In the first of a series of articles, which could easily become the-rest-of-my-life’s work, I will be examining high-profile lawsuits and indictments, such as—what’s happening with the federal lawsuit against Robert Rubin for insider trading—and others.
On December 4, 2008, the New York Post reported: "A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that's now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.” However—and here’s the indictable offense (worldwide Ponzi scheme, although worthy, is unlikely to be one)—before Citi's stock collapsed, Rubin and other top insiders cashed out of more than $150 million in "suspicious stock sales" according to the lawsuit filed on behalf of investors.
On December 11, 2008, this item was picked up by an online news service out of Phoenix, phxnews.com. The only other comment was mine for BlownMortgage.com: Growth Industry 2009: Criminal and Constitutional Law, on December 23, 2008. Not only did these three publications have the scoop, but apparently there was nothing left to be said.
And then . . . on January 9, 2009, Citi announced that Robert E. Rubin retired as Senior Counselor effective that day and he would not stand for re-election as Director. Mr. Rubin would continue to serve as a Director until his current term expired at Citi’s next Annual Meeting. Hadn’t he been on the short list for Treasury Secretary as well?
On that very same day, WSJ’s MarketWatch asked readers: “How will people remember the Robert Rubin era at Citigroup? Right now, the smart money is on "a nightmare." For all of his supposed prowess in financial markets, the former Goldman Sachs Group Inc. banker and U.S. Treasury Secretary presided over an era of scandal and risk overload during his nine years as a director and consultant at Citigroup . . . which ended “after a humiliating 18 months that has seen Citi oust Weill-successor Charles Prince, take $83 billion in writedowns, raise $36 billion in investor cash, take $40 billion from taxpayers, and get the government to backstop more than $250 billion in risky assets on its balance sheet . . . and a 90% decline in stock price.” And keep in mind that this article was dated January 9th. Today is January 21st so the bailout numbers are higher and the stock price lower.
Anyway, it sounds like they could be on to something.
Then, on January 13, 2009, David Weidner wrote a piece about Rubin for MarketWatch pointing out that during Rubin’s time as Treasury Secretary, he and then Fed Chairman Alan Greenspan “oversaw the most sweeping deregulation movement in the history of Wall Street, the pinnacle of which was the elimination of Depression-era laws that made it illegal for a company to have both commercial banking and investment banking on a large scale.” This allowed the merger of Citicorp with Travelers insurance in 1998. Only one year later, Rubin left the Treasury and became Director and Senior Counselor of Citigroup. “There, he made $150 million (not including stock options) and, depending on whose account you believe, was either a tireless worker or a once-a-month visitor to the corporate headquarters.” Weidner sums up with “Robert Rubin is out at Citigroup Inc., and it only cost about $300 billion in committed taxpayer money.” ***Worldwide Ponzi scheme strikes me as tireless worker, but then Weidner doesn't seem to know about the federal suit.***
One more try. Googled the story again today; you’d think by now someone must be on to it. And there it was, on January 16, 2009, an article on Bloomberg by Michael Lewis, author of Liar’s Poker. ***Now you’re talking, he’s the insider’s whistle blower.*** No, it turns out Rubin has published his memoirs and Lewis wrote a book review, although no book title was given. In a very poorly written piece, BTW, Lewis says, Rubin is “an acute and decent man . . . and . . . the world's a better place for having him in it.”
If you say so, Michael.
Friday, January 23, 2009
Thursday, January 8, 2009
Darwin Didn't Say Quite What You Think He Did (1)
(Readers, this is a mess. If you would like to see the article with the pictures and their captions, pls. email me for a copy marygwendungan@hotmail.com)
What Darwin actually said was a lot more inspirational considering where we are now. “It is not the strongest of the species that survives, or the most intelligent that survives. It is the one that is the most adaptable to change.” ***sigh, my hero***
Although I have never worked in retail anything, some of my best friends are retail customers and a few have asked for my opinion on others’ advice, most recently Suze Orman’s.
Ms. Orman’s seminal work "The Dangers of doing nothing in 2009", Costco Connection Magazine January 9, 2009, is available now without charge at the checkout counter. In it she recommends loading up on stocks to be positioned to ride the wave up, which she’s sure is coming, along with the spaceship, I guess.
IMO, her recommendation is irresponsible. However, she's not alone in advising retail customers to stay in stocks, the large brokerage departments (as you remember, all the big ones went bankrupt, were absorbed by banks, or restructured and became banks themselves to get on-going bailout money) are making the same recommendation for 2009. As a matter of fact, it was their recommendation for 2008 too. And this advice was repeated throughout the year so persuasively and with such wrong-headed confidence that I’d cringe at their humiliation if I thought they felt any.
Here's how their advice worked out: (chart of full-year Dow 2008 from Bloomberg)
We see that the market finished the year up off November lows. This could be due to a bear market rally, the fourth wave up according to Elliott Wave Theory, or some other technical pattern that will correct soon. Or, according to retail brokers and advisers, it's because the bottom is in and stocks are about to zoom up because . . . because of what? . . . because corporate profits are about to soar. ***right***
Also, note that each time there’s been a substantial uptick, it’s off lower highs.
Apparently, the Fed and Treasury would like to bail out every entity listed on any of the exchanges, in addition to the foreign banks and central banks they've been slipping money to under the table. They can't save them all, for one, and for two, the money they're giving away has to be paid back at some point. None of this benefits the economy, corporate prospects, or the stock market. After each multi-billion dollar bailout, the stock market stabilizes briefly then resumes its decline. So, stocks will continue trending lower and if prices don’t fall fast enough to reflect reality, the markets will settle things up and crash.
For investors who thought they were well diversified by owning foreign stocks, here's what happened to their portfolios:
Go to Darwin 2 pls.
What Darwin actually said was a lot more inspirational considering where we are now. “It is not the strongest of the species that survives, or the most intelligent that survives. It is the one that is the most adaptable to change.” ***sigh, my hero***
Although I have never worked in retail anything, some of my best friends are retail customers and a few have asked for my opinion on others’ advice, most recently Suze Orman’s.
Ms. Orman’s seminal work "The Dangers of doing nothing in 2009", Costco Connection Magazine January 9, 2009, is available now without charge at the checkout counter. In it she recommends loading up on stocks to be positioned to ride the wave up, which she’s sure is coming, along with the spaceship, I guess.
IMO, her recommendation is irresponsible. However, she's not alone in advising retail customers to stay in stocks, the large brokerage departments (as you remember, all the big ones went bankrupt, were absorbed by banks, or restructured and became banks themselves to get on-going bailout money) are making the same recommendation for 2009. As a matter of fact, it was their recommendation for 2008 too. And this advice was repeated throughout the year so persuasively and with such wrong-headed confidence that I’d cringe at their humiliation if I thought they felt any.
Here's how their advice worked out: (chart of full-year Dow 2008 from Bloomberg)
We see that the market finished the year up off November lows. This could be due to a bear market rally, the fourth wave up according to Elliott Wave Theory, or some other technical pattern that will correct soon. Or, according to retail brokers and advisers, it's because the bottom is in and stocks are about to zoom up because . . . because of what? . . . because corporate profits are about to soar. ***right***
Also, note that each time there’s been a substantial uptick, it’s off lower highs.
Apparently, the Fed and Treasury would like to bail out every entity listed on any of the exchanges, in addition to the foreign banks and central banks they've been slipping money to under the table. They can't save them all, for one, and for two, the money they're giving away has to be paid back at some point. None of this benefits the economy, corporate prospects, or the stock market. After each multi-billion dollar bailout, the stock market stabilizes briefly then resumes its decline. So, stocks will continue trending lower and if prices don’t fall fast enough to reflect reality, the markets will settle things up and crash.
For investors who thought they were well diversified by owning foreign stocks, here's what happened to their portfolios:
Go to Darwin 2 pls.
Darwin (2)
We see that the market finished the year up off November lows. This could be due to a bear market rally, the fourth wave up according to Elliott Wave Theory, or some other technical pattern that will correct soon. Or, according to retail brokers and advisers, it's because the bottom is in and stocks are about to zoom up because . . . because of what? . . . because corporate profits are about to soar. ***right***
Also, note that each time there’s been a substantial uptick, it’s off lower highs.
Apparently, the Fed and Treasury would like to bail out every entity listed on any of the exchanges, in addition to the foreign banks and central banks they've been slipping money to under the table. They can't save them all, for one, and for two, the money they're giving away has to be paid back at some point. None of this benefits the economy, corporate prospects, or the stock market. After each multi-billion dollar bailout, the stock market stabilizes briefly then resumes its decline. So, stocks will continue trending lower and if prices don’t fall fast enough to reflect reality, the markets will settle things up and crash.
For investors who thought they were well diversified by owning foreign stocks, here's what happened to their portfolios:
2008: The year in markets (WSJ)
U.S. indexes
Dow Jones Industrial Average -34%
S&P 500 -38%
Nasdaq -40%
Dow Jones Financials -55%
Amex Oil Index -38%
International indexes
Germany DAX -40%
FTSE 100 -31%
Japan Nikkei 225 -42%
China Shanghai Composite -65%
Mexico IPC -24%
Brazil Bovespa -41%
Currencies/commodities
Gold +5.5%
Crude -54%
Dollar index +6%
Pound vs. dollar -28%
Dollar vs. yen -18%
Also, note that each time there’s been a substantial uptick, it’s off lower highs.
Apparently, the Fed and Treasury would like to bail out every entity listed on any of the exchanges, in addition to the foreign banks and central banks they've been slipping money to under the table. They can't save them all, for one, and for two, the money they're giving away has to be paid back at some point. None of this benefits the economy, corporate prospects, or the stock market. After each multi-billion dollar bailout, the stock market stabilizes briefly then resumes its decline. So, stocks will continue trending lower and if prices don’t fall fast enough to reflect reality, the markets will settle things up and crash.
For investors who thought they were well diversified by owning foreign stocks, here's what happened to their portfolios:
2008: The year in markets (WSJ)
U.S. indexes
Dow Jones Industrial Average -34%
S&P 500 -38%
Nasdaq -40%
Dow Jones Financials -55%
Amex Oil Index -38%
International indexes
Germany DAX -40%
FTSE 100 -31%
Japan Nikkei 225 -42%
China Shanghai Composite -65%
Mexico IPC -24%
Brazil Bovespa -41%
Currencies/commodities
Gold +5.5%
Crude -54%
Dollar index +6%
Pound vs. dollar -28%
Dollar vs. yen -18%
Darwin Didn't Say (3)
Это масло тупоумное.
(It’s the oil, stupid.)
OMG, the humanity . . . I mean, would you look at those skid marks.
(It’s the oil, stupid.)
OMG, the humanity . . . I mean, would you look at those skid marks.
This is the worst performance since the first depression and reflects a very unhealthy world economy. There is no beneficial event of sufficient magnitude within the realm of imagination that could turn this around anytime soon.
The stock market is not the place to be.
Tuesday, December 23, 2008
Growth Industry 2009: Criminal and Constitutional Law
It’s going to be all lawsuits all the time, as filings and indictments come fast and furious after January 20. In fact, a number are in the works already.
From the perspective of Wall St. crime, it will be interesting to see what Elliot Spitzer and Rudy Giuliani do. Keeping his hand in by writing for Slate, Spitzer’s wounded and has nothing to lose. Giuliani has got to smell blood and a loyal-to-the-point-of-absurdity Republican he is not.
Let’s start with . . .
Criminal Law
There’s a big one pending of the type that made the reputations of Spitzer and Giuliani in their US Attorney days—Insider Trading! As you remember, Giuliani’s high-profile conviction was Ivan Boesky and Spitzer’s was Martha Stewart. (No disrespect intended. What comes to mind when you think of Spitzer . . . let me qualify that, during his days as a US Attorney?)
Conveniently domiciled in their former district, Robert Rubin—former co-Chairman of Goldman Sachs, former Treasury Secretary under Clinton and on the board of, counsel to and briefly Chairman of Citigroup— was on the short list to be Treasury Secretary again. What happened?
When you want the low down, the New York Post is the paper of record. On December 4 it reported: "A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that's now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.” However—and here’s the indictable offense—before Citi's stock collapsed, Rubin and other top insiders cashed out of more than $150 million in "suspicious stock sales" according to the lawsuit filed on behalf of investors. They never know when to stop, do they.
An Astounding Conflict of Interest
The disposition of this case is going to set quite a precedent. Apparently, stealing investors’ money is a crime.
Bernard Madoff, former head of the NASDAQ, surrendered to the FBI on December 11, after having been turned in by his sons Mark and Andrew for running a several-decades-long Ponzi scheme. Investors have been wiped out to the tune of $50 billion. What makes this case interesting is not only Madoff’s insider status, but that Mary Schapiro, nominee for SEC Chairman, has recently announced the appointment of Mark Madoff to a prominent role with the security-industry oversight agency. And there’s more.
According to the FBI, the SEC and other regulatory bodies received several written complaints about Madoff over the years, which were never pursued. It now has been learned that “Ms Schapiro, currently chief executive of the Financial Industry Regulatory Authority (Finra), employed (son) Mark Madoff to serve on the board of the National Adjudicatory Council — the division that reviews disciplinary decisions made by Finra,” according to the UK TimesOnline on December 18.
Madoff père is currently confined to his Park Avenue apartment awaiting trial.
Strange Treatment of Small Fry
This next case is small in terms of money—what’s a few hundred mil these days—but has an interesting twist. In another action by federal prosecutors of the Southern District of New York, they have arrested attorney Marc Dreir for stealing at least $380 million in “a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers,” as reported in the New York Times on December 14. Another $35 million is missing from escrow accounts at his 250-member law firm.
Why this case stands out is that the accused is actually in jail being held without bail. Can you believe it. He must be really dangerous. Or he lives in New Jersey.
Constitutional Law
This should be getting more ink, imo.
On December 10, the WSJ reported that the Fed “is considering issuing its own debt for the first time . . . which . . . would provide the central bank with more flexibility to tackle the financial crisis.”
Ordinarily, when short of cash the Fed turns to the Treasury. The Treasury can no longer fund the Fed because of its own massive borrowings set for 2009 and debt limits imposed by congress.
Issuing debt is not in the Fed’s charter. According to the Constitution as it is currently written, only congress through the Treasury has the power to borrow against the credit of the United States. What’s proposed by the Fed would give it extra-legal authority to exceed the debt ceiling set by congress. It also would usurp powers of congress and the Treasury and transfer them to the Fed, which is a private entity owned by member banks.
Paul Volker would be turning in his grave if he were dead.
mg
From the perspective of Wall St. crime, it will be interesting to see what Elliot Spitzer and Rudy Giuliani do. Keeping his hand in by writing for Slate, Spitzer’s wounded and has nothing to lose. Giuliani has got to smell blood and a loyal-to-the-point-of-absurdity Republican he is not.
Let’s start with . . .
Criminal Law
There’s a big one pending of the type that made the reputations of Spitzer and Giuliani in their US Attorney days—Insider Trading! As you remember, Giuliani’s high-profile conviction was Ivan Boesky and Spitzer’s was Martha Stewart. (No disrespect intended. What comes to mind when you think of Spitzer . . . let me qualify that, during his days as a US Attorney?)
Conveniently domiciled in their former district, Robert Rubin—former co-Chairman of Goldman Sachs, former Treasury Secretary under Clinton and on the board of, counsel to and briefly Chairman of Citigroup— was on the short list to be Treasury Secretary again. What happened?
When you want the low down, the New York Post is the paper of record. On December 4 it reported: "A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged [CDO-related] Ponzi-style scheme that's now choking world banking. [The two] are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.” However—and here’s the indictable offense—before Citi's stock collapsed, Rubin and other top insiders cashed out of more than $150 million in "suspicious stock sales" according to the lawsuit filed on behalf of investors. They never know when to stop, do they.
An Astounding Conflict of Interest
The disposition of this case is going to set quite a precedent. Apparently, stealing investors’ money is a crime.
Bernard Madoff, former head of the NASDAQ, surrendered to the FBI on December 11, after having been turned in by his sons Mark and Andrew for running a several-decades-long Ponzi scheme. Investors have been wiped out to the tune of $50 billion. What makes this case interesting is not only Madoff’s insider status, but that Mary Schapiro, nominee for SEC Chairman, has recently announced the appointment of Mark Madoff to a prominent role with the security-industry oversight agency. And there’s more.
According to the FBI, the SEC and other regulatory bodies received several written complaints about Madoff over the years, which were never pursued. It now has been learned that “Ms Schapiro, currently chief executive of the Financial Industry Regulatory Authority (Finra), employed (son) Mark Madoff to serve on the board of the National Adjudicatory Council — the division that reviews disciplinary decisions made by Finra,” according to the UK TimesOnline on December 18.
Madoff père is currently confined to his Park Avenue apartment awaiting trial.
Strange Treatment of Small Fry
This next case is small in terms of money—what’s a few hundred mil these days—but has an interesting twist. In another action by federal prosecutors of the Southern District of New York, they have arrested attorney Marc Dreir for stealing at least $380 million in “a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers,” as reported in the New York Times on December 14. Another $35 million is missing from escrow accounts at his 250-member law firm.
Why this case stands out is that the accused is actually in jail being held without bail. Can you believe it. He must be really dangerous. Or he lives in New Jersey.
Constitutional Law
This should be getting more ink, imo.
On December 10, the WSJ reported that the Fed “is considering issuing its own debt for the first time . . . which . . . would provide the central bank with more flexibility to tackle the financial crisis.”
Ordinarily, when short of cash the Fed turns to the Treasury. The Treasury can no longer fund the Fed because of its own massive borrowings set for 2009 and debt limits imposed by congress.
Issuing debt is not in the Fed’s charter. According to the Constitution as it is currently written, only congress through the Treasury has the power to borrow against the credit of the United States. What’s proposed by the Fed would give it extra-legal authority to exceed the debt ceiling set by congress. It also would usurp powers of congress and the Treasury and transfer them to the Fed, which is a private entity owned by member banks.
Paul Volker would be turning in his grave if he were dead.
mg
Thursday, December 4, 2008
Five Useful Websites in these Hard Times
Today's article isn't about the Fed, unless you think it's responsible for all our problems, as many do.
We’re in for some really tough times. Prepare as though a major hurricane, a war even, is coming your way. It is.
Here are a few practical websites to help you prepare:
This site has a List of 100 Things that will Disappear. What makes it better than some of the others with the same list is that it also has forum comments suggesting other items that should be included. http://goldismoney.info/forums/showthread.php?t=2738
What if my bank fails? Both the Chairman of the Federal Reserve, Ben Bernanke, and the Chairwoman of the FDIC, Sheila Bail have warned that there will be more bank failures. This site, http://www.bankingquestions.com/bankfailures/bankfailures.html provides answers to questions about your various bank accounts. This information will change from time to time depending on who or what is being bailed out.
Why beat around the bush: we're in a severe recession and will soon be in a depression. Here’s a great blog by a young father and husband in Argentina. He’s been living through economic collapse and hyperinflation for several years and has great day-to-day living advice. http://ferfal.blogspot.com/
So far this year more than 1.5 million people have lost their jobs. This site addresses your emotional and physical health, as well as answering questions related to searching for a job. http://www.careerplanner.com
If you have lost your health insurance or expect to, this site, www.insure.com answers questions about all sorts of insurance in addition to health.
We’re in for some really tough times. Prepare as though a major hurricane, a war even, is coming your way. It is.
Here are a few practical websites to help you prepare:
This site has a List of 100 Things that will Disappear. What makes it better than some of the others with the same list is that it also has forum comments suggesting other items that should be included. http://goldismoney.info/forums/showthread.php?t=2738
What if my bank fails? Both the Chairman of the Federal Reserve, Ben Bernanke, and the Chairwoman of the FDIC, Sheila Bail have warned that there will be more bank failures. This site, http://www.bankingquestions.com/bankfailures/bankfailures.html provides answers to questions about your various bank accounts. This information will change from time to time depending on who or what is being bailed out.
Why beat around the bush: we're in a severe recession and will soon be in a depression. Here’s a great blog by a young father and husband in Argentina. He’s been living through economic collapse and hyperinflation for several years and has great day-to-day living advice. http://ferfal.blogspot.com/
So far this year more than 1.5 million people have lost their jobs. This site addresses your emotional and physical health, as well as answering questions related to searching for a job. http://www.careerplanner.com
If you have lost your health insurance or expect to, this site, www.insure.com answers questions about all sorts of insurance in addition to health.
Monday, December 1, 2008
Startling News from the Fed and Economic Wrecks from Around the World
The derivatives time bomb that Warren Buffet warned about several years ago has exploded. Here’s how it’s playing out around the world.
From the US:
The Fed:
“Federal Reserve chairman Ben Bernanke acknowledges he was wrong in believing that there would be limited fallout to financial markets from risky mortgages that soured after the housing market's collapse.” ***Is this possible? Not his admission of having been wrong, but that he really didn’t know? I knew. Since you’re reading BlownMortgage you knew too*** ''I and others were mistaken early on in saying that the subprime crisis would be contained,'' Bernanke says in an article in the December 1 issue of The New Yorker magazine. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict,'' he said in the piece titled ''Anatomy of a Meltdown.''
***Actually no, it wasn’t hard to predict at all. One thing has followed the other in—guess what—predictable fashion. The blogosphere has been plotting the course of the meltdown with stunning precision for a few years***
Almost as an aside, as of early this week, the Fed has now spent, guaranteed or promised about $8.5 trillion. This is up from $4.3 trillion on November 19, which was up from $3.8 trillion on October 31. And now we know that this spending is based on the judgment of someone who thought subprime could be contained.
From the US:
The Fed:
“Federal Reserve chairman Ben Bernanke acknowledges he was wrong in believing that there would be limited fallout to financial markets from risky mortgages that soured after the housing market's collapse.” ***Is this possible? Not his admission of having been wrong, but that he really didn’t know? I knew. Since you’re reading BlownMortgage you knew too*** ''I and others were mistaken early on in saying that the subprime crisis would be contained,'' Bernanke says in an article in the December 1 issue of The New Yorker magazine. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict,'' he said in the piece titled ''Anatomy of a Meltdown.''
***Actually no, it wasn’t hard to predict at all. One thing has followed the other in—guess what—predictable fashion. The blogosphere has been plotting the course of the meltdown with stunning precision for a few years***
Almost as an aside, as of early this week, the Fed has now spent, guaranteed or promised about $8.5 trillion. This is up from $4.3 trillion on November 19, which was up from $3.8 trillion on October 31. And now we know that this spending is based on the judgment of someone who thought subprime could be contained.
Car dealers stage a protest using this year’s unsold vehicles.The Auto Industry:
The WSJ reports: “Though it’s under pressure to trim costs and update its business plan to get federal bailout funds, Ford doesn’t like the idea of cutting its CEO’s salary. CEO Alan Mulally made $21 million last year; was asked in testimony last week on Capitol Hill if he’d accept a $1 salary, he replied, “I think I’m OK where I am.”
Via Bloomberg: General Motors doesn’t want the public tracking a private jet used by its executives, and has asked the Federal Aviation Administration to block it from its public service. “We availed ourselves of the option, as others do, to have the aircraft removed,” said a GM spokesman, though he didn’t say why the automaker, blasted on Capitol Hill for using private planes, took the step.
***The auto industry is a long way from sanity let alone solvency***
If your house fell off this cliff you might be eligible for a bailout.
Real Estate:
The latest S&P/Case-Shiller Indices are out. What could I possibly add except to say that the chart will have to be redrawn since the Y axis does not go far enough into negative territory to plot next month’s decline.
Banks:
There have been 73 mergers and 10 bank failures so far this year plus bailouts for Citigroup (2x), a little help from friends for JPMorgan and Bank of America, and a little something under the table for Goldman Sachs and Morgan Stanley. The FDIC has just added 54 more banks to its watch list, which now stands at 171.
There have been 73 mergers and 10 bank failures so far this year plus bailouts for Citigroup (2x), a little help from friends for JPMorgan and Bank of America, and a little something under the table for Goldman Sachs and Morgan Stanley. The FDIC has just added 54 more banks to its watch list, which now stands at 171.
Car of local bank manager in France who does not know which end is up.
From Europe:
Things are no better in the EU countries. The Baltic Dry Index, the most reliable measure of international trade, is down significantly. Deutsche Bahn AG, the German railway company, is planning on 40% fewer cargo trains for next year, another leading indicator.
Things are no better in the EU countries. The Baltic Dry Index, the most reliable measure of international trade, is down significantly. Deutsche Bahn AG, the German railway company, is planning on 40% fewer cargo trains for next year, another leading indicator.
Christmas spirit in China: Rioting over toy factory layoffs.From Asia:
On November 26, China cut interest rates by 1.08 percentage points to 5.58%, the lowest level in 11 years and the largest one-off cut since the Asian Financial Crisis in 1997. The economy is crumbling and millions of jobs will be lost before Christmas.
On November 26, China cut interest rates by 1.08 percentage points to 5.58%, the lowest level in 11 years and the largest one-off cut since the Asian Financial Crisis in 1997. The economy is crumbling and millions of jobs will be lost before Christmas.
It is also the fourth interest rate cut by the Chinese central bank in the last ten weeks. "China is out to save itself," said Patrick Bennett, an analyst with Societe Generale in Hong Kong.
In recent weeks, laid-off factory workers have rioted across central and southern China. Government officials in Beijing have warned that dissent and threats to social stability will be crushed.
***Some things never change***
***Some things never change***
From the Middle East:
According to the UKTimesOnline, Gulf sovereign wealth funds (SWF) are now investing in their own struggling economies with several Gulf-based banks getting American-style bailouts. Local stock markets have collapsed and some sovereign wealth funds are supporting markets by buying shares of local companies. Investment in the West is being reduced, in particular in the UK and US where the SWFs have lost billions of dollars this year. *** I thought these people had a lot of money—our money, in fact—I guess not***
According to the UKTimesOnline, Gulf sovereign wealth funds (SWF) are now investing in their own struggling economies with several Gulf-based banks getting American-style bailouts. Local stock markets have collapsed and some sovereign wealth funds are supporting markets by buying shares of local companies. Investment in the West is being reduced, in particular in the UK and US where the SWFs have lost billions of dollars this year. *** I thought these people had a lot of money—our money, in fact—I guess not***
Fires in the UAE have spread from the oil fields to the highway. Accident on road between Abu Dhabi and Dubai.
Sovereign wealth funds are among the few sources of liquid capital available in the world and many companies have sought cash injections from the Middle East. Fund managers feel they were lured into investing before the full extent of the crisis was known. One fund, the KIA, said two months ago that it had lost $270 million on a $3 billion investment in Citigroup, which was made at the beginning of 2008. Citigroup's stock has fallen by two thirds since then, and it the bank is now being supported by the US government. *** This sounds like another wrong-headed judgment call by Bernanke. If this was the reason Citi was bailed, it would have been cheaper, way cheaper, to give KIA their money back ***
Monday, November 24, 2008
The Depression 2008 vs. the Depression 1929
The first Great Depression started with the October crash of 1929, but the market didn’t hit bottom until 1932. So far in 2008, the market hasn’t crashed; however, this year, similarly, will mark the end of an economic up-cycle, and that’s putting it mildly. The Dow is down 46%, falling unrelentingly from the peak of 14,165 in October 2007 to Friday’s close of 8,046 (and that was up 494 from the previous session). This is a greater percentage loss than on October 24, 1929. In addition, the rate of decline of the Dow 2008 has accelerated (see chart below).
Last week, Nouriel Roubini, professor of economics at NYU’s business school and advisor to central banks and governments, in making a case for stag-deflation said, “. . . we are in a severe recession. . .” Early to point out the housing crash, he is in good company with George Soros and Paul Volker, both of whom predict that this depression will be worse than the previous one (see G20 Meeting a Non-Event Depression Full Speed Ahead, November 16, 2008).
The 2008 Dow looks a lot worse than the Dow during any of the previous major correction. Its fall-off is far more precipitous then even the crash of 1929.
Here’s a time-compressed picture courtesy of dshort.com comparing the four worst corrections.
According to this chart, we’ve got several years and another 40% drop to go before reaching bottom.
Here’s some more perspective. Last Friday, the market was up 494 points. I think CNBC was calling the bottom in … again. Here’s a chart of the day’s performance.
No wonder they were so excited; and it happened so fast. We’ve been getting last-hour-of-the-trading-day action the way we had been getting financial-Armageddon news over weekends. Friday was a good day, but how does it fit into the overall trend? Let’s put Friday’s move into trailing-12-month perspective.
Last week, Nouriel Roubini, professor of economics at NYU’s business school and advisor to central banks and governments, in making a case for stag-deflation said, “. . . we are in a severe recession. . .” Early to point out the housing crash, he is in good company with George Soros and Paul Volker, both of whom predict that this depression will be worse than the previous one (see G20 Meeting a Non-Event Depression Full Speed Ahead, November 16, 2008).
The 2008 Dow looks a lot worse than the Dow during any of the previous major correction. Its fall-off is far more precipitous then even the crash of 1929.
Here’s a time-compressed picture courtesy of dshort.com comparing the four worst corrections.
According to this chart, we’ve got several years and another 40% drop to go before reaching bottom.Here’s some more perspective. Last Friday, the market was up 494 points. I think CNBC was calling the bottom in … again. Here’s a chart of the day’s performance.
No wonder they were so excited; and it happened so fast. We’ve been getting last-hour-of-the-trading-day action the way we had been getting financial-Armageddon news over weekends. Friday was a good day, but how does it fit into the overall trend? Let’s put Friday’s move into trailing-12-month perspective.
(2)
I’m Convinced You Say; Now What?
We are already in hard times and it’s going to get tougher. Start preparing as you would for a natural disaster or war. Dispassionately, make a list of priorities based on what you need—not what you want or what the neighbors have—those things you can’t do without.
You need food and shelter. Unless you live and work in a city or town you probably need a car, but maybe not. If you lost your current residence, where would you go? The answer is not “I don’t know.” The answer is I will move in with my family, with friends, live in an RV, my car, whatever. Explore what’s available in your community. Have a plan.
A lot of people have already lost jobs, more than a million, as a matter of fact. If you lose your job, how long can you stay in your current home . . . make your car payment . . . pay your credit cards? Will you be able to make COBRA payments? Start figuring out what you would do if you lost your livelihood.
If you still have savings, how much will you spend before enough is enough? The answer is not “until my savings are depleted.” It’s the same with credit cards. If you don’t have much cash, make sure you have some credit available.
Frugal is in.
mg dungan
Wednesday, November 19, 2008
Fed Implode-o-Meter Update
At the end of October (see Fed Implode-o-Meter October 31), it looked like the Fed had spent about $3.8 trillion in the year to date. Not even three weeks later, that figure is now up to $4.28 trillion. According to CNBC, “To put it in perspective that’s . . . more than what was spent on WW II.” Funny choice of comparison; the Iraq war, the longest-running conflict in the history of the US, has also cost more and the final tab won’t be in for years. Anyway . . .
So, where’s all the money going? Here’s a list (hat tip to CNBC) of what has been made public:
Federal Reserve
(TAF) Term Auction Facility.................................................................$900.0bn
Discount Window Lending
Commercial Banks.................................................................................... $99.2bn
Investment Banks.......................................................................................$56.7bn
Loans to buy ABCP.....................................................................................$76.5bn
AIG .............................................................................................................$112.5bn
Bear Stearns .................................................................................................$29.5bn
(TSLF) Term Securities Lending Facility...............................................$225.0bn
Swap Lines..................................................................................................$613.0bn
(MMIFF) Money Market Investor Funding Facility...........................$540.0bn
Commercial Paper Funding Facility.......................................................$257.0bn
(TARP) Treasury Asset Relief Program...............................................$700.0bn
Other:
Automakers.................................................................................................$25.0bn
(FHA) Federal Housing Administration 300.0bn
Fannie Mae/Freddie Mac........................................................................$350.0bn
Total.................................................................................$4,284.5bn
The Telegraph UK quotes Paul Volcker, former chairman of the US Federal Reserve and short-list candidate for Treasury Secretary, as saying, “. . . it is already too late to avoid a severe downturn even if the credit markets stabilize over coming months. I don't think anybody thinks we're going to get through this recession in a hurry. The economic slump has begun to metastasize after a shocking collapse in output over the past two months . . . normal monetary policy is not able to get money flowing. The trouble is that even with all this [government] protection, the market is not moving.” Further, "What this crisis reveals is a broken financial system like no other in my lifetime," the 81 year old Volker told a conference at Lombard Street Research in London. Normal monetary policy can't restart economic activity because credit is contracting at a faster pace than new money is coming into the system. Fractional reserve lending can’t work unless banks lend.
Through all of this, the Fed is still taking as collateral illiquid, mark-to-model assets, presumably at notional value, from the banks. In return, the banks receive brand-new treasuries that, in principle, could be lent out. At this point, most, or probably all, of the Fed’s general collateral is comprised of toxic waste. Currently, the Fed does not even have enough reserves to cover dollars in circulation.
Good thing we’re only talking about Monopoly money. If it were real money we’d be in big trouble.
There are a number of grass-roots efforts trying to put an end to the Fed’s out-of-control borrowing. One of them, End the Fed.us is having a meet-up on November 22 in 39 cities. Mish of Global Economic Trend Analysis is putting together another email, fax, and phone-call campaign to stop further auto company bailouts. Chances are slim that the brakes will be put on before the end of the year. However, with a new administration coming in, 2009 could be another story.
mg
So, where’s all the money going? Here’s a list (hat tip to CNBC) of what has been made public:
Federal Reserve
(TAF) Term Auction Facility.................................................................$900.0bn
Discount Window Lending
Commercial Banks.................................................................................... $99.2bn
Investment Banks.......................................................................................$56.7bn
Loans to buy ABCP.....................................................................................$76.5bn
AIG .............................................................................................................$112.5bn
Bear Stearns .................................................................................................$29.5bn
(TSLF) Term Securities Lending Facility...............................................$225.0bn
Swap Lines..................................................................................................$613.0bn
(MMIFF) Money Market Investor Funding Facility...........................$540.0bn
Commercial Paper Funding Facility.......................................................$257.0bn
(TARP) Treasury Asset Relief Program...............................................$700.0bn
Other:
Automakers.................................................................................................$25.0bn
(FHA) Federal Housing Administration 300.0bn
Fannie Mae/Freddie Mac........................................................................$350.0bn
Total.................................................................................$4,284.5bn
The Telegraph UK quotes Paul Volcker, former chairman of the US Federal Reserve and short-list candidate for Treasury Secretary, as saying, “. . . it is already too late to avoid a severe downturn even if the credit markets stabilize over coming months. I don't think anybody thinks we're going to get through this recession in a hurry. The economic slump has begun to metastasize after a shocking collapse in output over the past two months . . . normal monetary policy is not able to get money flowing. The trouble is that even with all this [government] protection, the market is not moving.” Further, "What this crisis reveals is a broken financial system like no other in my lifetime," the 81 year old Volker told a conference at Lombard Street Research in London. Normal monetary policy can't restart economic activity because credit is contracting at a faster pace than new money is coming into the system. Fractional reserve lending can’t work unless banks lend.
Through all of this, the Fed is still taking as collateral illiquid, mark-to-model assets, presumably at notional value, from the banks. In return, the banks receive brand-new treasuries that, in principle, could be lent out. At this point, most, or probably all, of the Fed’s general collateral is comprised of toxic waste. Currently, the Fed does not even have enough reserves to cover dollars in circulation.
Good thing we’re only talking about Monopoly money. If it were real money we’d be in big trouble.
There are a number of grass-roots efforts trying to put an end to the Fed’s out-of-control borrowing. One of them, End the Fed.us is having a meet-up on November 22 in 39 cities. Mish of Global Economic Trend Analysis is putting together another email, fax, and phone-call campaign to stop further auto company bailouts. Chances are slim that the brakes will be put on before the end of the year. However, with a new administration coming in, 2009 could be another story.
mg
Monday, November 17, 2008
G20 Meeting a Non-Event, Depression Full Speed Ahead (1)
I’m afraid many of the New World Order conspiracy theories will have to be laid to rest after this weekend’s G20 meeting. Worldwide coordination of anything other than a rate cut here and there will never fly. Not even the power of the dark side is sufficient to get substantive agreement among the G20. So, what came out of this weekend’s meeting? Pretty much nothing. But, you ask, no new world currency, no new North American currency, no revaluation of the price of gold, no renegotiation of trade agreements, no dropping the US$ as the world’s reserve currency? Nope, nothing. However, based on their recent track record, this was probably the best outcome.
(2)
Telling It Like It Is
Last week I said the economy was going through a period of deflation. That was just a trial balloon and an attempt at being PC. We’re entering into a depression. Things are a lot worse than underwater mortgages and SUVs losing trade-in value.
Last week I said the economy was going through a period of deflation. That was just a trial balloon and an attempt at being PC. We’re entering into a depression. Things are a lot worse than underwater mortgages and SUVs losing trade-in value.
“The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself,” former Goldman Sachs chairman John Whitehead, 86, said at the Reuters Global Finance Summit on Wednesday. "I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." When you’re 86 years old and Social Security and Medicare’s got your back, why mince words.
Here’s what another senior citizen, George Soros, has to say, “Our greatest economic depression is ahead of us.”
One more retiree, Warren Buffet, in September said, "This is an economic Pearl Harbor. There's no plan B for this . . . we were at the brink of something that would have made anything that happened in financial history pale.” (Pale by comparison . . . finish your sentences Warren). Former Fed chairman Paul Volker, a downright New Age positive thinker by the standards of this group, says, “There’s a 75% chance of financial collapse within the next five years.”
From academia: “The United States is bankrupt. Our economic situation is worse than Brazil, worse than Argentina, worse than any nation in the world,” according to Professor Laurence Kotlikoff of Boston University. I never heard of this guy before, but he’s got a way with words. And from government service: "When we look back 10 years from now, we will see 2008 as a fundamental financial rupture,” says Peer Steinbruck, Financial Minister of Germany.
Associated Press on Friday reported that the mayors of Philadelphia, Atlanta, San Jose, and Phoenix are requesting bailouts. They'll have to get in line behind the entire state of California, NYC, Chicago, Detroit, and LA.
There are a few bright spots, though; gun sales are one of them. The FBI reports that gun sales increased 13% in October and had a huge 49% spike in the first six days following the election. Hurry and get yours before supplies run out.
It’s time to prepare for hard times. There are a number of lists of “100 Things that Disappear First.” Google one that addresses your lifestyle and climate. Many of these items, like manual can openers, make good stocking stuffers. By the way, no Gift Cards this year. Gift cards are not yet guaranteed by the FDIC. If the store goes out of business, that’s the end of the gift card. Same thing with product maintenance contracts.
mg
Thursday, November 13, 2008
Everything is Deflating, Not Just House Prices
There is considerable discussion as to whether we are in, or entering into, a period of inflation or deflation. It’s important to know which one it is and why, to be able to plan effectively.
It’s deflation, and we’re already in it.
The simplest working definition of inflation and deflation is an expansion of the supply of money and credit in the case of inflation. Deflation is the opposite, a contraction of money and credit. Despite recent price surges in food and oil, prices are declining across the board, and even those two headline-inflation items are down from recent highs. An interesting explanation of how this happens is on Mises.org: If the price of a good goes up (in the absence of an increase in the money supply), consumption must be reduced on some other good. This sounds more like common sense than economic theory, especially after the recent run up in gasoline prices.
The rule of thumb in deflationary environments is cash is king. This is no time for major purchases or unnecessary expenditures. Why buy today when the price will be lower tomorrow?
Stock Markets
Here’s what’s been happening in the Dow for the trailing 12 months.
It’s deflation, and we’re already in it.
The simplest working definition of inflation and deflation is an expansion of the supply of money and credit in the case of inflation. Deflation is the opposite, a contraction of money and credit. Despite recent price surges in food and oil, prices are declining across the board, and even those two headline-inflation items are down from recent highs. An interesting explanation of how this happens is on Mises.org: If the price of a good goes up (in the absence of an increase in the money supply), consumption must be reduced on some other good. This sounds more like common sense than economic theory, especially after the recent run up in gasoline prices.
The rule of thumb in deflationary environments is cash is king. This is no time for major purchases or unnecessary expenditures. Why buy today when the price will be lower tomorrow?
Stock Markets
Here’s what’s been happening in the Dow for the trailing 12 months.
(Picture on http://blownmortgage.com/ scroll down to 11 13 08)
This performance has had dire consequences throughout the economy. As one example, at the beginning of October, retirement plans had lost as much as $2 trillion — or about 20% — over a15 month period, according to Congress's top budget analyst .“The upheaval that has engulfed the financial industry and sent the stock market plummeting is devastating workers' savings, forcing people to hold off on major purchases and consider delaying their retirement,” said Peter Orszag, the head of the Congressional Budget Office. Savings across the board, even Harvard’s endowment, have taken a hit.
The US markets haven’t been the worst performers. “World equity markets lost an estimated $5.79 trillion during October, the biggest monthly loss ever,” according to Standard & Poor's Index Services. “The October loss eclipsed the previous record, which was set just one month earlier, when 52 global equity markets lost a combined $4 trillion. Through the first 10 months of 2008, world markets have lost about $16.22 trillion.”
Commercial Real Estate
Due to store closings and company bankruptcies, losses in commercial real estate are mounting. On Tuesday, General Growth Properties, one of the largest mall operators in the country, announced that it is near bankruptcy. Its stock closed at 35¢ today. Its only hope now is to become a bank holding company.
(Picture http://blownmortgage.com/ on scroll down to 11 13 08)
Residential Real Estate
Residential real estate losses are unrelenting and the magnitude of losses is staggering.
Here’s the latest from Case-Shiller.
(Picture on http://blownmortgage.com/ scroll down to 11 13 08)
The Deficit
OK, here’s something that’s up, the national debt, which reached $10.6 trillion the other day. The increase year over year since 2005 isn’t all that much.
(Picture on http://blownmortgage.com/ scroll down to 11 13 08)
However, if you look at the increase over a several-decade period, it looks like this.
(Picture on http://blownmortgage.com/ scroll down to 11 13 08)
Unemployment
CNNMoney.com reports that “The government reported more grim news about the economy, saying employers cut 240,000 jobs in October, bringing the year's total job losses to nearly 1.2 million. According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.5% from 6.1% in September and higher than economists' forecast of 6.3%. It was the highest unemployment rate since March 1994.
These figures notoriously underreport unemployment, but the trend is clear.
I hope everyone has a few bucks in the house, at the very least enough for groceries and gas.
mg
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