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Daily Digest - March 5

Thursday, March 5, 2009, 11:43 AM
  • Hanging On, or How to Get Through a Depression and Enjoy Life
  • FDIC's Bair Says Insurance Fund Could Be Insolvent This Year
  • Hidden Pension Fiasco May Foment Another $1 Trillion Bailout
  • Government Bailing Out Foreign Interests With Your Tax Dollars (AIG, C)
  • (Former AIG CEO) Greenberg Sues AIG for Securities Fraud (Sachs CEO at 7:30+/-, Goldman Got 100% Coverage, Governments Can't Run Companies10:50, They Have Trouble Running Themselves)
  • Auto "Sales"
  • More Than 8.3 Million U.S. Mortgages Are Under Water
  • Cramdowns
  • Obama's mortgage relief and housing plan
  • Second Liens Forgiven: Are You Kidding Me? (Hat Tip Lisa G)
  • 2nd Liens Forgiven: The institution I work for has already said they will not be apart of this plan.
  • Hedgies Placing Strong Bets on Private-Party MBS
  • Is This The Bottom? (Humor H/T CM)
  • Former Countrywide Officers Seek to Profit From Mortgage Mess They Helped Create
  • As projects grind to a halt, home sites turn to wasteland
  • Rhode Island Battles High Unemployment (H/T Zombie210)
  • U.S. Oil Demand Hit Lowest Point in Decade (H/T/ Zombie210) 
  • ISM Service (February)

Economy 

Hanging On, or How to Get Through a Depression and Enjoy Life  

Denial. 

One of the undercurrents of this book, in my view, was how long it took the author and many others to realize just how drastically their circumstances had changed and that the depression was not going away anytime soon. Though Love notes that some historians later would divide the depression into different phases (depression, recovery), for him there was little to distinguish these years and when the depression finally did end, it did so fairly suddenly.

As the author explains, the depression, at least at its worst, did not happen overnight and the author was not greatly impacted in the early stages. For instance, in September 1929 between graduating high school and starting college the author attended a military school in Missouri for a year. He notes that between semesters some classmates could not afford to return. His father lost most of his money in the Oct 1929 crash, ended up in debt, had to mortgage the lumberyard and came close to bankruptcy (46). However, the author, away at military school was largely unaware of this. Several of the authors' friends fathers also had lost big in the stock market and many people were worried about slow 1930 model car sales.

His family and others families started to cut spending (47). Still, though people were careful, they were still largely optimistic at that time hoping "[t]hings would be better in the spring when people started building houses again. The situation was only temporary" (48). 

What Are the Odds of a Depression? 

March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency. 

"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.

"A large number" of bank failures may occur through 2010 because of "rapidly deteriorating economic conditions," Bair said in the letter. "Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative." 

FDIC's Bair Says Insurance Fund Could Be Insolvent This Year  

Hidden Pension Fiasco May Foment Another $1 Trillion Bailout 

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion. 

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent -- 70 percent less than what the fund was paying for the loan.

The public gets nothing from pension bonds -- other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.

‘Very Risky' 

Government Bailing Out Foreign Interests With Your Tax Dollars (AIG, C) 

Hillary Clinton traipsed around China with one message: Keep buying our debt. We need your money to stimulate our economy.
That might start to look risky to the Chinese, who can't really believe that the US' AAA-rating is all it's cracked up to be. But in order to keep them on board, we've already started promising our foreign financiers that we'll bail them out if their US investments go sour. 

The bailout of AIG was really just a bailout of the company's counterparties, many of which were based in Europe.

And when we bailed out Citigroup (C) we ensured that the foreign holders of preferred shares would get a nice premium, so that they didn't have to get a massive dilution like everyone else.

But we can't complain, because we depend so much on their money. How could we not bail them out? 

(Former
AIG CEO) Greenberg Sues AIG for Securities Fraud (Sachs CEO at 7:30+/-,
Goldman Got 100% Coverage, Governments Can't Run Companies10:50, They
Have Trouble Running Themselves)

Auto "Sales"

More Than 8.3 Million U.S. Mortgages Are Under Water 

March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said. 

An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders. 

Cramdowns

Obama's mortgage relief and housing plan

Second Liens Forgiven: Are You Kidding Me? (Hat Tip Lisa G) 

Amid the dozens of pages of details of the Obama mortgage modification plan, one new element will likely not make it into the headlines because it's something of an afterthought. 

It has to do with second liens, that is piggy back loans or home equity lines of credit.

Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien. 

2nd Liens Forgiven: The institution I work for has already said they will not be apart of this plan

The institution I work for has already said they will not be apart of this plan. They will only assist with the first mortgage. The bank will make more than 250 dollars if they continue to collect or charge off the home equity line. They can also foreclose on the second mortgage. (Lundsta) 

Hedgies Placing Strong Bets on Private-Party MBS 

Top bond traders are not as worried about pending cramdown legislation as some might think - and some are now loading up on Alt-A MBS after what they see as a fear-based sell-off. According to top traders in asset-backed hedge funds who spoke with HousingWire, they're now loading up on certain subprime and Alt-A products while telling investors to expect big returns this year from distressed asset bets in the residential mortgage sector. 

"Sure it's spotty, not everything is moving, but we are definitely trading MBS and making a market," a trader with New York-based Guggenheim Partners, LLC said Friday on condition of anonymity. "What's moving now is the last cash-flow senior tranche subprime bonds. At prices in the low 20s, it's hit bottom and the top ABS traders in hedge funds are gobbling it up." 

Is This The Bottom? (Humor H/T CM)

Former Countrywide Officers Seek to Profit From Mortgage Mess They Helped Create 

"It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it," said Margot Saunders, a lawyer with the National Consumer Law Center, which for years has sought to place limits on what it calls abusive lending practices by Countrywide and other companies....

Rhode Island Battles High Unemployment (H/T Zombie210)

As projects grind to a halt, home sites turn to wasteland

By day, it's far too quiet at the site of a planned housing and retail development on a former Navy base in Oakland.

At night, neighbors can hear the thieves come out.

They rip out copper wire, haul away pipes and take anything else they can steal from dozens of buildings on the site, abandoned after Irvine developer SunCal Cos. fell victim to the economy.

It's a scene not uncommon throughout California, as residential construction grinds to a halt under the dual weight of the credit crunch and the housing crisis: a rusty chain the only barrier between the community and a half-built structure in Hollywood; a bare dirt lot in Pasadena; old stoves amid the trash at the site in Oakland.

"I hear hacking and see scary bonfires in the middle of the night," said Don Johnson, a retired Coast Guard employee who lives near the defunct Oak Knoll Naval Medical Center in Oakland.

Nearly 250 residential developments with a combined total of 9,389 houses and condominiums have been halted in California, according to research firm Hanley Wood Market Intelligence. The units, worth close to $3.5 billion, were in various stages of development.  

U.S. Oil Demand Hit Lowest Point in Decade (H/T/ Zombie210) 

U.S. oil demand in December was revised down by 4.0 percent
from an early estimate to a final number of 19.199 million barrels per
day, bringing consumption for the year to its lowest level since 1998,
the Energy Information Administration said Friday. 

U.S. oil demand in December was 794,000 bpd lower than the
previous estimate of 19.993 million bpd and down 1.520 million bpd, or
7.3 percent, from oil demand of 20.719 million bpd a year earlier, the
agency said.

U.S. oil demand for 2008 was down 6.1 percent, or 1.261 million
bpd lower, to 19.419 million bpd, compared with 2007, the lowest yearly
demand level since 1998, the EIA said. 

ISM Service (February)

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29 Comments

MikeMiller69's picture
MikeMiller69
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Re: Daily Digest - March 5

http://nuttynewswire.com/img/P_survival_plan.gif

http://nuttynewswire.com/img/P_pushingonstrings.jpg

http://nuttynewswire.com/img/P_economy_lifeline.gif

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Mike Pilat
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Re: Daily Digest - March 5

love the cartoons, as usual. thanks, Davos

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Ruhh
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Re: Daily Digest - March 5

The Brontosaurus in the cartoon is cutting off another chunk!

Chrysler Canada Cuts 1200 jobs and Windsor Mini-Van Plant.
http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090304/chrysler_cu...

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Re: Daily Digest - March 5

My wife and I found this hilarious. Don't watch if you're easily offended!

Stock Broker Fail

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Re: Daily Digest - March 5

Here are two more interesting videos. 

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SkylightMT
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Re: Daily Digest - March 5

20% chance?

Roubini says 33% chance.

I think they are both wrong. Its already here.

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Re: Daily Digest - March 5

Personally I think the blue collar segment is already in a depression. Just look at what is happening in the rust belt. White collar is next.

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Re: Daily Digest - March 5

The link for "Is this the bottom" takes me to the Terra Firma Builders website. Was this intended? I don't think so.

Don

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Re: Daily Digest - March 5

Nope, that was not the right link.  Fixed!

And here it is again:  http://www.isthisthebottom.com/ 

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Re: Daily Digest - March 5

Bank of England will create more money in bid to fight credit crisis

By Ben Perry

Agence France-Presse

March 06, 2009 07:54am

THE Bank of England said overnight it would
pump out £75 billion ($166 billion) of newly-created money after
slashing interest rates to a record-low 0.5 percent in a twin-pronged
attack on the global credit crunch.

In an extraordinary bid to free
Britain from its first recession in 18 years, the Bank of England said
it would issue the equivalent of £106 billion via so-called
"quantitative easing'' measures.

Creating more money is a radical route to trying to break the credit
crunch.  Under "quantitative easing", central banks create money to
boost the money supply and prevent prices from falling into a trend of
deflation.

They use it to purchase assets, such as government
bonds and commercial paper, in a move frequently referred to as
printing money.

The new cash is created electronically,
but the process has much the same effect as printing notes because it
expands money supply and boosts the balance sheets of banks and
institutions.

<MORE> 

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Re: Daily Digest - March 5

cmartenson wrote:

Nope, that was not the right link.  Fixed!

And here it is again:  http://www.isthisthebottom.com/ 

Is it me or has that site been hacked??

 Update - upon further looking, it looks like it is a simple site that really links to another for reason...

nickbert's picture
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Re: Daily Digest - March 5

Oops nevermind this post... I put up a link that was more or less the same as one of the above DD links (just happened to be from a different source)

http://news.yahoo.com/s/afp/20090305/pl_afp/financeeconomyusbankinggovernment

 

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Re: Daily Digest - March 5

Davos wrote:
  • Hanging On, or How to Get Through a Depression and Enjoy Life

Davos,

The article about every day life in the last depression was awesome! Very interesting, and it amazes me to see the similarities, specially in the behavioural side...

I'm sure that many, if not most, of us feel like we live in a "Twilight Zone" episode. Where we are the only ones who see what's going on, and most other people look at us like lunatics - Although that has certainly changed quite a bit over the last few months.

I guess we, society, are programmed to block the bad news, as a survival mechanism. It's a relief to see that it was the same thing 80 years ago. Although they had the excuse of much less access to information - Nowadays, it's a choice to remain ignorant.

Thanks for another jewel!

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Re: Daily Digest - March 5

Damnthematrix wrote:
THE Bank of England said overnight it would pump out £75 billion ($166 billion) of newly-created money after slashing interest rates to a record-low 0.5 percent in a twin-pronged attack on the global credit crunch.

I can't wait to see what happens to the pound...

And I wonder if that's what the US has been waiting for - Someone else to do it first.

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Re: Daily Digest - March 5

John Stewart taking the piss out of Rick Santelli in particular and CNBC in general (8:29 duration):
CNBC Gives Financial Advice | The Daily Show | Comedy Central

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Re: Daily Digest - March 5

Great Jon Stewart clip!  Thanks for the link!

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Re: Daily Digest - March 5

does anyone know what 8.3 M US mortgages means in terms of overall represented percentage?

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Re: Daily Digest - March 5

In lieu of the Bank of England's actions, and the price of gold now well over $1000/oz., is it possible that the dollar may actually make a recovery (albiet temporary), and the price of gold may decrease?  What is everyone's thoughts on this?  How soon before the global currency markets collapse completely?

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Re: Daily Digest - March 5

50,000 Protestersin NY, NY

Hello YoshHash: http://www.calculatedriskblog.com/2009/03/more-on-negative-equity.html

Total mortgages? I'm going by memory but I believe it is about 50million +/-5 

Take care 

PS http://www.mortgagenewsdaily.com/03052009_mba_mortgages_delinquent.asp

 

 

 

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Re: Daily Digest - March 5

The is-this-the-bottom link is to be cherished. It hit me in such a way I started laugh-crying after a few seconds.  

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Re: Daily Digest - March 5

Stephen and pinecarr,

Saw the Stewart clip live last night and thought it was fairly brilliant. I know a lot of people might not agree because they think he's somehow supporting Keynesian economics through implication via his criticism of Santelli, but in my mind -- and the way I originally saw it myself -- is that he's satirizing the extreme disproportionality of Santelli's reaction and the oafishness of this particular brand of top-down populism.

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Re: Daily Digest - March 5

 

Good interview on Fresh Air with Simon Johnson on Bank Nationalization March 3, 2009. 

http://www.npr.org/templates/story/story.php?storyId=101360253

However, he seems a a bit too confident to me on the the risks to the long term strength of the dollar and our ability to manage debt (he only counted Federal debt against GDP, not total credit market debt plus unfunded entitlement programs.)

 

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Re: Daily Digest - March 5

My favorite part of the Great Depression anecdote above is when the author describes how people always placed the recovery or turn-around "in the Spring" or "by next Fall." And how they kept going from landmark to landmark, from symbolic point to symbolic point until they relized that it wasn't coming any time soon.

Sound familiar

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Re: Daily Digest - March 5
The trouble is there are no clean-skins left to pick :
 
MARCH 6, 2009

Top Treasury Candidates Pull Out

Nazareth, Atkinson Decline to Endure Vetting Process, Adding to Geithner's Strain

WASHINGTON -- Two candidates for top
jobs at the Treasury have withdrawn their names from consideration,
complicating already troubled efforts by Treasury Secretary Tim
Geithner to staff his department at a time of economic crisis,
according to people familiar with the matter.

Annette Nazareth, who was expected to be
tapped as deputy Treasury secretary, and Caroline Atkinson, who was
being considered to oversee international affairs, have both taken
their names out of the running, these people said.

Across the administration, several potential candidates have been blocked by the Obama administration's
tough rules about who it will hire. In addition, the White House
increased the rigor of its vetting process after tax problems
threatened Mr. Geithner's confirmation and scuttled that of former Sen.
Tom Daschle.

The withdrawals aren't confined to the
Treasury. Susan Tierney recently withdrew her name from consideration
for the job of deputy secretary of energy for what a person close to
her said were family reasons. Jane Garvey recently withdrew from
consideration for the deputy secretary post at the Department of
Transportation, according to people familiar with the matter.

People familiar with the matter said Ms.
Nazareth and Ms. Atkinson withdrew in part because of the long vetting
process, which had dragged on for weeks and included several rounds of
intense questioning. Treasury is now said to be considering another
person as deputy -- H. Rodgin Cohen, chairman of top law firm Sullivan
& Cromwell LLP, who has been an adviser to virtually every firm on
Wall Street, two people familiar with the matter said. Mr. Cohen
declined to comment.

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Re: Daily Digest - March 5

Despite Outcry, Gandhi’s Meager Belongings Sell for $1.8 Million - NYTimes.com

Quote:

For Mr. Otis, the sale was to be a means to promote pacifist causes, although the uproar later proved to be upsetting.

...

Criticism of the sale had prompted Mr. Otis — who also owns a vast Dr. Seuss collection — to make an unusual offer on Wednesday. He said that he would donate the items to India if the government agreed to sharply increase spending on the poor or include the items in an exhibition that would travel the world.

...

The price continued to rise until Mr. Bedi made the winning $1.8 million bid, and the room burst into applause. “He is bringing the heritage of the items back to India,” Mr. Bedi said of Mr. Mallya.

 

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Re: Daily Digest - March 5

The article you link yesterday about "impaired assets" may amount to 44pc of EU bank balance sheets was so incredible that I sent an email to the journalist cited in the article.

His answer is to go to this link for the true story :

http://eureferendum.blogspot.com/2009/03/reality-is-worse.html

 

 

Philv

(Brussels)

cmartenson's picture
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Re: Daily Digest - March 5

I am putting all my hopes on a third half recovery.

Ed Archer's picture
Ed Archer
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Re: Daily Digest - March 5

Wait, what? :)

 Tell me thats financial-speak for something I can make sense of if you explain it in small words plz.

 (P.S. I know its a joke ;) )

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Re: Daily Digest - March 5

The article you link yesterday about "impaired assets" may amount to 44pc of EU bank balance sheets was so incredible that I sent an email to the journalist cited in the article.

His answer is to go to this link for the true story :

http://eureferendum.blogspot.com/2009/03/reality-is-worse.html

 

 

 Thanks, Philv.....appreciated the link.  Very interesting stuff.  The storm is coming....

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