Monday, March 31, 2008

SAR #8091

The Federal Reserve System:
"Socializing risk and privatizing profit since 1913."

Competence: ICF was paid $912 million to disperse $11 billion to Katrina victims. ICF now says it overpaid 5,000 victims an average of $35,000 - and they still haven't paid one third of the qualified Katrina survivors. The homeless, broken victims have to pay it back. Now. And they can't go back to their formaldehyde trailers, either. Another government job well done by the private sector.

The Sting: Lehman Brothers, in a display of the thoroughness and acumen we've come to expect of investment professionals, lost $355 million to Japanese con artists. What goes around, comes around.

Like Cash, Only Different: UBS is lowering the value of some auction-rate municipal bonds held by their clients by 20%. Auction-rate securities are long-term bonds that behave like short-term debt and have long been popular with greedy conservative investors because of their tax-exempt status and greedy municipalities because they could save a few cents interest.

Light Dawns: Financial reports from Moscow suggest the Russian government is becoming disenchanted with "exchanging appreciating oil resources for depreciating dollars." Let's hope that does not become a widespread outlook in the world's other oil patches.

Goliath? Wal-Mart Stores has abandoned 64 proposed projects over the past 10 months - some killed by local citizen resistance, most because of a worsening economy. It's 2007 growth rate of 1.9% is dwarfed by the 5% growth rate 10 years ago and 13% back in 1987. Too much of a good thing?

Lame, Halt, Blind: Alt-A is becoming the second leg of the mortgage debacle. Of the 2005 crop, 12% are delinquent. Some 16% of the 2006 class is delinquent. The 2007 group is already 14% delinquent. Ten percent of the 2006 group are "seriously delinquent, in foreclosure or owned by banks". Keep going, the peak is up ahead, in June, then the real foreclosures begin.

Re-formatted: Not only did the Bush White House not keep their e-mails as required by law, not only did they erase the hard drives with the e-mails on them, they physically destroyed the hard drives. They know that anything short of physical destruction leaves tracks. Why doesn't Congress ask NSA for their copies?

The Rules of the Game : The global financial system is so opaque and complex that no one actually understands how it all fits together. We've moved from a world of measurable risk to one of near complete uncertainty. Surprises keep coming out of the blue, because we're ignorant of our own ignorance. We're surrounded by unknown unknowns.

Sources: The world's businesses are very very good at increasing productivity while lowering wages. This generates profits. But underpaid employees are not customers with money. The only way customers can buy is to keep going further into debt. Ah, there's the rub.

Another Shoe: Americans have sucked over a trillion dollars in equity out of their depreciating houses. When a house sells for less than the mortgage, all the funds go to the mortgage, leaving nothing for the bank that wrote the home equity loan. What, me worry?

Hamming It Up: Smithfield Foods, which kills 32,000 hogs a day, has filed a RICO suit against union organizers on the theory that publicizing environmental and safety issues to pressure a company to unionize amounts to extortion. They also allege the union quoted Upton Sinclair.

Paul Revere: If you want a good quick reference as to why most of the things the Fed, the Congress and Wall Street propose to do to rescue the various elements in the housing debacle, try the rant at Stop The Mortgage Bailout!

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