Shortbus

The Federal Gravy Train

2010-01-06T21:03:00.002-05:00

As a commuter in Baltimore, I often tune in to Washington's WTOP 103.5 FM in the morning. WTOP has an all-news format that caters to federal workers, to include opinion pieces sympathetic to their cause. On Tuesday morning, Mike Causey read a column regarding the 2.4% raise received by civil servants working in DC. In the essay, Causey essentially tells his listeners that they should not complain within earshot of non-federal employees, because most non-feds consider themselves fortunate to have jobs and certainly didn't get raises this year. However, Causey's intention is far from attempting to instill a sense of gratitude in federal workers, instead his concern is over the backlash from the general public, during this election year, if they find out what a gravy train government work has become.

About once a year, the major media, which tends to concentrate on world or national events, discovers how much federal workers are paid. Because it requires some in-depth reporting, and time and space, the federal pay story is almost always broken by a newspaper. In 2009 that was The Wall Street Journal and U.S. Today.

Once the print media has done the heavy lifting, radio and TV pick it up and run with it. Because more people listen and watch than read, TV is where folk in Podunk learn the horrors of federal pay. As in how much those "bureaucrats" in Washington, New York, San Francisco, etc., make.

Last year it was reported that the average federal salary in the Washington metro area was $94,047. And that was before the 2.42 percent raise workers will get this month. Pay in other cities isn't going up as much. But you can see how you're doing by clicking here.
Major media coverage of federal pay, jobs, etc., is especially painful to three groups:
1. People who work for the federal government and
2. People who don't work for the federal government and
3. Members of the news media for whom 2009 was the worst year since the 1340 when the Black Plague hit Europe

Causey goes on to say how the federal workforce deserves the mean salary of $94,047/year because they do technical work and are better educated than the private sector. Perhaps, but here are some federal jobs that are currently listed on USAJOBS.com:

1. Contract Specialist- $120,833-$153,200/year. Requires 4 years experience and a 4-year degree.
2. Supervisory Loan Specialist- $120,833-$153,200/year. No degree required. Must have a minimum of 1 year of experience .
3. Management and Program Analyst- $80,402-$123,519/year. No degree required. Must have a minimum on 1 year conducting regional studies.
4. Security Specialist/Officer- $33,477-$96,509/year. No degree required.
5. Supervisory Industry Economist- $124,637-$183,077/year. 4 year degree required and 1 year of experience.
6. Interdisciplinary Scientist (Project Officer FLU)- $120,830 - $153,200/year. A 4 year degree is required as well as a year of relevant experience. However, work experience can be substituted for a 4 degree.

I could do Job #6 in my sleep and I can assure you that there isn't a damn thing that I'm capable of that merits $150k/year. Compared to the private sector, these salaries are not only absurd, they're outright detrimental. Detrimental in the fact that prices in the suburbs of DC, like Baltimore, are perpetually inflated, which is a significant burden on the non-federally employed in region. Consider that the starting salary of a Baltimore city police officer is $42,290/year. Not many city police officers can afford to live in safe neighborhoods in the city or Baltimore County, so they have to commute from as far away as York, PA. Ironically, federal workers in the BWI metro receive a cost of living bonus due to local inflation, which is largely due to their cost of living bonus.

To summarize, I think we can safely conclude that Mike Causey has his head firmly lodged in his ass. When food stamps constitute the only source of income for 6 million Americans and banks are more likely to receive assistance than injured veterans , it stands to reason that the gross overcompensation of many federal workers should be pointed out to the public, loudly and often.

Bagholders Will Be Bagholders

2010-01-04T11:00:00.005-05:00

The following statement is posted on the Investment Company Institute's website:

ICI Statement on House Passage of Regulatory Reform Bill

Washington, DC, December 11, 2009 - ICI President and CEO Paul Schott Stevens made the following comment on the House of Representatives’ approval of H.R. 4173, a bill designed to reform the nation’s financial regulatory system:

“ICI supports modernization of the U.S. financial services regulatory framework. America’s mutual fund shareholders, almost 90 million strong, need a financial system that is sound and globally competitive.

“However, a number of provisions included in the House-passed bill must be addressed as the legislative process continues. Among other things, the bill, in its current form, could subject mutual funds to wholly inappropriate forms of bank-like regulation were regulators, however improbably, to deem mutual funds to be a source of ‘systemic risk.’ In addition, the bill could unfairly require mutual funds and their shareholders to contribute to a dissolution fund for failing financial institutions. Mutual funds do not and cannot ‘fail’ in a manner that would require payments to funds or their shareholders out of any such dissolution fund.

“We look forward to continuing to work with Congress to resolve these issues.”

I'm going to have to concur with the ICI on this point, "Mutual funds do not and cannot ‘fail’ in a manner that would require payments to funds or their shareholders out of any such dissolution fund." What's the point of having bagholders if your just going to bail them out? This philosophy sufficed for the two prior equity bubbles, so why fix a model that works?

The following table gives you an idea of how they "work with Congress to resolve these issues." Don't ever forget that this Frankenstein was built with your money.

Presented by the Federal Election Commission

Committees And Candidates Supported/Opposed

INVESTMENT COMPANY INSTITUTE POLITICAL ACTION COMMITTEE (ICI PAC)

Party: No Associated Party

1401 H STREET NW SUITE 1200
WASHINGTON, DC 20005

Recipient's Name	Date	Amount	Image Number
CONTRIBUTIONS
21ST CENTURY PAC	02/12/2009	5000.00	29991778314
ACKERMAN, GARY L. VIA COMMITTEE TO ELECT GARY L. ACKERMAN, INC.	02/12/2009	1000.00	29991778312
ACKERMAN, GARY L. VIA COMMITTEE TO ELECT GARY L. ACKERMAN, INC.	05/01/2009	2500.00	29934022400
ADLER, JOHN H. VIA ADLER FOR CONGRESS	03/06/2009	2000.00	29933498532
ADLER, JOHN H. VIA ADLER FOR CONGRESS	06/18/2009	1000.00	29992470324
ADLER, JOHN H. VIA ADLER FOR CONGRESS	11/16/2009	1000.00	29993470135
ALL AMERICA PAC	08/05/2009	2500.00	29992800545
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	01/27/2009	1000.00	29991045576
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	03/06/2009	1500.00	29933498532
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	05/01/2009	1000.00	29934022398
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	05/12/2009	1000.00	29934022404
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	07/22/2009	500.00	29992601001
ALTMIRE, JASON VIA CITIZENS FOR ALTMIRE	07/22/2009	500.00	29992601004
AMERIPAC: THE FUND FOR A GREATER AMERICA	02/12/2009	5000.00	29991778314
ANDREWS, ROBERT E. MR. VIA ROB ANDREWS U.S. HOUSE COMMITTEE	02/20/2009	1000.00	29991778315
ARTICLE 1 POLITICAL ACTION COMMITTEE	10/15/2009	1000.00	29935453458
BACHMANN, MICHELE VIA BACHMANN FOR CONGRESS	05/01/2009	1000.00	29934022402
BACHUS, SPENCER T. VIA BACHUS FOR CONGRESS COMMITTEE	06/18/2009	2500.00	29992470323
BADGERPAC	05/12/2009	5000.00	29934022410
BAYH, EVAN VIA EVAN BAYH COMMITTEE	02/20/2009	1000.00	29991778317
BAYH, EVAN VIA EVAN BAYH COMMITTEE	05/01/2009	1000.00	29934022400
BAYH, EVAN VIA EVAN BAYH COMMITTEE	06/09/2009	1000.00	29992470314
BAYH, EVAN VIA EVAN BAYH COMMITTEE	07/22/2009	2500.00	29992601002
BAYH, EVAN VIA EVAN BAYH COMMITTEE	08/05/2009	-2500.00	29992800545
BEAN, MELISSA LUBURICH VIA MELISSA BEAN FOR CONGRESS	03/18/2009	5000.00	29933498536
BEAN, MELISSA LUBURICH VIA MELISSA BEAN FOR CONGRESS	11/16/2009	1000.00	29993470137
BECERRA, XAVIER VIA BECERRA FOR CONGRESS	05/12/2009	2000.00	29934022403
BECERRA, XAVIER VIA BECERRA FOR CONGRESS	07/13/2009	1000.00	29992600994
BECERRA, XAVIER VIA BECERRA FOR CONGRESS	09/10/2009	2000.00	29934922163
BECERRA, XAVIER VIA BECERRA FOR CONGRESS	10/15/2009	1000.00	29935453458
BENNET, MICHAEL F VIA BENNET FOR COLORADO	05/12/2009	1000.00	29934022404
BENNET, MICHAEL F VIA BENNET FOR COLORADO	09/16/2009	1000.00	29934922167
BENNETT, ROBERT F VIA BENNETT ELECTION COMMITTEE INC	06/18/2009	2000.00	29992470325
BENNETT, ROBERT F VIA BENNETT ELECTION COMMITTEE INC	08/17/2009	1000.00	29992800548
BENNETT, ROBERT F VIA BENNETT ELECTION COMMITTEE INC	08/17/2009	2000.00	29992800548
BENNETT, ROBERT F VIA BENNETT ELECTION COMMITTEE INC	11/16/2009	1000.00	29993470137
BISHOP, TIMOTHY VIA TIM BISHOP FOR CONGRESS	03/18/2009	1000.00	29933498540
BLUE DOG POLITICAL ACTION COMMITTEE	02/12/2009	5000.00	29991778314
BLUEGRASS COMMITTEE	10/23/2009	2500.00	29935453464
BOEHNER, JOHN A VIA FRIENDS OF JOHN BOEHNER	03/06/2009	2000.00	29933498529
BOEHNER, JOHN A VIA FRIENDS OF JOHN BOEHNER	07/13/2009	1500.00	29992600996
BOEHNER, JOHN A VIA FRIENDS OF JOHN BOEHNER	11/16/2009	1000.00	29993470130
BOUSTANY, CHARLES DR. JR. VIA CHARLES BOUSTANY JR MD FOR CONGRESS, INC	03/25/2009	1000.00	29933498551
BOUSTANY, CHARLES DR. JR. VIA CHARLES BOUSTANY JR MD FOR CONGRESS, INC	05/01/2009	1000.00	29934022401
BOUSTANY, CHARLES DR. JR. VIA CHARLES BOUSTANY JR MD FOR CONGRESS, INC	07/22/2009	1000.00	29992601000
BOUSTANY, CHARLES DR. JR. VIA CHARLES BOUSTANY JR MD FOR CONGRESS, INC	11/16/2009	1000.00	29993470131
BOYD, F. ALLEN JR. VIA BOYD FOR CONGRESS	07/22/2009	2000.00	29992600998
BOYD, F. ALLEN JR. VIA BOYD FOR CONGRESS	09/16/2009	2500.00	29934922169
BRADY, KEVIN VIA BRADY FOR CONGRESS	06/09/2009	1000.00	29992470317
BRADY, KEVIN VIA BRADY FOR CONGRESS	09/10/2009	1000.00	29934922162
BROWN-WAITE, VIRGINIA VIA FRIENDS OF GINNY BROWN-WAITE	03/12/2009	-1000.00	29933498534
BROWN-WAITE, VIRGINIA VIA FRIENDS OF GINNY BROWN-WAITE	06/09/2009	1000.00	29992470316
BROWN-WAITE, VIRGINIA VIA FRIENDS OF GINNY BROWN-WAITE	11/16/2009	1000.00	29993470127
BUILD AMERICA PAC	09/18/2009	2500.00	29934922171
BUILDING RELATIONSHIPS IN DIVERSE GEOGRAPHIC ENVIRONMENTS PAC (BRIDGE PAC)	03/18/2009	5000.00	29933498544
BUNNING, JIM VIA CITIZENS FOR BUNNING	02/20/2009	1500.00	29991778319
BUNNING, JIM VIA CITIZENS FOR BUNNING	05/01/2009	500.00	29934022398
BUNNING, JIM VIA CITIZENS FOR BUNNING	05/01/2009	500.00	29934022398
BUNNING, JIM VIA CITIZENS FOR BUNNING	08/26/2009	-500.00	29992800544
BURR, RICHARD VIA RICHARD BURR COMMITTEE; THE	03/06/2009	1000.00	29933498533
BURR, RICHARD VIA RICHARD BURR COMMITTEE; THE	03/18/2009	1000.00	29933498543
BURR, RICHARD VIA RICHARD BURR COMMITTEE; THE	10/23/2009	1000.00	29935453467
CAMP, DAVID LEE VIA DAVE CAMP FOR CONGRESS 2010	02/20/2009	2000.00	29991778318
CAMP, DAVID LEE VIA DAVE CAMP FOR CONGRESS 2010	07/13/2009	3000.00	29992600994
CAMPBELL, JOHN BT III VIA JOHN CAMPBELL FOR CONGRESS	10/23/2009	1000.00	29935453466
CANTOR, ERIC VIA CANTOR FOR CONGRESS	03/25/2009	2500.00	29933498553
CANTOR, ERIC VIA CANTOR FOR CONGRESS	06/09/2009	2500.00	29992470316
CANTOR, ERIC VIA CANTOR FOR CONGRESS	09/10/2009	2500.00	29934922162
CAP PAC	05/29/2009	2500.00	29934022414
CAPITO, SHELLEY MOORE VIA SHELLEY MOORE CAPITO FOR CONGRESS	05/29/2009	2000.00	29934022414
CAPUANO, MICHAEL E VIA CAPUANO FOR CONGRESS COMMITTEE	03/06/2009	1000.00	29933498533
CAPUANO, MICHAEL E VIA CAPUANO FOR CONGRESS COMMITTEE	08/18/2009	1000.00	29992800550
CARPER, THOMAS R VIA CARPER FOR SENATE	09/16/2009	2000.00	29934922170
CASEY, ROBERT P JR VIA BOB CASEY FOR SENATE INC	10/19/2009	1000.00	29935453462
CASTLE, MICHAEL N VIA CASTLE CAMPAIGN FUND	05/12/2009	2000.00	29934022405
CASTLE, MICHAEL N VIA CASTLE CAMPAIGN FUND	09/16/2009	1000.00	29934922166
CHILDERS, TRAVIS W VIA CHILDERS FOR CONGRESS	01/27/2009	1500.00	29991045574
CHILDERS, TRAVIS W VIA CHILDERS FOR CONGRESS	05/12/2009	1500.00	29934022409
CITIZENS FOR ACTION	03/18/2009	5000.00	29933498544
CLARKE, YVETTE D VIA CLARKE FOR CONGRESS	09/10/2009	2500.00	29934922164
CLEAVER, EMANUEL II VIA CLEAVER FOR CONGRESS	09/16/2009	1000.00	29934922166
CLYBURN, JAMES E VIA FRIENDS OF JIM CLYBURN	07/22/2009	1000.00	29992600998
CLYBURN, JAMES E VIA FRIENDS OF JIM CLYBURN	07/22/2009	2500.00	29992601003
CLYBURN, JAMES E VIA FRIENDS OF JIM CLYBURN	11/16/2009	1500.00	29993470133
COBURN, THOMAS A VIA COBURN FOR SENATE 2010	11/16/2009	1000.00	29993470127
CONTINUING A MAJORITY PARTY ACTION COMMITTEE (CAMPAC)	03/18/2009	5000.00	29933498538
COURTNEY, JOSEPH D VIA COURTNEY FOR CONGRESS	03/18/2009	1000.00	29933498541
COURTNEY, JOSEPH D VIA COURTNEY FOR CONGRESS	05/12/2009	1000.00	29934022406
COURTNEY, JOSEPH D VIA COURTNEY FOR CONGRESS	07/13/2009	2500.00	29992600993
CRAPO, MICHAEL D VIA MIKE CRAPO FOR US SENATE	01/28/2009	2500.00	29991045578
CRAPO, MICHAEL D VIA MIKE CRAPO FOR US SENATE	08/03/2009	2000.00	29992800545
CROWLEY, JOSEPH VIA CROWLEY FOR CONGRESS	05/29/2009	5000.00	29934022417
DAVIS, ARTUR G VIA COMMITTEE TO RE-ELECT ARTUR DAVIS TO CONGRESS, THE	01/27/2009	1000.00	29991045575
DAVIS, GEOFFREY C. VIA GEOFF DAVIS FOR CONGRESS	02/12/2009	1000.00	29991778311
DAVIS, GEOFFREY C. VIA GEOFF DAVIS FOR CONGRESS	09/18/2009	1000.00	29934922171
DAVIS, GEOFFREY C. VIA GEOFF DAVIS FOR CONGRESS	10/15/2009	1500.00	29935453459
DEMINT, JAMES W VIA DEMINT FOR SENATE COMMITTEE INC	03/06/2009	500.00	29933498529
DEMINT, JAMES W VIA DEMINT FOR SENATE COMMITTEE INC	03/06/2009	500.00	29933498529
DEMINT, JAMES W VIA DEMINT FOR SENATE COMMITTEE INC	06/09/2009	1000.00	29992470318
DEMINT, JAMES W VIA DEMINT FOR SENATE COMMITTEE INC	11/16/2009	2500.00	29993470128
DEMOCRATIC CONGRESSIONAL CAMPAIGN COMMITTEE	01/16/2009	15000.00	29991045572
DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE	01/16/2009	-15000.00	29991045572
DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE	01/16/2009	15000.00	29991045572
DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE	01/16/2009	15000.00	29991045573
DONNELLY, JOSEPH SIMON MR. VIA JOE DONNELLY FOR CONGRESS	03/18/2009	1000.00	29933498542
DONNELLY, JOSEPH SIMON MR. VIA JOE DONNELLY FOR CONGRESS	09/18/2009	2500.00	29934922170
DONNELLY, JOSEPH SIMON MR. VIA JOE DONNELLY FOR CONGRESS	11/16/2009	1000.00	29993470135
DRIEHAUS, STEVEN LEO VIA DRIEHAUS FOR CONGRESS	06/18/2009	1000.00	29992470321
ENZI, MICHAEL B VIA ENZI FOR US SENATE	09/16/2009	1000.00	29934922167
ERISA INDUSTRY COMMITTEE POLITICAL ACTION COMMITTEE; THE (ERIC PAC)	02/12/2009	5000.00	29991778313
ETHERIDGE, BOB VIA BOB ETHERIDGE FOR CONGRESS COMMITTEE	11/16/2009	2000.00	29993470136
FIRST STATE PAC	01/27/2009	5000.00	29991045573
FOSTER, G. WILLIAM (BIL VIA BILL FOSTER FOR CONGRESS COMMITTEE	05/29/2009	-2000.00	29934022417
FOSTER, G. WILLIAM (BIL VIA BILL FOSTER FOR CONGRESS COMMITTEE	05/29/2009	2000.00	29934022418
FOSTER, G. WILLIAM (BIL VIA BILL FOSTER FOR CONGRESS COMMITTEE	05/29/2009	2000.00	29934022417
FOSTER, G. WILLIAM (BIL VIA BILL FOSTER FOR CONGRESS COMMITTEE	06/18/2009	1000.00	29992470320
FRANK, BARNEY VIA BARNEY FRANK FOR CONGRESS COMMITTEE	05/01/2009	2500.00	29934022397
FRANK, BARNEY VIA BARNEY FRANK FOR CONGRESS COMMITTEE	06/09/2009	1000.00	29992470314
FREEDOM AND SECURITY PAC	06/18/2009	2500.00	29992470322
FREEDOM FUND	05/12/2009	2500.00	29934022410
FREEDOM FUND	11/16/2009	2500.00	29993470130
FREEDOM PROJECT; THE	02/12/2009	5000.00	29991778313
GARRETT, SCOTT VIA SCOTT GARRETT FOR CONGRESS	05/01/2009	1000.00	29934022397
GARRETT, SCOTT VIA SCOTT GARRETT FOR CONGRESS	05/29/2009	2000.00	29934022411
GARRETT, SCOTT VIA SCOTT GARRETT FOR CONGRESS	06/18/2009	1500.00	29992470321
GLACIER PAC	01/27/2009	5000.00	29991045577
GRASSLEY, CHARLES E SENATOR VIA GRASSLEY COMMITTEE INC	03/06/2009	1000.00	29933498528
GRASSLEY, CHARLES E SENATOR VIA GRASSLEY COMMITTEE INC	09/16/2009	1000.00	29934922165
GROWTH AND PROSPERITY POLITICAL ACTION COMMITTEE	02/20/2009	5000.00	29991778317
GUTHRIE, S. BRETT VIA GUTHRIE FOR CONGRESS	05/01/2009	1000.00	29934022399
GUTHRIE, S. BRETT VIA GUTHRIE FOR CONGRESS	05/01/2009	1500.00	29934022399
GUTHRIE, S. BRETT VIA GUTHRIE FOR CONGRESS	10/23/2009	2000.00	29935453466
HELLER, DEAN VIA HELLER FOR CONGRESS	05/01/2009	1000.00	29934022397
HELLER, DEAN VIA HELLER FOR CONGRESS	07/13/2009	1000.00	29992600995
HENSARLING, JEB HON. VIA FRIENDS OF JEB HENSARLING	02/20/2009	1000.00	29991778315
HENSARLING, JEB HON. VIA FRIENDS OF JEB HENSARLING	11/16/2009	2500.00	29993470130
HERGER, WALLY VIA WALLY HERGER FOR CONGRESS COMMITTEE	05/12/2009	1000.00	29934022406
HERGER, WALLY VIA WALLY HERGER FOR CONGRESS COMMITTEE	06/18/2009	1500.00	29992470323
HERGER, WALLY VIA WALLY HERGER FOR CONGRESS COMMITTEE	07/22/2009	1000.00	29992601001
HIGGINS, BRIAN VIA HIGGINS FOR CONGRESS	03/25/2009	1000.00	29933498550
HIGGINS, BRIAN VIA HIGGINS FOR CONGRESS	09/18/2009	1000.00	29934922172
HIMES, JIM VIA JIM HIMES FOR CONGRESS	03/18/2009	1000.00	29933498543
HIMES, JIM VIA JIM HIMES FOR CONGRESS	03/25/2009	2000.00	29933498551
HIMES, JIM VIA JIM HIMES FOR CONGRESS	06/23/2009	1000.00	29992470326
HIMES, JIM VIA JIM HIMES FOR CONGRESS	07/22/2009	1000.00	29992601002
HIRONO, MAZIE MRS. VIA FRIENDS OF MAZIE HIRONO	03/25/2009	1000.00	29933498553
HOLT, RUSH D. VIA RUSH HOLT FOR CONGRESS	10/23/2009	1000.00	29935453463
HOUSE CONSERVATIVES FUND	01/27/2009	1000.00	29991045577
HOUSE CONSERVATIVES FUND	03/05/2009	4000.00	29933498525
HOYER, STENY HAMILTON VIA HOYER FOR CONGRESS	02/12/2009	1500.00	29991778310
HOYER, STENY HAMILTON VIA HOYER FOR CONGRESS	05/29/2009	1500.00	29934022416
HOYER, STENY HAMILTON VIA HOYER FOR CONGRESS	09/16/2009	2500.00	29934922169
HUNTER, DUNCAN D. VIA HOUSE REPUBLICAN FRESHMEN 2009	02/20/2009	2500.00	29991778316
HUNTER, DUNCAN D. VIA DUNCAN D. HUNTER FOR CONGRESS	10/23/2009	1000.00	29935453466
IMPACT	07/13/2009	5000.00	29992600996
ISAKSON, JOHN HARDY VIA GEORGIANS FOR ISAKSON	02/12/2009	1000.00	29991778309
ISAKSON, JOHN HARDY VIA GEORGIANS FOR ISAKSON	02/20/2009	2000.00	29991778317
ISAKSON, JOHN HARDY VIA GEORGIANS FOR ISAKSON	05/29/2009	2000.00	29934022416
ISAKSON, JOHN HARDY VIA GEORGIANS FOR ISAKSON	05/29/2009	3000.00	29934022415
JENKINS, LYNN VIA LYNN JENKINS FOR CONGRESS	03/05/2009	2000.00	29933498528
JOBS, OPPORTUNITIES AND EDUCATION, PAC (JOE-PAC)	07/13/2009	2500.00	29992600997
JOBS, OPPORTUNITIES AND EDUCATION, PAC (JOE-PAC)	10/15/2009	2500.00	29935453461
KANJORSKI, PAUL E. VIA PENNSYLVANIANS FOR KANJORSKI	02/12/2009	2500.00	29991778311
KANJORSKI, PAUL E. VIA PENNSYLVANIANS FOR KANJORSKI	05/12/2009	1000.00	29934022408
KANJORSKI, PAUL E. VIA PENNSYLVANIANS FOR KANJORSKI	06/18/2009	1500.00	29992470322
KANJORSKI, PAUL E. VIA PENNSYLVANIANS FOR KANJORSKI	07/22/2009	1000.00	29992600999
KILROY, MARY JO VIA KILROY FOR CONGRESS	09/16/2009	1000.00	29934922166
KIND, RON VIA KIND FOR CONGRESS COMMITTEE	02/20/2009	1000.00	29991778320
KIND, RON VIA KIND FOR CONGRESS COMMITTEE	03/18/2009	2500.00	29933498537
KIND, RON VIA KIND FOR CONGRESS COMMITTEE	08/17/2009	1000.00	29992800549
KIND, RON VIA KIND FOR CONGRESS COMMITTEE	08/17/2009	1500.00	29992800549
KLEIN, RON VIA KLEIN FOR CONGRESS	05/29/2009	1000.00	29934022412
KLEIN, RON VIA KLEIN FOR CONGRESS	07/22/2009	2000.00	29992601002
KLINE, JOHN P. VIA KLINE FOR CONGRESS	01/27/2009	1000.00	29991045575
KLINE, JOHN P. VIA KLINE FOR CONGRESS	05/12/2009	1000.00	29934022404
KLINE, JOHN P. VIA KLINE FOR CONGRESS	06/09/2009	1000.00	29992470315
KLINE, JOHN P. VIA KLINE FOR CONGRESS	07/13/2009	1000.00	29992600996
KLINE, JOHN P. VIA KLINE FOR CONGRESS	09/10/2009	1000.00	29934922161
KLINE, JOHN P. VIA KLINE FOR CONGRESS	10/15/2009	1000.00	29935453460
KOSMAS, SUZANNE VIA KOSMAS FOR CONGRESS	03/25/2009	2000.00	29933498552
KOSMAS, SUZANNE VIA KOSMAS FOR CONGRESS	08/17/2009	1000.00	29992800547
KOSMAS, SUZANNE VIA KOSMAS FOR CONGRESS	11/16/2009	1000.00	29993470133
LANCE, LEONARD VIA LANCE FOR CONGRESS	03/05/2009	2000.00	29933498525
LANCE, LEONARD VIA LANCE FOR CONGRESS	03/18/2009	-2000.00	29933498536
LANCE, LEONARD VIA LANCE FOR CONGRESS	03/18/2009	2000.00	29933498536
LARSON, JOHN B VIA LARSON FOR CONGRESS	02/12/2009	1000.00	29991778309
LARSON, JOHN B VIA LARSON FOR CONGRESS	03/25/2009	1000.00	29933498554
LARSON, JOHN B VIA LARSON FOR CONGRESS	05/12/2009	1000.00	29934022408
LARSON, JOHN B VIA LARSON FOR CONGRESS	10/19/2009	2000.00	29935453462
LATOURETTE, STEVE C VIA LATOURETTE FOR CONGRESS COMMITTEE	09/10/2009	1000.00	29934922161
LEADERSHIP OF TODAY AND TOMORROW	07/22/2009	1000.00	29992601000
LEE, CHRISTOPHER J. VIA CHRIS LEE FOR CONGRESS	02/20/2009	1500.00	29991778315
LEE, CHRISTOPHER J. VIA CHRIS LEE FOR CONGRESS	03/05/2009	-2.00	29933498526
LEE, CHRISTOPHER J. VIA CHRIS LEE FOR CONGRESS	03/05/2009	2.00	29933498526
LEE, CHRISTOPHER J. VIA CHRIS LEE FOR CONGRESS	03/05/2009	2000.00	29933498526
LINCOLN, BLANCHE L VIA FRIENDS OF BLANCHE LINCOLN	01/27/2009	1000.00	29991045577
LINCOLN, BLANCHE L VIA FRIENDS OF BLANCHE LINCOLN	03/25/2009	1000.00	29933498550
LINCOLN, BLANCHE L VIA FRIENDS OF BLANCHE LINCOLN	03/25/2009	2000.00	29933498549
LINCOLN, BLANCHE L VIA FRIENDS OF BLANCHE LINCOLN	06/09/2009	1000.00	29992470317
LINCOLN, BLANCHE L VIA FRIENDS OF BLANCHE LINCOLN	11/16/2009	1000.00	29993470131
LOEBSACK, DAVID WAYNE VIA LOEBSACK FOR CONGRESS	02/20/2009	1000.00	29991778319
LOEBSACK, DAVID WAYNE VIA LOEBSACK FOR CONGRESS	06/09/2009	1000.00	29992470317
MAFFEI, DANIEL BENJAMIN MR. VIA FRIENDS OF DAN MAFFEI	03/18/2009	1000.00	29933498539
MAFFEI, DANIEL BENJAMIN MR. VIA FRIENDS OF DAN MAFFEI	05/29/2009	2500.00	29934022413
MAJORITY COMMITTEE PAC--MC PAC	06/09/2009	1000.00	29992470315
MAJORITY COMMITTEE PAC--MC PAC	08/17/2009	2500.00	29992800546
MALONEY, CAROLYN B VIA MALONEY FOR CONGRESS	01/27/2009	5000.00	29991045573
MALONEY, CAROLYN B VIA MALONEY FOR CONGRESS	06/18/2009	1000.00	29992470322
MALONEY, CAROLYN B VIA MALONEY FOR CONGRESS	10/23/2009	1000.00	29935453464
MARCHANT, KENNY E MR. VIA KENNY MARCHANT FOR CONGRESS	07/21/2009	500.00	29992600997
MARCHANT, KENNY E MR. VIA KENNY MARCHANT FOR CONGRESS	11/16/2009	1500.00	29993470128
MCCARTHY, CAROLYN VIA FRIENDS OF CAROLYN MCCARTHY	06/18/2009	1000.00	29992470320
MCCARTHY, CAROLYN VIA FRIENDS OF CAROLYN MCCARTHY	08/17/2009	1000.00	29992800547
MCCARTHY, CAROLYN VIA FRIENDS OF CAROLYN MCCARTHY	08/17/2009	4000.00	29992800547
MCCARTHY, CAROLYN VIA FRIENDS OF CAROLYN MCCARTHY	11/16/2009	1000.00	29993470136
MCCARTHY, KEVIN VIA KEVIN MCCARTHY FOR CONGRESS	02/12/2009	1500.00	29991778309
MCCARTHY, KEVIN VIA KEVIN MCCARTHY FOR CONGRESS	03/05/2009	2000.00	29933498527
MCCARTHY, KEVIN VIA KEVIN MCCARTHY FOR CONGRESS	05/01/2009	1000.00	29934022400
MCCOTTER, THADDEUS G. MR. VIA MCCOTTER CONGRESSIONAL COMMITTEE	03/05/2009	2000.00	29933498528
MCCOTTER, THADDEUS G. MR. VIA MCCOTTER CONGRESSIONAL COMMITTEE	05/12/2009	1000.00	29934022406
MCHENRY, PATRICK TIMOTHY VIA MCHENRY FOR CONGRESS	05/12/2009	1000.00	29934022409
MCHENRY, PATRICK TIMOTHY VIA MCHENRY FOR CONGRESS	10/23/2009	2500.00	29935453464
MCKEON, HOWARD P 'BUCK' VIA BUCK MCKEON FOR CONGRESS	02/20/2009	1000.00	29991778316
MCKEON, HOWARD P 'BUCK' VIA BUCK MCKEON FOR CONGRESS	03/06/2009	1000.00	29933498532
MCKEON, HOWARD P 'BUCK' VIA BUCK MCKEON FOR CONGRESS	10/15/2009	1000.00	29935453458
MEEKS, GREGORY W. VIA FRIENDS FOR GREGORY MEEKS	03/25/2009	2500.00	29933498552
MERKLEY, JEFFREY ALAN VIA JEFF MERKLEY FOR OREGON	02/12/2009	1000.00	29991778312
MERKLEY, JEFFREY ALAN VIA JEFF MERKLEY FOR OREGON	07/22/2009	1000.00	29992601003
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MIKULSKI, BARBARA A VIA MIKULSKI FOR SENATE COMMITTEE	11/16/2009	1000.00	29993470134
MILLER, RALPH BRADLEY VIA BRAD MILLER FOR UNITED STATES CONGRESS	06/09/2009	1000.00	29992470318
MILLER, RALPH BRADLEY VIA BRAD MILLER FOR UNITED STATES CONGRESS	11/16/2009	1000.00	29993470133
MINNICK, WALTER CLIFFORD VIA MINNICK FOR CONGRESS	06/18/2009	2500.00	29992470324
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MODERATE DEMOCRATS PAC	05/01/2009	5000.00	29934022402
MOORE, DENNIS W. VIA MOORE FOR CONGRESS	03/06/2009	2000.00	29933498530
MOORE, DENNIS W. VIA MOORE FOR CONGRESS	06/09/2009	2000.00	29992470316
MOORE, DENNIS W. VIA MOORE FOR CONGRESS	11/16/2009	1000.00	29993470132
MOORE, GWENDOLYNNE VIA MOORE FOR CONGRESS	06/18/2009	1000.00	29992470325
MURKOWSKI, LISA VIA LISA MURKOWSKI FOR US SENATE	08/17/2009	1000.00	29992800546
MURRAY, PATTY VIA PEOPLE FOR PATTY MURRAY	02/12/2009	1500.00	29991778311
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NATIONAL REPUBLICAN CONGRESSIONAL COMMITTEE	01/27/2009	15000.00	29991045578
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NEAL, RICHARD E MR. VIA RICHARD E NEAL FOR CONGRESS COMMITTEE	05/13/2009	1500.00	29934022411
NEAL, RICHARD E MR. VIA RICHARD E NEAL FOR CONGRESS COMMITTEE	07/22/2009	1000.00	29992601001
NEW DEMOCRAT COALITION POLITICAL ACTION COMMITTEE AKA NDC PAC	05/01/2009	5000.00	29934022402
NEW MILLENNIUM PAC	09/16/2009	1000.00	29934922168
NEW PAC	05/12/2009	2500.00	29934022410
NEXT CENTURY FUND	05/29/2009	3000.00	29934022414
NUNES, DEVIN G VIA DEVIN NUNES CAMPAIGN COMMITTEE	02/12/2009	1000.00	29991778310
NUNES, DEVIN G VIA DEVIN NUNES CAMPAIGN COMMITTEE	03/12/2009	-1000.00	29933498535
NUNES, DEVIN G VIA DEVIN NUNES CAMPAIGN COMMITTEE	06/23/2009	1000.00	29992470326
NUNES, DEVIN G VIA DEVIN NUNES CAMPAIGN COMMITTEE	09/16/2009	2500.00	29934922170
PASCRELL, WILLIAM J. HON. JR. VIA PASCRELL FOR CONGRESS	02/12/2009	1000.00	29991778310
PASCRELL, WILLIAM J. HON. JR. VIA PASCRELL FOR CONGRESS	03/18/2009	1500.00	29933498541
PASCRELL, WILLIAM J. HON. JR. VIA PASCRELL FOR CONGRESS	05/12/2009	1000.00	29934022403
PAULSEN, ERIK P REP. VIA FRIENDS OF ERIK PAULSEN	03/05/2009	2000.00	29933498527
PAULSEN, ERIK P REP. VIA FRIENDS OF ERIK PAULSEN	05/29/2009	1000.00	29934022412
PENCE, MIKE VIA MIKE PENCE COMMITTEE	03/06/2009	2000.00	29933498534
PEOPLE FOR ENTERPRISE TRADE AND ECONOMIC GROWTH (PETE PAC)	03/18/2009	5000.00	29933498540
PERLMUTTER, EDWIN G VIA PERLMUTTER FOR CONGRESS	02/12/2009	2500.00	29991778313
PERLMUTTER, EDWIN G VIA PERLMUTTER FOR CONGRESS	06/09/2009	2500.00	29992470315
PETERS, GARY VIA PETERS FOR CONGRESS	03/18/2009	2000.00	29933498539
PETERS, GARY VIA PETERS FOR CONGRESS	05/29/2009	1000.00	29934022412
PETRI, THOMAS VIA CITIZENS FOR TOM PETRI	11/16/2009	1000.00	29993470129
POMEROY, EARL R. VIA EARL POMEROY FOR CONGRESS	02/20/2009	1000.00	29991778318
POMEROY, EARL R. VIA EARL POMEROY FOR CONGRESS	03/06/2009	2000.00	29933498533
POMEROY, EARL R. VIA EARL POMEROY FOR CONGRESS	05/29/2009	1000.00	29934022415
POMEROY, EARL R. VIA EARL POMEROY FOR CONGRESS	06/23/2009	1000.00	29992470326
POMEROY, EARL R. VIA EARL POMEROY FOR CONGRESS	10/23/2009	1000.00	29935453465
PORTER, JON C SR VIA PORTER FOR CONGRESS	03/12/2009	-1250.00	29933498534
POSEY, BILL VIA FRIENDS OF BILL POSEY	03/05/2009	2000.00	29933498527
POSEY, BILL VIA FRIENDS OF BILL POSEY	07/22/2009	1000.00	29992600998
PRESERVING AMERICA'S TRADITIONS (PATPAC)	11/16/2009	2500.00	29993470128
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	01/27/2009	1000.00	29991045574
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	02/20/2009	1000.00	29991778319
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	03/18/2009	1000.00	29933498543
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	07/13/2009	1000.00	29992600995
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	08/17/2009	1000.00	29992800549
PRICE, THOMAS EDMUNDS VIA PRICE FOR CONGRESS	08/17/2009	1500.00	29992800548
PROSPERITY PAC	03/18/2009	2500.00	29933498537
PROSPERITY PAC	09/18/2009	2500.00	29934922171
RANGEL, CHARLES B VIA RANGEL FOR CONGRESS	07/13/2009	5000.00	29992600993
REICHERT, DAVE VIA FRIENDS OF DAVE REICHERT	07/13/2009	1000.00	29992600993
REID, HARRY VIA FRIENDS FOR HARRY REID	06/18/2009	2500.00	29992470325
REPUBLICAN MAINSTREET PARTNERSHIP PAC	03/05/2009	5000.00	29933498525
RODGERS, CATHY MCMORRIS VIA CATHY MCMORRIS RODGERS FOR CONGRESS	09/10/2009	1000.00	29934922163
ROSKAM, PETER VIA ROSKAM FOR CONGRESS COMMITTEE	01/27/2009	1000.00	29991045576
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ROSKAM, PETER VIA ROSKAM FOR CONGRESS COMMITTEE	09/16/2009	2000.00	29934922168
ROYCE, ED MR VIA ED ROYCE FOR CONGRESS	01/27/2009	3000.00	29991045574
ROYCE, ED MR VIA ED ROYCE FOR CONGRESS	09/16/2009	2000.00	29934922164
ROYCE, ED MR VIA ED ROYCE FOR CONGRESS	11/16/2009	1000.00	29993470129
RYAN, PAUL D. VIA RYAN FOR CONGRESS	03/18/2009	1000.00	29933498542
RYAN, PAUL D. VIA RYAN FOR CONGRESS	03/25/2009	2500.00	29933498552
RYAN, PAUL D. VIA RYAN FOR CONGRESS	05/12/2009	1000.00	29934022408
RYAN, PAUL D. VIA RYAN FOR CONGRESS	07/22/2009	500.00	29992601003
RYAN, PAUL D. VIA RYAN FOR CONGRESS	07/22/2009	500.00	29992601004
SAM, JOHNSON MR. VIA FRIENDS OF SAM JOHNSON	05/12/2009	1000.00	29934022409
SAM, JOHNSON MR. VIA FRIENDS OF SAM JOHNSON	10/15/2009	1000.00	29935453459
SANCHEZ, LINDA VIA COMMITTEE TO RE-ELECT LINDA SANCHEZ	05/12/2009	1500.00	29934022403
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SARBANES, JOHN P. MR. VIA FRIENDS OF JOHN SARBANES	03/12/2009	-1000.00	29933498535
SCHUMER, CHARLES E VIA FRIENDS OF SCHUMER	03/18/2009	2500.00	29933498537
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SCHUMER, CHARLES E VIA FRIENDS OF SCHUMER	09/10/2009	2500.00	29934922162
SCHWARTZ, ALLYSON Y. VIA ALLYSON SCHWARTZ FOR CONGRESS	03/18/2009	1000.00	29933498540
SCHWARTZ, ALLYSON Y. VIA ALLYSON SCHWARTZ FOR CONGRESS	05/01/2009	1000.00	29934022401
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SCHWARTZ, ALLYSON Y. VIA ALLYSON SCHWARTZ FOR CONGRESS	09/10/2009	1000.00	29934922163
SCHWARTZ, ALLYSON Y. VIA ALLYSON SCHWARTZ FOR CONGRESS	11/16/2009	1000.00	29993470135
SCOTT, DAVID ALBERT VIA DAVID SCOTT FOR CONGRESS	01/27/2009	1000.00	29991045575
SCOTT, DAVID ALBERT VIA DAVID SCOTT FOR CONGRESS	11/16/2009	2500.00	29993470132
SEARCHLIGHT LEADERSHIP FUND	07/13/2009	2500.00	29992600994
SENATE CONSERVATIVES FUND	05/29/2009	2000.00	29934022413
SENATE CONSERVATIVES FUND	07/22/2009	1000.00	29992601000
SENATE CONSERVATIVES FUND	07/27/2009	-1000.00	29992601004
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SESSIONS, PETE VIA PETE SESSIONS FOR CONGRESS	01/27/2009	2500.00	29991045576
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SESTAK, JOSEPH A. JR. VIA SESTAK FOR CONGRESS	02/20/2009	1500.00	29991778316
SESTAK, JOSEPH A. JR. VIA SESTAK FOR CONGRESS	05/12/2009	1500.00	29934022407
SESTAK, JOSEPH A. JR. VIA SESTAK FOR CONGRESS	06/18/2009	1500.00	29992470323
SHELBY, RICHARD C VIA SHELBY FOR U S SENATE	05/01/2009	2500.00	29934022401
SHELBY, RICHARD C VIA SHELBY FOR U S SENATE	06/09/2009	500.00	29992470319
SHELBY, RICHARD C VIA SHELBY FOR U S SENATE	06/09/2009	500.00	29992470319
SHELBY, RICHARD C VIA SHELBY FOR U S SENATE	10/15/2009	2000.00	29935453462
SOUDER, MARK E VIA SOUDER FOR CONGRESS INC.	07/22/2009	1000.00	29992600999
STABENOW, DEBBIE VIA STABENOW FOR US SENATE	07/13/2009	1000.00	29992600995
SUNUNU, JOHN E VIA TEAM SUNUNU	03/12/2009	-3000.00	29933498535
SYNERGY PAC	06/09/2009	5000.00	29992470320
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TENN POLITICAL ACTION COMMITTEE INC (TENN PAC)	10/23/2009	1000.00	29935453465
TESTER, JON VIA MONTANANS FOR TESTER	03/25/2009	1000.00	29933498553
THOMPSON, GLENN MR. VIA FRIENDS OF GLENN THOMPSON	10/15/2009	1000.00	29935453460
THOMPSON, MIKE MR. VIA MIKE THOMPSON FOR CONGRESS	03/23/2009	5000.00	29933498545
TIBERI, PATRICK J. VIA TIBERI FOR CONGRESS	05/12/2009	1000.00	29934022407
TIBERI, PATRICK J. VIA TIBERI FOR CONGRESS	09/16/2009	2500.00	29934922165
TIBERI, PATRICK J. VIA TIBERI FOR CONGRESS	11/16/2009	1500.00	29993470127
TIERNEY, JOHN F VIA JOHN TIERNEY FOR CONGRESS	06/09/2009	2500.00	29992470318
TOGETHER FOR OUR MAJORITY POLITICAL ACTION COMMITTEE (TOMPAC)	10/15/2009	2500.00	29935453461
TONKO, PAUL DAVID VIA PAUL TONKO FOR CONGRESS	03/06/2009	1000.00	29933498531
TUESDAY GROUP POLITICAL ACTION COMMITTEE	03/18/2009	2500.00	29933498544
VAN HOLLEN, CHRISTOPHER VIA VAN HOLLEN FOR CONGRESS	03/18/2009	1000.00	29933498538
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VELAZQUEZ, NYDIA M. VIA COMMITTEE TO RE-ELECT NYDIA M. VELAZQUEZ TO CONGRESS	03/18/2009	1000.00	29933498542
VELAZQUEZ, NYDIA M. VIA COMMITTEE TO RE-ELECT NYDIA M. VELAZQUEZ TO CONGRESS	10/15/2009	1000.00	29935453461
VICTORY NOW PAC	06/18/2009	1000.00	29992470321
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VITTER, DAVID VIA DAVID VITTER FOR US SENATE	03/25/2009	2000.00	29933498551
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WATT, MELVIN L VIA MEL WATT FOR CONGRESS COMMITTEE	06/09/2009	1000.00	29992470314
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WYDEN, RONALD LEE VIA WYDEN FOR SENATE	10/15/2009	1000.00	29935453460
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	03/25/2009	1000.00	29933498550
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	05/29/2009	1000.00	29934022413
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	06/24/2009	-1000.00	29992470327
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	06/24/2009	1000.00	29992470327
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	08/26/2009	-1000.00	29992800544
YARMUTH, JOHN A MR VIA YARMUTH FOR CONGRESS	09/18/2009	2500.00	29934922172

TRY A: NEW QUERY

RETURN TO: FEC HOME PAGE

Obama Socialism???

2009-12-12T09:34:00.002-05:00

Typically, I regard partisan politics as a fool's errand--this country has been governed by a one party system for at least a decade. As far as I'm concerned, NPR and Rush Limbaugh are merely different entrees from the same shit smorgasbord. In fact, I don't believe it would be difficult to make a case for the interchangeability of Obama with McCain. There is a certain cruel, yet amusing, irony when that comes from talking to the vehemently political from either side. However, I must admit, that the far right, Hannity-watching, teabagging, Christian conservative is a personal favorite. Lately, I've encountered several of Dittoheads who are sincerely terrified that Obama/Hillary are secretly radical Socialists, pushing an agenda to turn the US into a communist state. I imagine this sort of thing originates on Fox and talk radio, and is, yet another, ploy to trick the Limbaugh faithful into supporting policies designed to cut their own throats (NAFTA, immigration, Patriot Act, Bankruptcy Reform, etc.)

Fortunately, I have reassuring news for my Lenin-fearing compatriots: Not only is capitalism alive and well, but you are about to see it expand in ways that you could have never envisioned. Recently, the Census Bureau released its Survey of State Government Finances for 20098, in which they reported that state revenues were down 15.7% over 2007. Yesterday, Corina Eckl, the fiscal director of the the National Conference of State Legislators stated, "Even if the recession is over, state budgets are in appalling conditions and are going to be that way for quite a while. For many states, revenue recovery is not even in the forecast.” The Rockefeller Institute of Government gave similar results in its State Revenue Flash Report:

Clearly, the risk of municipal debt default is increasing quarterly. So far, the federal government has stepped in and made emergency loans to bridge gaps, so that unemployment benefits and welfare benefits can be paid. Everybody expects this to continue and I believe that everybody is wrong. While I'm certain that some federal aid will be given, the criteria for distribution will be based on nature of the bondholders are. If GS holds much of your city's debt, you might get a pass, but if it's pension and retirement funds, you'll probably be invited to go pound sand. But don't get too concerned, when things look bleakest, capitalism will save the day.

What I'm talking about is privatization on a unprecedented scale and implemented with as much subtlety as prison rape. John D. Rockefeller wasn't fooling when he said, "Competition is a sin." It is every capitalist's wettest dream to own a monopoly in a product with inelastic demand, like water, education, sanitary sewers, police and fire protection, and many other service provided by our current "socialist" model. We've already had a taste of this with the deregulation of certain electric companies. There is nothing new about this idea. As the following video describes, CH2M HILL has already successfully privatized two cities in Georgia; Sandy Springs and Johns Creek. However, both of these communities are well heeled and they both approached CH2M HILL voluntarily. Moreover, I imagine that CH2M HILL is on its best behavior due to the enormous potential for growth. Any community that gets a CH2M HILL or equivalent rammed down their throats due to an inability to obtain financing will likely be put through the ringer.

The Key to a Successful Dildocracy

2009-12-08T04:57:00.001-05:00

Mike Shedlock posted the following YouTube clip from Mark Dice which punctuates how ignorant the American public has become. Dice is an activist and founder of The Resistance, which is a group dedicated fighting the Illuminati and their New World Order. Personally, I don't subscribe to any elite conspiracy theory because they give the investment class entirely too much credit. Nevertheless, Dice's videos are hilarious, in a troubling sort of way:

The Recovery is Now Complete

2009-12-04T16:06:00.002-05:00

According to the BLS, the recovery is now complete as evidenced by the trivial 11,000 increase in unemployment over last month. Thus, [100% x (11,000-111,000)/111,000]=91% difference, which is quite an improvement, to say the least. In other news, the Ministry of Plenty has announced the overproduction of shoes by 483,961,202 pairs for the second half of the Sixth Third Year Plan.

Sen. Bunning Tells You All You Need to Know.

2009-12-03T23:40:00.003-05:00

Bunning's speech regarding Bernanke and the Fed's behavior is one of the more eloquent summaries of the extent to which our country has deteriorated. Of course, it's not going to make a damn bit of difference--Bernanke is in like Flynn.

Visit msnbc.com for breaking news, world news, and news about the economy

Bunning on Bernanke

Bringing Down the House

2009-09-18T02:15:00.005-04:00

Speaking theoretically, because it seems to be impossible, if the American public grew a brain and realized that its representative republic had devolved into a corporate kleptocracy, how could they peacefully restore their sovereignty?

Forget about debtor's revolts, or coordinated bank runs. In both cases, I imagine that the Fed can print it faster than it could be removed. The answer is actually quite simple and pleasantly ironic: If the American people wish to reverse the usurpation of power by corporate entities, they should close their retirement savings accounts en masse. Why do I think this? According to the Wilshire Broad Markets Index, the total market capitalization for the NYSE, NASDAQ, and AMEX as of 8/31/09 is $12.04 trillion. Below you'll find The Investment Company Institute's latest mutual fund levels.

Note the $4.365 trillion in stock mutual funds and the $0.559 trillion in hybrid funds. If we conservatively assume the hybrid funds to be 50% invested in equities, the two sum to $4.644 trillion or 38% of the total stock market capitalization given by Wilshire. Mutual funds are primarily held by defined contribution plan participants (401k, 403b, etc), IRA participants, and retail investors seeking to augment their existing retirement plans, per the Investment Company Institute

Since we're talking about punching a permanent, $3-$5 trillion hole in the market, there would be resistance by Wall Street, fund management, and the US Government. However, the Fed and Treasury can't legally dump dollars into the equity markets like they can a bank.(Yes, I maintained a straight face while typing the previous sentence.) Fund operators would attempt to delay redemptions and use market circuit breakers to try to close the markets prematurely. As long as the dissenters were disciplined, such that every time that every time the market opened, a significant chunk of capitalization disappeared, I believe that the public could remind those in power precisely who it is that they work for.

Debtor's Revolt

2009-09-13T09:16:00.003-04:00

Yves Smith of Naked Capitalism wants to stick it to the Man. Or at least that is what she says in A Shot Across the Bow (Debtors’ Revolt Watch). In the post, an embedded YouTube video by Rockerchic4God (aka Ann Minch) urges the audience to default on their credit card debt en masse, to protest unjustified rate hikes of up to 30% APR.

Let me make this clear, I believe that Minch is sincere and should be commended for attempting to stand up to an out-of-control, predatory industry. Unfortunately, her plan is fatally flawed due to the Federal Reserve subsidized securitization of revolving credit via the TALF program. TALF is essentially the bastard child of Geithner's PPIP concept, where retail debt is securitized and the Federal Reserve Bank of NY makes low interest, non-recourse loans for near 90-95% of the face value of the securitization to interested buyers. The buyer then pledges the newly purchased and likely overvalued securities as collateral for the loan. TALF has been accepting credit card debt since May and has potentially put the taxpayer on the hook for around $20.1 billion.
If any sort of organized default activity were to occur, the credit card companies would simply pile more debt into the TALF dumpster (The minimum loan amount is $10M and there is no maximum.) While I don't expect Ann Minch to know any of this, I find it difficult to believe that Smith is unaware of this. After all, she is an eminently qualified financial expert, just ask her:

Although I believe ideas should stand on their own merit, rather than on their author's credentials, I also recognize that readers want some assurance that they are not quoting a 13 year old or a dog. I have undergraduate and graduate degrees from Harvard. I have been working in and around the financial services industry since 1980 and have had over 40 articles published in venues such as The New York Times, Institutional Investor, The Daily Deal, U.S. Banker, Bank Mergers & Acquisitions, The Conference Board Magazine, BRW Magazine (Australia), and Boss Magazine (Australian Financial Review).

What Smith fails to mention in her bio is that she is also the President of Aurora Advisors, which is a financial management consulting firm serving Wall Street. Smith knows damn well that credit card lenders like JP Morgan Chase, Citigroup, and Bank of America (aka her potential and, perhaps, current clients) wouldn't be significantly impaired by Minch's debtor's revolt. The participants who would be harmed are the taxpayers, as usual, and the debtors. To be fair, Smith gives a half-assed warning about trashing your credit and statutes of limitations on the claims of creditors, but since she didn't look into the actual consequences to the debtor, it's fairly clear that's not where her sympathies lie.

In reality, if you walk away from a credit card debt, your account will go into collections after 30 days and your FICO score will be reduced dramatically. This may very will trigger drastic interest rate increases on your other cards. Eventually, the account will be sold at a deep discount to a collections agency that will harass you for payment for several months. Once they give up, they'll resort to legal means. You will be sued in civil court and if you fail to show up, a default judgement will be issued for the debt and the collector's legal fees and wage and asset garnishment will likely occur. If you insist on a trial, you won't have a leg to stand on, so the results will likely be the same, plus your legal fees. Don't underestimate the capacity of the civil courts, either. Every debt court that I've observed was a well-oiled machine in which default judgements were rendered at the pace of a standard auction.

Employers hate garnishment orders of any sort and view them as grounds for refusing employment. If you're already employed, they can't legally fire you for the garnishment resulting from a debt, but they can always manufacture another reason. In the video clip, Minch states that she is aware of the consequences, is judgement proof, and is willing to take the heat. From what I observed in the 4:28 minute clip, under no circumstances would I screw with Minch without the benefit of a concealed straight-razor and a good pair of track shoes. For the rest of us, this strategy probably makes sense only if you are planning on filing for bankruptcy and can pass the means test for debt discharge (Ch.7 vs Ch.13).

Is Smith hopelessly naive or is she shilling for the Man? I really don't know. Everybody is here for a reason (including myself) and I doubt it's bloggers who are punching Smith's meal ticket. In fact, in Smith's position, writing a blog critical of Wall Street would appear to be one of the dumber things she could do. Is it possible that the adoration of anonymous strangers is worth risking your livelihood for? Who knows? The take away here is that it hasn't gotten any wiser to allow others to critically think for you.

Jobless Recovery and the Newest Normal

2009-09-09T10:45:00.005-04:00

If you are fortunate enough to be employed, I encourage you to take a long look at your last paystub. While it may be less than it was a year ago, what you see is still noteworthy, as it likely represents the most compensation that you will receive for a very long time. Welcome to the New Normal.

I'm certain that you've heard that consumer spending is responsible for 70% of the US GDP, ad nauseam. This figure is mostly worthless, without delving into the components of the consumer spending and earning. Zero Hedge had an excellent post titled, A Detailed Look At The Stratified U.S. Consumer, in which the debt levels and consumption patterns of the social classes are examined in detail. What ZH determined was that upper 10% held a disproportionate amount of disposable income relative to the middle and lower classes, which is made abundantly clear by the following ZH graphic:
Source: ZeroHedge
Thus, it was determined that the richest 10% accounted for 42% of consumption, the middle class (40%-90% net worth) accounted for 48% of consumption and lower class (0-40% net worth) were only responsible for only 12% of consumer spending:
Source: ZeroHedgeRelatively speaking, the spending of the upper, middle, and lower class is 3.5:4:1, respectively. Thus, from the perspective of Wall Street, the lower class has few redeeming qualities and in fact poses more of a liability, due to the fact that consumers are also workers. Since the lower class can't add substantially to the left side of the balance sheet, it stands to reason that their right side influence should be reduced. Obviously, this can be accomplished via outsourcing, but this is rarely as profitable as advertised, due to shipping and complications that arise from operating in the third world.

So, how can the third world be brought here? Immigration laws can go unenforced to maintain wage floors that are unlivable for legal workers. The threat of outsourcing and the reduction of workers' rights can be used to defeat any attempt at worker organization. All of this has been done flawlessly. Real wages in this country have stagnated over the last decade, regardless of what part of the boom/bust cycle we were in. However, the perfection of this scenario requires stratified, permanently high unemployment. If high unemployment can be maintained amongst the working class and moderate unemployment in the middle class, the employer take backs will be tremendous. Can it be done? I have every confidence:

Source: BLS, Datasets LNS14027659, LNS14027660, LNS14027689, and LNS14027662.

Maryland Bank Capitalization Data: 6/30/09 FDIC Call Report Data

2009-08-30T20:14:00.005-04:00

On Thursday, the FDIC released the 6/30/09 Call Reports for the banks that it supervises.Below you'll find capitalization data for for all banks headquartered in Maryland for this period. Note that Bradford Bank failed on Friday, 8/28/09, but I've included their numbers for reference.

The FDIC evaluates capitalization ratios as follows:

However, in light of the fact that many of the recently failed banks could be considered adequately capitalized, these standards are of increasingly questionable utility. Nevertheless, the relevant ratio definitions are provided below:
1. Bank equity capital- Total bank equity capital (includes preferred and common stock, surplus and undivided profits).
2. Equity capital to assets (eqv)- Total equity capital as a percent of total assets.
3. Texas Ratio (TR)- (Non-performing assets+REO)/(Equity-Intangibles-Goodwill+Loan Loss Reserves). Note: Not an FDIC ratio, but the only metric provided that accounts for non-performing assets.
4. Tier one (core) capital- Tier 1 (core) capital includes: common equity plus noncumulative perpetual preferred stock plus minority interests in consolidated subsidiaries less goodwill and other ineligible intangible assets. The amount of eligible intangibles (including mortgage servicing rights) included in core capital is limited in accordance with supervisory capital regulations.
5. Core capital (leverage) ratio (rbc1aaj)- Tier 1 (core) capital as a percent of average total assets minus ineligible intangibles.
6. Total risk-based capital ratio (rbcrwaj)- Total risk based capital as a percent of risk-weighted assets as defined by the appropriate federal regulator for prompt corrective action during that time period.
7. Tier 1 risk-based capital ratio (rbc1rwaj)- Tier 1 (core) capital as a percent of risk-weighted assets as defined by the appropriate federal regulator for prompt corrective action during that time period.

Several loan performance metrics were included, which aren't used by the FDIC to assess capital adequacy, to give a handle on the impact of loan defaults on future income and are defined as follows:
8. Noncurrent assets plus other real estate owned to assets (nperfv)- Noncurrent assets as a percent of total assets. Noncurrent assets are defined as assets that are past due 90 days or more plus assets placed in nonaccrual status plus other real estate owned (excluding direct and indirect investments in real estate).
9.Noncurrent loans to loans (nclnlsr)- Total noncurrent loans and leases, Loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases.
10.Net charge-offs to loans (ntlnlsr)-Gross loan and lease financing receivable charge-offs, less gross recoveries, (annualized) as a percent of average total loans and lease financing receivables.

Maryland Bank Capitalization Data: 6/30/09 FDIC Call Report Data

They Must Have Missed Bernanke's Memo

2009-08-28T08:48:00.007-04:00

You'd think that Federal Reserve Bank would lay off of layoffs while their Chairman is campaigning for the position of Savior of Everything. Not so much:

Source: North Carolina Dept. of Commerce WARN

Grandpa's Green Shoots

2009-08-14T05:09:00.002-04:00

Google has added the ability to search and retrieve certain scanned newspaper articles to its news timeline search feature, although the selection of newspapers is currently rather limited. Below are some of the Green Shoots that your grandparents had to contend with.

1. St. Petersburg, FL: 10/07/1932, The Evening Independent

2. Spokane, WA: 3/12/1931, Spokane Chronicle:

3. St. Petersburg, FL: 01/13/31, The Evening Independent:

4. St. Petersburg, FL: 09/28/1934, The Evening Independent:

5. St. Petersburg, FL: 11/06/31: The Evening Independent

AIG Chicanery of 8/5/09

2009-08-09T21:29:00.006-04:00

On Friday, August 7th, AIG reported a return to profitability for Q2 2009 with an EPS of $2.30, following six successive quarters of loss. In a Friday press release, AIG attributed the positive earnings to a combination of the revaluation of assets due to accounting rule changes and agreements with the Federal Bank of NY to exchange debt for preferred shares in business units (ALICO/AIA) that are earmarked for future sale.

Common shares of AIG closed at $27.14 on Friday, for a gain of $4.61 or 20.5%. Personally, I have my suspicions regarding the validity of AIG's claims, but I'm in no position to make an educated assessment, as I have not delved deeply into their financial statements and have no intention of doing so. I don't trade AIG and until recently I excluded major TARP recipients from my trading radar, as a matter of course. If investors want to take AIG at its word, it's their prerogative.

What I do have a serious problem with is the events of Wednesday, August 5. On Wednesday, AIG opened at $13.64 and rocketed to a close of $22, constituting a one day gain of 62%. The stock's volume was 134M shares compared to 7.9M on the previous day representing a 17x increase, as indicated in the following chart (red emphasis is mine):

On Monday, 8/3, it was reported that Robert Benmosche was elected as the new CEO, but the stock showed little response. On Wednesday, 8/5, there was no news regarding AIG, nor were there any SEC filings. In fact, the most informative story on 8/5 was by the WSJ, titled: Why Is AIG Stock Up 63% Today? , in which the WSJ provided all sorts of implausible excuses for the runup. At least the WSJ acknowledged the runup, most business media ignored AIG stocks's second largest daily move in the last 25 years.

While the prospect of a one day gain of 62% sounds lucrative, it's not. Relatively speaking, it's chump change compared to the returns provided by the derivatives markets (relative return rates are above each bar):

Thus, if at 9:15AM on 8/5/09 you were holding 100 AIG HW August 25 calls, your position would be worth $600. Seven hours later, that same position could have been closed for $25,400 for a return of 4,133% and with the judicious use of trailing stops the return could have been closer to day's high of $3.00. This is the equivalent of dunking on Shaquille O'Neal, checkmating Gary Kasparov, and sleeping with God's wife, all in the same day. In other words, it can't happen. Yet, judging by the heavy options volume on 8/5, it very much did. I'm curious as to who made those OTM long call trades early on 8/5 and why we haven't heard from those who took the other side.

At the risk of appearing hyperventilatory, I believe that Occam's razor is readily applicable: AIG's 62% price runup on 8/5 can be attributed to the dissemination and systematic exploitation of insider information. The 1596% increase in volume clearly indicates that this can only involve large, institutional investors and that they are sufficiently secure in the SEC's impotence and the public's ignorance to make such a brazen move. Some might ask: Where are the cops? There aren't any and this is precisely the point that I'm trying to make. If you are trading in these markets, be aware of how far the House is willing to go press its advantage it and plan accordingly.

Constellation Energy Group's New Math

2009-08-03T22:51:00.007-04:00

Constellation Energy (CEG) reported its Q2 earnings on 7/30 in an 8-K statement that is provided below. They reported adjusted quarterly earnings of $1.08/share, which is 40% lower than its 2008 adjusted Q2 earnings of $1.82/share. Under normal circumstances, a 40% profit reduction would be cause for alarm, but in light of the prior year, it bolsters the company's claims that they are on the road to recovery.

Unless, of course, you insist on using accounting. If you're incapable of "outside the box" thinking and require the use of GAAP, then CEG's Q2 earnings were $0.04/share and constituted a 95% reduction in year-over-year profit.

On page 4 of the 8-K, Shattuck and the Enronettes justify this distorting earnings by 27 times ($1.08 vs $0.04) as follows:

We present adjusted EPS because we believe that it is appropriate for investors to consider results excluding these items in addition to our results in accordance with GAAP. We believe such a measure provides a picture of our results that is more comparable among periods, since it excludes the impact of items such as impairment losses, workforce reduction costs or gains and losses on the sale of assets, which may recur occasionally, but tend to be irregular as to timing, thereby distorting comparisons between periods. However, investors should note that this non-GAAP measure involves judgment by management (in particular, judgment as to what is classified as a special item to be excluded from adjusted earnings). This non-GAAP measure is also used to evaluate management’s performance and for compensation purposes.

(Emphasis is mine.)
In other words, the non-GAAP earnings omit non-recurring charges in order to provide a picture of "normal" operations. In Constellation's case, the exception is the rule and a quarter without extraordinary charges would be an anomaly. Clearly, these figures are used being used to justify senior management's looting of the treasury and to deceive unwary investors. .

On the other hand, perhaps I'm being narrow-minded with respect to Constellation's accounting practices. Since I have a current $128 Constellation electric bill in front of me, I can't think of a better opportunity to practice some of Shattuck's "outside the box" methodology. Thus, I see no reason not to submit $4.74, which is a 27 time reduction that represents, in the judgement of Shortbus management, a truer picture of my power consumption.

No positions in CEG.

CEG_8k_2Q09

Old National Bank and the Brown Swan

2009-07-29T05:14:00.004-04:00

Old National Bank (ONB) is a regional bank, headquartered in Evansville, IN, with assets totaling over $8B. As you may remember, ONB gained media attention in May, when it repurchased its TARP warrants from the Treasury for $0.21 on the dollar, giving the taxpayers a $4.6M haircut.

Monday, ONB reported 2009 Q2 non-GAAP earnings of $9.6M or $0.15/share, which was nearly double analyst expectations. $0.15/share for Q2 2009 is about half of what it earned in Q2 2008 and $4.6M of these profits were a one-time occurrence. Nevertheless, Wall Street didn't let such a triviality get in the way:

ONB closed at $11.47, which constituted a one-day gain of over 17%.That seemed like an unlikely return considering the quality of the news, or lack thereof. I converted the daily closing price differences for the prior year to their continuously compounded equivalents and tabulated the results below.

As you can see, the July 27th close was an extreme outlier (>3σ from the mean). Perhaps, the intrinsic value of ONB increased 17% in the course of minutes, but I'd wager that rampant speculation is a more reasonable explanation. Recently, there has been some discussion on the internet as to how a bubble can be spotted before it deflates. It would appear that periodically screening asset prices for this type of situation might be useful and merits further investigation.

The Economist: Modern Economics is Crap

2009-07-22T21:29:00.002-04:00

The July 18th-24th edition of The Economist has declared that modern economic theory has been a dismal failure. They cite financial economics and macroeconomics as being particularly worthless, due to the fact that most economists missed the credit bubble and are now clueless as to how to get out of the resulting Depression. Per the article, Nobel laureate Paul Krugman recently described the last 3 decades of macroeconomics as, "spectacularly useless at best, and positively harmful at worst.”

I came to a similar conclusion on 4/17: :

I have to admit that my personal animosity towards economists and finance experts has grown exponentially over the last 6 months. As I delve more deeply into the causes and assumptions that lead to the crash, I find it analogous to peeling an onion, except each layer is made of stale excrement. The recurring theme is the confident assertion that a complex process (derivative pricing, MBS risk, etc) could be accurately modeled without accounting for all inputs. Intuitively, we know this is to be false, since weather forecasts aren't useful more than a few days out. Yet, the finance industry used this reasoning to justify huge risks by proclaiming that trees could, indeed, grow to the sky.

Now, after the gravy train has derailed, we are told that there is a pundit meritocracy that must be navigated in order to hear financial truth. To which, I call bullshit: the baby and the bath water are equally offensive. These clowns have profited from leading us down the garden path twice, now. (Remember the New Economy and the viability of profitless companies claptrap they fed us during the tech bubble?) If we were to send Paul Krugman to truck driving school, the impairment to the common good isn't so apparent. Would society be that much worse off by exiling the source of The Theory of Interstellar Trade and his kind to the open road? Perhaps logistically, but I'm willing to take the hit.

The article attributes economists' inability to foresee the bubble to flawed standard models and that is almost correct. Nearly a year later, I'm still incredulous when I read about how it is nearly impossible to spot a bubble^*. I'd wager that I can produce 50 people who foresaw this crisis, none of whom are economists and many lack college degrees. No model is required to see that $12/hour wage slaves don't belong in $250,000 homes or that "getting upside down" on a car loan is a hallmark of excess and unsustainable credit. The difference is perspective and common sense.

If economics has any hope of restoring its credibility, it must return to first principles. For one, the complexity of the systems that they are attempting to measure must be respected. There is a reason that long term weather forecasts aren't terribly useful. Secondly, new models based on novel ways to misuse the standard normal distribution aren't the solution. Instead, the limitations of statistical techniques should be accounted for early in any future modeling. If said models show flaws under duress, they must be abandoned, with no regard to their eloquence. The implied volatility "smile" of any option chain should have been a damning indictment of Black-Scholes. Lastly, step away from the computer. The economy isn't in there. Nor is it in New York or DC, for that matter. Get in the car and see what 15% unemployment looks like in Kalamazoo. Spend a month working in the service economy for $8/hour and see if your concept of rationality holds. You may be disturbed by what you find, but I can promise you that a bubble will never sneak up on you again.

* Yes, I believe there is currently a bubble in the equities markets.

The 401(k): Welfare For Wall Street.

2009-07-20T11:57:00.002-04:00

It is my belief that the 401(k) plan has devolved into little more than cleverly disguised tax designed to subsidize the bond and equity markets. In 2006, after significant lobbying, the financial services industry essentially purchased the Pension Protection Act of 2006 from Congress. Two of the more offensive aspects of the law are automatic enrollment and automatic escalation.

Automatic enrollment allows your employer to withhold 401(k) contributions from your pay without your consent and with no liability for loss. Prior to the first involuntary withholding, the employer is supposed to provide written notice 30 days in advance of the first involuntary contribution. Typically, the default investment, a.k.a. the qualified default investment alternative (QDIA) is a hybrid or target-date mutual fund, which contains significant risk and have generally underperformed. It is very telling that the Department of Labor only allows money market or stable value funds as a QDIA for 120 days, demonstrating that this is a parasitic attempt to divert funds into the equities markets.

Automatic escalation is the practice of increasing an involuntary plan participant's contribution annually. The initial rate is 3% with a 1% increase in each subsequent plan year. The rationale given for automatic escalation is that 3% annual contributions will not generate sufficient retirement savings. In other words, since the involuntary participant has remained asleep the switch for a year, Wall Street might as well press the bet.

If nothing else, the PPA shows the dangers of being a passive participant in your retirement planning. For example, consider a 25 year old who was automatically enrolled on January 1, 2007. Assuming he was earning $45k/year, received a 5% raise annually, and was autoescalated in 1% increments in each subsequent year, his shares of his QDIA, the Fidelity Freedom 2040 Fund (FFFFX), would be worth $3,710 on June 1, 2009. Had he not been autoenrolled/autoescalated, he'd have $4372, which is about 15% more.

I have yet to see it proven that the 401(k) is the best means of retirement funding. Yet, the financial services industry and the government are willing to resort to deceptive and predatory practices to channel more of our discretionary income to Wall Street. Fidelity Investment's response to the PPA clearly indicates that deceit is intentional. In the response, Donna Hanlon suggests that the 30-day waiting period be replaced with a 5-day period because new hires might notice that their wages are being garnished:

Consequently, compliance with a thirty day advance notice advance notice requirement will require these plans to delay enrollment to the detriment of participants' retirement In automatic enrollment plans, this delay may highlight for participants the difference in net pay that participating in the plan entails, with the result that participants may be more motivated to opt out of participation, a consequence that is inconsistent with the policy choice underlying automatic enrollment.

The remainder of the comments provided by concerned parties are posted at the Department of Labor's site: http://www.dol.gov/ebsa/regs/cmt-defaultinvalt.html. I strongly encourage you to read them, since they provide a window into to actual motivations of the retirement fund industry. What I deduced is that nobody involved is terribly concerned with the welfare of the plan participants. If nobody is looking out for our best retirement interests, how long can we afford to remain oblivious?

Bank Failure Friday: 7/17/09

2009-07-18T00:17:00.001-04:00

The FDIC reported four more bank failures yesterday::

1. Temecula Valley Bank, Temecula, CA
2. Vineyard Bank, Rancho Cucamonga, CA
3. BankFirst, Sioux City, SD
4. First Piedmont Bank, Winder, GA

Below are the capitalization ratios from the most current (3/31/09) FDIC data:

CIT: Too Cheap To Save

2009-07-17T09:54:00.003-04:00

I've not been to MBA school, yet, as I'm awaiting the onset of senility to improve its palatability. Nevertheless, I'm certain that the concept that "It takes money to make money" is readily applicable to modern business. In other words, a company must invest its capital wisely in order to generate future returns. If you are a financial institution that's recklessly lent yourself into insolvency, I can't think of a better investment than the acquisition of a few Congressmen. JP Morgan, Citigroup, Goldman Sachs, Bank of America, Capital One, and Discover all understood this and were allowed to loot the Treasury. In fact, the smarter TARP recipients even kicked back a cut of their bailout booty as campaign contributions, in the time honored pimp/call girl tradition, which allowed them further privileges such as mark-to-myth accounting and unhindered NYSE market manipulation. Apparently, this concept was lost on CIT which explains why it wasn't in the taxpayers interest to save them. After all, CIT only lent to small business instead of companies like Discover, who provide the valuable service of streamlining taxpayer balance sheets with 29.99% late penalties.

From the FEC Campaign Disclosure Database.

Hair of the Dog for K Bank

2009-07-11T04:43:00.003-04:00

If you look at the list of Maryland banks that I posted, you'll see that K Bank is one of the more poorly capitalized institutions in the area. K Bank, a regional entity located in the Baltimore metro area, has been afflicted with a portfolio of low quality real estate development loans. Per K Bank's most recent call report, liabilities have reached 94.4% of its total assets, 5.4% of its assets have reached non-accrual status, and 4.4% of assets are 30-89 days late, casting significant doubt on K Bank's ability to survive. In fact, the situation has become so dire, that the FDIC issued a Cease and Desist order on 3/10/09 accusing the bank of unsound practices.

I'm no MBA, but I would think it would behoove K Bank to concentrate on improving the quality of future loans. According to K Bank's website, I would be very wrong:

Failure Friday: More Bank Capitalization Data

2009-07-10T03:54:00.002-04:00

In honor of Failure Friday, I have provided the following list of what I believe to be the most troubled banks in the FDIC system. The definitions and rating criteria can be found here and all data is from the most current call reports from 3/31/09. Enjoy.

Doomed

Maryland Bank Capitalization Data

2009-07-08T23:02:00.005-04:00

Below is a list of Maryland banks and their associated capitalization ratios as of their most current quarterly report to the FDIC (3/31/09). The relevant ratios are defined as follows:

Tier 1 Capital: Tier 1 (core) capital includes: common equity plus noncumulative perpetual preferred stock plus minority interests in consolidated subsidiaries less goodwill and other ineligible intangible assets.

Risk-Weighted Assets: Assets that have been adjusted for potential default.(residential mortgage multiplier=0.5, commercial/industrial loan multiplier=1.0, cash and US treasuries=0.0, short-term credit,demand deposits=0.20)

1. Total Equity/Assets: Book value.
2. Texas Ratio=(Non-performing assets+REO)/(Equity-Intangibles-Goodwill+Loan Loss Reserves). Note that this is the only metric that accounts for non-performing assets.
3. Leverage Ratio=(Tier1 Assets/Total Assets)
4. Tier 1 Risk Based Capital Ratio=(Tier 1 Capital)/(Risk Weighted Assets)
5. Total Risk Based Capital Ratio=(Total Risk Based Capital)/(Risk Weighted Assets)

MD Banks

Dumbing It Down

2009-07-01T15:42:00.008-04:00

At the The Cynical Economist, I found this clip of mathematician Arthur Benjamin advocating replacing calculus with statistics in the public school curriculum:

Benjamin's reasoning for foregoing calculus for the sake of statistics is that statistics is a more pragmatic topic, since risk assessment and odds estimation are daily occurrences. Let's see how it works out for us. Say we go out and measure some continuous quantity like the error in the volume of Foster's in a standard bottle. In the name of science, we are compelled to repeat the experiment often and when we're done we plot the relative frequencies vs. the measured errors:

What we find is that we have a bell curve given by a probability density function f(z). What we really want is the area under the curve for some increment, as this yields the probability that a member of the Foster's population will fall in the increment. How do we get this area? Had we taken calculus, we'd know to integrate f(z) over the interval [a,b] of interest to get the desired probability, F(z)=F(b)-F(a).

You're probably thinking: Wait a minute, for a normal distribution, there is no closed form solution that provide F(z) directly and this is true. Instead, numerical approximations must be employed and this doesn't require calculus. In fact, via a simple transformation, a common Z statistic table or Excel function normsdist() can be employed to simply look up the probabilities sought, without no regard for the underlying math. This is precisely Benjamin's point, to perform statistical calculations, calculus is unnecessary, which is true. The watered down versions of statistics provided by psychology, biology, and business departments prove this daily.

However, there is a significant difference between plugging numbers into a standard formula and comprehending how and why the formula works. To actually understand the formula and its limitations, a student typically needs to see its derivation. This why math and engineering undergrads are required to take mathematical statistics, which is rather calculus intensive.

Benjamin states that this current economic crisis would have been avoided if public schools taught statistics, as opposed to calculus. This is entirely wrong. It was the use of statistics, without the understanding of their limitations, that lead to the gross asset and risk mispricings that contributed to this crisis. Clearly, allowing the dumbed down version of statitistics to become the norm is only encouraging more misapplications of the discipline.

And We're Back

2009-06-28T22:21:00.002-04:00

I'm back to my evil ways. After a 4 month hiatus, I have resumed wildassed speculative trading, primarily in equity options. In February, I'd closed out my options account in an attempt to force myself to focus on more sustainable strategies, such as value investing in equities. However, the casino-like aspects of the current market seem entirely inappropriate for any kind of long term strategy. Thus, in May, I opened a new account with an options brokerage that also allows me to trade futures and future options. I doubt I'll get into futures and I can't begin to imagine how to price futures options, but it's nice to know that a house full of 40,000 lb of frozen hog bellies is only a few mouse mis-clicks away.

The Clueless Recovery

2009-06-02T23:41:00.003-04:00

Here is a riddle for you, what is the difference between the following Lloyd Blankfein (GS CEO) quotes?

"Some of Wall Street's biggest names have been proclaiming in recent weeks that the worst of the financial market turmoil is likely done. JPMorgan Chase's Jamie Dimon thinks it is "maybe 75 percent to 80 percent over," while Goldman Sachs' Lloyd Blankfein says "we're closer to the end than the beginning."

"The end is already in sight, in the sense we're talking about it, and we have some confidence we will reverse out of (the downturn). And that is what I think is making the markets cheerier than they have been for while, and which has surprised people."

The difference would be about a year. The first quote is from a FOXNews article published on 4/22/2008, while the latter was is from 5/10/2009 Reuters article. Anyone who believed Blankfein in 2008, got their heads handed to them in September. Nevertheless, it appears that the investing public didn't learn much the ~~first~~ second time (remember 2001) and is lining up to get a third helping of pain. Personally, I believe that Wall Street is running a pump and dump PR campaign in order to sell new equities that are desperately needed to maintain adequate capitalization of BAC, C, JPM, GS and the like.

OPEC called BS on the our pseudo-recovery in their May 2009 monthly report (bold type is mine):

Growth for the global economy in 2009 has been revised down further by 0.6 percentage points to now show a decline of 1.4%. The Euro-zone slipped deeper into recession; as a result the forecast has been revised down by 1.2 pp for a decline of 4.2%. Despite some positive signs, the US is still expected to decline at a rate of 2.8%, down 0.2 pp from the previous forecast. Growth expectations for China and India remain unchanged at 6.5% and 5.0% respectively. In general, it remains to be seen whether the current positive momentum is sustainable and whether the measures taken by central banks and governments will be enough to support an economic recovery.

Apparently, this is the only country where the banking stress test farce played well. The OPEC analysis of our financial system is surprisingly frank and bears no resemblance to the Green Shoot PR campaign being advertised in the US media (color is mine):

Despite those better-than-expected earnings in the banking sector, it remains to be seen whether these improvements in earnings are sustainable. Most of the earnings came from onetime actions like asset sales or accounting changes and/or potentially unsustainable trading income. Secondly, it has to be ensured that the need for new capital for the sector in general will not exceed the amount that is currently being considered appropriate. This has to be closely watched as well, as the accounting for asset-backed securities was recently changed in favour of US banks and there might be a danger that the values currently being reflected on the balance sheets might make further write-downs necessary. Thirdly it also remains to be seen whether the 19 banks of the SCAP are able to raise the amount of $75bn without any friction.

It is somewhat amusing that Green Shoot PR campaign can be debunked in one paragraph.. First, OPEC alludes to how AIG was used to backdoor the TARP process, by using CDSs to opaquely funnel money into the major investment banks. (I find it ironic that AIG CDS contracts were deemed sacred, while GM bond contracts are entirely negotiable.) Next, the silliness of letting banks test themselves and negotiate the results is questioned. Finally, the viability of the current pump and dump aspect of the Green Shoot campaign is doubted. Here, the analysts slip up due to their underestimation of the gullibility of the US public. Their concern regarding banks experiencing "friction" when raising new capital in the equities markets is unfounded--the American public has been lubricated more thoroughly than ever.

MR052009

The Geithner Comedy Tour

2009-06-01T18:41:00.002-04:00

This week Treasury Secretary Geithner visited China in an attempt to restore confidence in the US financial system. China holds around $900B of US Treasury debt and has become increasingly alarmed with the Fed's policy of monetizing the debt. In Beijing, Geithner addressed a student audience at Peking University where he attempted to reassure the audience by stating, "Chinese assets are very safe." Per the UK Telegraph, "The comment provoked laughter from the audience of students."

I sincerely hoped the audience tipped Geithner at the end of his act. As you can see below, we need all the help that we can get.

Retardometrics

2009-05-27T00:48:00.002-04:00

In a perfect world, we would all have numbers affixed to our foreheads providing an indicator of intelligence and lack thereof. Unfortunately, this is not only impractical, but would likely lead to discriminatory practices. Nevertheless, we have something known as The Consumer Confidence Index (CCI) which provides an aggregate public gullibility metric. Yesterday, The Conference Board reported May's CCI was 35% than that of April, indicating that the many of the 5000 households surveyed believed the government's Green Shoot PR campaign:

For certain, anyone within earshot of a teevee has heard the business media trumpeting the Green Shoot PR campaign. Any new economic indicator that is less negative is being proclaimed as positive and a confirmation that the recovery is at hand. (Considering all of the chicanery the government has condoned in the last six months, the accuracy of the most recent indicators is questionable.) The message is ubiquitous and apparently effective, demonstrating that the American public's appetite for propaganda is insatiable.

After all, didn't the teevee shill the following:

1. The Y2K non-apocalypse.
2. Electric deregulation
3. WMDs to justify the Iraq War.
4. 401k retirement plans in place of financial literacy.
5. The perpetual increase of housing prices and real estate speculation.
6. Consumption at the expense of saving.
7. Media consolidation
8. Diseases manufactured by the pharmaceutical industry, i.e. Restless Legs Syndrome.
9. A service economy based on truly unnecessary industries, instead of tangible good production.
10. Trade and immigration policies that led to a depressed standard of living in many parts of the country.

I would have thought that after seeing 40% of their retirement assets disappear, 30% of their home's value erode, 10% unemployment, an unprecedented $12T deficit, and the specter of massive tax increases, the public might start to question the MSM and whose interests it really serves. Apparently, the transient comfort provided by predatory optimism is preferable to reality. Thus, allow me to accomodate with the following inspirational excerpt from Time magazine titled, "Good Times Are Coming!," circa 2005:

Do we really consume too much and save too little? Fed data show that while debt has been rising, so has net worth, and debt as a percentage of net worth does not look overstretched. I am not unmindful of the risks. But I do think most of the analysis wildly oversimplified, particularly when the problem is identified as "imbalances," as though the economic system's natural state had been perturbed and until returned to balance it was out of whack.

My point is simple: this is just one of the things people are worrying about while the broad economic picture could hardly be better. General Electric just reported strong earnings and is confident of double-digit growth. IBM did the same. Citigroup chief financial officer Sallie Krawchek said recently on CNBC that it was "credit nirvana," the best environment they had seen in almost 15 years, and Citigroup raised its dividend another 10%.

Catastrophe Cometh

2009-05-16T15:28:00.003-04:00

On May 12th, the New York Times published a story regarding the effects in the recession on the state of Social Security and Medicare. Significant deterioration of the financial health of these entitlement programs has raised questions as to their future viability and the need for reform. The NYT provided the following disturbing graphic which illustrates exactly how dire the situation has become:
As you can clearly see the future of Medicare and Social Security is very bleak. The Treasury's 2009 projections indicate that Medicare only has only 1.5 little rectangles remaining, while SS has experienced a 20% year-over-year little rectangle reduction. Compounding matters, the little rectangles are turning black, which is a classic economic indicator of ~~doom~~ DOOM. The administration has proposed that health care cost cutting measures are the solution for Medicare:

The Treasury secretary, Timothy F. Geithner, said the only way to keep Medicare solvent was to “control runaway growth in both public and private health care expenditures.” And he said Mr. Obama intended to do that as part of his plan to guarantee access to health insurance for all Americans. But if cost controls do not produce the expected savings, Congress is likely to find it difficult to preserve benefits without increasing taxes.

Using ~~Austrian Polygonal Differential Analysis~~ common sense on the following historical health care industry campaign contribution charts from OpenSecrets.org , the probability of future health care cost reductions fall somewhere in the range of notahopeinhell and 0.
In reality, the health care and insurance industries are taking a page from the TARP playbook, where the specter of crisis.is being used to justify corrupt legislation. The health care lobby graciously agreed to reduce cost growth (not level, but rate of change) by 1.5%, yielding a projected savings of $2T over the next ten years. In exchange for this triviality, the insurance industry will receive a massive subsidy in the form of artificial demand creation; legally mandated health insurance for all US citizens in 2013.

This was the masterstroke of Senate Finance Committee's chairman, Max Baucus. Chairman Baucus spent long hours at the Roundtable to Discuss Reforming America’s Health Care Delivery System "hammering out" out the particulars with representatives from Blue Cross, Aetna, and the Business Roundtable. And when I say "hammering out," what I mean is selling legislation and the public interest for campaign contributions:
Lifetime contributions to Sen. Max Baucus via Opencecrets.org.

Thank You For Being A Friend

2009-05-06T05:35:00.001-04:00

Yesterday, someone (who thinks this blog should be funnier??) sent me a link to The Bing Blog, which is the creation of, the aptly named, Stanley Bing. In Bing's most recent post, Things That Will Survive, he declares that the current recovery is genuine and prognosticates about what the new growth will look like. Since Stanley Bing isn't actually a real person and doesn't seem to have much economic training, he's more apt to be correct than your standard, celebrity econotard. I won't regurgitate his post, but it gave me an idea: Wouldn't it be clever to post a series of predictions, so that in a year I can look back and see that, I too, can't differentiate my ass from third base.

Prediction I: This rally is an extended sucker's rally. This isn't much of a stretch considering that 70% of the GDP is consumer based and somewhere between 10-15% of these consumers are now jobless. However, I am reminded of a time when I was all in on fairly out of the money puts. At the time, the government and the MSM were lying about the state of the economy, despite obvious evidence to the contrary. The experts called the bottom and proclaimed that up was the only direction remaining. I spent weeks mentally willing the destruction of the stock market, to no avail. For a month, I questioned whether I'd arrived at a very wrong and expensive conclusion about the economy's direction. That month was March of 2008:

Thus, Spring of 2009 seems hauntingly familiar, except I hold no derivative positions. Sure enough, it charts similarly, as well. Increasing pricing on decreasing volume seems to be the portent of doom. (3/08-7/08, Thanksgiving 08-Feb 09). I am attempting to become a reformed speculator, but synthetically shorting crap like WYN @ 10 is so very, very tempting (-WYN HB, +WYN HV (protection), +WYN TB). We'll see if discipline prevails.

Prediction II: 401(k)/IRA redemptions and loans will be restricted. Over 5M Americans are unemployed and that's likely a conservative estimate. Moreover, many of the unemployed/underemployed have been so for months now. As the personal savings rate actually went negative during the bubble and the collective home equity piggy bank has been smashed, defined contribution funds are increasingly likely to be drained. Moreover, people are beginning to wise up to the fact that the 401(k) may well have been the greatest scam ever perpetuated by Wall Street, next to Donald Trump's hair. Thus, there has been a steady outflow of cash from equity mutual funds over the last year. If you compare the market capitalization of the NYSE to defined contribution plan/IRA equity assets, you'll discover the Evil Whose Name Can Never Be Spoken: Much of Wall Street is Main Street. While this topic could easily fill another 10 posts, if not an entire blog, let it suffice to say that DC plan redemptions en masse would cripple the stock market. Notice how Obama's campaign promise to ease penalties on 401(k) hardship redemptions has never been revisited. As the stock market goes, so does Wall Street, so this will not be allowed to happen

Prediction III: Municipalities will default in record numbers and won't get bailouts resembling what Wall Street received. Recently, I've been looking at the budgets of various local governments across the country. During the credit bubble, many ran deficits, not unlike their citizens. Unfortunately, municipalities generate revenue primarily through real estate tax, sales tax, and, less often, income tax, which are all falling at a significant rate. I expect that they'll attempt to issue more bonds, but at some point credit rating deterioration will induce unservicable rates. I don't expect significant federal assistance either, due to Wall Street's complete ownership of Congress and the Treasury. Instead, bankrupt cities will have privatization rammed down their throats, because little is more profitable than a monopoly on products with inelastic demand, like water and policing.

Prediction IV: Free markets will become even more farcical with consolidation. I don't think there is a company in existence that is interested in truly free trade. In practice, the phrase "free trade" has come to stand for using competition to decrease input costs, while attempting to reduce competitive forces affecting output prices. A developing nation's poverty will continue to be viewed as its greatest resource, to the detriment of American workers who insist on an "extravagant" standard of living. Wage and benefit claw backs will increase, while price fixing becomes even more blatant, as competing companies consolidate. In the last decade, we've seen little along the lines of anti-trust legislation or enforcement and I expect this to worsen. Within 5 years, I can envision the same style of collusion, demonstrated by the petroleum industry under Bush, to be adopted by producers of goods with low elasticity, like food, medicine, and energy.

Prediction V: This blog will not get any funnier. Truly humorous blogs are a rarity, while commonality is a staple here. Thus, never doubt my grave sincerity when I make proclamations like; the only asset class that is guaranteed to continually appreciate is Golden Girls memorabilia, which constitutes the basis for its use as a global currency standard. Really, I think I may have been mistaken for someone else.

So there you have it. In a year, I, hopefully, can look back at this post and say, "What a moron. I need to trade my computer in for an Etch-A-Sketch." In the mean time, I'll be working on my Canadian residency visa and hoarding Bea Arthur posters by the gross.

Fidelity Investment's Idea of Transparency

2009-05-05T00:36:00.007-04:00

Apparently, it's acceptable to lie to potential investors so long as you tell them that you're lying.

Remember the good old days, when the word guaranteed meant that an outcome was certain.

Getting Back To What Got Us Here

2009-05-02T18:34:00.006-04:00

On Thursday, the Senate defeated amendment (Amdt. 1014) to the Helping Families Save Their Homes Act of 2009 (S.896). The amendment proposed by Sen. Dick Durbin, IL, provided a mechanism for troubled homeowners to avoid foreclosure. Specifically, before a homeowner entered bankruptcy, they would first have to meet with the lender and give the lender the opportunity to offer a loan modification, such that the homeowner's debt/income ratio would be reduced to 31% or less. If the homeowner refused, the bankruptcy court would not be allowed to modify the loan. If the lender refused to offer a workout, the bankruptcy court would have the power to make the aforementioned modifications to the loan terms. In other words, the banks would be forced to offer legitimate workout plans that reduce principal, as opposed to the current, farcical loan modifications that we've seen consistently fail.

The amendment was defeated 45/51 with 3 abstentions, primarily due to intense lobbying by the American Banker's Association, the US Chamber of Commerce, and the Financial Services Roundtable. Per Bloomberg, Sen. Durbin responded:

"These bankers who brought us into this crisis are literally shunning and stiff-arming the people who are facing foreclosure,” said Senator Richard Durbin of Illinois, sponsor of the legislation and the chamber’s second-ranking Democrat.........Democrats led by Durbin had sought a compromise on the measure with JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., the American Bankers Association and Financial Services Roundtable. The lenders that scuttled the negotiations are “surviving today because of taxpayers’ dollars,” Durbin said. The three banks he named received $95 billion in U.S. aid.

The financial industry rationalized its position by claiming that Durbin's measure would destabilize the housing market. This logic makes little sense, because it's hard to envision anything more destabilizing to the housing market than a wave of foreclosures. The real goal of the banking industry is to make bankruptcy as unappealing as possible to troubled debtors, as demonstrated by the uber-sleazy Bankruptcy Reform of 2005.
Diana Olick of CNBC made a telling statement:

One insider very close to the process on the Hill tells me, "If you asked me four months ago, I would have said cram down was a lock."

Four months ago, bailouts were a fairly novel stench and the public was starting to realize that the financial industry controlled much of the government. Obama and Congress performed an impressive charade by publicly lambasting bank CEOs and the SEC, but Mario Cuomo is the only official to actually attempt to strike blood. Banksters even delayed making the campaign contributions, which are the fuel of our present democratic circumvention. As I've said before, this economic crisis was bought and paid for with campaign contributions. They were the root cause and have created a situation where a non-voting entity, like the ABA, has more political power than the electorate. Four months later, the contributions have brazenly resumed in earnest, no doubt the result of demographic studies that show that the American public has returned to its uneasy slumber. By allowing the continuation of corporate governance, it is clear that the Profit Gods will be appeased at our collective expense. This constitutes an unsustainable situation that I sincerely believe will end badly.

The New Math

2009-04-29T23:22:00.002-04:00

1. Take an annual 6.1% decrease in real GDP:

2. Add a marked increase in year over year unemployment in 372 metropolitan areas:

3.Add a global influenza pandemic:

4. Add an 18.6% decrease in the Case-Shiller Housing Price Composite Index:

To yield this?

At this rate, it can't be long before Powerball is deemed a permissible 401(k)/IRA asset allocation option.

The Devil Really Did Make Ken Lewis Do It

2009-04-25T16:32:00.007-04:00

Thursday, the Attorney General of New York released a letter summarizing the testimony (provided below) of Ken Lewis, Bank of America's CEO, regarding the acquisition of Merrill Lynch. Lewis's testimony describes the strong arm tactics used by Paulson, Bernanke, and federal regulators to continue the acquisition despite the fact that BAC's due diligence determined that Merrill was likely to realize a $14 billion loss for the 4th quarter of 2008. The extent of Merrill's deterioration was revealed to Lewis on 12/14/08 and he subsequently contacted then Treasury Secretary Paulson to indicate BAC's intent to invoke the Material Events Change (MAC) clause in the acquisition contract to void the deal. What followed was a series of threats by Paulson and Bernanke to fire Lewis and the board of directors, if the merger didn't proceed as planned.

We know that the board was aware of the threats by the meeting minutes attached as Exhibits B and C. Paulson and Bernanke made verbal assurances to Lewis that the resulting losses from Merrill would be covered by future bailout disbursements, but they refused to give a written assurance for fear of disclosure (Exhibits C and D). As you probably know, the merger was completed and BAC reported over $15B in losses directly attributable to Merrill in the 4th quarter. Clearly, Lewis and BAC's board was derelict in its duty to shareholders. In fact, it can be argued (and it should be in court) that shareholders were deceived by senior BAC management so that said management could retain their lucrative positions. Who did Paulson, Bernanke, and BAC leave holding the bag? The usual suspects; Fidelity, Vanguard, State Street, T Rowe Price, and other retirement fund managers. In other words, us. Again.

As we're in the midst of the Crap Rally That Will Not Die, I can only wonder who else the Fed and Treasury have put the boots to. Their actions with BAC were blatantly illegal, so it's hard to remove much from consideration. I have grave doubts about shadowy Fed-surrogates, behind grassy knolls, buying S&P500 futures, since this could be detected in historical volume data. Perhaps, Tyler Durden of Zero Hedge has it right when he says that hedge funds and GS are the real Plunge Protection Team, flitting in and out of low volume markets to manipulate prices. However, Occam's Razor rarely disappoints, so I'm inclined to look towards the $3.5T slush fund that is perfect for this very thing. This slush fund contains the dumbest money ever, has little transparency, won't stand the test of redemption for years, and is controlled by few, some of whom are even TARP recipients.

Most equity retirement (401(k)/IRA) mutual funds claim a maximum stock allocation of 80%, but I'd wager that they are quite a bit north of that. In fact, I wouldn't be shocked to find that some of the $3.8T of money market funding hadn't slipped the leash and found its way into the equity markets. Lewis testified and Paulson corroborated that the government verbally promised to "fill the holes," so I don't think my tin foil hat is terribly shiny here. Nevertheless, this is purely speculation from an entirely unqualified observer, so I encourage you to peruse the Investment Company Institute's archive of mutual fund data and annual Factbook, the EBRI's Databook, and Federal Reserve Board's Flow of Funds Z.1 and see what's what.

Ken Lewis Testimony_BAC_AGNY

STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL 120 Broadway New York, NY 10271 ANDREW M. CUOMO Attorney General (212) 416-8050 April 23, 2009 The Honorable Christopher 1. Dodd, Chairman u.s. Senate Committee on Banking, Housing, and Urban Affairs 534 Dirksen Senate Office Building Washington, DC 20510 The Honorable Barney Frank, Chairman House Financial Services Committee Democratic Staff 2129 Rayburn House Office Building Washington, DC 20515 Re: Mary L. Schapiro, Chairman U.S. Securities and Exchange Commission Office of the Chairman 100 F Street, NE Washington, DC 20549 Ms. Elizabeth Warren, Chair Congressional Oversight Panel 732 North Capitol Street, NW Rooms C-320 and C-617 Mailstop: COP Washington, DC 20401 Bank of America - Merrill Lynch Merger Investigation Dear Chairpersons Dodd, Frank, Schapiro and Warren: I am writing regarding our investigation of the events surrounding Bank of America's merger with Merrill Lynch late last year. Because you are the overseers and regulators of the Troubled Asset Relief Program ("TARP"), the banking industry, and the Treasury Department, we are informing you of certain results of our investigation. As you will see, while the investigation initially focused on huge fourth quarter bonus payouts, we have uncovered facts that raise questions about the transparency of the TARP program, as well as about corporate governance and disclosure practices at Bank of America. Because some matters relating to our investigation involve federal agencies and high-ranking federal officials charged with managing the TARP program, we believe it is important to inform the relevant federal bodies of our current findings. We have attached relevant documents to this letter for your review. On September 15,2008, Merrill Lynch entered into a merger agreement with Bank of America. The merger was negotiated and due diligence was conducted over the course of a tumultuous September 13-14 weekend. Time was of the essence for Merrill Lynch, as the company was not likely to survive the following week without a merger. The merger was approved by shareholders on December 5, 2008, and became effective on January 1,2009. The week after the shareholder vote - and days after Merrill Lynch set its bonuses Merrill Lynch quickly and quietly booked billions of dollars of additional losses. Merrill Lynch's fourth quarter 2008 losses turned out to be $7 billion worse than it had projected prior to the merger vote and finalizing its bonuses. These additional losses, some of which had become known to Bank of America executives prior to the merger vote, were not disclosed to shareholders until mid-January 2009, two weeks after the merger had closed on January 1,2009. On Sunday, December 14,2008, Bank of America's CFO advised Ken Lewis, Bank of America's CEO, that Merrill Lynch's financial condition had seriously deteriorated at an alarming rate. Indeed, Lewis was advised that Merrill Lynch had lost several billion dollars since December 8, 2008. In six days, Merrill Lynch's projected fourth quarter losses skyrocketed from $9 billion to $12 billion, and fourth quarter losses ultimately exceeded $15 billion. Immediately after learning on December 14,2008 of what Lewis described as the "staggering amount of deterioration" at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. After a series of internal consultations and consultations with counsel, on December 17,2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter. At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Lewis, Bank of America's CFO, and other officials discussed the issues surrounding invocation of the MAC clause by Bank of America. The Federal officials asked Bank of America not to invoke the MAC until there was further consultation. There were follow-up calls with various Treasury and Federal Reserve officials, including with Treasury Secretary Paulson and Chairman Bernanke. During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege. Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced: [W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' -- as I recall him saying "the government," but that mayor may not be the case - "does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," -- I can't recall ifhe said "we would remove the board and management if you called it" or ifhe said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me 2 talk to our board." And the board's reaction was of "That threat, okay, do it. That would be systemic risk." In an interview with this Office, Secretary Paulson [argely corroborated Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. Secretary Paulson told Lewis a series of concerns, including that Bank of America's invocation of the MAC would create systemic risk and that Bank of America did not have a legal basis to invoke the MAC (though Secretary Paulson's basis for the opinion was e,ntirely based on what he was told by Federal Reserve officials). Secretary Paulson's threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, "that makes it simple. Let's deescalate." Lewis admits that Secretary Paulson's threat changed his mind about invoking that MAC clause and terminating the deal. Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke. After the threat, the conversation between Secretary Paulson and Lewis turned to receiving additional government assistance in light of the staggering Merrill Lynch losses. Lewis spoke with individual Board members after his conversation with Secretary Paulson. The next day, December 22,2008, the Board met and was advised of Lewis's decision not to invoke the MAC. The minutes of that meeting listed the key points of Lewis's calls with Secretary Paulson and Chairman Bemanke: (i) first and foremost, the Treasury and Fed are unified in their view that the failure of the Corporation to complete the acquisition of Merrill Lynch would result in systemic risk to the financial system in America and would have adverse consequences for the Corporation; (ii) second, the Treasury and Fed state strongly that were the Corporation to invoke the material adverse change ("MAC") clause in the merger agreement with Merrill Lynch and fail to close the transaction, the Treasury and Fed would remove the Board and management of the Corporation; (iii) third, the Treasury and Fed have confirmed that they. will provide assistance to the Corporation to restore capital and to protect the Corporation against the adverse impact of certain Merrill Lynch assets: and (iv) fourth, the Fed and Treasury stated that the investment and asset protection promised could not be provided or completed by the scheduled closing date of the merger, January 1, 2009; that the merger should close as schedu[ed, and that the Corporation can rely on the Fed and Treasury to complete and deliver the promised support by January 20, 2009, the date scheduled for the release of earnings by the Corporation. The Board Minutes further state that the "Board clarify[ied] that is [sic] was not persuaded or influenced by the statement by the federal regulators that the Board and management would be 3 removed by the federal regulators if the Corporation were to exercise the MAC clause and failed to complete the acquisition of Merrill Lynch." Another Board meeting was held on December 30,2008. The minutes of that meeting stated that "Mr. Lewis reported that in his conversations with the federal regulators regarding the Corporation's pending acquisition of Merrill Lynch, he had stated that, were it not for the serious concerns regarding the status of the United States financial services system and the adverse consequences of that situation to the Corporation articulated by the federal regulators (the "adverse situation"), the Corporation would, in light of the deterioration of the operating results and capital position of Merrill Lynch, assert the material adverse change clause in its merger agreement with Merrill Lynch and would seek to renegotiate the transaction." Despite the fact that Bank of America had determined that Merrill Lynch's financial condition was so grave that it justified termination of the deal pursuant to the MAC clause, Bank of America did not publicly disclose Merrill Lynch's devastating losses or the impact it would have on the merger. Nor did Bank of America disclose that it had been prepared to invoke the MAC clause and would have done so but for the intervention of the Treasury Department and the Federal Reserve. Lewis testified that the question of disclosure was not up to him and that his decision not to disclose was based on direction from Paulson and Bernanke: "I was instructed that 'We do not want a public disclosure. '" Secretary Paulson, however, informed this Office that his discussions with Lewis regarding disclosure concerned the Treasury Department's own disclosure obligations. Prior to the closing of the deal, Lewis had requested that the government provide a written agreement to provide additional TARP funding before the close of the Merrill Lynch/Bank of America merger. Secretary Paulson advised Lewis that a written agreement could not be provided without disclosure. Lewis testified that there was no discussion with the Board about disclosure to shareholders. However, on the night of December 22, 2008, Lewis emailed the Board, "I just talked with Hank Paulson. He said that there was no way the Federal Reserve and the Treasury could send us a letter of any substance without public disclosure which, of course, we do not want." The December 30 Board meeting minutes further reflect that Bank of America was trying to time its disclosure of Merrill Lynch's losses to coincide with the announcement of its earnings in January and the receipt of additional TARP funds: "Mr. Lewis concluded his remarks by stating that management will continue to work with the federal regulators to transform the principles that have been discussed into an appropriately documented commitment to be codified and implemented in conjunction with the Corporation's earning [sic] release on January 20, 2009." It also bears noting that while no public disclosures were made by Bank of America, Lewis admitted that Bank of America's decision not to invoke the MAC clause harmed any shareholder with less than a three year time-horizon: 4 Q. Wasn't Mr. Paulson, by his instruction, really asking Bank of America shareholders to take a good part of the hit of the Merrill losses? What he was doing was trying to stem a financial disaster in the financial markets, from his perspective. From your perspective, wasn't that one of the effects of what he was doing? Over the short term, yes, but we still thought we had an entity that filled two big strategic holes for us and over long term would still be an interest to the shareholders. What do you mean by "short-term"? Two to three years. A. Q. A. Q. A. Notably, during Bank of America's important communications with federal banking officials in late December 2008, the lone federal agency charged with protecting investor interests, the Securities and Exchange Commission, appears to have been kept in the dark. Indeed, Secretary Paulson informed this Office that he did not keep the SEC Chairman in the loop during the discussions and negotiations with Bank of America in December 2008. As this crucial recovery process continues, it is important that taxpayers have transparency into decision-making. It is equally important that investor interests are protected and respected. We hope the information herein is useful to you in your federal regulatory and oversight capacities and we remain ready to assist further in any way. We also note that we have been coordinating our inquiry with the Special Inspector General for the Troubled Asset Relief Program, whose investigation also remains open. Andrew M. Cuomo Attorney General of the State of New York cc: Neil Barofsky Special Inspector General Troubled Asset Relief Program 5

The International Brotherhood of Bogeymen

2009-04-19T23:20:00.003-04:00

I can't remember when I've read anything positive regarding organized labor. Lately, I've noticed a strong correlation between those who proclaim the inherent evil of labor unions and a marked lack of understanding of the subject. In particular, Mish Shedlock, author of MISH'S Global Economic Trend Analysis, cited a NY Times article about the United Steelworkers outrage over the use of imported, Indian steel in a Granite City, IL pipeline project. Granite City is home to US Steel's Granite City Works, which is an integrated steel plant employing 2000, that has been idle since December 2008. As a result, the local union members have staged vocal protests to draw attention to the situation. Shedlock is decidedly not a fan of organized labor and used the NY Times article as a platform to speak authoritatively on a subject that he doesn't seem to fathom:

Here's the deal. Like it or not, and union workers clearly don't, this is a global economy.
Companies cannot afford to pay high prices steel or they will not have any profits to share. Union wages and benefits are simply higher than the market can bear and there is no good solution other than what unions do not want to hear.

What Shedlock fails to mention is that the US steel industry is mostly idle due to a record decline in demand. The resulting collapse in steel prices was not followed by a corresponding collapse in raw material costs, with the exception of scrap. Thus, many integrated steel companies have chosen to pass on producing at a loss, leaving the market to low cost producers, like Nucor. At this point, you may be saying, "Hold on there, Little Lenin. Nucor is adamantly non-union." While this is true, Nucor's cost advantage is due to the fact that it uses scrap as a precursor, not iron ore. Truth be told, the primary expenses in the steel production are raw materials and energy, not labor. This is common knowledge amongst steel investors, but the concept seems to conveniently elude Shedlock. In fact, Shedlock goes on to declare unionization dead due to the uncompetively high wages required:

This is not just a steel issue. I am talking about flat panel TVs, steel, copper pipe, appliances, cars, electronics, underwear and damn near anything one can make. The days are gone where someone can be paid $40 an hour, $30 and hour, or even $20 an hour with enormous pension benefits at retirement.

In the US, the USWA negotiates using a pattern bargaining strategy, which amounts to a national master contract that is customized as needed at the lower levels. Thus, a US Steel contract will look very much like an AK Steel contract. Below are the basic pay rates from the current USWA/ArcelorMittal contract, effective 9/1/2008:

If we take Labor Grade 3 as the median, the 2008 base rate is $20.94/hour or $43,555/yr. To be fair, with production incentives, steelworkers will average 120% of their base yielding $52,266, which seems reasonable, considering the nature of the work. Pension liabilities will prove to be a significant profit drain in the future, but these are legacy costs. If the USWA disappeared tomorrow, the pension liabilities would still have validity. Typically, steel producers are replacing pension plans with defined contribution (401Ks), which don't resemble Shedlock's "enormous pension benefits" whatsoever.

For the record, let me state that I am not now, nor have I ever been, a union member. Nevertheless, I found the media's virtual criminalization of collective bargaining sufficiently suspicious to check it out for myself. The obvious question is, if unions are so unsustainable, how were they able to exist and the country thrive for 40 years? I haven't read that explanation, nor will I ever, I expect. It's my opinion that this economic crisis will provide fertile ground for companies to accelerate take-backs from their employees. In fact, we are already seeing this, in the form of 401(k) matching elimination and salary reductions. Wall Street and their legislative sycophants recognize the danger that unions could potentially represent to future profits, in the face of a massive middle class standard of living reduction, and have reacted accordingly. Ironically, major unions like the USWA and UAW don't seem to recognize their growth potential and choose to myopically focus on reducing take-backs in existing union shops. Regardless of your feelings about organized labor, I think that I've clearly demonstrated some of the hazards of outsourcing one's brain to pundits and experts.

Punditry

2009-04-17T05:18:00.003-04:00

CNN ran an article last week discussing the increase in popularity of financial and economic blogs, due to the economic crisis. The article noted that several renowned economists, such as Roubini and Krugman, are also bloggers, lending credibility to the practice. I'm not certain that I agree with this conclusion, but let me take this opportunity to point out my complete lack of economic and financial credibility. I don't consider this an economic, financial, or political blog, but merely the blog of someone who is very interested in the financial and political events that are unfolding. Regardless, the cliche that you get what you pay for is always applicable.

The author cited Big Picture author, Barry Ritholtz:

"Bloggers, or independent voices, are helping to define the debate about what's taking place in the economy and with policymakers in D.C.," he says. "The secret to reading anything is knowing who knows what they're talking about and who not to bother with."

Per the article, President Obama didn't see it that way:

President Barack Obama, who has a staff-written blog on WhiteHouse.gov, has even acknowledged the presence of financial blogs, although he didn't offer a particularly flattering review, as he told the New York Times last month that he didn't find blogs to be reliable, specifically citing the economy as an example.

Obama's response isn't too surprising, considering that his economic policies haven't been well received on the internet. Nevertheless, let's not forget that 99.9999% of economists, pundits, and financial experts missed this meltdown. There are some exceptions (Roubini, Schiff, Todd Harrison and his Minyans), but not enough to vindicate the industry. It has been argued that the entire discipline can't be judged by on a single failing, but I disagree. If the surgeon conducting your kidney transplant installed a carburetor, would another bite of the apple would be necessary? Regardless, this crisis was spawned from a chain of events, spanning a decade, that should have been discernible, particularly from 2005 on, to anyone purporting themselves to be a financial expert. While some of these people have sincerely apologized, a thousand mea culpas doesn't yield a single QED.

I have to admit that my personal animosity towards economists and finance experts has grown exponentially over the last 6 months. As I delve more deeply into the causes and assumptions that lead to the crash, I find it analogous to peeling an onion, except each layer is made of stale excrement. The recurring theme is the confident assertion that a complex process (derivative pricing, MBS risk, etc) could be accurately modeled without accounting for all inputs. Intuitively, we know this is to be false, since weather forecasts aren't useful more than a few days out. Yet, the finance industry used this reasoning to justify huge risks by proclaiming that trees could, indeed, grow to the sky.

Now, after the gravy train has derailed, we are told that there is a pundit meritocracy that must be navigated in order to hear financial truth. To which, I call bullshit: the baby and the bath water are equally offensive. These clowns have profited from leading us down the garden path twice, now. (Remember the New Economy and the viability of profitless companies claptrap they fed us during the tech bubble?) If we were to send Paul Krugman to truck driving school, the impairment to the common good isn't so apparent. Would society be that much worse off by exiling the source of The Theory of Interstellar Trade and his kind to the open road? Perhaps logistically, but I'm willing to take the hit.

Default Proof Debt

2009-04-13T22:52:00.004-04:00

Karmic accounts are always settled, in what is likely to be the only truly efficient marketplace.

Updated 4/9/09: Neo-Marxism, Conor Clarke, and High Assholery

2009-04-09T20:44:00.001-04:00

4/9/09: Conor Clarke e-mailed a reply to this post in which he stated that he didn't personally ban me or delete the post. He speculated that another reader probably did so, due to the profane references. This sounds reasonable, so I've made the appropriate edits. I believe that we've agreed to disagree, although I feel obligated to point out that these matters would become infinitely easier if all of you would simply think like me.

The record will clearly indicate that I am a staunch Marxist with respect to group membership. Much like Groucho, I'm not interested in belonging to any group that would have me as a member. Fortunately, I can decrement the list, as I've been officially banned from the Atlantic's website for criticizing Conor Clarke. On April 4th, in response to the WSJ's article regarding Larry Summers' financial disclosure, Clarke wrote an article titled "Who Cares About Larry Summers' Income?" Clarke's article was a well worded, yet logically bankrupt essay that argued that the Summers' financial disclosure was irrelevant to the assessment of corruption inherent in the bailout subsidies. As a paying Atlantic subscriber, it turned out that I cared, so I responded accordingly in the comment section:

Bold=Excerpt from Clarke's article
Non-Bold=My reply

But I don't know why the "conflict of interest" is worse for Summers than it is for any publication that earns advertising revenue.
Have you bumped your head? Publications aren't formulating the economic policy that may well bankrupt the nation.

Trying to suss out whether Summers' position gestated under ethically troubling circumstances is a clever way of undermining the position without actually engaging it on the merits. Journalists should spend more time engaging things on the merits.
Amongst the non-lobotomized, it goes without saying that the economic policy of systemically subsidizing fraud is without merit. By ignoring the circumstances that cause the implementation of such corrupt policies, we would only be encouraging more of the same.

Stories about a conflict of interest or the appearance of impropriety always assume that closeness is a liability, not an asset. But it can be both, and Larry Summers can contain multitudes. Sure, extreme closeness can warp perspective. But closeness can also mean you have insight into a particular industry that others don't.
William Black had closeness to the financial industry. Larry Summers is an employee of the financial industry. The former has insight into an industry that others don't, the latter is an employee of the industry who masquerades as a public servant. See the difference? If not, let me suggest the following: http://www.theatlantic.com/doc/200905/imf-advice

I have to admit questioning the utility of protecting Summers from capture by Wall Street. After that raft of filthiness, I think that we may need to protect Wall Street from being captured by Larry Summers.

The last paragraph was an ill-advised, 2am, attempt at humor, which implied that as sleazy as Wall Street is, Summers may have them outsleazed. Regardless, I found an e-mailed reply in my inbox from Clarke requesting that we continue the conversation "inline because it's easier." I'd correctly assumed that he'd publicly replied at the Atlantic and was hoping that I wouldn't check.Here is what he posted:

Bold=Clarke's reply
Non-Bold=My reply

Have you bumped your head? Publications aren't formulating the economic policy that may well bankrupt the nation.

To the first point: Not recently. To the second point: sure, I agree that the stakes are higher in one case. But I'm referring to the ethical structure of the arrangement and not the stakes. It's a red herring to respond to the point by saying "but the stakes are really high here!"

Amongst the non-lobotomized, it goes without saying that the economic policy of systemically subsidizing fraud is without merit. By ignoring the circumstances that cause the implementation of such corrupt policies, we would only be encouraging more of the same.

Are you saying the merits of every larry summers position on financial regulation is so obviously wrong that you don't need to produce an argument against them? I might ask you to humor me and provide an actual argument. Things haven't been the same since my lobotomy...

William Black had closeness to the financial industry. Larry Summers is an employee of the financial industry. The former has insight into an industry that others don't, the latter is an employee of the industry who masquerades as a public servant. See the difference? [...] I have to admit questioning the utility of protecting Summers from capture by Wall Street. After that raft of filthiness, I think that we may need to protect Wall Street from being captured by Larry Summers.

Not totally sure what's going on here. Are you worried about Larry Summers being captured by Wall Street or vice versa?

I particularly enjoyed his last comment, "Not totally sure what's going on here." Clarke combined two of my paragraphs and eliminated a sentence (at the ellipsis) to render, as he deftly points out, an incomprehensible paragraph. I'm somewhat of an expert on being incomprehensible, so I the assistance wasn't appreciated. Regardless, here is my reply ~~which he deleted~~:

This one of the sillier conversations I’ve had in awhile, but I’ll play anyway. The true red herring is “referring to the ethical structure of the arrangement and not the stakes.” It is a moot point if JP Morgan gives PeeWee Herman an exorbitant amount of money for doing little because PeeWee isn’t the architect of JP Morgan’s bailout. As I said before, ignoring the consequences will only beget more consequences.

The insinuation that Summers was “earning” $120k a pop, from corporations with significant capitalization impairments (AXP, JPM, GS), solely for producing noise from the hole in the front of his head is absurd. Those corporations were buying influence from a key advisor in the Obama campaign, plain and simple. There is no chronology problem since Summers was campaigning for Obama as early as 9/16/08 and the disclosure clearly indicates that Summers was taking compensation from Wall Street well after that. In fact, you could consider Summers’ 9/29/08 Washington Post commentary, “A Bailout Is Just a Start,” a solicitation for personal and campaign contributions. The fact that no cash was found in the freezer with Jamie Dimon’s prints on it is meaningless. [Clarke claimed in the comments that Summers was beyond reproach because he wasn't caught with cash stuffed in his freezer.] Given the choice, I’ll take a legalized bribe over an illegal one every day of the week. As the “ethical structure” has been clearly demonstrated to be anything but, let’s move on.

With respect to particular Summers’ masterstrokes, do we really need to spend much time debating whether the PPIP policy of subsidizing a 13:1 pot odds multiplier for private investors to induce overbetting on toxic assets with taxpayer funds solely for the benefit of the banks who spawned the toxicity is a good idea? Personally, I’d rather debate a topic with a less foregone conclusion; such as whether dangling my manhood in a Cuisinart is a viable, long term, weight loss strategy.

The bottom line is that this crisis was bought and paid for with corporate bribes that were euphemistically labeled contributions. The regulatory structure was parceled, and parceled cheaply, until the whole the thing imploded. To read your half-assed defense of this filth or the infinitely more criminal attempts to reinflate the Hindenburg on the taxpayer’s dime is disturbing. I sincerely hope you retained the receipt from your lobotomist because he clearly did you dirty. While his elimination of the critical thinking abilities was a resounding success, the communication skills still require his undivided attention.

So much for my aspirations to the coveted Groupie of the Month award.

Meet the Real New Boss

2009-04-04T13:04:00.001-04:00

Just when I think that the level of federal corruption can't get any more blatant, our officials outdo themselves. Today, the Wall Street Journal published an article about Larry Summers, Director of the National Economic Council and Assistant to the President for Economic Policy, which provides a detailed account of how completely captured the government really is. The WSJ obtained a copy of Summers' SF278, which is the Executive Branch Personnel Public Financial Disclosure Report, that clearly demonstrates that Wall Street is dictating our economic policy. (As if more evidence was required.) The pdf can be dowloaded from the WSJ or from here. I think it is a fair statement to say that the US government has digressed to being the public relations and collections departments of Wall Street.

Summers SF278

Publish at Scribd or explore others: Law & Government Business & Law public financial dis sf278

Bottom Calling

2009-04-02T04:08:00.003-04:00

The government and financial press are working overtime to sell the last market low as the bottom. As this is the third bottom that's been sold to us, you might want to wait before going all in on SPY or DIA. Yesterday, CNBC posted the Reuters wire report below. Thus, as the DJIA rallies another 250 points today and the financial press struggles with producing a plausible explanation, you may want to ponder who is doing all of this euphoric buying. As callous as it sounds, anybody that continues to lose money in 401(k) account mutual funds has nobody to blame but themselves.

Moody's downgraded $1.76 trln U.S. corp debt in Q1

NEW YORK, April 1 (Reuters) - Corporate America's credit quality collapsed in the first quarter, with Moody's Investors Service downgrading an estimated $1.76 trillion of debt, a record high, the rating agency said on Wednesday. The downgrades included a record number to the lowest rating categories, signaling the approach of the worst defaults since at least World War Two, Moody's chief economist John Lonski said in an interview. "These are numbers that just underscore how risky both the financial and economic environment remain," Lonski said. The downgrades reflect how badly corporate balance sheets have been hurt by the slump in consumer spending amid the deepest economic contraction since 1982. "Business sales and profits fell off the table in general during the final quarter of last year and have continued to deteriorate in the first quarter in 2009," Lonski said. U.S. corporate profits plunged a record $120.1 billion in the fourth quarter, depressed by tumbling consumer spending and exports. Downgrades of investment-grade companies shot up by 153 percent from the year-ago quarter to a record 96, while downgrades of junk-rated companies surged by 147 percent to 287. The rating downgrades were led by industries with exposure to the ailing housing industry, including homebuilders, mortgage insurers and major money center banks. Some 70 of the quarter's downgrades were housing related. "The most prominent new driving force behind credit rating reductions would be deterioration of commercial real estate," Lonski said. That is taking a toll on regional banks and companies that manufacture equipment and material used in construction, he said. The downgrades included one of the largest on record, $326 billion of bonds and preferred shares of General Electric Co and its units. Other major borrowers downgraded included Ford Motor Co, Citigroup and Bank of America. In addition to housing, sectors under rating pressure included automakers and auto parts suppliers, media companies, casinos and retailers. Among the downgrades were 22 fallen angels, or companies cut to junk status. In addition, 82 ratings were downgraded to the lowest categories, Caa3 or lower. That means that the U.S. high-yield default rate, which stood at 5.7 percent in February, is destined to climb sharply in short order, Lonski said. Moody's has forecast that the U.S. default rate will peak around 14.5 percent in November.

Common Absurdities

2009-03-27T12:10:00.009-04:00

Every so often, I try to envision how ridiculous this period is going to look to future generations. I have to say that I'm glad I have no children, because I can't imagine how I'd explain this to them in 20 years.

1. In 2004, representatives of the five largest investment banks, lead by Henry Paulson, the then CEO of Goldman Sachs, pressured/lobbied the SEC to neuter the net capital rule. This rule set limits on the amount of leverage that brokerages of investment banks could incur. The SEC caved and lifted the restriction on investment banks, who proceeded to acquire a plethora of debt. In 2006, Paulson was appointed Secretary of Treasury and held the position through the 2008 meltdown and resulting bailouts. Thus, the man most responsible for the September 2008 collapse was allowed to use government funds to transfer the consequences of his own wrecklessness to the taxpayers.

2. On 3/13/2009, Discover Financial Services sold $1,224,558,000 worth of 5% preferred stock to the Treasury, under the TARP program. (Yes, I know that TARP is so 2008.) Of course, DFS can follow the Citigroup precedent of gaming the program by converting the preferred shares to common at a premium, which removes the 5% return for taxpayers, dilutes the common share price, and eliminates TARP's principal repayment requirements.

As you can see below, if I want to borrow some of "my" money from Discover, I have to pay an APR of 8.49%.

Per a recently received amendment to my account terms, a late payment constitutes a default event which triggers a higher rate on the balance.

Thus, Discover Financial Services gets to borrow my tax dollars at a nominal rate of 5% (likely less) and lend it back to me at 8.49%. If I miss a payment, due to hardship caused by the current debt-orgy induced Depression, I then get charged up to 29.99%, because I couldn't return my tax dollars to Discover quickly enough. Call me a "wild-eyed Populist," but this is, yet, another absurd example of how the government has been entirely captured by corporate interests bringing me to my next point.

3. The recent 20% rally in equity prices is a Sucker's Rally, but not in the traditional sense. Since the announcement of the Treasury's public/private plan for screwing the taxpayer for the benefit of the banks, part IV, the DJIA has risen about 6%. This is despite continued high unemployment and China's central bank calling for a new reserve currency. In fact, all week long the gleeful media was foisting claims of a definitive bottom on the public. There is nothing economically positive about the Geithner-Summer plan, since it increases public debt over the long term and will further hamstring the taxpaying consumer whose spending has carried the economy for the last 8 years. Wall Street knows this, so what is the cause for celebration? The fact that we are 6 months into this disaster and the public has hardly acknowledged the blatantly corrupt wealth transfer mechanisms that Treasury has implemented on behalf of Wall Street. To add insult to injury, the Suckers are fueling this dead cat bounce, like all of the others, with their retirement funds and will be holding the bag, yet again, when the smart money cashes out.

Perhaps, I'm being too harsh on the general public, since these tumultuous times have caused folks to focus on more pressing matters. After all, Simon's incessant flirting with Paula is beginning to irritate Ryan, which can't be a sustainable situation.

Newsweek Gets It, Eventually

2009-03-23T05:32:00.001-04:00

I suppose that late is better than never. On 3/21/09, Newsweek published a story regarding TARP recipients who made campaign contributions to Congress members after receiving bailout proceeds. I'd be shocked and outraged, had I not posted the same thing nearly a month prior: http://osrshortbus.blogspot.com/2009/02/i-bet-you-wont-hear-this-on-teevee.html.

Newsweek went on to state that lawmakers have temporarily ceased accepting TARP funded contributions, at least until it's been confirmed that the public is still braindead:

But House Democratic fundraisers have quietly passed the word that the party's campaign committee will resume accepting them [contributions]—but down the road, not right now. Said one fundraiser, who also requested anonymity, "These are treacherous waters."

It looks more like "treasonous waters" from here, although I'm sure this will fly under the radar, too.

Shattuck and the Enronettes Get a Payday Loan.

2009-03-19T21:45:00.002-04:00

If you take nothing else away from this blog, heed this: Don't ever screw with Warren Buffet in matters financial. Never. Ever. Just don't do it. Really.

I came to this realization while looking at Constellation Energy's latest annual report. Constellation is the electricity provider of first and last resort here in Maryland. In 1999, they convinced the legislature to allow them to deregulate, but our rates were capped until 2006. As you might imagine, no real competition materialized, as was promised by Constellation in 1999, so they were able to reap the rewards of being a pseudo-monopoly via a 72% rate increase. Constellation's CEO, Mayo Shattuck III, used the profits to expand the Merchant Energy division of Constellation, which by all descriptions sounded like an Enron-styled energy trader. The outcome was readily foreseeable as evidenced in this excerpt from a 2006 Washington Post article regarding an aborted merger with FPL, ironically titled: Contrarian Shattuck Took Constellation To the Top.

"The biggest asset in these deals is the unregulated division and it is very clear, piecing together what's been said about this deal, that they will be using the two regulated utilities to basically underwrite their more risky but profitable merchant business," said Tyson Slocum, director of the energy program at Public Citizen. "What happens if their bets in the wholesale market turn sour?" Slocum said "I don't see anything that will shield customers of problems at the parent company." That could mean higher rates for consumers.

In August of 2008, the worldwide commodities bubble burst, causing prices to tumble. Constellation found itself with a hedge book that was deeply underwater, despite Shattuck's previous, Enron-like claims that they monitored risk closely. In fact, it might be more accurate to call it a speculation book because their derivative positions deteriorated sufficiently to make a credit downgrade a distinct possibility. In the event of a downgrade, Constellation would have had to increase its collateral under the terms of it's debt instruments. Unfortunately, Constellation couldn't borrow the funds required, forcing a fire sale. Enter Warren Buffet and his MidAmerican Energy Holdings Company.

On 9/18, MidAmerican tendered an offer of $26.50/share of CEG totalling $4.7B, with MidAmerican providing $1B upfront in exchange for preferred shares yielding 8%. This capital injection provided the liquidity required for Constellation cover its collateral obligations, essentially saving Shattuck and his ship of fools, but leaving Buffett as the new owner. On 12/17, Constellation declined MidAmerican's offer and accepted a more lucrative offer from Électricité de France (EDF) for 49.99% of Constellation's nuclear generating assets. Additionally, EDF wrote $2B in put options, expiring 12/31/2010, on unspecified generation assets and allowed Shattuck to transfer $700M in bad derivative bets into the joint venture between the companies. For very good reason, Buffet elected to terminate the agreement. Under MidAmerican's terms given in Constellation's 2008 10-k, they were required to provide the following consideration for breaking the deal:
1. $175M for a merger termination fee
2. 19,897,322 shares of common stock valued at $572.6M, which represents 9.99% of the outstanding shares.
3. $418M to make up for the 15.6M of common shares that couldn't be issued due to regulatory limitations.
4. $20M from 8% Interest on $1B in preferred stock for 90 days, until preferred converted to 14% Senior debt.
5. $5M from interest accrued on $1B Senior Note. Repaid 1/12/09.

Summing, Buffet received $175M+$572.6M+$418M+$20M+$5M=$1,190M=$1.19B for investing $1B for 115 days. Annualized that's a mindnumbing, breeches filling, 373%. Essentially, Constellation's shareholders would have been better off if Shattuck had taken the deed for Calvert Cliffs to the nearest pawn shop. Not to mention the 80% loss in value of the common shares that have been diluted by 9.9%, as a result of Shattuck's folly. That is a lot of screwing up, for any one person, yet Shattuck still has a job. Ultimately, the cost of Constellation's incompetence will be passed on to the captive ratepayers, since the Maryland Legislature has done little to stop them so far.

Easy Money from the Sewer

2009-03-16T23:06:00.005-04:00

Despite a lifetime of being a cynical bastard, it wasn't until fairly recently, that I realized that corruption is tradable. For example, on 2/24 I posted about Citigroup's proposal to convert its TARP preferred shares to common. I'd like to say that my purpose for examining Citi's proposal was to enlighten all 6.3 of my faithful readers about the corrupt nature of the process, but that would be a pleasant lie. My motives were a bit more practical as I was looking for a trade.

As of 2/27, here is what was known:

1. Citi was being allowed to convert all of its TARP preferred shares to common, at a significant premium to the market price to satisfy an alleged need for Tangible Common Equity (TCE). This need was due to Geithner's impending stress test, which emphasizes TCE.

From this we can conclude:

Citi proposed the conversion and, despite very unfavorable terms, received it from the Treasury. Thus, Citi has likely captured its TARP destiny and little further regard for taxpayers can be expected. The haircut that the taxpayers received by paying $3.25 per common share will likely be reported as income. The TCE farce is irrelevant, as it doesn't affect the bank's health one way or the other and is akin to the mass of a stone remaining unchanged by its measurement in grams or ounces.

2. As of 2/13, Citi implemented a 30 day foreclosure moratorium, meaning no charge-offs would be recorded, which will pad the balance sheet and income statement. Additionally, in some states, this will reset the mandatory foreclosure countdowns, further delaying asset reductions.

As a result, I'd assumed that would some positive guidance before Citi's earnings announcement in April. Ironically, I'd underestimated the level corruption in Citi, since I never envisioned that Pandit would personally handle the pump and dump. Thus, while I didn't like C at $2.14, at $1, I'd found my trade:

I kept thinking that C, at $1, might be the long-term trade of a lifetime, not because they've turned the corner or are actually profitable, but because they seem to have carte blanche at the Treasury. Barring a derivative induced implosion, they won't be allowed to fail. Perhaps, in 10 years, once the current cast of Valdez captains has cashed out on our dime, Citi may return to real profitability. However, I can't make much sense of their derivative positions from their annual report and I am absolutely not down with the idea that everybody but AIG was perfectly hedged, so I passed. Regardless, I'm up 72% in less than two weeks purely on corruption and chicanery, so I'll call it a win, albeit a dirty one.

I'm Not So Wild About Harry

2009-03-10T17:10:00.001-04:00

If you had to choose one word to describe the SEC's performance in the Madoff scandal, what would it be? Incompetence, no? That was your "take away" from Markopolos's 2/4/09 House Financial Services Committee testimony and his 60 Minutes interview, which is infinitely preferable to the alternative: Utter corruption. On Wall Street, it was fairly common knowledge that Madoff was not executing Split-Strike Conversions, aka collars, as advertised, leaving two possibilities:

1. Madoff was front running trades.
2. Madoff was running a Ponzi scheme.

Knowing that in all of human history no Ponzi scheme has ever succeeded without the assistance of a printing press (and the jury is still out on that one), would you have believed that a former NASDAQ chairman and respected regulatory consultant would commit financial suicide by playing Ponzi? No? I can't believe that the SEC did, either. Thus, we are only left with the first possibility: Upper level SEC management assumed that Madoff was front running large orders, when they closed their case in 2006. In fact, and this is pure speculation on my part, I'd lay odds that their investigation was performed to protect against the embarrassing possibility of Madoff getting caught front running. After all, they had secret agent Markopolos warning them for years and that might get ugly down the road had they done nothing. Unfortunately, for everyone involved, truth turned out stranger than fiction and Wall Street's complete capture of the SEC was about to become very public.

Enter Harry Markopolos, to save the day. His testimony to the House's Financial Services committee was nearly an infomercial for SEC incompetence. Who can forget, "I'm suggesting that if you flew the entire SEC staff to Boston, sat them in Fenway Park for an afternoon, that they would not be able to find first base." Or, when asked whether the SEC had been corrupted, Markopolos replied, "...I never thought the SEC was corrupt. In fact, I'm living proof here today that they are not, but FINRA is definitely in bed with industry." In the last statement, Markopolos was implying that if the SEC was corrupt, they would have leaked his identity to Madoff, who would dispatched his Russian Bogeyman on Markopolos. (I'd have given $20 to see his lawyer's EKG every time he talked about the Russian Mafia.) There are other holes in his testimony, but the bottom line is that, while he did discover Madoff's Ponzi scheme, Markopolos is being used to exonerate the SEC with the defense of ignorance. The alternative of having senior SEC officials refusing to seriously investigate Madoff because they thought he was running a sustainable front running scam would dictate indictments and real SEC reform, which is something that Wall Street and it's "employees" on the Financial Services Committee couldn't abide by.

You Waltz Away LLC: Let me help you help yourself.

2009-03-04T05:00:00.002-05:00

Previously, I posted about You Walk Away LLC, which is a foreclosure consulting service that provides foreclosure "protection" to troubled homeowners. Basically, I concluded that their $1195 Walk Away Protection Kit is a ripoff, since it yielded the same results as simply not paying the mortgage; eviction and a trashed credit report. This lead me to examine at the foreclosure process from the standpoint of the homeowner, to determine if more reasonable means of relief are available. What I determined is that the primary problem facing an overleveraged homeowner is the lack of home equity.

Fortunately, I have formulated a fool-proof solution. For a mere $795, my new program, You Waltz Away LLC, will guarantee that you sell your home for the principal of your mortgage, often within 1 week of enrollment. After pain-staking analysis, OSR Industries has developed a program that matches homeowners with motivated institutional buyers. Now, you're probably thinking, "How can you guarantee a buyer who will pay up to 30% over market value?" Well, the exact details of our system are proprietary, but for only $795, we'll send you the You Waltz Away Extraction Kit, which includes simple instructions that anyone can follow. The contents of this fantastic product are as follows:

1. Equity Restoration Reagent- The overwhelming success of this program is based on a synthetic breakthrough by OSR Laboratories. Using cutting edge combinational chemistry, we've isolated a reaction whose product is actually Home Equity. Simply apply the Equity Restoration Reagent liberally throughout your home, with an emphasis on rooms with significant electrical service, and wait for the magic to begin.

2. Counterparty Motivation Catalyst- Motivated institutional buyers are a key to the success of our program. The beauty of the You Waltz Away Extraction Kit is that you provide the motivation on your terms. Once you've decided to sell, simply combine the Equity Restoration Reagent with the Counterparty Motivation Catalyst and you're getting paid.

3. Hedging Strategy - Any successful investment strategy requires the effective management of risk. While the You Waltz Away Extraction Kit is virtually fool-proof, we've included a risk management system for the unlikely possibility of non-success. Remember, in the rare instances of failure, you will immediately qualify for relief under our warranty program.

4. Warranty- We guarantee that, if after using the You Waltz Away Extraction Kit, you will sell your home within 90 days for the amount of your mortgage. We are so convinced of this program's success that, if you are unsuccessful, we will provide you with free housing and board for the next, say, 10-15 years. You'll be housed in a luxury living community that caters to your every need, to include free laundry, prepared meals, gym access, and plenty of companionship, often with investors much like yourself. Think about it, what other foreclosure consultant can make that kind of claim?

In conclusion, I can't tell you how excited I am about this plan. So much so, that if you act now I'm willing to throw in the Almost Ouchless Employee Benefits Maximizer, which is a program that is guaranteed to give you 8-12 weeks of paid vacation every year. So what are you waiting, get out of that mortgage and start enjoying your life again!

You Walk Away

2009-03-02T22:01:00.003-05:00

Today, on Mish's Global Economic Trend Analysis, Mike Shedlock posted about You Walk Away LLC, which is a California mortgage foreclosure consultant for homeowners who are underwater. Per Shedlock, You Walk Away LLC is the defendant in a class action lawsuit that asserts the company provides little practical advice to distressed homeowners and charges a significant fee for doing so. According to the company's FAQ page, for $1195 you are entitled to the following (my comments in red):

1. We provide a personalized cease and desist letter addressed to your lender to stop harassing phone calls. Under 15USC 1692c, the homeowner can do this. Here is a sample letter.
2. We will provide you with the amount of days you have to live in your house payment free. We stay on top of your walk away plan and keep you up to date with weekly progress emails.We also will notify you if the lender is taking longer than expected subsequently giving you more time in your home payment free. Get a calendar, a pen, and read this.
3. You get a personal consultation with a highly experienced real estate attorney in your state, making sure that you know your rights and that you are protected by the law. This might be useful, but unless the loan was fraudulently issued, I doubt the attorney will tell anything different from Item 2.
4. You will have an experienced YouWalkAway advocate available to answer any questions you may have during the entire process. In MD, this is provided by the state.
5. You will get a personal consultation with a CPA to go over any tax questions related to walking away. This could be helpful if you can afford to pay but choose not to or if you are trying to recover equity after an auction.
6. You get access to our attorney network to answer questions via email about your foreclosure throughout the entire process. E-mail? You might be corresponding with the law firm's restroom attendant.
7. You will be referred to a 3rd party BBB accredited law firm who has legally removed thousands of foreclosures. They sell your name to a bankruptcy law mill. You can probably handle this all by yourself.

You also receive a Walk Away Protection Kit, which provides the documents to accomplish the goals listed above. While the above "services" aren't entirely worthless, they are severely overpriced. Shedlock posts ads for You Walk Away, LLC on his site and defends their services. Shedlock is a knowledgeable and reputable blogger, so I was surprised to see him support them so adamantly. (In this age of unrestrained greed, I don't know why anything surprises me anymore.)

Regardless, You Walk Away LLC is charging a hefty sum to tell you what is easily discovered public information. At the end of the process, the homeowner still loses their home and gets their credit rating trashed, which is exactly the same outcome realized if the homeowner simply did nothing. Considering that $1195 is a potential house payment, I can't see how the You Walk Away LLC is nothing more than another sub-prime predator--Shedlock endorsed, or otherwise.

I Bet You Won't Hear This On Teevee

2009-02-26T05:10:00.002-05:00

As I posted on Tuesday, key Democratic members of the House Financial Services Committee published a scathing open letter to Northern Trust in which the bank was lambasted for sponsoring a PGA tournament after receiving TARP proceeds:

At a time when millions of homeowners are facing foreclosure, businesses and consumers are in dire need of credit, and the government is trying to keep financial institutions – including yours – alive with billions in taxpayer funds, this behavior demonstrates extraordinary levels of irresponsibility and arrogance.

It is impossible to argue with the Representatives' logic, golf is frivolous in the face of the suffering that the American people are currently facing and will continue to face as a result of the magnitude of these bailouts. As the Congresspeople clearly stated in their letter, the sole intent of the TARP program was to create credit and strengthen bank capitalization. Any other type of spending should be deemed unacceptable.

If you've read any of this blog, you'll know that I firmly believe that the current recession/depression is the inevitable result of the corruption of government by corporate interests via campaign contributions. I also believe that this corruption has so completely saturated the government that elected officials should be viewed as little more than corporate employees. Thus, I wasn't a bit surprised to find that 11 of the "outraged" 18 signatories of the Northern Trust letter had accepted campaign contributions from TARP recipients after the recipients had received taxpayer funds:

Tarp Recipient Making Campaign Donation	Tarp Amount Received / Date of Receipt	Northern Trust Letter Signatory Who Accepted Campaign Contribution from TARP Banks	Contribution Size and and Date
Bank of America	1. $15B / 10-28-08 2. $10B / 1-9-09 3. $20B / 1-16-09	Rep. William Clay	$1500 / 1-28-09
Bank of America	See above	Rep. Bill Foster	$1000 / 11-14-08
Bank of America	See above	Rep. Dennis Moore	$2000 / 11-01-08
Bank of America	See above	Rep. Charlie Wilson	$2500 / 11-04-08
Bank of America	See above	Rep. Gwen Moore	$2500 / 11-04-08
Bank of America	See above	Rep. Gary Peters	$1000 / 11-13-08
Goldman Sachs	$10B / 10-28-08	Rep. Paul Hodes	$2500 / 1-26-09
Goldman Sachs	See above	Rep. Barney Frank	$4500 / 10-30-08
Goldman Sachs	See above	Rep. Stephen Lynch	$1000 / 10-31-08
Goldman Sachs	See above	Rep. Andre Carson	$2000 / 10-31-08
Wells Fargo	$25B / 10-31-08	Rep. Keith Ellison	$2000 / 10-31-08

1. US Treasury Tarp Completed Transactions List
2. Federal Election Commission Campaign Finance Database

To be fair, although companies can fund the operating expenses of a PAC, they are barred from contributing directly from their coffers. Instead, corporate PACs rely on "voluntary" contributions from their employees. In this farce, employees act as straw men by allowing automatic payroll deductions to be directed into their employer's PAC. Typically, the employees have little say as to how the PAC spends the contributions. To make the these deductions more palatable, many companies have offsetting an offsetting bonus scheme, to skirt the legal consequences of reimbursing the PAC donors. It is possible that some employees truly desire this arrangement, but I'm certain that if I was working at an undercapitalized finance institution during a depression, I'd want to extract every penny possible from my paycheck as quickly as possible.

Regardless, the contributions come directly from employee pay without the workers ever laying hands on the funds. Who is paying the employees? That would be us, now. If an employee's pay was reduced by the amount of their contribution, it would be invisible to the worker and would reduce the salary expense for the TARP recipient, not to mention the administrative costs of processing the payroll deductions and running the PAC. Most importantly, a ban on TARP recipient PAC contributions would eliminate the blatant conflict of interest created by the situation.

In summary, the practice of allowing TARP recipients to financially influence the legislators who "regulate" the bailout process is yet another example of the complete corruption of our political system. Despite the fact that campaign contributions bought the regulatory laxity that put these TARP recipients in their current state of disrepair, lawmakers are blatantly allowing the practice to continue even though this round of legalized bribery is being subsidized by the taxpayer.

The truly disturbing part of this situation is that hypocrites like Barney Frank publicly feign outrage at Northern Trust's behavior, while unabashedly taking contributions subsidized by TARP proceeds. (Honestly, Frank is such a contribution whore, I expect that he'd take diverted UNICEF funds.) Frank knows that campaign finance information is public record, so why would he risk political damage from this hypocrisy? The obvious reason: Our elected officials are well aware that public is ~~asleep~~ comatosed at the switch. We've been dumbed down to the point where we are almost incapable of critical thinking. Despite the fact that our retirement savings have been halved and our taxes will likely double, we still eagerly succumb to the self-serving propaganda spewing from our teevees. After all of these years the words of Mecken still hold, "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

TARP Recipients Squandering Funds On Golf

2009-02-25T00:20:00.002-05:00

It has come to light that Northern Trust, recipient of $1,576,000,000 Funbucks, has sponsored a PGA tournament, put their clients up in 5-star hotels, and hired Chicago and Sheryl Crow for musical entertainment. I didn't watch the tournamanent personally, so I can't definitively say whether the festivities included the Blue Angels skywriting "SCREW THE POOR!" over the 18th green. Regardless, many Democratic members of the House Financial Services Committee found Northern Trust's behavior reprehensible and posted the following letter on the their website this evening (Italics are mine) :

Mr. Frederick H. Waddell
President and Chief Executive Officer
Northern Trust
50 South LaSalle
Chicago, IL 60603

Dear Mr. Waddell:

We are dismayed and angered to learn that Northern Trust recently spent millions of dollars on a PGA golf tournament sponsorship and associated parties at the same time it has taken over $1.5 billion in federal stabilization funding under the Troubled Asset Relief Program. According to published media reports, your bank not only sponsored the Northern Trust tournament at the Riviera Country Club, but also hosted clients and employees at places like the Beverly Wilshire and Ritz Carlton hotels and gave away Tiffany souvenirs. If this is accurate, we are demanding you take corrective action.

At a time when millions of homeowners are facing foreclosure, businesses and consumers are in dire need of credit, and the government is trying to keep financial institutions – including yours – alive with billions in taxpayer funds, this behavior demonstrates extraordinary levels of irresponsibility and arrogance.

We insist that you immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events. Federal taxpayers should not and will not stand for such abuses, and we will insist that any future Treasury support for Northern Trust be conditioned on a thorough reform of your company’s policies and practices.

We look forward to your reply and immediate reimbursement of these funds.

Sincerely,

Reps. Barney Frank, Carolyn Maloney, Brad Sherman, Dennis Moore, Wm Lacy Clay, Stephen F. Lynch, Brad Miller, Al Green, Gwen Moore, Paul W. Hodes, Keith Ellison, Charles Wilson, Bill Foster, Andre Carson, Mary Jo Kilroy, Steve Driehaus, Alan Grayson, Gary Peters

Per the NYT, Sen. John Kerry is proposing legislation to end TARP recipients' "extravagant spending practices." He went on to say, "I’m sick and tired of picking up the newspaper and reading about another idiotic abuse of taxpayer money while our country is on the brink.” Northern Trust defended the tournament spending by using the standard TARP recipient's rationalization that "other" money was used for lavishments and that they really didn't need the TARP infusion due to their robust balance sheet. I'm inclined to agree with Northern Trust and suggest that they should return the entire $1.57B, which could be used for to reduce the principals of 31,400 troubled homeowners by $50,000.

Nationalization Lite

2009-02-24T11:00:00.001-05:00

Per the WSJ, Citigroup is in need of further capitalization assistance. Specifically, Citigroup wants the government to convert a substantial portion of the Treasury's $45B in preferred stock to common shares resulting in up to government 40% ownership. Currently, Citigroup has approximately 5.5B common shares outstanding, so it stands to reason that Citi wishes to dilute that to 9.2B by creating 3.7B of new common shares. As of 11AM today, C was trading at $2.14/share meaning that 3.7B new shares would equate to an increase in market capitalization of $7.92B. $7.92B only represents around 18% of the $45B that Citigroup received under TARP, which I wouldn't call a substantial portion. To convert all of the $45B in preferred stock to 3.7B in common shares, the common share price would have to be a bit north of $12/share. Considering that Citigroup is insolvent, $2.14/share is too much and paying anything higher borders on criminality.

The Financial Services Committee Weekly Soap Opera

2009-02-15T16:11:00.005-05:00

The House Financial Services Committee is giving The Price is Right a run for its money when it comes to daytime teevee. First, we had high intrigue as Harry Markopolos, pseudo-spy extraordinaire, described how he dodged the Russian Mafia and suffered grievous SEC incompetence in his attempts to bring down the Madoff Ponzi scheme. Last week, the committee held TARP accountability hearings in which the CEOs of several large financial institutions testified about their use of TARP proceeds. Minyanville posted an infotainment piece, Economic Snapshot: The Banking Hearing's Best Lines, in which they extracted some of the more choice quotes from the hearing. The Congressmen's ire was evident from the scorching rebukes delivered. Clearly, the Representatives were in harmony with the public's outrage over the gross and consistent mismanagement that lead us to this point--or at least that was the way it appeared. Personally, I like to know how everyone's bread gets buttered, so I had myself a good look.

CEOs in Attendance
Lloyd Blankfein, CEO of Goldman Sachs
James Dimon, CEO of JP Morgan Chase
Robert Kelly, CEO of Bank of New York Mellon
Ken Lewis, CEO of Bank of America
Ronald Logue, CEO of State Street Corporation
John Mack, CEO of Morgan Stanley
Vikram Pandit, CEO of Citigroup
John Stumpf, CEO of Wells Fargo

1.Rep. Michael Capuano (D-MA): "America doesn't trust you any more... I don't have one single penny in any of your banks."

Although Mr. Capuano may not have his money in any of the aforementioned institutions, unfortunately the converse does not hold:

Capuano Campaign Donor	Career Amount Donated
Citigroup PAC	$2,000
JP Morgan PAC	$1,000
Goldman Sachs PAC	$2,000
Wells Fargo PAC	$1,000
State Street Corp. PAC	$6,000
Bank of America PAC	$8,000
Bank of NY Mellon PAC	$10,000
Morgan Stanley PAc	$0
American Bankers Assoc. PAC^*	$13,000

* Political Action Committee contributed to by 7 of the 8 represented institutions
Data from the Federal Election Commission.

2. Rep. Randy Neugebauer (R-TX): "I think we can call this a shareholders meeting."

In the words of Harry Markopolos, "Truer words were never spoken." What is not clear is why the hearing had such a hostile atmosphere considering the spectacular returns that the shareholders have realized:

Shareholder	Total Federal 2007-2008 PAC Contributions	TARP Funds Received	Return On Investment (%)
Bank of America	$926,821	$33,000,000,000	3,560,558
JP Morgan	$800,977	$25,000,000,000	3,121,188
Morgan Stanley	$585,300	$10,000,000,000	1,708,525
Citigroup	$688,100	$50,000,000,000	7,266,385
Wells Fargo	$767,250	$25,000,000,000	3,258,390
Goldman Sachs	$656,500	$10,000,000,000	1,523,229
State Street Corp.	$22,500	$2,000,000,000	8,888,888
Bank of NY Mellon	$172,000	$3,000,000,000	1,744,186

Source: OpenSecrets.org

To be fair, the proceeds received by TARP institutions are not supposed to be gifts or even loans, for that matter. Instead, preferred stock, with an initial yield of 5%, was purchased by the Treasury, in order to inflate the recipient's capitalization ratios. However, the Treasury's equity far exceeds the common stock capitalization of some recipients, so it is difficult to envision institutions like Citigroup or Bank of America ever attempting redemption. Moreover, a failure to pay dividends won't trigger a default, like real debt, so when the preferred shares ramp up to a dividend rate of 9% in three years, the institutions will likely be allowed a quiet foregiveness--or at least the institutions who've stayed current on their campaign contributions.

While the Madoff and TARP hearings had a certain entertainment value, they were little more than the Theater of Self Interest. In both cases, there wasn't a Congressperson present that wasn't bought and paid for by the banking, securities, or insurance industry. I'm often confused as to why there is any debate regarding the primary cause of our current depression. It's quite simple: The legalization of bribery in the form of campaign contributions has rendered our government entirely subservient to corporate interests. Corporate interests purchased disastrous monetary policies, legislative complicity, and regulatory laxness and they did so at a deep discount. In my opinion, this depression was not only predictable, it was inevitable.

Scariest Video Ever

2009-02-10T11:22:00.009-05:00

This morning, I saw a reference to this LiveLeak video on Minyanville. It is around time 2:05 when you should strap on a pair of Depends and have a seat. If this is true, I wonder why we never heard anything about it. My teevee couldn't have been lying to me, could it? So much for transparency.

On a less important note, I believe that the caller in the first part of this tape provides evidence that one of my theories is correct: Pain is the only path to true recovery. Where was the caller five years ago when Freddie Mac was buying regulatory blindness with campaign contributions? Where was she when that masterpiece in Corruptocratic legislation known as Bankruptcy Reform was passed? I'd wager she was watching American Idol and charging needless garbage at Walmart. She probably wouldn't have known who Kanjorski was if she saw him in the street. Now, through the catharisis of suffereing, she's awakened enough to debate fiscal policy with a ranking member of the House Financial Services Committee on national television. Right on.

Baltimore Area Real Esate Trends for 2008

2009-02-02T21:30:00.004-05:00

The Metropolitan Regional Information System is a Multiple Listing Service that primarily services Maryland, Northern Virginia, and Washington DC. Essentially, they are the major provider of residential real estate listings in the Baltimore regional area. As such, they keep detailed statistical records of real estate transactions in the area and provide public access at http://www.mris.com/reports/stats/ and are the main source of the statistical information that follows. Additionally, they have launched a new listing database; HomesDatabase, which appears to be even more comprehensive than Zillow, except the MRIS listings omit the days on market information.

As an eventual prospective buyer, I periodically look at local online listings to get an idea how areas of interest are being priced. Yesterday, when I looked at Zillow and the HomesDatabase, I was surprised to see a distinct increase in listings in certain areas of Baltimore County. Thus, I became curious about how the the local real estate market performed in 2008. Below is a table of the year over year statistics for both Baltimore County and City.

As you can see, the mean sales price decline for the City and County were relatively benign, with the City actually increasing nominally. Considering the economic carnage that we've seen in the last year, I assumed these figures would be much larger. However, the number of units sold was down significantly in both areas, which, of course, caused the aggregate sales volumes to decrease. It would appear that sellers and prospective buyers are diverging on their idea of fair value and this is confirmed by the increase in the days on market for both the City and County.

If prices didn't decline but sales did in 2008, does that mean that sellers are patiently waiting for the market to rebound? Or do sellers have so little equity, due to flaky loans and little down, that they can't absorb even a small decrease in price? I imagine the answer is a combination of the two and that it varies by neighborhood.

If you would like to see where the above tabulated data comes from, keep reading. Below is a month over month (2007 vs 2008) comparison of various residential real estate statistics for Baltimore City and Baltimore County.

1. Mean Sales Price: Baltimore City's graph fascinated me because the 2008 spring and summer mean prices exceeded those of comparable 2007 months. I double checked the data provided by MRIS and that is the way it was reported. Consumer prices peaked during August 2008, due to the oil bubble, but it's difficult to envision that being a motivator to live in the City. Baltimore County didn't show the same behavior, with every month except February and May being lower than its 2007 predecessor.

2. Units Sold: The following graphs give the monthly breakdown of units sold in both Baltimore City and County. In both cases, a marked decline is evident with the City sales decreasing more relative to the County.

3. Total Sales Volume: Sales volume is the product of the average sales price and the number of units sold. This value probably provides a more meaningful insight into the real estate market as it encompasses both price and volume changes. From the following charts, it's apparent that both the City and County have seen a significant and consistent reduction in total sales in 2008 compared to the prior year.

4. Days On Market: The following charts show the average days that a house was on the market before selling, which increased consistently in both cases.

5. Relative Month Over Month Change: The graphs below give a summary of the month over month changes in the parameters provided above. For example, Baltimore City's January month over month relative change in Days On Market is: %Difference=[(DOM_Jan08-DOM_Jan07)/DOM_Jan07]x100%.