AP: The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future an independent watchdog at the Treasury Department warned.

 The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption. (Keep reading...)

Mon Feb 1

Henry Blodget: Paul Volcker expounds on his plan to fix the financial system in a New York Times op-ed. The plan is a good one:

• Prevent banks from owning hedge funds and other proprietary trading vehicles (Glass Steagall II)
• Give the government resolution authority to step in, liquidate, or sell any firm it deems to be in trouble (including mortgage lenders, investment banks, and insurance companies)
• Make shareholders, management, and, yes, bondholders pay for any costs associated with this (the latter is what we refused to this time, which is the most appalling part of the current bailout policy)

If we do only these things, we will have eliminated the most insidious and problematic part of the status quo: Too Big To Fail.

Under this plan, big firms would be allowed to fail--in an orderly fashion, with their owners and lenders taking the hit.  In good times, they will also remain competitive in a global economy without arbitrary size constraints that put them at a disadvantage versus international banks that face no such restrictions.

Read Volcker's op-ed here >

China may be banning the film "Avatar" from theatres, but the country is actually turning the greenest, fastest:

New York Times:  China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.  (keep reading...)

Happy tax season!  But you may not be so happy to know where some of your hard earned money is being spent.

Speaker's trips 'are more about partying that anything else,' says Bob Unruh:

It reads like a dream order for a wild frat party: Maker's Mark whiskey, Courvoisier cognac, Johnny Walker Red scotch, Grey Goose vodka, E&J brandy, Bailey's Irish Crème, Bacardi Light rum, Jim Beam whiskey, Beefeater gin, Dewars scotch, Bombay Sapphire gin, Jack Daniels whiskey … and Corona beer.


But that single receipt makes up just part of the more than $101,000 taxpayers paid for "in-flight services" – including food and liquor, for House Speaker Nancy Pelosi's trips on Air Force jets over the last two years. That's almost $1,000 per week. (Keep reading...)

One bright spot for Obama is his proposed “TARP tax.”

WSJ: Bolger’s and Greenberg’s results showed that the fee on banks to pay for the financial bail out has solid popular support. The poll of 800 likely voters showed that 57% of respondents supported the tax when the pollster described it as a “responsibility fee” that will “discourage big bonus payouts and ensure the big banks that caused the crisis pay for the bailout.” But 39% of respondents oppose the tax when pollsters said it would cause the banks to pass along the costs to consumers and reduce lending to small businesses.

Bolger told National Public Radio he thinks his fellow Republicans could be hurt if they take up the bankers’ cause in the 2010 midterm elections. (Keep reading...)

Fri Jan 29

McClatchy: The U.S. Senate confirmed Federal Reserve Board Chairman Ben Bernanke to a second four-year term on Thursday, but not before lawmakers from both parties skewered him for his performance as a steward of the economy and the banking system.

The 70-30 vote came amid growing criticism of the Federal Reserve for secrecy and controversial decisions made during the $182 billion rescue of troubled insurance giant American International Group.

Ahead of the vote, Bernanke agreed to an unprecedented audit of the Fed's handling of AIG matters by the Government Accountability Office, the watchdog arm of Congress. That's only one of a number of challenges he faces in his second term directing the nation's central bank. (Keep reading...)

Todd Harrison: The State of the Union came and went with mixed emotions on many fronts. From 40,000 feet, one could argue President Obama's mandate is spot on; jobs are the primary focus and small business, the fabric of our great nation, must be encouraged if we're to rebuild our economy from the inside out. There is a ton of motivated human capital working towards a solution; they (we) must be encouraged, not repressed.

While the broad strokes are there, it remains to be seen if politicians will be able to color within the lines. The last few years have been The Great Divide, red states vs. blue states, have's vs. have not's, Main Street vs. Wall Street. The President was correct in saying that we must work together to execute solutions but that's easier said than done in an election year when personal and political agendas abound.

To that end--with a conscious nod that we don't "do" politics in the 'Ville unless it relates to financial markets -- I'll share this thought. Into the Presidential election, I said the vote came down to "diplomacy vs. defense;" that the enormity of the economic hardship embedded in the system after years of cumulative growth was bigger than any one man. (Keep reading...)

Daily Bail says "This is huge and pretty much destroys the argument made by New York Fed officials (Geithner) that foreign banks (Societe Generale) were not allowed by law to accept less than full value on derivative contracts with AIG."

Jan. 27 (Bloomberg) -- A French regulator was willing to discuss allowing lower payments to retire American International Group Inc.’s obligations to the country’s banks, according to congressional testimony that undermines part of the rationale the Federal Reserve Bank of New York gave for paying full value.

France’s regulator was “open to further negotiations” to discuss the possibility of concessions by AIG counterparties Societe Generale SA and Credit Agricole SA’s Calyon unit, in November 2008, Neil Barofsky, the special inspector general for the Treasury Department’s Troubled Asset Relief Program, said in prepared remarks for a House oversight committee hearing today.

New York Fed General Counsel Thomas Baxter wrote to Barofsky last year that the regulator declined to demand concessions from U.S. banks partly because “it would not have been appropriate” when rivals in other nations were unwilling or “legally barred” from giving discounts.

“It appears officials at the New York Fed deceived or even lied to the inspector general regarding the French regulator’s position,” said Joshua Rosner, managing director at Graham Fisher & Co., a New York investment research firm.

Huffington Post: A government audit this month found that as of Sept. 30, 2009, the Treasury Department was expecting a $30 billion loss on its TARP-related AIG investment. The value of the securities could ultimately rise, though.

Combined with the $6 billion deficit it faced in the face value of those securities, Goldman Sachs ultimately received about $8 billion from taxpayers via AIG. Goldman posted a $1.3 billion profit for 2008.

Goldman's bonds -- now owned by taxpayers -- are presently worth just 75 cents on the dollar, according to calculations by Zero Hedge.  (Keep reading...)

What to know when you go on a job interview:

Adele Scheele: The real question that most interviewers yearn to ask is off-limits. They want to know if you are enough like them to admit you to their very private and exclusive club. The process is like rushing for a fraternity or sorority; the admissions committee has a radar selector for who can join. Those who are rejected never learn exactly why. Too bad we can't witness this acceptance and rejection process to see for ourselves who wins and the reasons why.

Obviously, interviewers can't ask you if you really fit into their club, so they substitute questions which they hope will reveal whether or not you belong. And your answer to their masked questions has to be "Yes, I am just like you! Let me tell you how." And then you choose from your life story only that which is a good match for them. (Keep reading...)

If you are like many others finding it impossible to make your mortgage payments, and feel like you're slipping closer to foreclosure, here is the information on your options, and some warnings of scams to avoid, from Fannie Mae and Freddie Mac:

First, HOPE from FannieMae —

I'm not yet behind on my mortgage payments, but worry that I will be. What should I do?

You can discuss your situation with a housing counselor or your mortgage company. Talk with a counselor by calling the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE (4673).

Walking away isn't the only option.

If you want to stay in your house but may have trouble making mortgage payments, lenders and the government have a variety of programs to help as part of addressing the housing crisis. The process can be long, painful and the modified term offers often don't meet expectations, especially if you're current on your payments. But it's something.

The federal Making Home Affordable Program has two main options -- mortgage refinance or lowering monthly payments. Fannie Mae summarizes:

Home Affordable Refinance: "Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today's lower mortgage rates, perhaps due to a decrease in the value of their home. The Home Affordable Refinance may help borrowers, whose loans are held by Fannie Mae or Freddie Mac, refinance into a more affordable mortgage."

Home Affordable Modification: "Many homeowners are struggling to make their monthly mortgage payments either because their interest rate has increased or they have less income. The Home Affordable Modification may provide them with mortgage payments they can afford." Other major lenders are participating in the program, although with limited success.

According to Fannie Mae, there's also:

Forbearance: "your mortgage company may let you pay a portion of your regular payment or no payment at all for a specific period. At the end of the forbearance period, you begin making regular payments as well as an additional amount to pay off the past-due amount."

Repayment plans: "you may be able to catch up on missed payments by creating a schedule for repaying the past-due amount."

HomeSaver Advance: "if your missed payments are due to a temporary financial hardship, you may be eligible for an unsecured personal loan to help you get current with your payments."

Now, a warning from FreddieMac —

If you do decide to stay put and work out a deal with the lender, beware of dubious mortgage modification "helpers," like the much-sued outfit 21st Century, (now known as Fidelity National Legal Services).

You should first find a HUD-approved housing counselor. Help is Free!

    * There's never a fee to get help with Making Home Affordable from your lender or a HUD-approved housing counselor .
    * Beware of anyone who asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!
    * Beware of people who pressure you to sign papers.
    * Beware of anyone who says they can "save" your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
    * Never submit your mortgage payments to anyone other than your mortgage company without their approval.

Huffington Post: A Republican senator said Tuesday that documents showing Federal Reserve Board Chairman Ben Bernake covered up the fact that his staff recommended he not bailout AIG are being kept from the public. And a House Republican charged that a whistleblower had alerted Congress to specific documents provide "troubling details" of Bernanke's role in the AIG bailout.

Senators will be voting on Bernanke's confirmation for a second term in the coming days. But only senators on the Banking Committee have had access to documents that illuminate just what decisions he made and how he made them. And that access only came after Bunning publicly complained that Dodd and Sen. Richard Shelby (R-Ala.) were the only members of the committee could see them.

Meanwhile, Rep. Darrell Issa (R-Calif.), who has been investigating the AIG bailout in his role as ranking Republican on the House Oversight and Government Reform Committee, said that a whistleblower has informed him of "troubling details" of Bernanke's role in the bailout.

There may be nothing incriminating in the documents, but without access to them, the Senate will be voting to confirm him in the dark.  (Keep reading...)

Wed Jan 27

CNBC video interview: Some worry Washington actions may create a new bear market. But Dick Bove, financial strategist at Rochdale Securities, fears the worst: He warns that America's government may instigate a full-fledged market crash. Bove offered CNBC his insights — and named bank stocks that are still strong  investments.

"We all agree the market is driven by money. If the money supply increases, the money gets into the market and stock prices go up," Bove noted. "But last week, what we saw was a shot at both of the areas where money creation occurs in the United States."

What a recovery! If the economy keeps recovering like this we’ll soon all be busted…

Bill Bonner: House sales are falling…unemployment is rising…and people are getting poorer!  The Dow rallied a piddly 23 points yesterday. Oil is selling for less than $75 this morning. Stocks are in trouble. As we said yesterday, this could be the beginning of the end for this bear market. We’ve seen the first leg down. We’ve seen the rally. We’re ready for the next big plunge. Yesterday, the latest numbers on existing house sales for December came out. They were disappointing – nearly 17% lower than the year before.

Unemployment is still rising, as near as we can determine. It is rising for two reasons. Because we are in a depression. And, because the feds are trying to ‘do something about it.’

If a banker runs his bank well, he gets nothing but trouble from the feds…paperwork, bureaucracy, pettifogging regulations. But if he runs it badly, he gets billions of dollars worth of bailouts. If an automaker takes the best business in the world and runs it into the ground, he gets the support of the federal government. If he runs his business well, he gets nothing but headaches. The feds’ recovery program pays for failure. Naturally, they get a lot of it.  (Keep reading...)

 James Carville says Democrats need to learn the blame game.

Financial Times: The most exciting spectator sport in American politics is in full swing in Washington following last Tuesday’s once-unthinkable election result. And it is just beginning.

Contrary to what you might think, I am a proud member of the pro finger-pointing caucus. It wasn’t too long ago that my longtime colleague Paul Begala and I urged our friends on the other side of the aisle to engage early and often in the blame game.

Now it is the Democrats’ turn. Point fingers is exactly what Democrats have done following Republican Scott Brown’s surprise victory in Massachusetts, and the subsequent setback for healthcare reform. (Keep reading...)

Mon Jan 25

Tim Geithner's NY Fed Begged SEC To Keep AIG Bailout Details Secret —

Business Insider: The New York Times unearths more documents showing the lengths to which Tim Geithner's New York Fed went to try to keep the AIG bailout and counterparty details secret.

The Treasury's response will no doubt be that Tim Geithner had no knowledge of any of these discussions.

And he may not have have been involved in the discussions.  But it's ludicrous to think that his folks weren't trying to do what he wanted done.

Reuters got the emails, too, and has a detailed write-up.

Mon Jan 25

DailyMail: The scientist behind the bogus claim in a Nobel Prize-winning UN report that Himalayan glaciers will have melted by 2035 last night admitted it was included purely to put political pressure on world leaders.

Dr Murari Lal also said he was well aware the statement, in the 2007 report by the Intergovernmental Panel on Climate Change (IPCC), did not rest on peer-reviewed scientific research.

In an interview with The Mail on Sunday, Dr Lal, the co-ordinating lead author of the report’s chapter on Asia, said: ‘It related to several countries in this region and their water sources. We thought that if we can highlight it, it will impact policy-makers and politicians and encourage them to take some concrete action.

Read more: http://www.dailymail.co.uk/news/article-1245636/Glacier-scientists-says-knew-data-verified.html#ixzz0daaXmK7u

Mon Jan 25

Business Insider: AT&T captivity is the single biggest reason folks who don't buy iPhones don't buy them, so this would be big.

It would also be unexpectedly early--most analysts aren't expecting Apple to open up to other carriers until the middle of the year.

(We'd be surprised to see Apple actually end the exclusivity on Wednesday, but it seems plausible that they would announce the end...)

And in a week of Apple news, Google also splashed headlines when co-founders Sergey Brin and Larry Page disclosed on Friday that they plan to give up their majority control of the internet group over the next five years.

Mon Jan 25

I'm sure you've heard it...

DailyBeast: The biggest problem with 2009’s megabonuses is economic, not moral. Tunku Varadarajan on how Wall Street made money soaking savers and taxpayers, rather than adding value.

Bankers do not deserve bonuses this year, at least not in the Western world. And I don't say this from atop some moral or aesthetic or populist high horse. Instead, my arguments are mostly economic.

Banks are making money because they're borrowing at ridiculously low rates from the public and central banks and then investing in higher-yielding government securities.  (Keep reading...)

A commentary on deleveraging, from the Anonymous Monetarist:

"what were they thinking when they allowed such leverage against illiquid assets? Eventually reality will mark the assets regardless of the Federales' efforts.

Truth that.

The Fed is at 43 times assets to capital. WSJ reports that the Fed's equity could be wiped out by just a 2.8% drop in the value of its Treasurys and securities.

So a leveraged hedge fund with a book of derivatives that have a notional value of about 2%, that is not valuing its' collateral at market rates, golly better hope that hedge works. What? There is no hedge?

So for a normal hedgie the risk is 2% but for us 2% is the risk? Ruh-ro.

And that is why ladies and gentleman this humble blogger thinks the venerable Mr. Grant may be as incorrect about his zippy V as he was about his AIG call ... and for exactly the same reasons." (read more...)

Steve Jobs's Tablet Device Looks to Repackage TV, Magazines, Just as iPod Changed Music Sales.

WSJ: With the new tablet device that is debuting next week, Apple Inc. Chief Executive Steve Jobs is betting he can reshape businesses like textbooks, newspapers and television much the way his iPod revamped the music industry—and expand Apple's influence and revenue as a content middleman.

In developing the device, Apple focused on the role the gadget could play in homes and in classrooms, say people familiar with the situation. The company envisions that the tablet can be shared by multiple family members to read news and check email in homes, these people say.

For classrooms, Apple has been exploring electronic-textbook technology, these people add. The people familiar with the matter say Apple has also been looking at how content from newspapers and magazines can be presented differently on the tablet. Other people briefed on the device say the tablet will come with a virtual keyboard. (Keep reading...)

To make up for Scott Brown (pictured right) and his republican victory, the new Democratic strategy will be populism on steroids.  Let's hope!  Give the crooks their karma.

Reuters: Scott Brown stunning capture of the Massachusetts Senate seat held for decades by Ted Kennedy was a political black swan, a near-unpredictable event.

The result ends the Democratic supermajority in the Senate and leaves key parts of the Obama agenda in deep trouble. But the biggest loser just might be Wall Street. Desperate Democrats may see anti-bank populism as a way of holding power as the November midterm elections approach.

The last days of the heated Senate race saw the first attempts at that political gambit. Democratic candidate Martha Coakley’s allies in Washington, both the White House and national Democratic officials, used President Barack Obama’s proposed bank tax as a cudgel to bash Brown via emailings and telephone calls.  (Keep reading...)

Con Coughlin, telegraph.co.uk: The failure of British security officials to alert their American counterparts to Abdulmuttalab’s radical activities while president of UCL’s Islamic Society has led to increased tensions between Washington and London.

While in London Abdulmutallab regularly presided over debates that denounced Britain’s involvement in the war on terror and America’s Guantanamo detention facility.

American officials now believe Britain poses a major threat to Western security because of the large number of al-Qaeda supporters that are active in the country.  (Keep reading...)

A quick and dirty explanation of how debt and deleveraging has blown up into the ginormous problem plaguing our economy today, from McKinsey.com:

Free won't be free anymore for search giant's YouTube service.

Marketwatch: It seems Google Inc. is putting its giant paw just about anywhere it wants these days, so why shouldn't the search giant get into the video-rental game?  Because it'll have to reprogram the brains of millions of Web surfers, that's why. Not that it can't be done, but ...

Google's YouTube plans to start testing a new video-rental service on Friday, using five films from the Sundance Film Festival, according to a report in The Wall Street Journal. YouTube also plans to offer health, education and fitness videos in coming weeks in an effort to create more content supported by viewers, rather than advertisers.

Granted, it's the second such venture announced by a media company on Wednesday; the New York Times Co. said it also plans to start charging for some of its online content. (Keep reading...)

Bloomberg estimated it would cost Bank of America $1.53 billion, or 22 percent of the bank's projected earnings per share in 2010...

Huffington Post: Critics of the Obama administration's proposed bank tax have called the levy arbitrary, punitive and unfair. Now they may repeat those same claims in court.

The banking industry, the New York Times reports today, is hoping to stave off a tax that could cost the largest firms more than $1.5 billion each.

The Securities Industry and Financial Markets Association (SIFMA), the banks' top lobbying group, the NYT reports, is currently considering challenging the constitutionality of Obama's Financial Crisis Responsibility Fee. According to an email from SIFMA to Wall Street's banks obtained by the NYT, the tax "would unfairly single out and penalize big banks." (keep reading...)

The anger over outrageous banker behavior is shared around the world.  One by one, the men who bankrupted Britain have returned to lucrative jobs. Don't they have a shred of shame?

DailyMail: The return of the man who ruined the Royal Bank of Scotland to the business world, as a senior adviser to Edinburgh-based architecture practice RMJM, has been greeted with breathtaking indifference.

Sir Fred Goodwin's appointment to a top commercial job - like those of several of the other bankers who wrecked their institutions and brought Britain to the brink of penury - is seen as if it is the natural order of things.

Few in the business world seem bothered that, while Goodwin and his colleagues limber up for a new life of business-class travel and the lavish accoutrements of international commerce, their successors in those broken banks they left behind are in grave difficulty trying to repair the damage.

Read more: http://www.dailymail.co.uk/debate/article-1244315/One-men-bankrupted-Britain-returned-lucrative-jobs-Dont-shred-shame.html?ITO=1490#ixzz0d7lLNqqZ

From Misch's blog...

Misch: Last week I asked Australian economist Steve Keen what he thought about the St. Louis Fed article on the Social Cost of Transparency.

I was highly critical of the Fed's article and wrote about it in In Defense Of Secrecy; Three Prong Attack On The Fed; Selective Myopia . I asked Steve Keen to take a look. Here is a snip from my post, Keen's comments follow:

Unless you are an academic wonk, you will be stymied by pages that look like this ...

From Steve Keen ...
One quick perusal of that article and I could consign it to neoclassical gibberish. The key giveaway is in the first sentence of the abstract...(keep reading...)

Marketwatch: The people of this country have had it up to here with the way our leaders are running our country.

And while the election of Republican Scott Brown to the U.S. Senate seat held by the Kennedy brothers for nearly 60 years is clearly a repudiation of the Democrats' leadership, Republicans shouldn't get so smug about this victory. See full story on Brown's victory in Massachusetts.
 
We are fed up with the lot of you. You promised to change the way Washington works, but you didn't do it. Your answers to our problems are inadequate, or they make things worse. As usual, you're taking care of everyone but us. Despite the worst economic crisis in generations, nothing has changed.

This country is in trouble, maybe big trouble. Our economy doesn't work for us any more. Jobs are hard to find, health care is hit or miss, and the idea of a comfortable retirement seems a cruel joke. We legitimately worry that we're bequeathing our kids and our grandkids a life that's going to be much tougher than ours. (keep reading...)

Says Obama: "If banks can afford to pay out all those bonuses, he said, then they can repay taxpayers, too."  Right on!

Ap: President Barack Obama expressed confidence Saturday that lawmakers would approve his proposed tax on banks to recover bailout money, despite opposition from Republicans and the financial industry.

"Like clockwork, the banks and politicians who curry their favor are already trying to stop this fee from going into effect," he said, using his weekly radio and Internet addresses to promote the plan he announced this past week.

"The very same firms reaping billions of dollars in profits, and reportedly handing out more money in bonuses and compensation than ever before in history, are now pleading poverty. It's a sight to see." (keep reading...)

Mon Jan 18

Despite having the two classic ingredients for high inflation, the United States has experienced only benign price increases.

New York Times: Is galloping inflation around the corner? Without doubt, the United States is exhibiting some of the classic precursors to out-of-control inflation. But a deeper look suggests that the story is not so simple.

Let’s start with first principles. One basic lesson of economics is that prices rise when the government creates an excessive amount of money. In other words, inflation occurs when too much money is chasing too few goods.

A second lesson is that governments resort to rapid monetary growth because they face fiscal problems. When government spending exceeds tax collection, policy makers sometimes turn to their central banks, which essentially print money to cover the budget shortfall.

Those two lessons go a long way toward explaining history’s hyperinflations, like those experienced by Germany in the 1920s or by Zimbabwe recently. Is the United States about to go down this route?  (Keep reading...)

Well-known to businessmen everywhere, but totally under-appreciated by investors, is the concept of working capital….the day-to-day operating cash flow that makes a business run. Turns out the Red Cross has a big working capital problem when it comes to text message donations. From Carrick Mollenkamp (WSJ), Americans pledge millions, but cash flow takes weeks:

Secretary of State Hillary Clinton, CNN, and users of Twitter Inc. have urged people to punch 90999 and then type in the word “HAITI” on their phones to send $10 to the American Red Cross. But the money won’t be routed from most U.S. wireless carriers to relief efforts until cellphone users pay their phone bills.

That could take 30 to 90 days, telecommunications officials estimate, well after the critical initial days in which humanitarian aid organizations are trying to deliver medical supplies, food and water to save injured earthquake victims and help others with their most immediate needs.

Reuters: To run its operations, the Red Cross needs cash today. But text message donations don’t actually come through until users pay their cell phone bills and carriers pass through the funds. Businesses confront cash flow issues like this every day, yet investors typically ignore them.

Does a business require lots of investment up front to provide its good or service? If so, this can be a big and ongoing operational risk. Every Christmas season, retailers invest in inventory they hope is going to sell. If it doesn’t, they can end up in bankruptcy.  (Keep reading...)

Jim Gobetz: I asked a fellow investor, and a gentleman I have great respect for, if he would invest in California Debt and if so in what timeframe. He replied that he would not. I am going to attempt to make the opposite case. First two caveats:
1) I would be selective in the particular instruments and the timeframe I would invest in.
2) I would not invest widows and orphans fund money. For the sake of this I will stipulate that I would invest with money I would normally invest in other Municipal Debt.

The Case Against: California has as bad a problem with residential real estate as any state in the country with a 20% increase in mortgage defaults in 2009. (CA along with FL, AZ, and IL are responsible for 51% of the nations defaults). It’s Civilian Unemployment rate for November 2009 was 12.3% versus 10.0% for the nation as a whole. And this is predicted to remain constant through 2010 (per CA dept of Finance). Total Wages and Salaries declined in 2009 to below 2007 levels, and it’s CPI is higher than the national average, and there are large budget shortfalls for 2010. This is certainly a pretty bleak picture and there are many more things one can point to in the case against the debt of California. Here is a link to a PDF put out by the California Dept of Finance entitled “California at the Brink of Financial Disaster”. When your own Dept of Finance entitles a presentation thusly, things are pretty bad. Financial_Disaster-Presentation-w

The Case For: Below is page 4 of the aforementioned presentation. I put this up to note the second item in the “Will Pay” column.

As indicated the state is committed to paying off the General Obligation debt.
There are still many investment grade Muni Bonds issued by California and Tax Districts inside California. The current environment has pushed the yield of these bonds well above the national average. There are more than 15 million registered voters in California, with the Democratic party having the largest share by a wide margin. In my opinion the current Congress is unlikely in the extreme to let the largest state in the country (by total population and registered voters), who have supported the Democrat party in national elections since 1992 default on it’s debt.

So what would I invest in, for how long and Why?  (Keep reading...)

Go get them, Mr. President. Come down tough on Wall Street, and please don't stop until all the crooks are in jail!

No one has offered a clear reason why such giant banks are important to the US economy.

Robert Reich: It has been more than a year since all hell broke loose on Wall Street and, remarkably, almost nothing has been done to prevent all hell from breaking loose again.
 
In fact, close your eyes and you could be back in the wilds of 2007. Bankers are still making wild bets, still devising new derivatives, still piling on debt. The big banks have access to money almost as cheaply as in 2007, courtesy of the Fed, so bank profits are up and bonuses as generous as at the height of the boom.

The only difference is that now the Street’s biggest banks know they are “too big to fail” and will be bailed out by taxpayers if they get into trouble – which means they have every incentive to make even riskier bets. And, of course, American taxpayers are out some $120bn, while millions have lost their homes, jobs and savings. (keep reading...)

"Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed,''

CNBC: Financial regulators, lulled into inaction by soaring bank and Wall Street profits, failed to protect Americans from the 2008 financial crisis, senior U.S. officials told an investigative panel on Thursday.

Sheila Bair

In testimony that urged stricter oversight in future while admitting past errors, Federal Deposit Insurance Corp Chairman Sheila Bair headlined a second day of public hearings by Congress' Financial Crisis Inquiry Commission.

"Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities," she said.

"Record profitability within the financial services industry also served to shield it from some forms of regulatory second-guessing," Bair told the commission. (keep reading...)

Fri Jan 15

Economic Populist: During the previous year of 2009 many of us found ourselves baffled by the media barrage of accolades on behalf of Timothy Geithner, Larry Summers and Ben Bernanke. Extolled as the economic saviors to the masses, a sizable number of people would instead consider them among the architects of the economic meltdown and ongoing destruction of the middle and working classes.

A survey of the more thoughtful, brilliant and constructive economic thinkers is in order. The following women have made significant contributions during 2009, and throughout their lives, to inform and enlighten us on important aspects of the national and global economy.

ANNIE LEONARD: STUFF HAPPENS

The intrepid Annie Leonard, longtime sustainability activist who cogently detailed The Story of Stuff; an analysis of the social and environmental costs of stuff, from inception, production and distribution to our doorstep, returned again in 2009 with a lucid analysis of cap and trade. Her lively discussion, while not quite as humorous as The Onion's take on karma offsets, sets the stage for a better understanding of the behind-the-scenes machinations of Wall Street's speculative answer to environmental degradation.

NOMI PRINS: IT TAKES A PILLAGE

Nomi Prins, Senior Fellow at the policy think tank, Demos, and former managing director at Goldman Sachs, once ran the institutional analytics group at Bear Stearns in London, and now is the energetic financial journalist responsible for Other People's Money: The Corporate Mugging of America (chosen as a Best Book of 2004 by The Economist, Barron's and The Library Journal), strikes again in 2009 with what is arguably the best recounting of the present and future meltdowns, It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street.

Pragmatic Capitalist: So says the team of equity analysts at Barclays.   Although policymakers helped avoid the second Great Depression, Barclays believes we have simply kicked the can down the road.  As their head of U.S. equity strategy said in November, the likelihood of Japanese style de-leveraging stagnation remains very high.

Like TPC, the bank argues that 2010 will be a year of halves.  While the first half is likely to be characterized by more of what we saw in 2010 (improvement in corporate profits and accommodative government actions) the second half is likely to be characterized by an increasing burden on the consumer as the baton is handed from the public sector to the private sector.  Barclays says this passing of the baton has the potential for an even greater crisis as higher taxes, higher interest rates and lower government spending create increased risks.

Barclays remains more bearish than the consensus.  Global economic growth is likely to disappoint as spare capacity fails to lead to a sharp rebound and unemployment remains high.  They see the probability of a crisis increasing as 2010 goes on: (Keep reading...)

• He sees a correction in the near-term, but a possible rally in the second half of the year. Though he doesn't see the rally hitting new highs.
• As far as bubbles, he's particularly concerned about US debt, and says in 5-10 years the interest rates will become a major problem.
• And in terms of currency, he thinks it's silly to think that a weak US dollar will save our export sector. If that's all it took, he argues, Zimbabwe and Latin America in the 80s would have been export and manufacturing powerhouses

Conservatives claim Obama's policies are weakening the dollar. Let's examine the evidence.

Newsweek: Have Bernanke and Obama made the dollar weaker? Has the response to the crisis, which started with the Bush administration in the summer of 2008, debased the currency? Not really.

The broadest measure of the dollar's strength is the trade-weighted dollar, which measures the dollar's value against a basket of currencies of our trading partners. (Here's a helpful list of our top 10 trading partners: Canada, China, Mexico, Japan, Germany, United Kingdom, South Korea, France, Taiwan, and Brazil.) Here's a long-term chart of the trade-weighted dollar index. What it shows, first of all, is that since the onset of the crisis in earnest—which I'd date to the spring of 2008, when Bear Stearns failed—the dollar has actually gained ground against the currencies of our biggest trading partners. It spiked in reaction to the panic in the fall of 2008, as investors sought a safe haven in the dollar, then fell back in 2009 before turning up again recently. It currently sits about 7 percent higher than the low of mid-2008 and almost exactly where it did in the fall of 2007, before the troubles started. A two-year chart would thus show a currency that hasn't been debased much at all. (Keep reading...)

CNBC: Some 37.9 million people -- one in eight Americans -- received food stamps to help buy food at latest count, the government said on Tuesday as enrollment set a record for the ninth month in a row.

Food stamps are the primary federal anti-hunger program. It helps poor people buy groceries. The economic stimulus package boosted benefits by $80 a month for a family of four.

Participation has surged since the financial-market turmoil more than a year ago and has set a record each month since December 2008. The Agriculture Department said enrollment reached 37.9 million in October, the latest month for which figures are available, up 746,000 from the previous month.

From The Curious Capitalist: Remember when the economic crisis taught us the importance of saving some of our money for a rainy day? That's a lesson the microfinance community is increasingly warming up to, too. I wrote a piece about the shift—emphasizing savings, not just lending—last summer, but I'm mentioning it again today because the Gates Foundation has announced that it will give $38 million in grants to organizations trying to figure out cost-efficient ways to drum up savings in poorer parts of the world.

Now, anyone who thinks that being poor is synonymous with not saving needs to read this book. Poor people do save and plan for the future—but cows aren't a particularly liquid asset and an informal, community-based insurance scheme doesn't work too well if catastrophe strikes an entire village.

The historical problem with expanding savings accounts within developing countries has been the cost of maintaining such accounts—since balances are low, it often doesn't make good business sense. The Gates money is partly meant to help figure out ways to bring down costs by using technology such as mobile phones for deposit-taking.

And that's where I think we all might learn something. Consider this recent study which found that people in the Philippines, Peru and Bolivia saved an average 6% more when they received cell-phone reminders about financial goals they'd already committed to. The economists who ran that study figured the process could easily be imported to places like the U.S. When those Gates-funded microfinanciers figure out how to get people in developing countries to save more cash money, I want to hear about it.

Bloomberg: The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.

The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.

Bloomberg argues that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Banks and the Fed warn that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell-off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. The lower court agreed with Bloomberg.
(Keep reading...)

Tue Jan 12

Food for thought: Huffington Post's Cenk Uygur says that right-wing media in this country have no interest in attacking big money, big corporations or big banks.

Quick question. Why hasn't conservative media ripped Tim Geithner's face off yet? He is by far the most incompetent and compromised (nicer than corrupt) member of the Obama administration. There is a mountain of evidence that he has helped his banker friends at the expense of American taxpayers over and over again. He is the Treasury Secretary when the main issue in the country is the state of our economy. And Republicans in Congress are now going after him. So, why is Fox News, Rush Limbaugh, etc. keeping their powder dry?

This is weird. If it was anyone else that had screwed up one tenth of what Geithner has, it would be running on a 24/7 loop on Fox News. Geithner gave away over $62 billion to the top banks in the country in secret, tried to cover it up and at the very least overpaid these banks by $13 billion. And that's just the latest in a series of scandals, with all the same theme -- Geithner gives away taxpayer money to the richest (and most culpable) guys in the country. Ah, there it is.

If the right-wing goes after Geithner, then they're going after the banks and the billions in taxpayer money they received. The right-wing media in this country have no interest in attacking big money, big corporations or big banks. So, while they'll talk for ten straight days about how Janet Napolitano should be fired for misspeaking, Geithner is remarkably bullet-proof. Why? Because they actually love what he's doing.

Those entering the workforce now will likely make less and save more, not just in the short term but for the rest of their lives.

Newsweek: We all know the type of person who came of age in the Great Depression. They are the grandmothers and grandfathers who can't use a tea bag too many times, yet are enjoying comfortable retirements in warm climates. And we know what the children of the 1950s are all about. They are the optimistic boomers who embodied an age of continual upward mobility and possibility. They have often spent more than they earned, because for them it has been a truism that times can only get better. It's no accident that the psychology of entire generations is shaped by the milieu in which they grew up; economic research tells us that our lifelong behaviors are determined in large part by the seismic events—good or bad—of our youth. So, given that we have just experienced the worst economic period in 70 years, it's no surprise that people have begun to wonder what sort of consumers, investors, and citizens will be bred by the Great Recession. Will there be, in effect, a "Generation Recession" of young people whose behaviors will be permanently shaped by the downturn?  (Keep reading...)