Les Jones

Bush administration, Federal Reserve lied about banks’ health in 2008

Monday, October 5th, 2009 | Economics | Permalink | No Comments |

ABC News - Government Watchdog Says Treasury and Fed Knew Bailed-Out Banks Were Not Healthy:

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, a government watchdog states in a new report released today.

The bailouts and the stress tests were a joke. Most banks are insolvent and are being propped up by government money, government backstops, and government regulators looking the other way.

Tags: bailout, banks, mortgage mess

Saturn sale to Penske falls through

Wednesday, September 30th, 2009 | Economics | Permalink | No Comments |

Via Patterico. The Saturn plant is in Spring Hill, TN, not far from where I live in Knoxville/Maryville. This is sad, but not unpredictable. Saturn has been in business almost 20 years and has yet to turn a profit.

For a while GM was spawning new brands - Saturn and Hummer - and adding dealerships for those brands when they should have been shuttering  obsolete brands like Oldsmobile and Pontiac and closing excess dealerships. You can only thumb your nose to reality for so long.

Tags: bailout, gm

GM undoes paycuts to white collar employees

Saturday, September 12th, 2009 | Economics | Permalink | No Comments |

Well isn’t that special?

Related: U.S. taxpayers are unlikely to recover their $81 billion investment in General Motors Co. and Chrysler Group LLC. Gee, can’t imagine why that would be.

Here’s a crazy idea. Let failed business go under so that good business can take their places. Let good crops expand into the fields of the failed crops. The alternative is to let everyone starve. Bonus - it doesn’t cost taxpayers anything.

Tags: bailout, chrysler, gm

Indiana state pensions sue to stop Obama’s Chrysler deal

Wednesday, May 20th, 2009 | Economics | Permalink | 1 Comment |

Obama’s plan for Chrysler demoted senior debt holders (whom he maligned as “speculators”) to benefit UAW union members. As a consequence of that decision Obama’s plan shortchanged police and teachers unions who had Chrysler investments in their pension funds. Now the state of Indiana is suing.

As stated in the filings, the US Treasury Task Force is seeking to use the Chrysler bankruptcy to extinguish the property rights of the pension funds as secured lenders, violating the most fundamental tenets of creditor rights in disregard of widely recognized bankruptcy jurisprudence. The proposed restructuring of stakeholders’ rights seeks to make payments of billions of dollars to unsecured creditors, while paying the secured creditors only 29 cents on the dollar.

“As fiduciaries, we can’t allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining ‘secured creditors’ to mean something less,” explained Treasurer Richard Mourdock. “The court filing is aimed not only at recouping those losses but also reasserting the rule of law and preventing the federal government from pursuing policies that strike at the heart of the capital system.”

It’s Economics In One Lesson again: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Previously: Obama’s GM plan pits unionized retirees against non-unionized retirees

Tags: bailout, chrysler, obama, pensions, unions

Obama sides with the unions in California

Thursday, May 14th, 2009 | Politics | Permalink | No Comments |

Washington Post - Tincture of Lawlessness:

In February, California’s Democratic-controlled Legislature, faced with a $42 billion budget deficit, trimmed $74 million (1.4 percent) from one of the state’s fastest-growing programs, which provides care for low-income and incapacitated elderly people and which cost the state $5.42 billion last year. The Los Angeles Times reports that “loose oversight and bureaucratic inertia have allowed fraud to fester.”

But the Service Employees International Union collects nearly $5 million a month from 223,000 caregivers who are members. And the Obama administration has told California that unless the $74 million in cuts are rescinded, it will deny the state $6.8 billion in stimulus money.

The Obama administration’s agenda of maximizing dependency involves political favoritism cloaked in the raiment of “economic planning” and “social justice” that somehow produce results superior to what markets produce when freedom allows merit to manifest itself, and incompetence to fail. The administration’s central activity — the political allocation of wealth and opportunity — is not merely susceptible to corruption, it is corruption.

Previously

• Obama’s GM plan pits unionized retirees against non-unionized retirees

Tags: bailout, california, obama, unions

The Top 10 Signs You Are Living in a Banana Republic

Friday, April 17th, 2009 | Misc | Permalink | 1 Comment |

The Top 10 Signs You Are Living in a Banana Republic:

5. The bankruptcy process has becomes a political process. If this is the worst economy since the great depression, why aren’t there more bankruptcies? When did bondholders–which own a risky asset class called, ahem, “bonds”–become a guaranteed non risk asset class? It is obvious that my college professors were mistaken in teaching that the only RISK FREE asset class was US GOVERNMENT DEBT SECURITIES. They are going to have to rewrite a ton of economics and corporate finance textbooks to include Bear Stearns bondholders and preferred stock holders, Fannie and Freddie bondholders, any bond or preferred instrument held by Bill Gross/PIMCO (the official fourth branch of the US govt.) and any bonds or preferred stocks of the too-politically-connected-to-fail group of financials including AIG, GS, MS, WFC, C, JPM, et al as part of the risk-free asset classes in 21st century American capitalism. And, maybe they should hold off publishing until June because GM and Chrysler debt and preferred holders may be on that list as well.

3. William Black, the former Chief Fraud Investigator at the Federal Home Lending Bank and Office of Thrift Supervision during the Savings and Loan scandal, calls the current bank stress tests ” A COMLETE SHAM.” The FHLB is a very big institution, with $1.3 trillion (with a T) in loans, and its Chief Fraud Investigator during the S&L scandal, says a pillar of Federal banking reform policy is “a complete sham.”  A complete sham. In addition to comparing the stress tests of our nations’ financial system to a counterfeit, fraud, flimflam, ruse (is that emphatic enough for you America, or do I need naked women shooting you with lasers to make you pay attention? I know, I do.  Can we get some graphics of naked ladies in here, please?) Mr. Black also called the stress test “a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough. Black also said, “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian.” “The fact bank stocks have been rising since Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the subsidy of all history.”

Tags: bailout, banks, porkulus

NY Times Joe Nocera: no bailouts for homeowners

Tuesday, March 17th, 2009 | Economics | Permalink | No Comments |

There’s a teensy-weensie little twist at the end.

Tags: bailout, mortgages

Lost your job? Can’t pay your mortgage? Here’s a $15,000 credit card

Tuesday, March 17th, 2009 | Economics | Permalink | No Comments |

Katie Grangu brings us this story. Guy loses his job, calls Citibank to find out how to get help with his mortgage under the Housing Recovery Act. The operator says the government hasn’t given them the information about HRA yet yet, so can’t help him there, but offers him a Citibank VISA with a $15,000 credit limit and no interest for a year. When he calls to activate the card they make him an offer he can’t refuse:

“We want to send you the entire $15,000 credit line today, in the form of a check. No interest for one entire year,” she chirped enthusiastically.

“Let me get this straight,” my friend inquired skeptically. “I called Citibank saying I’d lost my job, and to ask about whether I could get my mortgage interest payments lowered by federal subsidy, and instead, Citibank wants to loan me $15,000 at zero interest, with zero collateral, and with no questions asked?”

“Yes sir!” she replied.

In other news, Citi’s credit card division had a 9.33% default rate in February. Zeus knows why.

Tags: bailout, credit card companies

How are American’s investments in bailed-out banks performing?

Monday, March 9th, 2009 | Economics | Permalink | No Comments |

In return for bailout money the government is getting shares in the bailed-out companies. How are American’s investments performing?

Answer: not too well. Since the bailout the stocks of the 10 companies receiving the most TARP money have lost more than 80% of their value.

Tags: bailout, banks

Congress plans to give FDIC $500 billion for failed banks (UPDATED)

Friday, March 6th, 2009 | Economics | Permalink | 8 Comments |

Wall Street Journal - Bill Seeks to Let FDIC Borrow up to $500 Billion:

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat’s effort — which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner — would give the FDIC access to more money to rebuild its fund that insures consumers’ deposits, which have been hard hit by a string of bank failures.

Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding.

This $500 billion is in top of the $700 TARP bailout and the several trillion dollars the Fed is using to prop up banks. As Mish likes to say, “What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.”

Act accordingly. Spread your deposits around. Pull money out of the bank whenever you can do it safely (meaning, not just stuffing the money in your mattress where robbers and fire can take it). Pay off your outstanding bills. Pay extra on regular bills like your utilities, car payment, or mortgage. Put cash in safety deposit boxes. We could wind up with massive inflation, so it might not hurt to have some physical gold in the safety deposit box.

A full pantry never hurts, either. If nothing else you can save money buying in bulk, you’ll make fewer trips to the grocery store, and you’re less likely to find yourself without an ingredient when you’re cooking dinner on a Wednesday night.

Needless to say, you shouldn’t hold any banking stocks or insurance stocks (AIG was primarily an insurance company). More to the point: unload stocks now. The Dow is at 6,594 and the S&P is at 682. Notice how both numbers start with 6? They’ll start with 5 not long from now and I wouldn’t be surprised to see 4 eventually for the Dow.

P.S. While I think the banking system is largely insolvent, that isn’t the same thing as being 100% confident the banks will be wiped out or that you won’t get your money back. Take considered steps like the ones above, but don’t do anything foolish. (Putting money in your mattress is foolish.) The steps above have almost no risk. At worst, gold might go down some. The upside of gold is that it might double or triple from here if things get really bad. And if things don’t get really bad, you’ve still got gold.

UPDATE: CalculatedRisk notes that just six months ago the FDIC was disputing a Bloomberg story claiming the FDIC would need taxpayer money to cover bank losses:

Bloomberg reporter David Evans’ piece (”FDIC May Need $150 Billion Bailout as Local Bank Failures Mount,” Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a “bailout.”

So six months ago the FDIC was crying yellow journalism over a report they might need $150 billion in taxpayer money. Two days ago the FDIC said they might be insolvent this year without more money. Yesterday there were calls in Congress to give $500 billion in taxpayer money to the FDIC to cover failed banks. How things change. Nervous yet?

Previously

• More reasons I’m worried about banks
• This would be a good weekend for the FDIC to shut down banks

Tags: bailout, banks, fdic

The deuce you say

Tuesday, March 3rd, 2009 | Politics | Permalink | No Comments |

Shockah - massive government bailout has massive cost overruns:

March 3 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said today in testimony prepared for the Senate Budget Committee. “Although progress has been made on the financial front since last fall, more needs to be done.”

Bernanke’s comments suggest he sees a role for bigger federal outlays as the Obama administration seeks congressional approval for a budget of $3.55 trillion for the fiscal year beginning in October. President Barack Obama has already signed into a law a $787 billion economic stimulus package of tax cuts and government spending.

Tags: bailout, banks

Warren Buffet’s annual letter to shareholders

Saturday, February 28th, 2009 | Economics | Permalink | No Comments |

Forbes - Buffett Bloodied But Not Bowed:

“The economy will be in shambles throughout 2009–and for that matter, probably well beyond, ” Buffett writes.

The debilitating spiral of the credit crisis has “spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”

Buffett also warned that cities and states will follow American industries in becoming dependent on federal assistance. “Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”

Despite all that, Buffett remained optimistic. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”

You can read the entire letter in PDF here. My favorite line is “As we view GEICO’s current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.”

Tags: bailout, banks, inflation, warren buffett

WSJ: Obama can’t close deficits by soaking the richest 2%

Thursday, February 26th, 2009 | Politics | Permalink | No Comments |

Wall Street Journal - The 2% Illusion: Take everything they earn, and it still won’t be enough.:

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end “tax breaks for the wealthiest 2% of Americans,” and he promised that households earning less than $250,000 won’t see their taxes increased by “one single dime.”

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can’t possibly raise enough revenue to fund Mr. Obama’s new spending ambitions.

But let’s not stop at a 42% top rate; as a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable “dime” of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Tags: bailout, obama

Gov. Bredesen may reject portion of stimulus

Wednesday, February 25th, 2009 | East Tennessee, Politics | Permalink | No Comments |

The Tennesseean - Tennessee may reject stimulus aid for jobless:

At the National Governors Association meetings in Washington, D.C., Gov. Phil Bredesen said this week that he might turn down relief for unemployed workers worth an estimated $143 million because of conditions placed on the money by Congress.

The stimulus package would also raise unemployment benefits by $25 a week for all workers, but in addition, lawmakers want states to expand the pool of people who can apply for benefits. That would put more pressure on an unemployment trust fund that is already trying to stave off insolvency.

“We are evaluating this piece of money, whether it makes sense for us to take it,” Bredesen said in an interview Monday with the Chattanooga Times Free Press. “We’re in the position of going back to our legislature this year for changes in our tax structure just to keep our fund whole, and taking it to a new level may be too much of a lift for the legislature this spring.”

Tags: bailout, bredesen

Good explanation of Obama’s refinancing plan

Wednesday, February 25th, 2009 | Economics | Permalink | No Comments |

I haven’t said much about the housing plan because I haven’t had time to study it, but this seems like a pretty good explanation. The plan has two notable restrictions on the types of loans that qualify:

• The loan must have been held or securitized by Fannie Mae or Freddie Mac. So no jumbo loans and no crazy option ARMs, because Fannie and Freddie didn’t do those. Beyond that, there are just lots of loans that didn’t go through those agencies and therefore don’t qualify.
• The loan to value ratio can’t exceed 105%. You can be a little upside down, but not massively upside down. This won’t help people who bought a $500,000 house that’s now only worth $300,000. (Nor should it, in my opinion. That would be using taxpayer money for a spin of the roulette wheel. Sad as it is, a person in that situation is wiped out and needs to leave the table. Their losses shouldn’t be covered by taxpayers who didn’t overspend on houses or who couldn’t afford a house in the first place. Likewise, their bank’s losses shouldn’t be covered.)

Tags: bailout, banks, mortgages

Geithner’s Paulson-style reversal of plans

Wednesday, February 18th, 2009 | Economics | Permalink | No Comments |

Just as Treasury Secretary Paulson didn’t know what he was doing under Bush, his replacement Timothy Geithner is making it up from day to day under Obama:

Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

The sharp course change was one of the key reasons why Geithner’s plan — his first major policy initiative as Treasury secretary — landed with such a thud last Tuesday. Lawmakers, investors and analysts expressed dismay over the lack of specifics. Markets tanked, and fresh doubts arose about the hand now steering the country’s financial policy.

Our leaders have no idea what they’re doing. There’s no great and powerful Oz who has all the answers. There’s only a pitiful man behind the curtain.

We’re hoping for a few great men, but what we get instead is a committee of gray men in a smoke-filled room. Instead of trusting our faith to them we should take the advice of Adam Smith and Friedrich Hayek and let the multitudes of the marketplace make their own decisions. Get the government out of the way and the economy will eventually work itself out via the invisible hand. Government fiat can’t keep water from falling to its level.

Tags: bailout, Geithner, paulson