Tuesday, September 30, 2008

SAR #8274

I am not sure what's going to happen, but it might be

a good idea to send your Christmas cards early this year.

Scores: Redskins 24, Dallas 23. Taxpayers 228, Paulson 205. European Leagues are in disarray.

Confidence Game: The Federal Reserve is pumping another $650 billion into the toilet in an attempt to stop the leak. Today's assignment: Explicate the difference between 'liquidity' and 'solvency'.

The Real Crisis: Following last week's announcement that Russian scientists had found "vast quantities of methane being released by the melting permafrost from the seabed off Siberia", a British group has found hundreds more methane plumes in the Arctic, raising fears that the methane releases may trigger a significant quickening of global warming. If the methane release is at all large, previous projections of doom are optimistic.

Mysteries of High Finance: The FDIC says Wachovia didn't fail and that the FDIC suffered no cost. They don't mention that the FDIC is on the hook for Citi's losses in excess of $42 billion. And why is Citigroup giving FCIC $12 billion in preferred stock and warrants if no FDIC money was involved?

Today's Lesson: Paulson, Bernanke, Pelosi, and the entire on-air staff of CNBC tell us that we are doomed because credit will be harder to get and it will be more difficult for Americans to get further in debt. They say this is a bad thing.

Ounce of Prevention: Congress is working on a bill to prevent diverting water from the Great Lakes basin to any place outside the region. A preventive move at the dawn of the age of Water Wars.

Detailing: The US auto industry got $25 billion from the Congress as a "low coast loan". Some of the money may, accidentally, be spent on battery research. Or maybe not. Some of the money may one day be paid back. Or not.

Defining "is": Bush again asserts "the taxpayer funds we invest will be paid back." True, depending on the meaning of "invest" and the meaning of "paid back".

Egress: Many hedge funds are preparing for a growing onslaught of investors wanting out, with many braced for desertions by nearly half their customers.

Full Faith and Credit: It now costs less to buy insurance on McDonad's commercial paper than it does to insure a 10 year US Treasury note.

Losses: A group of clever optimists bet a lot of other people's money on sure things that did not win. They did not finish in the money at all. They thought their Uncle would help them cover their markers, but were wrong. Now it looks like they may get their kneecaps rearranged. A learning process.

Monday, September 29, 2008

SAR #8273

Put $700 billion in the bag and no one gets hurt.
- Ken Kam

Legacy: Seems my granddaughter will owe China $2,000 to bail out Goldman Sachs & friends.

October Surprise Wedding: Demonstrating their complete contempt for the intelligence of the American voter, it seems the McCain camp is trying to arrange a mid- to late-October marriage for Sara's pregnant daughter. Headlines! Magazine covers! Talk shows! and 24/7 on FOX. easily distract most of middle America for a week or more. And a Happy Ending!

Do Not Pass Go: The US has 5% of the world's population and 25% of its prisoners.

My Way: The Secretary of the Treasury gets to determine which 'troubled assets' will be purchased, how the purchases will be conducted and at what price. The Secretary gets to determine if, when and how much equity, if any, the government may acquire in any given transaction. What parts of this satisfies the concerns of House Republicans?

Paper Moon: S&P estimates that the default rate on US corporate debt may top 23% by 2010. And S&P are congenital optimists.

The Band Played On..: Both subprime and Alt-A delinquencies increased in August. 2006 vintage sub-prime mortgages have reached a 40% delinquency rate while over 30% of the 2007 crop is already delinquent. Alt-A is marching to the same drummer.

Enough : After thirty years of failed experiments, the Masters of the Universe and their friends from the University of Chicago are finally shown to be bereft of a single workable idea. The 'free market' has run downhill all too freely. De-regulation is a curse, not a cure. There is no magic in greed. And government, more often than not, is the answer.

Rehearsal: At 178.7 million barrels, the U.S. gasoline inventory has reached its lowest level since August 1967. Back then, demand was about half of what it is today.

Hard of Understanding: Pakistani General Athar Abbas said that American helicopters "passed over our check post so our troops fired warning shots." Hearing this, Pentagon spokesman Bryan Whitman said: "The Pakistanis have to provide us with a better understanding of why this took place."

Another Option: The Bank of China is open to "investing in" (buying) Wall Street firms directly, rather than going through the US Treasury.

Mr. Roger's Neighborhood: Turns out that Goldman Sachs was the only Wall Street firm in the room when Paulson decided to rescue AIG. Also turns out that Goldman was on the hook at AIG for $20 billion. But that's what friends are for.

Details: While the coal folks are bragging about clean coal, ask them if they are figuring in the fact that about one-third of the power produced in a carbon capture and sequestration plant is used in capturing and sequestering the carbon. Drives up the cost a bit - say by a third or so.

Size Matters: While at the UN meeting last week, Paraguayan President Fernando Lugo was approached about having a meeting with Sara Palin. He turned down the opportunity.

Exodus, Redux: The US has sent troops to Israel with advanced radar and the equipment and personnel to support a coordinated defense against Iran's missiles. This is the first permanent US military assignment on Israeli soil.

Porn O'Graph: Wealth and Debt and Derivatives.

Saturday, September 27, 2008

SAR 8271 Weekender

Why do they call them 'securities'?

Teaching Point: We reported this yesterday, but it deserves another hearing: "The director of the Congressional Budget Office said that the proposed Wall Street bailout could actually worsen the current financial crisis." Class dismissed.

Mighty, Fallen: Someone snuck up on Japan and pasted a surprise trade deficit right in the middle of August. The sound you're hearing is a global alarm.

Bitch, Bitch, Bitch: One David Hernandez is causing problems with Homemade Security because they won't give him a passport. He doesn't qualify for one because he has an Hispanic last name and lives near the Mexican border. He was born in the US. His mother was born in the US. His grandmother was born in the US. He is a US Army veteran. Me, I'm Scots-Irish.

Vocabulary: Notional Value, as used by Bernanke and Paulson, means '"let's pretend".

Silenced Fiction Discount Window borrowings stand at $262 billion. The Fed is the lender of last resort, and a lot of financial firms are way beyond last resort. Last rites, perhaps.

Done With Mirrors: South Africa's electric utility, Eskom, is going to increase its output by 4% to meet a 6% increase in demand.

Roadkill: Bill Heard Enterprises, the world's largest Chevy dealer, closed all 13 of its car lots this week. Those who lived by the installment plan. Greed, too.

Terry Putin and the Pirates: A Ukrainian freighter carrying 33 Soviet-era T-72 tanks to Kenya has been hijacked off the Horn of Africa. A Russian missile frigate is in pursuit. Tom Cruise will be cast as the Captain.

Clarification: It is not a taxpayer bailout of Wall Street. No current US taxpayer is going to pay another dime in taxes to support the Paulson Plan. We're going to borrow it all and add the $700 billion to the national debt, which we are absolutely never going to pay.

Dearly Beloved: The Census Bureau is saddened to announce that sales of new houses fell in August to an annual rate of 460,000, a 34% drop from last year and a 58% drop from 2005's peak. The family has asked that donations be made to the Paulson/Bernanke fund.

Going Down? Durable goods orders fell 4.5% in August, after a meager 0.8% rise in July. Biggest drop since January 2007 and before next month.

Sign / Countersign: The US acknowledges that Pakistani and US Forces exchanged gunfire for about 5 minutes in a dispute over Pakistani airspace. Every day brings us one step closer to some very realistic joint maneuvers.

600# Gorilla: The rate of CO2 emissions growth since 2000 has increased at a rate 4 times that of the 1990's. The increase dwarfs the most dire scenario projected by the IPCC.

Heads / Tails: If a member of Congress votes 'Yea', the voters are going to be pissed. If a member votes 'nay' and the economy tanks - as it most likely will regardless - the voters are going to be pissed. Remember, for members of Congress getting re-elected is job one.

Smokey the Bear: Alaska's AG is suing to kill subpoenas issued by the Legislature in its investigation of Gov. Palin's firing of the head of Alaska's troopers. Perhaps Smokey smells fire.

Cliff Notes: Before we let Paulson/Bernanke spend more than $1.47 on their latest bright idea, make them show us one - just one - step they have taken since August 2007 that has done a damned bit of good. Does their record suggest they have any idea either what is wrong, or what to do about it, or what comes next?

Porn O'Graph: The not new news.

Friday, September 26, 2008

SAR #8270

Hope you like the smell of napalm in the morning.

Otherwise, this will not be your sort of day. Yves, Smith

Best of Five: The Bush administration, after proving itself incapable of escaping from its own disasters - 9/11, the budget deficits, Iraq, Afghanistan, eavesdropping and the destruction of civil rights, New Orleans - would have us believe that, just this once, it has a solution that won't make the problem worse.

Common Sense: Hate to let reality and logic intrude on the soap opera, but James Galbraith has a perfectly simple solution to this particular case of indigestion.

Compatibility: A war crimes prosecutor at Guantanamo has ethical problems that lead to his re-assignment. Seems he had some, and the military objected.

Vocabulary Assignment: Look up the word kleptocracy. Add it to your computer's spell-check dictionary.

Without comment: Former VP Al Gore, Nobel Prize winner: "If you're a young person looking at the future of this planet and looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants... " will Gore be the first to attack the line of men in riot gear or is he suggesting I lead the charge?

Location, Location Location: Pakistan says it shot at a US helicopter that had invaded their airspace. The US maintains it's not their airspace.

Those Were The Days... Sales of New Homes fell to a seasonally adjusted annual rate of 460,000. Lowest since 1982. I don't think $700 billion is going to do the trick.

One of the Guys: Documents the White House hadn't gotten around to destroying show that Secretary Rice, among others, played a 'central role' in discussions that lead to the US adopting terror as a routine way of life. Or death.

Keeping Score : Developing nations now produce more than half the annual CO2 output, which is growing at four times the rate in the 1990's. We are not winning this one. We're not even trying.

An Oily Mess: Pemex's production is down 16% year to date. Pemex supplies 40% of the Mexican budget. What happens when social spending is cut 6.5% ?

One Step Over the Line: The current administration has given customs officers the power to question travelers about their political orientation and religious beliefs, and to seize, read, and copy documents (including the content of laptop computers) without any hint of probable cause. This lowers customs agents to the same level of lawlessness as Homeland Security and the FBI.

Lavoris: Did Bush summon McCain back to Washington as some sort of punishment? Did he want to give McCain one last kiss?

Quoted : "The seizures and convulsions we have experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too-tight monetary policy," Dallas Federal Reserve Bank President Richard Fisher Sept 25, 9008 He also said the $700 billion bailout would plunge the US deeper into a fiscal abyss.

Porn O'Graph: Number One With A Bullet: TED spreads.

Thursday, September 25, 2008

SAR #8269

I liked it better when they wore masks and carried guns.

Paulson and Bernanke are proposing to buy bad paper from everyone, at rates far above their value. The bailout is specifically designed to funnel money to those who don’t need it.

Perennial : Greenland's ice cap, which contains over 10% of the earth's fresh water, continues melting faster than expected. In some places the ice is melting four time faster than previously. Over 100 cubic miles of it will melt away into the North Atlantic this year.

Plus ça change : The old adage "Follow the money" has been updated to read "Follow the lobbyist." I'm not sure what the change was.

Pass The Hat: Paulson keeps defending outrageous executive compensation because "we need the broadest participation possible" in the bailout. If a CEO has not driven a company to the point of needing rescue, fine. Either you have run your company in the ground and need the rescue, or you haven't and have earned your big bucks. We're not going to actually force companies to take our money, are we?

Probabilities: The end of Washington Mutual will most likely be the same old same old: The FDIC closes the bank, sells off the good stuff, eats the bad stuff. Hungry yet?

Part of the Problem: Americans are not aware of the fragile reality supporting their determined sense of entitlement. They want the problem - whatever it is - solved without bothering their cruise-controlled, air-conditioned, fossil-fueled throw-away lifestyle.

Shoe, Fits: "Good ideas do not need lots of lies told about them in order to gain public acceptance. " Paulson obviously lied to Congress about his own plan. Is there any reason to trust him with anything at all?

In Dire Straits Everybody got excited because Buffett saw fit to pounce on Goldman Sachs. He is not buying an undervalued company with strong management in this instance. He is making a large wager on the US taxpayer giving Goldman's a whole lot of money for nothing and earning a 17% return on his money.

There's A Word For This... : LA State Rep John LaBruzzo, R-Metairie, wants to pay poor women $1,000 to be sterilized. It's his way of cutting back welfare costs because, he claims, people on food stamps reproduce faster that better educated taxpayers.

Sure Thing: The Canadian Association of Petroleum Producers predicts the US will put economics before environmental concerns.

Stirred, not Shaken : The school solution seems to be to take a perfectly good firm and merge it with a perfectly horrible firm, weakening one and not doing much for the other. I find it best to keep the vermouth some distance from the gin.

Previews: Escalating energy costs have put 80,000 Kenyans at risk of losing their jobs.

Peanuts: The proposed $700 billion bank bailout is just a down payment on the $5 trillion some feel the task will require.

Going Once, Going Twice... First it was those evil short sales. Now Chairman Cox wants regulatory oversight of the credit-default swaps market (CDOs). Nothing worse than a new convert.

Gunslinger: US foreclosures total about $50 billion a month, and will for the next couple of years. So will Treasury and the Fed be back next summer for the next $1 trillion? Yes. Will we give it to them? Yes. Where's Shane?

Porn O'Graph: US gasoline stocks, DOE 9/23/08.

Wednesday, September 24, 2008

SAR #8268

The problem with the market is the market.

A Matter of Taste: Ever notice you can't tell how hot a jalapeño is until you take a bite? Or how sour a cherry? RBMS and other derivatives are like that, but Paulson has this mysterious ability to value them...

Back at the Ranch: While the Paulson/Bernanke remake of "Saving Wall Street" is getting 24/7 media hype, the nation's retailers are bracing for the worst Christmas Selling Season since 1991. Why is the spotlight on the side-show? Is it the clowns?

Faux Pas : Bank of America says Paulson's bailout is mainly designed to rescue Morgan Stanley and Goldman Sachs. Who woulda guessed?

Reality Check: While the Commodities Futures Trading Commission is investigating why the shorts took it in the shorts on oil yesterday, 76% of oil production in the Gulf of Mexico is still shut in.

Update: "The people can always be brought to the bidding of the leaders. That is easy. All you have to do is frighten them with allegations their way of life is under attack and will collapse if they do not hand over their money. It works the same in any country." - Nazi Reich Marshalls Bernanke & Paulson.

Put Tab A in Slot B: Completely misunderstanding that the spike in oil prices Monday hurt those who had shorted oil and had no effect on real-world oil prices, a group of well-meaning lawmakers are talking about including bans against shorting commodities in the Save The World bill.

Stampede: That noise you hear is the rush to the door by hedge fund customers. Close behind them are the hedge fund managers, headed towards Washington....

The Other Shoe : Scientists have discovered that millions of tons of methane are being released by melting permafrost. Other scientists have detected "massive deposits of sub-sea bed methane" bubbling to the surface in the Arctic and describe them as "time bombs".

Repetitive: Pemex reports that its production has fallen 9% year to date and its exports are down 16% from a year ago. If that doesn't worry you, you don't live in the USA.

Is it Over? No. It's just beginning. There is $47 trillion in debt floating around and $180 trillion or so in derivatives that no one knows much about. Even this government cannot print that much money.

Return on Investment: Saudi Arabia is reportedly cutting shipments to some of its biggest customers, but not to the US. Arms sales do pay off once in a while.

More of the Same: The US military plans on being involved in a continuous state of war for the next 40 years. How this differs from the last 40 years was unclear. The main objective is capturing an immense share of the US budget. Again, this does not vary from past goals.

Slip Showing: Bernanke has assured the Senators that the banks would set the prices for debt sold to the government: "If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits." For the banks. Securities fraud used to be illegal.

Porn O'Graph: The Asset/Debt ratio.

Tuesday, September 23, 2008

SAR #8267

What is the legitimacy of a government

that has lost control of its economy?


Could'a Should'a: There's a very long list of things wrong with the TARP proposal, from surrendering control of $700 billion to Paulson, to surrendering control of $700 billion to Wall Street, but I repeat myself.

Coincidence: On October 1st, the 3rd Infantry Division's 1st Brigade Combat Team will begin a year under control of Northern Command. The 1st BCT will be the federal response force emergencies and disasters, including terrorist attack and the control of civil unrest. This is the first time an active Army unit has been assigned to NorthCom, which was established in 2002 to coordinate defense support to civilian authorities.

Exclusive Executive: The TARP expressly says courts are not allowed to challenge actions taken under the Paulson Plan. Nor is Congress. The unclassified portion doesn't directly address freedom of speech.

Peaked Oil: Global oil production reached 84 mbd in 2004 and has increased by only 1.5 mbd since then. In the same time-span the population has grown by 300 million, each of whom gets to consume less than a quart of oil a day because no one on my block wants to share with them.

Bedfellows: The EU has decided to restrict imports that are made using "dirty" energy. It seems to be okay to pay minuscule wages, but emitting carbon is not acceptable.

Tomorrow's Tomorrow: Financing this bailout will prevent the next administration and the one after that and the one after that from reducing taxes on the middle class. Or improving the health system. Or developing alternative energies. There simply will be no money for any social programs. Clever.

Fishing Buddies: US researchers say that guaranteeing every commercial fisherman a share of the catch will cool the race to exterminate every last fish. Traditional open-access fishing, where he who catches the fish gets to eat it, leads to too many fish being taken. "From each according to his ability... "

Babysitting Fee: The current key Fed Funds rate is 3.4% less than acknowledged inflation. You are guaranteed to lose purchasing power if you invest in short term US debt. Where's the incentive in that? Safety? No, really where's the incentive?

Mirror: The mortgage-based financial derivative party was based the credulity and greed of both buyer and seller. At each step of the way from the originator to the derivative insurer, each fool thought he were smarter than the fool he bought from and smarter than the fool he sold to. Now look who gets to buy this stuff.

Can't Win for Losing: Hope you got your plane tickets.

Buyers and Sellers: There are private investors willing to buy these troubled assets right now, but the banks do not want to sell at those prices. So either the government will pay too much, or the banks hang on and continue to fail. Even solvent banks will have to recapitalize or reduce lending if they sold these assets at realistic prices.

Accept No Substitutes : The bailout is designed to keep the well to do well to do, at taxpayer expense.. This is the purpose of government.

Monday, September 22, 2008

SAR #8266

In order to solve a problem, you first have to understand

what the problem really is.

Starters: Go read Ilargi's opening to The Automatic Earth for Sunday, the 21st. Go do it now. Then come back and enjoy.

Changing the Rules: The Fed is allowed Goldman Sachs and Morgan Stanley - the last two investment banks of any size - to become commercial ( i.e. depository) banks, giving them access to the Fed's emergency loan programs. Seems to be a fear that the $700 billion won't arrive as quickly as promised, and this is to tide them over. The Fed also invited the broker-dealer subsidiaries of Merrill Lynch, Goldman Sachs, and Morgan Stanly to belly up to the bar.

Witch Hunt: Australia has banned all short selling, The Dutch have banned 'naked shorts'. Taiwan has halted shorting on 150 stocks. Anybody remember the elements that made up the 'efficient markets' theory?

Late Breaking: Paulson has changed the language permit TARP to buy "Troubled Assets" (with no further definition) from any institution (including hedge funds!) having significant operations in the US.

Unthinkable: Paulson, citing continuing market stress, is urging Congress to quickly pass his plan, like the Patriot Act. No need to stop and think. "We need this to be clean and to be quick," Paulson said. Well, quick, anyway.

Pull the Other One: How much the taxpayer is on the hook for is unknowable because the government will make a profit if real estate prices rise. Click your heels.

History Lesson: During early 1933, shares of companies connected to the Nazis rose an annualized 43% while those that were not rose only 1.2%. Be glad our financial institutions do not get special treatment from our leaders.

Canary: This Summer the Arctic ocean has been venting methane into the atmosphere. Last year, for the first time in 20 years, the percentage of methane in the atmosphere increased.

Temperature: Foreclosures hit another record high in August, up 12% over July and up 27% over the previous August. What government bailout addresses this problem? Will the Corps of Engineers be hired to bulldoze excess housing?

Vocabulary: We've heard a lot about “moral hazard” recently, but that was then and this is now. It is not a bailout, it is 'stabelization'. It is not re-inflating the bubble, it is "ensuring the strength of the economy." Use of the term 'free ride' is not encouraged.

Seven, Six, Five, Four... The IPCC says world carbon emissions must start a dramatic decrease no later than 2015. In that we've done nothing to reduce emissions yet, there is no time to debate whether "A" or "B" is the better approach. We must adopt every possible approach to reducing our emissions to the point that CO2 levels not only stop increasing, but actually fall. Of course this will never happen.

Halloween: If McCain wins, Phil Gramm may be named Secretary of the Treasury. Still want to give unquestioned power to the Secretary?

Very Bad Good News : The recent upswing in oil prices is a good thing, just as the previous fall was a very bad thing. We were quickly forgetting the need to conserve and had been thinking about one of those discounted SUVs. Conservation is far more appealing at $140 a barrel than at $92.

Definition: Politics is not about politics, it's about money.

Are You Threatening Me? Expect Bush, Paulson, Benanke, and the Fox talking heads to warn us daily of the terrible things that will transpire if "the plan" is not passed quickly and unchanged. Why not, you trust these folks don't you? Oh, Iraq? Well...

Sunday, September 21, 2008

SAR #/8265

America, a farce in 2 3 several acts.

[A Special Sunday Edition; don't expect one every week.]

Seat of all Power: Try to remember that the Federal Reserve is a private bank.

Paper Moon: The Treasury plan is an attempt to restore confidence in the financial system, to convince creditors (and investors) that everything is okay with financial institutions. This will work only if the Treasury pays more than the current market price for the assets it buys. Either way, its a con job.

New Contest: Pick the date of the Crash of 08 and the December 31 close of the Dow, if any. Usual disclaimer, prizes.

Look Behind the Curtain: Money Market insurance is a scam. The gov says it will guarantee $1 for $1 in participating money market funds. It says it will do so for a fee. It will not say which MMs are insured, so the customer won't know. If you were a MM manager, would you waste your money on the insurance?

$700,000,000,000.00: Rising long term interest rates are a sure bet; housing prices will tank further. First class to the lifeboats, second class gets life preservers, steerage gets swimming lessons.

Rooting Around: Either they've forgotten that the root cause of all the trouble is overpriced housing finding a more realistic price level, or they are hoping that we don't remember.

Player to be named later: One part of the Fed's current initiative extends 'non-recourse loans' at the Fed Funds rate (2%) to 'depository institutions and bank holding companies' so they can buy asset-backed commercial paper from money market mutual funds. This is a round-about way to bail out the car loan and credit card receivables markets.

Unconstitutional: Giving Paulson unlimited and unchallengeable power over the entire US economy might well be challenged.

Money Laundering: The Fed is buying Fannie and Freddie's debt from 'primary dealers' "to aid market liquidity." So one part of the government is going to write iffy paper and sell it to Joe, then another part of the government is going to give Joe real money in exchange for the iffy paper just he just bought. Oh, Joy.

No Thanks: Unless the Treasury can explain exactly how this bit of legerdemain is going to work so the taxpayer doesn't pay too much for toxic paper, it is going to be a hard sell. And if the real solution is recapitalization of the banks, why not a more direct and honest approach?

Please Explain: The Usual Suspects keep saying "this will cost the tax payer less than the alternative". Why should it cost the taxpayers anything at all?

Locating Locution: The trillion dollar gift to the rich will not save the economy. Paulson is trying to keep the banks lending. House prices will continue to fall, and the economy will follow. The Paulson plan does not address this.

Silver Lining: Buy bonds. Grab up financial stocks. Either things will soon recover smartly and you'll be set for life, or they won't and the loss of a few bucks will be dwarfed by all your other problems.

Assumption: The TARP program is aimed at increasing liquidity. The problem is not liquidity, it is solvency. How will paying a fair market price for worthless paper prevent the collapse of an institution that needs far more money than 'fair market value' will provide?

Saturday, September 20, 2008

SAR #8264

Imagine what is happening behind the scenes.

Consider This: The grand deregulation experiment is over, and the results rather convincingly show that unregulated capitalism is cannibalistic. Some might meanly point out that once it all started going to hell in a handbasket they all became socialists, but that's not true. They've become a mob, looking for someone to beat up.

Why the ban on shorts? The party under attack was Goldman Sachs, that's why.

TARP: Paulson and Bernanke propose hiding troubled assets under a Temporary Asset Redemption Program (TARP), out of sight and out of mind. The plan is for the taxpayers to hold them to maturity, hoping that more than 40% of the folks with bad mortgages can actually pay their mortgages.

Party Pooper: The IEA, ignoring the party in the next room, says there is a risk of a global recession if oil prices stay at their current levels.

Picking up the Check: Some self-serving folks claim the bailout of western capitalism will make a profit for taxpayers. Hogwash. If there was money to be made, the taxpayers would not be footing the bill. Even if, against all odds, the Paulson TARP ev entually breaks even, the Treasury has to come up with over $1 trillion soon. Where is the money going to come from? How will it affect the economy?

Help Not Wanted Ads : The Bureau of Labor Statistics reports that there are 2 people looking for work for every job that is open.

The Little Engine that Could: The Fed and the Treasury think they have enough assets, counting the printing presses, to bail out everyone. This is going to make spending on the country's real needs (i.e. energy, infrastructure, health care, retirement) very difficult. Who says Bush and the neocons failed?

Funny, That: Oil prices have dropped by 30% and more, yet airlines have not rushed out to lower prices or even remove all the 'extra' charges. They say they need the extra income to continue to provide the service, a song sung by the oil companies not that long ago.

Treat the Symptom: The drop in the stock market and the freeze on credit were not the problem. They were reactions to the problem. The problem is the US and its citizens have spent too much for too long and don't want to stop.

Start Your Engines, Please Consumer spending generates two-thirds of US economic activity. Consumer spending did rise a bit in June and July, but only because stuff cost more. We actually bought fewer goods, but paid more. The BLS reports this as good news.

Hard Times: Moody’s projects losses on 2006 era mortgages will average 22% (increasing to 26% for 4Q2006 paper) and losses on 2007 mortgages will reach 30%. This is bad news for bond insurers Ambac and MBIA - or would have been until this morning. Now its bad news for the taxpayers - the folks who have lost their home will be taxed to make up the difference.

`Substantially,' Defined : The Energy Department anticipates that next week's inventory will show another 8.5 million barrel decline in US gasoline supplies, to the 175 million barrel level - which hasn't been seen since the 1960's.

Porn O'Graph: Rollercoaster - Largest two day % advance since 1929.

Friday, September 19, 2008

SAR #8263

This is what a systemic financial crisis looks like.

We're From The Government and We're Here To Help: President Bush has expressed his concern about the turmoil in financial markets and said his administration was prepared to go beyond the "extraordinary measures" already taken to strengthen and stabilize them. "The American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence returns."

Curiosity: China's CITIC Group is talking with Morgan Stanley about acquiring 49% of the firm. Elsewhere in the news, pigs have learned to fly and Hell has frozen over.

New York New York: Turns out it can happen here. Or there. Many of the top co-op apartments in Manhattan have lost a fourth of their value.

Silent Auction: Hopes of finding a buyer for Washington Mutual dimmed on Thursday as an auction for the beleaguered US bank had yet to attract any bids, according to the Financial Times. Bloomberg, on the other hand, reported that WaMu had attracted "multiple bidders".

Hint: FedEx's first-quarter profit fell 22%. Undoubtedly due to the liquidity problems at AIG.

Junkman : The Fed now allows insured banks to accept equities as collateral. It also allows the taxpayers - through the FDIC - to make up the shortages when (mirable dictu!) the equity declines in value. The Fed itself is taking riskier assets - stocks, junk bonds, subprime mortgage-backed securities, leftover pizza - in exchange for perfectly good US cash.

Peter/Paul: As I understand it, the Treasury is loaning money to the Fed. My daughter used to borrow money from me, too, whenever she ran out. I've still got the IOUs.

Fool Me Once....: The world's central banks tossed another $247 billion on the fire. That makes trillions and trillions, or so it seems. Every few months for over a year they've gathered for this ceremony. Maybe this time increasing liquidity will cure the solvency problem. How's that been working out for you?

Do As I Say... The US can no pretend to be the home of free-market capitalism. The Republican-led government has repudiated decades of preaching the virtue of the free market and the nasty evils of government regulation. Too bad Friedman's not here to explain it away.

Nest Egg: US house owner's equity is at a record low 42.5% of housing value. With over 30% of US houses mortgage-free, the 50 million houses with mortgages have a lot less than 40% equity.

RTC II: Why are Paulson and Bernanke still running around? Did they make bail?

Fourteenth Amendment? Bear Stearn's adoption was helped by $30 billion of the taxpayer's money. AIG got to borrow $85 billion. Can Lehman's sue under the equal protection clause?

Briefly: The Securities and Exchange Commission appears ready to issue a ban on short-selling. The extent of the ban and the stocks to be covered are, for the moment, unclear. This is sure to cure the problem the investment bankers and broker-dealers are having with their inadequate capitalization and failed business plans.

Precision : All this government intervention with the ordinary course of capitalism is either called 'socialism for the rich' or 'nationalization'. It is neither; it is corporate fascism. Google Mussolini.

Porn O'Graph: You can fool some of the people all of the time...

Thursday, September 18, 2008

SAR #8262

The emperor is most certainly naked.

Reality Check: Most of Houston, the nation's fourth-largest city, is still without power and will be for another week. It will take up to six weeks to restore the water system. Toilets need water to flush, which presents a larger problem than electricity for the inhabitants. The 15,000 people remaining in Galveston have no electricity and very limited water and sewer service. Most of Galveston is still covered by floodwaters. Wonder why this isn't headline news in the MSM.

Relativity: Here's the deal: Lend Uncle Sammie $100 today, and for Christmas Uncle Sammie will give you $100.02 back. And it's a good deal, too.

Alfred E. Neuman: July 21st, Paulson "Our banking system is a safe and a sound one." September 16th, Paulson remains confident "in the soundness and resilience in the American financial system." September 17th, Paulson has laryngitis.

Chicken Egg Chicken: The price of oil has destroyed enough demand that the price of oil has fallen to where the cost of producing oil is causing producers to cut back production, which will drive up the price of oil.

Odd Jobs: The Treasury announced it will sell T-bills to get funds to pump up the Federal Reserve. They also announced a series of Bake Sales to be held on alternate Thursdays.

More of the Same: Under protection of the President's constitutional power to kill people who live near countries he doesn't like, the US lobbed four missiles into Pakistan killing five people militants. Admiral Mullen, Chairman of the Joint Chiefs, issued a statement reiterating US commitment to respect Pakistan's sovereignty when it's not inconvenient to do so.

Silly Season: Not understanding concept of 'moral hazard', some of the elite want to create a Federal Agency that would "relieve financial institutions of their toxic securities". It would also walk the dog, do the floors and wash the windows.

Revenge: If your 401k is now a 201e or less, you probably feel like doing something. Michael Louis has some suggestions.

Oliver Twisted: After this weeks stirring display of resolve by Bernanke, Paulson & Co., more and more institutions will be approaching, bowls in hand, asking for another helping. Harvard Business is starting a course in Bailout Capitalism.

The Graduate: A study published in the Journal of the AMA found that the common plastic component bisphenol A is linked to such health problems as a doubling of the rate of heart disease and diabetes. Hundreds of independent studies in animals indicate the estrogen-like chemical poses serious risks. The Bush Administration, citing checks from studies by the chemical industry said that bisphenol hasn't yet killed enough people to pay attention to the science.

Good Tidings: The most encouraging news on the economy came out of Washington today when Senate Majority Leader Harry Reid said Congress was unlikely to pass legislation to overhaul financial regulations this year because "no one knows what to do.'' Meanwhile House Majority Leader Hoyer said the idea of having a Federal agency to buy up 'distressed' (aka toxic) debt is the silliest thing he's ever heard won't be considered before the elections because the voters would tar and feather anyone who voted for it.

Porn O'Graph: Put it under the mattress....

Wednesday, September 17, 2008

SAR #8261

Brother, can you spare a dime?

Pssst! Now the Treasury is pimping trying to arrange a marriage for WaMu; planning to use the same dress Bear and Lehamn's wore.

The Buck Stops: The Reserve's Primary Fund - a $62 billion money market fund - has 'broken the buck'. That is, the nominal $1 value has dropped to 97 cents. Lehman's, of course.

Single Payer System: Why can't the we have nationalized health care? We already have nationalized housing, the auto industry, and now we're nationalizing the insurance industry.

For Training Purposes Only: The US Defense Department is selling Israel 1,000 'bunker-buster' bombs. The GBU-39 'smart bombs' can penetrate six feet of reinforced concrete and have a 50 - 50 chance of coming within 20 feet of their targets. The other 50% of the time they seek out wedding parties.

Death by a Thousand Cuts: What, exactly, has changed with BofA buying Merrill Lynch? Does changing the name make it more profitable? The main change appears to be that the hermaphroditic result of the merger has access to the 'permanent emergency' loan window at the Fed, where they can exchange equities (such as Ford bonds and GM stock) for Treasury notes. What happens when the companies whose stock the Fed is holding go bankrupt?

Roget's: Paulson repeatedly said there would be no (more) bailouts for Wall Street. So what are we going to call giving $40 billion $70 billion $85 billion of the taxpayers money to AIG? A down-payment?

Risky Business: The effects of hurricanes Katrina, Rita , Gustav and Ike raise serious questions about the plan to increase oil supplies through offshore drilling. Some infrastructure that was destroyed by Katrina is not back in operation. More was damaged by Rita, Gustav and Ike. Putting rigs farther and farther out into the Gulf - in harm's way - is not a sound business plan.

Cold Shower: "The Volt is coming, the Volt is coming." Maybe so, but it sure is dragging a long extension cord. A battery that will take you farther than the next McDonald's, last more than two years and cost less than $20,000 seems about two economic collapses in the future. I'm not convinced my laptop's battery isn't going to explode...

Structured Sentence : Which of the following is correct: (A) Will Citi collapse? or (B) When will Citi collapse? Usual prize, disclaimer, etc.

Dominoes: As Lehman's and AIG dump their holdings, those who hold similar paper will be forced to write down the value of their holdings. Hedge funds, which are generously unbalanced with short-term liabilities invested in long term assets are particularly vulnerable as their sponsoring institutions become short of capital. About 100 hedge funds were dependent on Lehman's.

On the Never-Never: There is a phenomena in the desert, where the horizon recedes as you travel towards it. Same thing seems to happen with oil sands projects. The break even price is always just $5 or $10 more than the current price. Canadian projects are getting shelved now because they need $105 a barrel to justify the investment. Investment money is getting hard to find and more expensive, too.

Crime Doesn't Pay; Failure Does: John Tain, Merrill Lynch's CEO and chief trader Thomas Montag, having guided Merrill Lynch into BofA's loving embrace, are now in line for $47 million in consolation prizes. Tain had worked atMerrill for 9 months, Montag was there for just over a month. Minimum wage went up this year, to $6.55 an hour.

Tuesday, September 16, 2008

SAR #8260

All good things come to an end.

The Future is Now: The US and Pakistani military both deny that Pakistani troops fired on US military helicopters along the border and forced them to return to Afghan airspace. Witnesses on the ground were told not to believe their lying eyes.

This Way to the Exit: S&P. Moody, Fitch and A.M.Best have offered to show AIG the door. Any further downgrades will require AIG to post more collateral. It doesn't have a whole lot of collateral laying around. S&P has lowered Washington Mutual's rating to "junk", while Fitch estimates that 45% of WaMu's payment option ARMs will default. Say "goodnight," Gracie.

Quiz: How much longer will they blame all this on "sub-prime mortgages"?

Elephant, What Elephant? US industrial output fell 1.1% in August. Production has now fallen 1.5% in the past year and 2% since the peak in January. The only thing growing in the US seems to be the number of bankruptcies.

Tell Mike it was only business... So far this year DOD has sold or transfered over $32 billion in weapons and military gear to foreign governments, most of whom we'll eventually alienate enough that we'll have to go take the stuff away from them.

That was Then, This is Now: In July EDS said reports it would fire a significant portion of its workforce were untrue. It is, however firing is 24,600 - 7.5% of its employees. Define "significant". It is also writing off $1.4 billion in "goodwill". Goodwill is defined as how much too much you paid for something, in this case it is 10% of what Hewlit-Packard paid for the privilege of owning EDS.

Into the Valey of Death... One in every 416 US houses entered foreclosure during August. How are things on your block?

Deadly Sin #Eight: The SEC has decided that only betting that stocks rise in value is to be allowed. That stocks sometimes fall in value is an embarrassment and should not be discussed in front of the women and children and retail investors. That's the short of it.

Collateral Damage: Bear Stearns, the fifth-largest US investment bank. Lehman Brothers, the fourth-largest US investment bank. Merrill Lynch, the third largest US investment bank. AIG, the world's largest insurer. Washington Mutual, the sixth largest bank in the US. Wachovia, fourth largest commercial banking chain in the US. What happens to all the small banks that had invested in Fannie and Freddie and Merrill and Lehman's and AIG?

Blue Plate Special: With Bear and Lehman and Merrill gone, when do Morgan Stanley and Goldman Sachs get served up to the wolves? Does it turn out to be an all-you-can-eat buffet?

Tortise and Hare: Ten days ago, US gasoline inventories were at their lowest since 2000. If refinery fills to the pipeline distribution system are shut down for over a week, it is quite possible that there will not be enough product available to keep the flow running. It will be interesting to see which wins the race, continued consumption or refinery resumption.

Happy Days Aren't Here Quite Yet: Bank of America CEO Ken Lewis expects the rest of 2008 and most of 2009 to be tough for financial services. That's why he spent $50 billion buying a financial services company. Lewis expects charge-offs to continue to rise until sometime in 2010. Then do they level off?

Porn O'Graph: Shanghai wins the High Dive.