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The TRUTH About the $700 Billion "BAILOUT": Options
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zigzagman		Posted: Monday, October 27, 2008 10:25:40 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		So When Will Banks Give Loans? By JOE NOCERA October 25, 2008 “Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?” It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual. Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase. The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks. Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse. In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist. (He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.) “Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.” Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot. It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction. In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us. Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.” Friday delivered the first piece of evidence that this is, indeed, the plan. PNC announced that it was purchasing National City, an acquisition that will be greatly aided by the new tax break, which will allow it to immediately deduct any losses on National City’s books. As part of the deal, it is also tapping the bailout fund for $7.7 billion, giving the government preferred stock in return. At least some of that $7.7 billion would have gone to NatCity if the government had deemed it worth saving. In other words, the government is giving PNC money that might otherwise have gone to NatCity as a reward for taking over NatCity. I don’t know about you, but I’m starting to feel as if we’ve been sold a bill of goods. www.stock-market-lessons.com
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zigzagman		Posted: Tuesday, October 28, 2008 10:01:09 AM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Today's Outrage: Get The Bailout Going Already! By: Glenn Hall 10/28/08 - 09:38 AM EDT This is just so ridiculous. The Treasury Department is still looking for asset managers to execute the $700 billion bailout approved by Congress on Oct. 3. So much for the program being up and running within a few weeks. Seriously, how hard can it be to find asset managers? One of the sticking points, according to The Wall Street Journal, is figuring out how much to pay the financial firms to manage the bailout. Say what? After all the money the government is throwing at banks and insurers, they should be offering their services for free. There's no one at JPMorgan Chase (JPM) who owes the U.S. a favor after the Bear Stearns rescue? What about AIG (AIG) -- come on, the Feds control that operation these days. And the Treasury now owns stakes in dozens of banks, including Goldman Sachs (GS), Citigroup (C) and Morgan Stanley (MS). No money managers there? Maybe it's smart to go outside the inner circle to avoid a conflict of interest. A leading contender is reported to be Allianz's (AZ) Pimco. Let's not kid ourselves into thinking Bill Gross & Co. don't have a vested interest in all this. Pimco's got big positions in a lot of debt that's been devalued by the financial crisis. So why shouldn't Gross do this for free? For the sake of the nation, let's stop with the delays, dispense with what's left of the "rules" and get this bailout going. http://www.thestreet.com/_yahoo/markets/marketfeatures/10444553.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA www.stock-market-lessons.com
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zigzagman		Posted: Sunday, November 02, 2008 4:16:51 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Paulson's Swindle Revealed By William Greider October 29, 2008 The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return. These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders? Leo W. Gerard, president of the United Steelworkers, raised these explosive questions in a stinging letter (http://tinyurl.com/5dzxaf) sent to Paulson this week. The union did what any private investor would do. Its finance experts vetted the terms of the bailout investment and calculated the real value of what Treasury bought with the public's money. In the case of Goldman Sachs, the analysis could conveniently rely on a comparable sale twenty days earlier. Billionaire Warren Buffett invested $5 billion in Goldman Sachs and bought the same types of securities--preferred stock and warrants to purchase common stock in the future. Only Buffett's preferred shares pay a 10 percent dividend, while the public gets only 5 percent. Dollar for dollar, Buffett "received at least seven and perhaps up to 14 times more warrants than Treasury did and his warrants have more favorable terms," Gerard pointed out. "I am sure that someone at Treasury saw the terms of Buffett's investment," the union president wrote. "In fact, my suspicion is that you studied it pretty closely and knew exactly what you were doing. The 50-50 deal--50 percent invested and 50 percent as a gift--is quite consistent with the Republican version of spread-the-wealth-around philosophy." The Steelworkers' close analysis was done by Ron W. Bloom, director of the union's corporate research and a Wall Street veteran himself who worked at Larzard Freres, the investment house. Bloom applied standard valuation techniques to establish the market price Buffett paid per share compared to Treasury's price. "The analysis is based on the assumption that Warren Buffett is an intelligent third party investor who paid no more for his investment than he had to," Bloom's report explained. "It also assumes that Gold Sachs' job is to protect its existing shareholders so that it extracted from Mr. Buffett the most that it could.... Further, it is assumed that Henry Paulson is likewise an intelligent man and that if he paid any more than Mr. Buffett--if he paid $1 for something for which Mr. Buffett would have paid 50 cents--that the difference is a gift from the taxpayers of the United States to the shareholders of Goldman Sachs." The implications are staggering. Leo Gerard told Paulson: "If the result of our analysis is applied to the deals that you made at the other eight institutions--which on average most would view as being less well positioned than Goldman and therefore requiring an even greater rate of return--you paid a$125 billion for securities for which a disinterested party would have paid $62.5 billion. That means you gifted the other $62.5 billion to the shareholders of these nine institutions." If the same rule of thumb is applied to Paulson's grand $700 billion bailout fund, Gerard said this will constitute a gift of $350 billion from the American taxpayers "to reward the institutions that have driven our nation and it now appears the whole world into its most serious economic crisis in 75 years." Is anyone angry? Will anyone look into these very serious accusations? Congress is off campaigning. The financiers at Treasury probably assume any public outrage will be lost in the election returns. I hope they are mistaken. http://www.thenation.com/doc/20081110/greider2 www.stock-market-lessons.com
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zigzagman		Posted: Sunday, November 02, 2008 7:50:20 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		TREASURY BILLION$ PAY BANKS' DIVIDENDS By PAUL THARP October 31, 2008 Instead of spending Uncle Sam's rescue billions to spur business deals, banks are squandering a good chunk of it on dividend checks for thousands of well-heeled shareholders. Banks were already under fire for cautiously hoarding their cash from the nearly $1 trillion rescue package from the US Treasury and Federal Reserve. But now it appears that of the first batches of rescue money handed out - $168 billion - more than half will be used to pay dividends to shareholders instead of resuming lending to cash-starved businesses. "The whole purpose of the program is to increase lending and inject capital into Main Street," said Sen. Chuck Schumer (D-NY). "If the money is used for dividends, it defeats the purpose of the program." Schumer and other politicians are demanding that Congress block banks from making dividend payments if they accept rescue money. Some Treasury insiders defended the dividend payouts, saying that suspending dividends would scare off many banks from getting into the line for rescue cash, weakening the government's effort to jump-start stalled lending. But some economists contend that if banks can afford to pay billions in dividends during the economic downturn, perhaps they shouldn't be asking for rescue cash in the first place. Of the 33 banks that have tapped rescue funds thus far, $7 billion will go out their doors in this quarter alone for dividends, according to Treasury data. Some banks are preparing to pay out more on dividends than they collect. The Bank of New York Mellon got $3 billion from the government on Tuesday, but anticipates spending $3.3 billion paying dividends over the next three years of the rescue program. Washington Federal Savings, a Seattle thrift, took $200 million in rescue money, and expects to spend $216 million on dividends. Banking-industry officials said banks that accept the money aren't necessarily distressed, and are using the cash to expand their ability to make sorely needed loans to small businesses and other customers in need of loans http://www.nypost.com/seven/10312008/business/treasury_billion_pay_banks_dividends_136184.htm www.stock-market-lessons.com
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zigzagman		Posted: Sunday, November 02, 2008 7:59:41 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Current Commentary -- Where Are We Now? Sunday, November 2, 2008 PM To my list of banks most likely to fail, last week I added Alpha Bank & Trust, Alpharetta, GA and this week I added Freedom Bank, Badenton, FL. Both of these banks were FDIC seizures, but small cheese when compared to one the size of National City. PNC Financial agreed to buy out National City last week for $5.2B, of which PNC received $7.7B bailout from the Fed. So now we see a small portion of the real purpose of the 2008 Bailout plan starting to be exposed. Instead of headline FDIC seizures of large US banks, the Fed will provide bailout cash so another bank can buy out the insolvent one. Essentially National City was insolvent and was in line to be seized. But that makes too much noise in the media like when Washington Mutual was seized on September 25, 2008. So the end result is roughly the same, it's just that now the FDIC is working jointly with the Fed to devise a bailout, not to the insolvent bank, but to another bank that merges them in a stock buy out. This process allows the buying company to issue new stock without causing immediate dillution to their float. And, it keeps the FDIC balance sheet from running out and needing Fed replenishing. In this latest deal, the US Treasury bought $7.7B in PNC stock at current market prices while PNC paid 19% less than the market stock price for National City. No shareholder approval necessary since the Bailout provisions allow the Tresaury & Fed to sidestep these securities laws. Basicially, the message from the Fed to the National City shareholders is, be happy you got anything since a formal bankruptcy and seizure would otherwise render your stock worthless. Isn't it interesting that a bank like National City who listed total assets of $141.5B and equity of $16.7B as of 9/30/08 (assets of $151B and equity of $18.4B as of 6/30/08) yet get bought out for only $5.2B? How many more banks are telling lies to their shareholders? Ben Bernanke has been fighting hard to reverse the accounting rules that require marking assets to market values (mark to market). As US taxpayers are footing the tab for more bailouts, is the Fed buying these assets at the lie price or the real market price? Bernanke's moves suggest we are paying for the lies. The US Treasury has spent $157B so far, out of a planned $250B, to buy assets (preferred stock and warrants) from major banks in its ongoing program to nationize the US banking system (see table below). Oh, of course the Fed is not saying outright that nationalization is the goal, but what else does it mean when the US Treasury is shareholder and takes ownership of board positions at these banks? From here out out, sleeping with the devil has its price, these banks are no longer independent since having the US Treasury on their board can and will enforce their own policies. This list represents the Chosen Ones, the banks that the Fed and US Treasury have deemed as the ones they want to have survive the current financial turmoil. Each of these banks have joined the dark side of the force to receive cash infusions to save their butts. As a result, these banks will be the ones that will eventually gobble up many of the remaining near-insolvent banks. There will be many top quality banks that will resist the temptation of jumping aboard this gravey train of supposed easy money -- the attached strings are what will keep prudent institutions away. But in the end, independent banks will be too small, too weak, to compete against the big banks that have virually unlimited Fed backing. Non-bank companies are also trying to get on this elite list. GMAC for example is actively trying to change their charter to become a bank -- just like Goldman Sachs and Morgan Stanley did -- to jockey for position to get a slice of this tempting bailout pie before it is all eaten up. Detroit's big 3 auto manufacturers have already received $25B but they want more -- GM and Ford have financing subsidiaries charted as "thrift holding companies" so that makes them eligible as a bank and they are already lobbying for another handout. Other industrys such as Macy's and General Electric also have financing subsidiaries, so that means anyone with even a remote definition of financing, will be squirming their way to the Fed's doorstep, and this is no trick or treat. I expect more companies to apply to change their charters so they too can participate in the fun. It is clear by recent revelations, the bailout cash is not being used to enable average citizens to have better access to lending facilities. I have found no evidence that lending opportunities have improved over the past month or so. Instead the bailout is being used to enable the chosen ones to continue their corporate agendas of acquisitions and executive bonuses. It seems everyone, beyond banking, wants in on the gravey now that the secret is out. Taxpayers are still on the hook for this entire bailout, yet very little if any, will actually be used to free up the frozen lending facilities. It is a CyclePro forecast that over the next 5-8 years, there will no longer be any more regional banks, they will all be merged with national banks. Either they too will join with the dark side and benefit from the brotherhood of Fed backing (at a cost), or join with large independents that will constantly struggle with low margins and unfair competition as rules will constantly change in favor toward complete nationalization. US Institutions Receiving Fed Bailout (as of 10/27/08) Institution Bailout Bank of America (merger with Merrill Lynch) $25 billion Bank of New York Mellon $3 billion Capital One $3.55 billion Citigroup $25 billion City National Corporation $395 million Comerica Incorporated $2.25 billion Fifth Third Bancorp $3.4 billion First Horizon National Corp. $866 million First Niagara Financial Group, Inc. $186 million Goldman Sachs $10 billion Huntington Bancshares $1.4 billion JP Morgan $25 billion KeyCorp $2.5 billion Morgan Stanley $10 billion Northern Trust Corporation $1.5 billion PNC Financial (merger with National City) $7.7 billion Regions Financial Corporation $3.5 billion State Street Corporation $2 billion SunTrust Banks $3.5 billion UCBH Holdings, Inc. $298 million Valley National Bancorp $330 million Washington Federal $230 million Wells Fargo $25 billion http://www.geocities.com/cyclepro2/Charts/SP500/Outlook.htm www.stock-market-lessons.com
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zigzagman		Posted: Wednesday, November 12, 2008 1:03:38 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Stocks Lower as Paulson Unveils a Major Change in Bailout Plan: Wednesday November 12, 12:25 pm ET By Sara Lepro, AP Business Writer Wall Street losses steepen as Paulson unveils plan to not buy distressed bank assets: NEW YORK (AP) -- An already disheartened Wall Street turned sharply lower Wednesday after Treasury Secretary Henry Paulson said the government won't buy banks' soured mortgage assets after all, disappointing investors who hoped to see the bad debt wiped off companies' books. The Dow Jones industrials fell more than 270 points, and all the major indexes dropped more than 3 percent as the market retreated for a third straight session. Paulson said the government's $700 billion financial rescue package won't purchase troubled assets from banks as originally planned. He said that plan would have taken too much time, and that the Treasury instead will rely on buying stakes in banks and encouraging them to resume more normal lending. While the market had been pleased by the government's decision weeks ago to buy banks' stock, investors still hoped to see the financial industry relieved of the burden of the mortgage assets whose decline in value helped set off the nation's financial crisis. There is also concern that the bailout funds are being depleted rather quickly, said Jason O'Donnell, senior research analyst at Boenning & Scattergood. "Investors are generally in favor of the emphasis on the capital purchase provisions," O'Donnell said. But, "we're down quickly to a small portion of total funds remaining for other purposes." Paulson also announced a new goal for the program to support financial markets which supply consumer credit in such areas as credit card debt, auto loans and student loans. He said, "with a stronger capital base, our banks will be more confident" to support economic activity. Meanwhile, Morgan Stanley outlined plans to cut 10 percent of staff in its institutional securities group -- its biggest business that covers everything from investment banking to stock trading. The nation's No. 2 securities firm, which converted into a bank holding company in September, plans to scale back this business before the end of the year. The layoffs are in addition to a 10 percent cut made earlier this year. Morgan Stanley also plans to restructure its money management business by cutting 9 percent of the group's work force. The securities firm employs about 44,000 people worldwide. Bleak news from some of the nation's biggest retailers also sent stocks falling. Macy's Inc. said it lost $44 million in the third quarter as sales at the department store retailer fell more than 7 percent. And consumer electronics retailer Best Buy Co. slashed its fiscal 2009 guidance on fears that consumer spending will erode even further. Investors are worried that a severe pullback in consumer spending -- which drives more than two-thirds of the U.S. economy -- will prolong a global economic downturn. In midday trading, the Dow shed 278.21, or 3.20 percent, to 8,415.75. The broader Standard & Poor's 500 index dropped 29.34, or 3.26 percent, to 869.61, and the Nasdaq composite index stumbled 47.86, or 3.03 percent, to 1,533.04. The Russell 2000 index of smaller companies fell 17.00, or 3.52 percent, to 465.29. Declining issues outnumbered advancers by about 9 to 1 on the New York Stock Exchange, where volume came to a light 506.92 million shares. While concerns about consumer spending contributed to the market's declines on Monday and Tuesday, Paulson's remarks on Wednesday underscored the anxiety that remains about the health of the financial system. Though the announcement marks a major shift in the original bailout plan and seemed to rattle investors, Wall Street analysts generally believe that the Treasury is now on the right path. "That's really what they should have done originally," said Matt King, chief investment officer of Bell Investment Advisors. "First and foremost, we have to make sure banks are going to survive and then we can worry about lending. This is the quickest and most efficient way to do that." "Buying bad assets doesn't do that," he said. In corporate news, the future of the country's top automakers remained a major concern on the Street. House Speaker Nancy Pelosi wants Congress to support a financial bailout for the troubled U.S. auto industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy. President-elect Obama, when he met with President Bush at the White House on Monday, urged Bush to support aid for the auto industry, and Democrats in Congress have begun drafting legislation that would give General Motors, Ford and Chrysler access to $25 billion of the rescue funds. General Motors shares rose 23 cents, or 7.9 percent, to $3.15, while Ford gained 11 cents, or 6 percent, to $1.91. American Express Co. is said to be seeking about $3.5 billion from the government to help boost its balance sheet, according to a report in The Wall Street Journal citing people familiar with the situation. AmEx, the No. 4 U.S. credit card issuer, won approval Monday from the Federal Reserve to become a bank holding company, which gives it the ability to grow a large deposit base and access financing from the Fed. AmEx shares dropped $1.80, or 8 percent, to $20.60. Prudential Financial Inc. said late Tuesday its 2008 annual dividend will be roughly half of what it paid out to shareholders last year. The insurer said it will pay a dividend of 58 cents per share on Dec. 19 to shareholders of record at the close of business on Nov. 24. Last year, the company paid a dividend of $1.15 per share. Prudential shares added 9 cents to $27.70. Government bond prices, which did not trade Tuesday because of Veterans Day, moved higher as investors looked for safer investments. The three-month Treasury bill's yield fell to 0.14 percent from 0.22 percent late Monday, and the yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.76 percent late Monday. Lower yields indicate stronger demand. Crude dropped below $57 a barrel Wednesday on the growing realization that global economic growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. Light, sweet crude fell $2.59 to $56.74 a barrel on the New York Mercantile Exchange. The dollar was mixed against other major currencies, while gold prices dipped. Overseas, Japan's Nikkei closed down 1.29 percent and Hong Kong Hang Seng fell 0.73 percent. In European trading, London's FTSE 100 fell 1.65 percent, Germany's DAX fell 2.96 percent, and France's CAC-40 dropped 2.96 percent. http://biz.yahoo.com/ap/081112/wall_street.html?.v=46 www.stock-market-lessons.com
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zigzagman		Posted: Wednesday, November 12, 2008 7:50:15 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		How Do You Spell "Liquidity Trap"? by Karl Denninger Ahem. Wednesday, November 12. 2008 Posted by Karl Denninger at 09:13 On November 10, 2008, the Federal Reserve conducted an auction of $150 billion in 17-day credit through its Term Auction Facility. This was a forward auction designed to provide term funding over year-end--the awarded loans will settle on December 22, 2008. Following are the results of the auction: Stop-out rate: 0.528 percent Total propositions submitted: $12.629 billion Total propositions accepted: $12.629 billion Bid/cover ratio: 0.08 Number of bidders: 16 The awarded loans will mature on January 8, 2009. The stop-out rate shown above will apply to all awarded loans. Institutions that submitted winning bids will be contacted by their respective Reserve Banks by 11:30 a.m. EST on November 12, 2008. Participants have until 12:30 p.m. EST on November 12, 2008, to inform their local Reserve Bank of any error. http://www.federalreserve.gov/newsevents/press/monetary/20081112a.htm Note the bid-to-cover. No further explanation necessary. Well, ok, maybe there is one necessary. Less than 10% of the available credit was drawn down. Why? Because when cash becomes competitive with short-term credit in terms of return (that is, cash yields zero, short-term credit costs and yields zero) then there is no reason to take risk; you're better off with the cash. Ben pointed his liquidity gun at the market, pulled the trigger, and got...... CLICK. Game's over Ben; you no longer have "liquidity" to shower on the market; there's no take-up. Now we're left with either (1) doing the right thing or (2) Weimar Germany-style printing. Oh, to Henry Paulson, who is lying once again on national TV this morning: Shut the hell up. You're full of crap. You've prevented nothing. You have in fact lied to Congress about the purpose of your $700 billion "TARP", which has been used to buy up competitors and pay bonuses, and you changed tax policy without a vote of Congress in the dark of night, which you STILL haven't talked about in public. You didn't know what you were doing originally and it is obvious that you still don't. In fact, Rick Santelli put it quite simply on television this morning in regards to what you did by holding up two pieces of paper: BAIT (and) SWITCH Your (and Bernanke's) continued cheerleading and falsehoods have destroyed business and consumer confidence. Every time you open your mouth the market tanks, because you still have not decided to tell the truth. "Securitizing credit" is a pointless exercise until the excessive debt is defaulted, as there is no demand for additional credit when the consumer is tapped out and businesses are failing. You continue to talk about increasing credit in the system when the cause of the problem in the first place was excessive credit creation. YOU PERSONALLY lobbied Congress and The SEC to PERMIT that excessive credit creation, were rejected once in 2000, and in 2004 you came back as CEO of Goldman Sachs and GOT WHAT YOU WANTED - a policy change that WAS THE DIRECT AND PROXIMATE CAUSE OF THE MESS WE ARE NOW IN. You have REFUSED to accept that responsibility and you continue to talk about "recovery" and "reform" but you and YOUR demands for removal of safeguards in 2000 and 2004 ARE WHY WE ARE HERE. THERE IS NO SOLUTION TO THIS PROBLEM NOR WILL THE ECONOMY FIND A BOTTOM AND RECOVER UNTIL YOU STOP TRYING TO FEED A DRUNK WITH LIVER CANCER WHO IS PUKING UP BLOOD MORE BOOZE, AND IF YOU DON'T STOP THIS CRAP AND SOON THE DRUNK (OUR ECONOMY, OUR MONETARY SYSTEM AND POSSIBLY OUR POLITICAL SYSTEM) IS GOING TO DIE. WHEN THAT HAPPENS, NOT IF, YOU, CONGRESS AND PRESIDENT BUSH WILL BEAR THE PROPER RESPONSIBILITY FOR THE ENSUING DEPRESSION, ONE THAT IS LIKELY TO SURPASS THE 1930s BOTH IN SEVERITY AND DURATION. It is time for you to accept responsibility for your actions and their consequences, resign, and for the government to invite adults into the room before we have another fiscal "accident" - this time in the Treasury market as the world decides that buying government debt from a liar is a really, really bad idea http://market-ticker.denninger.net/ www.stock-market-lessons.com
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zigzagman		Posted: Friday, November 14, 2008 5:58:55 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		The Humpty Dumpty Economy: By Peter Schiff Euro Pacific Capital, Inc. Friday, 14 November 2008 Before the current economic crisis became apparent to all, the most popular fable used to describe America’s uncanny economic resiliency was the story of Goldilocks. It was argued that our economy was skipping down a sunny path of moderate growth, low inflation and rising asset prices. However, a much better parable for our economy over the last decade would have been the story of Humpty Dumpty: a bloated, fragile shell perched on the top of a dangerously high stone wall. This week, all the government’s horses and all of its men scrambled to put Humpty Dumpty back together again. Here is a look at some of this week’s highlights: The Mother of all Moral Hazards No doubt prodded by the administration, Fannie Mae and Freddie Mac announced a new attempt to stop the fall in home prices and foreclosures through a loan modification program that would cap mortgage payments so that a homeowner’s total housing expenses would not exceed 38% of household income for home owners who are 90 days delinquent. In a classic case of unintended consequences, the plan will encourage a massive new round of delinquencies and household income reduction as homeowners will jump through hoops to qualify for the program and maximize their benefit. Those who could conceivably economize to meet their existing obligations will now have a strong reason to forego such sacrifices. Those who are not 90 days past due will intentionally become so. In many cases, dual income families may decide to eliminate one job altogether as reduced mortgage payments combined with lower child care and other work related expenses will likely exceed the after-tax value of the lost paycheck. Unfortunately, the last thing our economy needs is falling household incomes and even more bad debt. But that is precisely what this plan will give us. To Bail or Not to Bail With the Big Three auto makers now in a plainly visible death spiral, the automotive bailout debate is kicking into overdrive. The disagreement hinges on whether a bailout is necessary to support an important industry or whether the unprofitable dinosaurs of the past should be allowed to fail as America focuses on an information-age, service sector, and alternative energy future. As usual, both sides have it wrong. The government should let the Big Three fail not because we no longer need an auto industry, but because we desperately do. What we do not need is the bloated, inefficient auto industry that we have today. By allowing the Big Three to fail, their capacity will be turned over to new owners who will be able to acquire the means of production at fire sale prices and hire workers at globally competitive wages. The result will be a more efficient auto industry making cars that people around the world actually want to buy at prices they can afford. Such auto makers could conceivably be profitable and could become the cornerstone of a manufacturing renaissance in the United States. In contrast, Ford, Chrysler and GM are never ending money pits that threaten to swallow a good deal of our economy. We Shopped and Dropped This week, the bankruptcy filing by Circuit City and a profit warning from Best Buy, served as proof positive that America’s national shopping spree is over. As I have long said, the business model of importing cheap goods for Americans to buy with credit cards was unsustainable. We were told to “Shop till we dropped,” and we did. Americans two primary sources of spending money, home equity extractions and unlimited credit card availability, have been shut down. With only dwindling paychecks to rely on, Americans are justifiably economizing. As a result, many more retailers will file for bankruptcy over the next few years, and those that remain solvent will only do so by drastically cutting their capacity. In a desperate move to arrest this necessary process, Treasury Secretary Paulson announced his intention to use part of the $700 billion TARP (Troubled Asset Recovery Program) funds to re-liquefy consumer lending. Paulson observed that “illiquidity is raising the cost and reducing the availability of car loans, student loans, and credit cards”, “creating a heavy burden on the American people” and reducing jobs. While all of this is true, this is precisely what needs to happen. Americans need to reduce their spending on all of these things, and market forces are in the process of bringing that change about. By encouraging even more borrowing, Paulson’s plan will aggravate the crisis. Along those lines, our nation’s various bank regulators issued a joint press release this week that “encouraged” banks to make more loans and to reduce their lending standards if need be. Since lax lending standards are one of the primary reasons that those banks “needed” to be bailed out in the first place, it is lunacy to now encourage them throw good money after bad. More risky lending (and currently nearly all lending is risky) interferes with the market’s attempts to rebalance our economy along the lines that Paulson himself admits is necessary, and sows the seeds for even bigger bailouts in the future when this new crop of loans go bad. Bait and switch Reminiscent of his Bazooka maneuver, quick draw Paulson reversed course quickly with his decision to not use any TARP funds to buy the assets that the plan was specifically funded to procure. Instead, he will simply dole out the loot to his buddies on Wall Street and use it for whatever seemingly worthy initiative strikes his fancy. Although Congress loves to grandstand about oversight, it has thus far shown no courage to interfere, or even question, the change in strategy. Paulson claims that he is simply rolling with the punches. The truth however, is that the original plan was flawed from inception, as I clearly pointed out in a string of commentaries following his proposal. How could the Treasury Department, with all its funding and PhD’s, not make similar predictions? Paulson is either a liar or completely incompetent. My guess is he is both. It is mindboggling to consider that all of these developments took place in just one week. As the remnants of America’s shattered economy continue to ooze out over the pavement, look for even more bizarre, draconian, unworkable, and downright dangerous policies to emerge from Washington. http://news.goldseek.com/EuroCapital/1226696121.php www.stock-market-lessons.com
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zigzagman		Posted: Friday, November 14, 2008 9:04:35 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Paulson: Worsening Crisis Forced Change in Strategy: CNBC.com | 14 Nov 2008 | 03:32 PM ET Treasury Secretary Henry Paulson defended his decision to change how the $700 billion financial bailout fund is used, telling CNBC that the spreading credit crisis forced the government to focus on injecting capital directly into banks instead of buying up toxic mortgage assets. "By the time the process with Congress was completed, it was clear that we were facing a much more severe situation than we had envisioned earlier on," Paulson said in a live interview. "We have this limited pool of resources—big, but limited, $700 billion—and how do we use that, and get the maximum impact, and it's by putting capital in (banks)." Paulson told a news conference on Wednesday that he would use the remaining funds in the $700 billion fund on a second round of purchases of preferred shares in both banks and non-bank institutions. He also said the money could be used to shore up markets for securitized consumer debt such as car loans, student loans and credit cards, which could help restore credit flows to U.S. households. "What changed was when we saw the commercial paper markets freeze up altogether, so good, mainstream corporations weren't able to raise money," Paulson said. Setting up a system to buy up the bad mortgage debt from financial institutions also had become cumbersome, and Paulson said the Treasury needed to act quickly to stabilize the credit markets. As a result, the Treasury began to use the fund—known as the Troubled Asset Relief Program, or TARP—to inject capital directly into banks. "The major purpose of the TARP was to stabilize the financial system, first and foremost, and the number two, to get lending going," Paulson added. "I think the system has been stabilized. I don't think people are going to bed at night wondering which major financial institution might have a problem." Still, the change in strategy has been sharply criticized in Congress and Wall Street. Earlier Friday, a House committee took one of Paulson's deputies, Neel Kashkari, to task for what one member said was "a bait and switch." Paulson again deflected such criticism, saying he was obligated to change strategies as the situation changed. "You're never going to get me to apologize for being so prudent as to change a strategy when the facts change, and to do it in a way that protects the taxpayer," he said. http://www.cnbc.com/id/27721218 www.stock-market-lessons.com
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zigzagman		Posted: Saturday, November 15, 2008 12:19:35 PM
Rank: Advanced Member Joined: 8/14/2008 Posts: 314 Location: Memphis		Financial Crisis Tab Already In The Trillions: http://www.cnbc.com/id/27719011 Big Budget Events: If you are dumbfounded by the amount of money the federal government is pouring into the private sector to ease the nation's financial crisis, it's worth a look at how much Uncle Sam has spent on other major projects and historic events in the past, such as wars, bailouts and engineering marvels. Thus far, only one item surpasses the $700 billion allocated to the government's main rescue fund, what's known as the Treasury Dept.'s TARP program. Other expenses and/or commitments, from Federal Reserve lending and guarantees to FDIC insurance fund losses to complex financial market mechanism, put the total cost at some $3.8 trillion (as of Oct. 23). Click ahead on this slideshow for a big-budget ride through time: http://www.cnbc.com/id/27717424 www.stock-market-lessons.com
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