few friends, from my house, with all the beer we could drink!

Oh!  Foxnews Strategy Room today 9am-10:30am.  See you there!

Three More Interesting Stories to Watch

First Madoff, then Merrill, and now Microsoft. It seems as though in these troubled times there's been a lot of chatter, and probably some attempts forthcoming, to take people's money back. As in the people from the Madoff scandal, if they were lucky enough to cash out of some of those investments, there's been lawyers talking about how they will have to give the profits back. Hmmmm.

Andrew Cuomo is gonna get John Thain, former head of Merrill Lynch, to now "play ball" (via the court system) and apparently give up the names of ALL the people who got bonuses at Merrill this past year and how much. You think Andy is doin that to get a nice donor list to see who he can call up when he runs for governor next year and hit them up for dough? Probably, but its also so he can try and get the bonuses back. 

Finally, Microsoft, due to a computer "glitch" (and if that alone doesnt make you laugh, I am sorry for your sadness), sent out to 25 employees that it had just whacked (a technical term) about $5,000 too much in severance. Due to a computer glitch! At Microsoft! After thinking about it , Microsoft is not going to ask for the money back. Well they whacked about 5,000 people in the last few weeks. If you are one of the 4975 who didnt get the extra "groteeee" (another technical term), dont you think you will get the law offices of Dewey Screwem and Howe on the phone or at least Jacoby and Meyers and see if you cant get a little somethin' somethin' if Billy Gates is giving it out? I sure as hell would.

So please try and follow these stories closely and as we have said before this is a major field day for the lawyers of this country. Call your favorite law firm today and see if you can do something for them. As in they are going to be hiring with stuff like this going on.

AIG. Nobody Wants to Hear it Anymore.

I think I can speak for a lot of people, maybe most people when I say, I don't want to hear about AIG's problems anymore.  Their systemic risk should be eliminated by now.  If it's not then current Secretary of the Treasury and former President of the New York Federal Reserve, Timothy Geithner should resign immediately.  This country, through $60 billion of loans, $40 billion of direct investments and $52 billion of asset purchases has squared AIG away with regard to causing a collapse of our banking system.  Mr. Geithner has been involved in the AIG fiasco every step of the way, including a failure to recognize just how much of a risk AIG posed to the money center banks and investment banks that his organization was supposed to be monitoring.  Maybe not regulating but certainly monitoring.  And if there's more systemic risk then I demand names of counterparties that will fall if AIG falls.

This sick game ends now.  The handouts and bailouts have to stop here.  Sure as sh*t come tomorrow morning Hank Greenberg will be on CNBC giving his "AIG is a national treasure speech."  Hand the old man the $152 billion bill and tell him to either pay it or shut up.  Get Mark Haines all liquored up tonight and then let him do the interview instead of some fawning talking bobble head.  AIG isn't converting anything to common.  They are going to sell themselves off brick by brick, in due haste and then get on an ice float and sail away to oblivion.  Guys like Greenberg will say, "Oh, you're losing $ billions liquidating into this market.  You're destroying these great businesses by letting valuable employees go."  It does more damage to this country at this point to let these assclowns keep leading us around by the nose, handing out bonuses to "valuable employees" while they pick our pockets.  Better to "lose" a few billion and save our self respect.  As far as the valuable employees go, it's all a crock of sh*t.  It's insurance.  It's finance.  It ain't that complicated.  I was good at my job in finance.  So were a lot of other guys.  We all got sent home over the course of a year and guess what?  Life went on and the places we worked at are still there....for the most part.  Maybe somebody doesn't do as good a job as you did, but in the grand scheme of things, the world still spins.  Unless your Sully the airline captain who landed the plane in the Hudson, you're expendable.  And that especially goes for high level finance executives.  Dime a dozen. Like spare parts to a kitchen faucet.

Time to torch AIG and get as much back as we can.  They are a national embarrassment and the rest of the world is watching.

I'm Getting Dizzy. I Better Sing

Ok, so we almost touched the "magical" low point of the S&P in the last 11 years but didn't quite get there. If you see the S&P go below 741, which could easily happen at the open, I would say this is a technical breakdown and to sell your stocks for a bit. Yep, it's that bad. Now obviously, it can change on a dime but I'm watching a press conference where the President is deferring to congresspeople in the audience to have them tell us what's going on in their various committees. Well, that's definitely change. How about someone saying something that's going to stop the market from going further down than the stellar MINUS near 20% we have ALREADY.....in not so old year to date FEBRUARY 2009?!?!?! No? Ok. Then I will write a song to Stevie Wonder's "I was Made to Love Her". You remember the one about the kid in love with Suzy in pigtails but his poppa disapproved it and the momma boohooed it? Sing along.

I was born in New York
The market was my sweetheart
I was always buyin and sellinnnnn

I was blue chips and small caps
The market had a few traps
But I knew I loved it all back thennnnnn

And then Obama disapproved it
Pelosi boohooed it
But I told them time and time again
Dont you know, I was made to love the market
Build my whole portfolio around it!!
Yea! Hey! Hey!! Hey!!!!!!!!!!!!!!

AIG Leads the Way!

We are hearing that AIG is going to announce a SIXTY BILLION DOLLAR LOSS and they need more money!  This is astounding!  Honestly, when the Treasury and the Fed gave them $40 billion in TARP money and paid $52 billion to take them out of their CDO credit default swap exposure.....I figured except for a few odd billion we were done with that trainwreck.  I'm speechless.  Like Merrill Lynch, does AIG have a tanker tied up off shore that is holding all their toxic positions?  These suckers just keep on coming.  How the hell can we possibly lend them another dime?  They should be out of the systemic counterparty risk category right?  Uncle Sam already took care of that. If it's the money we already gave them that AIG is using as the hook for more of our dough...they should be told to stick it.  Time to cut our losses, which a lot of us said a long time ago.

Anyway, I have to go get a physical and now my blood pressure is through the roof!  I'll be back with details later.  Oh, let's keep this in front of us while we think about giving more money to GM and Chrysler.

American Express Will Pay You to Get Out of Their Hair!

Never a borrower or lender be.....my ASS!!!

Feb. 23 (Bloomberg) -- American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders $300 each to stop being customers as rising defaults threaten profit.

People who got the offer to “simplify” their finances must pay off their entire credit-card balance by April 30, according to New York-based American Express. Enrolling in the program cancels a customer’s account and may lead to forfeiture of reward points or rebates, the company said on its Web site.

“This is an offer we made to select cardmembers to incent them to help pay down their balance,” said Molly Faust, an American Express spokeswoman, in a telephone interview today

What a great country!

• Work hard and pay your taxes....You're a BAD RICH PERSON.
• Kiss the right butt and don't pay your taxes.......You get a White House cabinet post.
• Stay current on your mortgage and do all you can not to have to take a hand out....Keep on keepin' on buddy!
• Default on your mortgage or figure you might as well see what you can get out of this government freebie..........Step right up for a nice cash gift from Uncle Sammy!
• Trying to start a business and need capital.........GFY!
• Work in a business that relies on federal or state "projects"......Winner, Winner Lobster dinner!!
• Join the Armed Forces and serve your country....Sorry pal, while you were gone we already foreclosed on your house and repossessed all your stuff....oh and we need you to go back.

Good Lord, this is some shameful sh*t.

Hey, We're Getting Into the Prime Brokerage Business!!

Article in Bloomberg today Geithner Bad Bank Alternative May Rely on Loans to Hedge Funds.  Actually this was announced as part of the financial stability plan on February 10th.  I guess we got so wrapped up in what was wrong with Geithner's presentation that we didn't talk about this.  The Fed will apparently lend fifty cents on the dollar to hedge funds to buy these assets.  The amount of funds available for borrowing will be $1 trillion.  The best part is, the term of the financing will match the term of the asset borrowed against.  Damn!  If the banks just guaranteed full term financing with no mark to market provisions in the first place we wouldn't be in this mess!!

Seriously though, there is definitely something to be said for providing stable cheap financing.  It allows more funds to play and should, all else equal, bid up the troubled asset prices...maybe.  Here's the one problem I have with this.  We know that right now Paulson & Company (the smart hedge fund who bet against the housing market and made $ billions, not Henry...the guy who sat thumb inserted for most of the crisis) has raised many $ billions of capital to buy these assets.  Other big and small funds as well.  A lot of these funds are not looking to leverage up their purchases.  Because the asset prices are so low (anywhere from 10 to 60 cents on the dollar) they already have a nice leveraged component built in.  If the Fed's financing allows too many guys into the game, they may bid bonds to levels where the guys like Paulson say, "Pass".  We don't want the deep pools of capital to step out, otherwise we could end up in a situation where we move less troubled assets than we want, and really only partially move them because remember, we would be lending buyers half the purchase price.  Therefore, we've just changed the risk from troubled asset risk to hedge fund counterparty risk.  I've seen this movie before and it didn't end with dancing and singing.  

This gets to my next question.  As we lend to these hedge funds, who is going to underwrite the credit of the hedge funds?  Does the Fed or Treasury have a group of people who know how to do such things?  Are they equipped to monitor both the asset performance and the health of the borrowing hedge funds.  I don't think so.  This is important because the Fed and Treasury are also looking at a similar model for the Term Asset-Backed  Loan Facility.  We are talking about two potential programs with the ability to grow to $1 trillion EACH!  Who is going to actually do the actual work to protect us?  Again....those pain in the ass details.

People Still Read, Right?

It looks like some REAL problems are now hitting the newspaper companies. The Tribune Co. (owned a bunch of papers including the Minneapolis Star Tribune), Philadelphia Newspapers (The Philadelphia Inquirer), and the Journal Register (the New Haven Register) have all filed for bankruptcy recently. A copy of the Sunday NY Times now costs more than it does to buy a single share of NYT. NYT also cut its dividend to nada. So the question is......is everyone illiterate now? 

I think the advertising sector is a mess and that contributes to the newspaper problem. You think your local paper makes money off the 25 or 50 cents they charge you to buy it? Think again pally. Take a look at some of those ads that make up your paper and that's where all the cash comes from. If that advertising revenue drops, guess what? Your newspaper is in trouble. Now you get a lot of, shall we say, "utopian views" in some of these papers. As in, let's have a green planet, let's save world hunger, let's have world peace, and let's let the New York Jets win a Super Bowl again for Richie B. once more before he croaks (which is not asking for much since I plan to go a long time from here before I kick it, if I can beat those bad habits). Unfortunately, no matter how noble the views, or how good the reporting is, or how "smart" the people are at these places, these newspaper companies are just that, companies. As in, part of the business world. That's the reality of it.
 
Sure, people are still reading. But they might be shifting their places where they get their news to different locales. (Ahem....perhaps the internet). And a lot of what shows up in these newer newsplaces are free. But you know what? That's a market too. As in, if people aren't getting paid to write news on internet sites, they might stop after a while to get back into reality and earn some money. I was reading an article on this 20 something kid who has this site called 4chan.com or something like that, and he's got a kazillion people hitting the site, and he lives in his mother's basement cause he hasn't made a thin dime on this phenomenon. Now if that doesn't change soon my guess is this kid will get a "real" job so he can eat, move out, and not have to tell his mother what time he is coming home. My guess is that changes though. As in, someone does pay this kid and others for reaching the masses. There's just a little friction because some of  the "old guard" of news providers were/are dragging their feet for a long time. How did the feet dragging work out for them? Yep, dragged them right out of the business.

Look, the newspaper sector is changing. Some are dying and some will survive. But there is opportunity.  That sounds like a bit of a speech on hope and change doesn't it? Speaking of hope and change, maybe our government should take some heed too. Sure its the public sector and sure they have "utopian views" too, but when you are talking about $1trillion+ plans, you are in the business world too. When it doesn't go so hot, eventually the market doesn't buy what you're selling. Then you are in trouble. Stocks are down about 11% since inauguration day, the stock market ain't buyin' what the government is selling, yet. Let's give it a little time and see, but not much. OK?

New York Times Tom Friedman Gets Biblical on Detroit!

Great piece from Tom Friedman in the New York Times yesterday Start Up the Risk Takers.  It was the business version of Luke 9:59-62, "Leave the dead to bury their own dead."  See, I pay attention in church!  Here's brother Friedman;

Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support. Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.

G.M. has become a giant wealth- destruction machine — possibly the biggest in history — and it is time that it and Chrysler were put into bankruptcy so they can truly start over under new management with new labor agreements and new visions. When it comes to helping companies, precious public money should focus on start-ups, not bailouts.

You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.

Amen!

Waiting on The Mighty Quinn!

Rather than bullsh*t us with fantasy budget pronouncements, or un-implementable housing solutions, half in/half out bank nationalizations and assorted other nonsense, I think a government hotline should be set up that feeds directly to this recording of Bob Dylan's "The Mighty Quinn"!  Trust me, it will make you feel a whole lot better than the current bloviating (thank you O'Reilly).   "Just tell me where it hurts and I'll tell you who to call!"

Ev'rybody's building the big ships and the boats,
Some are building monuments,
Others, jotting down notes,
Ev'rybody's in despair,
Ev'ry girl and boy
But when Quinn the Eskimo gets here,
Ev'rybody's gonna jump for joy.
Come all without, come all within,
You'll not see nothing like the mighty Quinn.

I like to do just like the rest, I like my sugar sweet,
But guarding fumes and making haste,
It ain't my cup of meat.
Ev'rybody's 'neath the trees,
Feeding pigeons on a limb
But when Quinn the Eskimo gets here,
All the pigeons gonna run to him.
Come all without, come all within,
You'll not see nothing like the mighty Quinn.

Now lamp gates ain't gonna do, I can't recite 'em all,
Just tell me where it hurts,
And I'll tell you who to call.
Nobody can get no sleep,
There's someone on ev'ryone's toes
But when Quinn the Eskimo gets here,
Ev'rybody's gonna wanna doze.
Come all without, come all within,
You'll not see nothing like the mighty Quinn

President Obama to Halve Deficit By 2013. In Other News, George Washington Found Alive and Well in Antigua!

What on earth is this man talking about?  Front page of New York Times yesterday, "Obama Planning to Slash Deficit by at Least Half Despite Fiscal Package".  Obama to Slash Deficit.  Why on earth would he say this?  Usually you only say 2+2 = 7 on the campaign trail!  No one in their right mind is thinking, or expecting the United States to cut our budget deficit to $533 billion (currently $1.3 trillion, on its way to ????) by 2013 so why say it?  Do they really think that foreign investors like China or Japan are going to buy that line of bull and temper their fear of the falling dollar and the hyper increase of the supply of Treasury obligations (which will include Freddie and Fannie debt and mortgage backed securities before this quarter is over I bet.). 

This administration blows it's credibility with me (big whoop right?!) EVERY day.  If they aren't naming folks who helped create the problem that we are currently in to key posts at Treasury or ramming through highway appropriation bills disguised as "Stimulus Packages", they are pulling cheap political stunts like this.  Nobody, not even Noriel Roubini or Meredith Whitney, knows what the final financial system bailout cost will be.......nobody!  Right now the government is trying to propping up Citigroup with everything they have so as not to trigger Credit Default Swap defaults.  It is going to cost at least another $1 trillion to recapitalize the banking system (I used the Monkey Business Anus model to arrive at that number) and that doesn't even include the $ billions we are going to have to chip in to help save the East European and Asian banking systems.

Meanwhile, our economy is showing no signs of a bottom as we are in completely uncharted waters.  What is occurring in the United States right now is a seismic shift.  We are undergoing the painful process of learning to live within our means.  See this article in yesterdays article in the NYT about Japanese consumers after the "Lost Decade" When Consumers Cut Back: A Lesson From Japan.  We have absolutely no idea how much it is going to cost to ease the withdrawal pains of our nation kicking its debt addiction.  Between unemployment insurance, housing rescue plans, emergency health insurance coverage and Lord knows what else, this could easily be another $1 trillion.  And we haven't even started talking about the medicare and social security bill that is coming due very soon.

So how are we going to slash this deficit to $533 billion by the end of 2012?  Well first of all let me just say this;  David Axelrod is a brilliant political strategist.  However, the campaign is over.  Just like I didn't like the fact that Karl Rove was calling critical shots in the Bush Administration, I don't like the idea that Axelrod is calling them in the Obama Administration.  It tells me that this administration, like the last one, is going to be in full campaign mode 24/7.  That means an endless stream of bullsh*t as opposed to sound, sometimes politically difficult policy making.  Here's Axelrod from the NYT piece;

“The president believes there are essentially three areas that have to move forward even as we pare back elsewhere — health care, energy and education,” said David Axelrod, his senior adviser. “These are the bulwark of a strong economy moving forward.”

Now, there is absolutely nothing wrong with anything Axelrod is saying there.  The problem for me is, that he seems to have the controls at this critical time.  David Axelrod's job is to get ready for the mid-term elections and Obama's re-election campaign in 2012.  His advice to the President on current matters of policy HAS to be totally influenced by his main priorities, keeping power.  Therefore, that advice is tainted and will lead to bad decision making and constant White House bullsh*t, like we see here in this budget announcement.

So how did they even arrive at a number like $533 billion?  It looks like they have taken a projected $1.5 trillion deficit and put it against a GDP projection of $15 billion and then said, "Ten-percent of GDP is bad, the acceptable number is widely recognized as three-percent."  Therefore, Office of Management and Budget whiz Peter Orzag (also interviewed in the NYT piece) ran a GDP projection of $17+ trillion GDP at year end 2012, multiplied by 3% and came up with $533 billion.  This is just a hunch, but I think a good one.  Unfortunately, these GDP (and hence tax revenue projections) projections are probably way off to the upside.  Like we have said here before, GDP growth in the last decade was driven very strongly by consumer borrowing and consumption.  That model is broken, and it has broken the rest of the world's model too.  I think we can easily end up with a GDP of $15 trillion or less by the end 2012.  That, therefore, screws with the President's numerical claim significantly.

How are they going to decrease costs and increase tax revenues?  Well, first the war in Iraq will wind down and Afghanistan will improve.  I pray that this will happen, but I wouldn't paint a rosy budget picture around it.  Additionally, President Obama is going to stick to his pledge and raise taxes on the "wealthy" earning $250,000 or more.  He's talking about raising taxes as we descend into what may become a global depression.  Don't they understand that a great part of the world's current problem is fear and uncertainty of the future?  Businesses and consumers have no idea what is coming, except that its probably going to be a lot of pain, and have therefore, cut back on consumption and investment.  This is why banks wont lend, businesses won't recapitalized and consumers won't spend.  Do they think that telling a guy who CURRENTLY makes $500,000 that his taxes are going to be raised in the near future is going to positively influence his consumption behavior?  I guess maybe if the guys says, "Better spend this today before Uncle Sam takes it!"  Most probably though, this guy is wondering, "Am I ever going to make $500,000 again?  Will I even have a job?"  Throw on top of all that anxiety a class warfare "soak the rich" battle cry and the "rich" guy ain't buying bubkiss.

Whew!  That's a lot, I feel a little better. 

WSJ is Reporting Citigroup and Government Talking About Increased Government Stake in Common.

From Bloomberg News;

Feb. 23 (Bloomberg) -- Citigroup Inc. is in talks with federal officials that may increase the government's ownership of the bank, the Wall Street Journal said, citing unidentified people familiar with the situation.

The government may end up holding as much as 40 percent of Citigroup's common stock, while bank executives prefer the stake to be closer to 25 percent, the report said.

Two months ago this news would have preempted me watching HBO's "Big Love"......now with a market cap of $10 billion?  Not a chance....we own them already.  It seems no matter what form this plan takes, current common holders face a complete wipeout.

More from The Financial Times  Citi Presses Government to take 40% Stake

"All We Need is One More Pin Timmy!"

So the story swirling around this afternoon is that Treasury Secretary Tim Geithner will take his mulligan from his February 10th "mishap" and give us some details on the Financial Stability Plan.  After a morning of envisioning Citi and BofA getting nationalized as early as this weekend (personally I've been envisioning Citi since December) we needed some glimmer of hope to take us into the weekend.

Why do I have the feeling somebody at the White House told somebody at CNBC, "Hey...tell them Geithner will be out with something next week...that ought to calm them down and let us get back to appointing all the wrong people to all the wrong posts (read previous post for color on that wisecrack)."

So we are back to waiting on Tim.  The first thing my sick mind thinks of is one of the classic television moments of ALL TIME.  For you twenty-somethings the relatively thin man with the brown hair who sounds like John Madden.....IS John Madden!  Timmy of course is Rodney.  Enjoy.

This HAS To Be A Joke!

From Bloomberg News;

Feb. 20 (Bloomberg) -- Former Securities and Exchange Commission member Annette Nazareth is the leading candidate to become deputy U.S. Treasury secretary, according to people familiar with the matter.

If nominated and approved by the Senate, Nazareth would be second-in-command to Treasury Secretary Timothy Geithner, the only Treasury official confirmed in the Obama administration’s first month. Now a partner in the Washington office of law firm Davis Polk & Wardwell, Nazareth would likely work on Treasury’s campaign to toughen financial-market supervision.

Nazareth has “a wealth of knowledge both in the private sector and government, so she’s certainly well qualified for the position,” said John Olson, a partner at the Gibson, Dunn & Crutcher law firm in Washington.  Nazareth, a Democrat, left the SEC in January 2008. As a commissioner, she focused on systemic risks that securities firms and traders such as hedge funds pose to financial markets. Nazareth, 53, participated in 2007 in an SEC review of whether Wall Street investment banks set strict enough limits on the loans they make to hedge funds.

She focused on systemic risk for securities firms and hedge funds!!  I wonder what she found out?  "Hmm, yep these suckers sure pose systemic risk alright....sign the report and lets break for lunch."

She was a commissioner since 2005!  This is like The Producers "Spring Time For Hitler"!  How the, pardon my French but I have to say it, F**K does ANYONE WHO HAD ANY AUTHORITY AT SEC IN THE LAST DECADE GET ANY JOB....ANYWHERE?????  This is insane. They have to be doing this on purpose.  I'm speechless.