I Bet You Won't Hear This On Teevee

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 America1. $15B / 10-28-08
2. $10B / 1-9-09
3. $20B / 1-16-09
Rep. William Clay
$1500 / 1-28-09
Bank of AmericaSee aboveRep. Bill Foster
$1000 / 11-14-08
Bank of AmericaSee aboveRep. Dennis Moore
$2000 / 11-01-08
Bank of AmericaSee aboveRep. Charlie Wilson
$2500 / 11-04-08
Bank of AmericaSee above
Rep. Gwen Moore
$2500 / 11-04-08
Bank of AmericaSee aboveRep. Gary Peters
$1000 / 11-13-08
Goldman Sachs$10B / 10-28-08Rep. Paul Hodes
$2500 / 1-26-09
Goldman SachsSee aboveRep. Barney Frank
$4500 / 10-30-08
Goldman SachsSee aboveRep. Stephen Lynch
$1000 / 10-31-08
Goldman SachsSee aboveRep. 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

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.


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

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

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
JP Morgan PAC
Goldman Sachs PAC
Wells Fargo PAC
State Street Corp. PAC
Bank of America PAC
Bank of NY Mellon PAC
Morgan Stanley PAc
American Bankers Assoc. PAC*

* 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:

Total Federal 2007-2008 PAC Contributions
TARP Funds Received
Return On Investment
Bank of America
$926,821 $33,000,000,000
JP Morgan
$800,977 $25,000,000,000
Morgan Stanley
$585,300 $10,000,000,000
$688,100 $50,000,000,000
Wells Fargo
$767,250 $25,000,000,000
Goldman Sachs
$656,500 $10,000,000,0001,523,229
State Street Corp.
Bank of NY Mellon
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

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

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=[(DOMJan08-DOMJan07)/DOMJan07]x100%.