Friday, March 27, 2009

Sen. Chris Dodd, (D) Connecticut

Lookin' good Chris...

It's always good to see how well our elected officials are are representing the good folks of America:

Top Contributors

Senator Chris Dodd 2003 - 2008

Citigroup Inc$316,494
United Technologies$264,400
SAC Capital Partners$248,500
American International Group$223,478
Royal Bank of Scotland$218,500
Bear Stearns$201,000
Goldman Sachs$180,200
Credit Suisse Group$157,050
Morgan Stanley$156,600
JPMorgan Chase & Co$134,050
Merrill Lynch$132,950
Lehman Brothers$122,300
Hartford Financial Services$117,150
KPMG LLP$116,650
General Electric$113,000
UBS AG$110,800
St Paul Travelers Companies$107,100
Travelers Companies$104,700
Deloitte Touche Tohmatsu$103,000
The Hartford$94,550

Tuesday, March 24, 2009

Interesting tidbit

Who gave these clueless guys control of our public employee's retirement money? Remember this post?

Courtesy of the Sacramento Bee:
State pension funds aim to lead suits against BofA

By Dale Kasler
Published: Tuesday, Mar. 24, 2009 - 12:00 am | Page 9B

California's two big public pension funds sought "lead plaintiff" status Monday in shareholder lawsuits against Bank of America over its controversial merger with Merrill Lynch.

If granted, the status would give the California Public Employees' Retirement System and California State Teachers' Retirement System considerable influence over the shareholder suits pending against BofA. It's expected that the various suits will be consolidated into one case.

BofA took over Merrill Lynch as the financial crisis gained steam last fall. After the deal closed, new information emerged suggesting that Merrill was in worse shape than previously believed.

The suits allege BofA misled its shareholders by not disclosing the depths of Merrill's problems while shareholders were considering whether to support the deal. The pension funds are seeking compensatory damages.

BofA's shares have fallen by about half since shareholders approved the deal Dec. 5; the stock closed Monday at $7.80, up $1.61, on the New York Stock Exchange.

"Our boards are very much wanting to hold Bank of America accountable," said CalSTRS spokeswoman Sherry Reser.

She said CalSTRS owned about 16.5 million shares of BofA as of last June, the latest figures available. CalPERS owns nearly 19 million shares, according to Thomson Financial.

Figuring out Geithner's Plan

A while back I posted about my Paradigm Shift.

At the time I pondered:
Suppose my Rite Aid stock purchase was instead a $500,000 house. Suppose further that I borrowed every bit of money (100% financing) to purchase my Rite Aid stock. Also suppose that the lender is willing to have my Rite Aid stock as full collateral on the loan I used to purchase the stock. And lastly of all, suppose that I am completely flippant and dismissive of debt, other than as it relates to my month-to-month carrying costs. My HOME is essentially a "casino investment".
There are some other less obvious consequences of 100% financing in a casino-environment. One of the consequences is that you are willing to bet more (i.e pay more for the house). Why not? It's financed with other people's money!

With easy access to borrowed money (also called leverage) you end up with bidding wars and overinflated prices. In short, a housing bubble.

Treasury Secretary Geithner's plan is to allow certain well-connected institutions to use up to 97% financing to purchase toxic assets from banks. From an outsider's perspective, it appears that the INTENT is to create a financial bubble in toxic MBS.

Taxpayers will provide the leverage, and investors will reap the profits. Should this program fail to produce a MBS bubble, taxpayers will shoulder 97% of the losses.

I read that to invest in the Treasury program, one must have a minimum of $10 billion in assets. So truly only a handful of firms can drink this Treasury-provided champagne. The rest of us will be picking the grapes and trimming the vineyards.

Your standard of living

Very highly respected economists have been saying for some time that the standard of living for many Americans will have to fall. This is due to loss of wealth as asset values in housing and 401(k)s fall.

If you have been leasing a Mercedes and doing serial refinancing of your home to cover your credit card debts, this is surely true. However...

The Federal Government - specifically the Treasury Department, seems hell-bent on ensuring that this occurs ahead of schedule. Wall St. is loves the idea, course.

What she said...

Pretty much also sums up my thoughts.

On a lighter note, unlike in the financial arena, authorities certainly manage to punish evildoers and uphold the law with respect to flatulence

Sunday, March 22, 2009

America goes Martingale

Today Treasury Secretary Timothy Geithner ("Heckuva Job, Timmy") is trotting out a new and opaque bank bailout plan that effectively makes the government a giant bank holding company for insolvent banks. One really good feature (if you are a criminally-inclined Wall St. financial type) about Brownie's... er Timmie's plan is that it completely circumvents Congress and still puts the taxpayer on the hook for losses. So there is no need to worry about representative government "will of the people" crapola.

The bad thing about this plan (if you are a criminally-inclined Wall St. financial type) is that people might notice that it looks just like the previous off-balance-sheet ideas that use smoke and mirrors so that we can pretend that bank are solvent. Lookie here: M-LEC

Unfortunately for America, the administration appears to have chosen the path of doubling-down on the banks gambling losses, rather than leaving the casino. Doubling-down is also known as the Martingale strategy, where a gambler continues to double his/her bet after each loss.

The strategy (in theory) pays off when the gambler finally wins a hand and comes out ahead of the house. In practice, since most gamblers don't have infinite cash, they frequently lose it all. Perhaps the Martingale strategy works more effectively for a country with the reserve currency and a printing press than for a deranged gambler. It's getting more and more difficult to tell the difference between the two.

What I really wanted to put up today is this priceless bit of junk mail that I have saved since 2006. Take a look at the blue box on the upper right with the monthly payment schedule and the little asterisk *. Then read the bit about you can get a loan "even if you are unemployed."

Read the answer on the second page to the question "What if I am self-employed. Do I have to provide any income documentation?". The answer is hysterical, in a Black Comedy sort of way.

We are in the process of bailing out banks that purchased mortgages from these originators. So that they "will lend to us again". God help us.

(click image to enlarge)

R.I.P. Credit Unions

I suggest you read the entire article, but I'm going to highlight the sections that startled me and ponder where it could lead. My comments after the article:

From the Wall St. Journal:
Breaking down the Corporate Credit Unions’ FailureBy Kelly Evans

It’s become a weekly ritual this year: Friday afternoon, with the nation’s appetite for news at a lull, somewhere in the U.S. a bank or two quietly fails and is seized by the government, often sold off quickly to a regional competitor. Last night’s failure of Colorado National Bank, FirstCity Bank in Georgia, and TeamBank in Kansas brought this year’s total so far to 20. It also added a new element: two of the nation’s largest corporate credit unions were seized by their national regulator.

So, what the heck is a corporate credit union? It’s a middleman of sorts, often taking mortgage and vehicle loans from credit unions, slicing them up, and selling them off to investors. The proceeds are commonly loaned back to credit unions at low rates to help them fund their business, the same way the Federal Reserve’s funds are loaned to banks. There are 28 “corporates” in the U.S., which support the 8,500 or so credit unions that hold about a twelfth of the nation’s $8.3 trillion in deposits, according to Mike Moebs, who runs Moebs Services, a research and consulting firm in Lake Bluff, Ill.

Credit unions are cooperatives, with members as opposed to customers, and so they have two unique features: they’re not taxed, and they don’t issue preferred stock — which is particularly relevant right now, because it means they’re not eligible for the Treasury’s “bailout” funds. And as last night made clear, the banks aren’t the only ones in need of a bailout.

Credit unions, which originated in rural Germany over 150 years ago as a way for older farmers to help support younger farmers, came to the U.S. in the 1930s and have since had a slightly strained relationship with the rest of the banking industry, in particular because they don’t pay taxes. They have their own insurance fund and their own national regulator (akin to the FDIC), the National Credit Union Administration, which is now running the two corporate credit unions it seized last night — U.S. Central in Lenexa, Kansas, and Western Corporate or “WestCor” in San Dimas, Calif., with a combined total of $57 billion in assets, a significant chunk of the $80.8 billion industry.

NCUA told the Journal’s Mark Maremont last night that it seized the two corporates after stress tests showed they faced larger losses than previously thought on mortgage-backed securities. The group’s chairman also said regulators aren’t concerned about the health of any other wholesales credit union other than those two.

But according to Mr. Moebs, there’s plenty to be concerned about. His own tests show credit unions and wholesalers could face combined losses of nearly $75 billion as their portfolios of loans made for mortgages, vehicles, and other assets continue to sour.

“They will have to go to Congress or the Fed for money because they don’t have enough themselves and their insurance fund isn’t big enough to solve their problems,” he said. “If they could get it from the Fed, which probably wouldn’t impose any conditions, that would be the better way of going. If they get it from Congress, Congress will likely impose conditions,” such as requiring credit unions to cut costs to match banks’ efficiency (mostly by shedding personnel), or taxing them.

“They need a market that the Fed can create through a facility to take their mortgages and auto loans,” Mr. Moebs said, “and if that happens I think we would see the economy turning around in six months.” Credit unions, along with small and midsized banks, do much of the nation’s small-business lending that drives job creation, he noted, such that if the current problem isn’t addressed it will continue to harm prospects for a recovery.

It could also mean more trouble ahead for credit unions on Friday nights. Last night’s seizure of the two corporate credit unions, he said, is “a huge signal to act.”

OK, so here is what jumped out at me:

Credit Unions are not eligible for Treasury bailout funds. Really? Why not? Are we trying to "save the financial system" as is claimed, or just certain well-connected criminals within it? Mr. Bernanke has been quite creative in finding ways to provide very large amounts of liquidity to various banks and non-banks, yet for some reason Credit Unions cannot get assistance. How very, very interesting.

Credit unions have also had a strained relationship with banks. No doubt! Credit Unions do the same things for their members that banks do, only for a lot less cost to the consumer. I would imagine that banks would like nothing more than for the entire Credit Union system to be obliterated.

I made it clear in my previous post that I believe the Federal government has been captured by the financial industry. If this is in fact the case, I expect dismantling of the Credit Union competition to banks either through negligence or via legislative acts.

Recommended follow-up reading:

Has Obama's Katrina Moment Arrived?