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Daily Digest - Feb 14

Friday, February 13, 2009, 8:49 PM
  • Fed Chief's Boyhood Home Is Sold After Foreclosure
  • Signposts Towards The Inevitable
  • Moody's AAA Breakdown (Chart)
  • Moody's The United States is Resilient...Not Resistant to Downturn
  • U.S. Debt Default, Dollar Collapse Altogether Likely
  • Large U.S. banks on brink of insolvency, experts say
  • Four U.S. Banks Seized, Bringing Total for Year to 13
  • Yves, Nationalization (CNN Video)
  • No one read this $787,000,000,000.00 Bill (Video)
  • John Williams, Shadow Stats WSJ: Inflation (2:38 Minute Point, $100 as toilet paper)
  • More...
  • 25 People to Blame for the Financial Crisis (Vote)
  • CNN Lou Dobbs Amnesty Bill's Worst Provision NAU (Video, Hat Tip Fred)
  • Bill Moyers and Simon Johnson (Hat Tip Denny Johnson)
  • We Can Do Better Than a 'Bad Bank, By George Soros
  • S&P 500 Quarterly Earnings (Chart)
  • Consumers Cut Food Spending Sharply
  • Greenberger Video 
  • Record Numbers, Employers Move to Block Unemployment Payouts

Economy 

Fed Chief's Boyhood Home Is Sold After Foreclosure

The young banker just bought Federal Reserve Chairman Ben Bernanke's childhood home at a foreclosure sale.

Signposts Towards The Inevitable 

Even Nouriel Roubini now admits that the US along with the entire banking industry is technically insolvent i.e. their debts outweigh their assets and cash. Derivatives are the real ‘Elephant in the Room' as far as the financial world is concerned.

Moody's AAA Breakdown (Chart)

Moody's The United States is Resilient...NOt Resistant to Downturn 

Felix at Portfolio.com asks the worrisome question: 

Can the yield on US Treasuries be considered the "risk free rate of return" if there are other securities which are lower-risk than US Treasuries?
Apparently Moody's has broken up their AAA rating into three tiers and the United States is not in the top tier (though I am left wondering who trusts / listens to / respects / cares about Moody's these days). Reuters reports:
The "Resistant" category included Germany, France, Canada and the four Scandinavian countries, whose ratings have so far been untested. These countries have either entered the financial crisis from a very strong position or have economic models that remain robust, it said.

The "Resilient" group comprises the United States and the UK, whose ratings are being tested due to a shock to their growth model and large contingent liabilities. But it added: "These countries display an adequate reaction capacity to rise to the challenge."

The size of the U.S. and UK economies, financial markets and capital flows and relative debt levels to growth mean policymakers have more scope to loosen fiscal policy without endangering the public finances too much.

Ireland and Spain fell into the third, "Vulnerable" group, which refers to nations which are forced to take risks with their public finances.
Click for Larger Table 

U.S. Debt Default, Dollar Collapse Altogether Likely 

The prospect of the United States defaulting on its debt is not just likely. It's inevitable, and imminent. 

The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end - the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place. 

Large U.S. banks on brink of insolvency, experts say 

Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking. 

A sober assessment of the growing mountain of losses from bad bets, measured in today's marketplace, would overwhelm the value of the banks' assets, they say. The banks, in their view, are insolvent.

None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the U.S. government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves. 

Four U.S. Banks Seized, Bringing Total for Year to 13   

Regulators seized six banks in January, the highest monthly toll since 1993. State and federal agencies shuttered 25 banks last year, matching the combined total for 2001-2007, as home foreclosures 

soared and bank profits tumbled. 

Yves, Nationalization (CNN Video)

No one read this $787,000,000,000.00 Bill (Video)

John Williams, Shadow Stats WSJ: Inflation (2:38 Minute Point, $100 as toilet paper)

25 People to Blame for the Financial Crisis (Times Poll)

CNN Lou Dobbs Amnesty Bill's Worst Provision NAU (Video, Hat Tip Fred)

Bill Moyers and Simon Johnson (Hat Tip Denny Johnson)

We Can Do Better Than a 'Bad Bank, By George Soros 

Adequate recapitalization of the banking system now faces two seemingly insuperable obstacles. One is that former Treasury Secretary Henry Paulson has poisoned the well by the arbitrary and ill-considered way he implemented the $700 billion Troubled Asset Relief Program (TARP). As a result, the Obama administration feels it cannot ask Congress for more money at this time. The other is that the hole in the banks' balance sheets has become much bigger since TARP was introduced. The assets of the banks -- real estate, securities, and consumer and commercial loans -- have continued to deteriorate, and the market value of bank stocks has continued to decline. 

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It is estimated that an additional $1.5 trillion would be required to adequately recapitalize the banks. Since their total market capitalization has fallen to about $1 trillion, this raises the specter of nationalization, which remains politically and even culturally unpalatable.

Consequently, the Obama administration plans to use up to $100 billion from the second tranche of TARP funds to establish an aggregator bank, or "bad bank," that would acquire toxic assets from the banks' balance sheets. By obtaining 10-to-1 leverage from the balance sheet of the Fed, the bad bank could have $1 trillion at its disposal. That is not sufficient to cleanse the balance sheets of the banks and restart lending, but it would bring some welcome relief. 

S&P 500 Quarterly Earnings (Chart)

Consumers Cut Food Spending Sharply  

Consumers have cut back sharply on food spending, shunning restaurants, opting for generic products over brand names, trading in lattes for home-brewed coffee and shopping for bargains. That is hurting sales and profits at many food processors, grocery chains and restaurants.

In 2008's fourth quarter, consumer spending on food fell at an inflation-adjusted 3.7% from the third quarter, according to data from the Commerce Department's Bureau of Economic Analysis. That is the steepest decline in the 62 years the government has compiled the figure. The report is based on receipts from a sampling of food-oriented businesses across the country.

The big drop likely comes from two things, said Joseph Carson, an economist at AllianceBernstein who worked at the Commerce Department in the 1970s. First, consumers have been trading down to lower-priced items. Second, he thinks many households dug into their pantries for staples rather than going to the store, a trend that can't continue indefinitely. "You can't contract at this rate for long," he said. "It's just shocking."

Greenberger (Video)

Record Numbers, Employers Move to Block Unemployment Payouts 

It's hard enough to lose a job. But for a growing proportion of U.S. workers, the troubles really set in when they apply for unemployment benefits.
More than a quarter of people applying for such claims have their rights to the benefit challenged as employers increasingly act to block payouts to former workers. 

The proportion of claims disputed by former employers and state agencies has reached record levels in recent years, according to the Labor Department numbers tallied by the Urban Institute.

Under state and federal laws, employees who are fired for misbehavior or quit voluntarily are ineligible for unemployment compensation. When jobless claims are blocked, employers save money because their unemployment insurance rates are based on the amount of the benefits their workers collect.

As unemployment rolls swell in the recession, many workers seem surprised to find their benefits challenged, their former bosses providing testimony against them. On one recent morning in what amounts to one of Maryland's unemployment courts, employees and employers squared off at conference tables to rehash reports of bad customer service, anger management and absenteeism.

"I couldn't believe it," said Kenneth M. Brown, who lost his job as a hotel electrician in October. 

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16 Comments

Davos's picture
Davos
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Re: Daily Digest - Feb 14
3
I received 2 questions on this chart:
  1. The source of the chart is from the first article posted on today's Daily Digest title "Signposts Towards the Inevitable," I didn't know if everyone would read this article, it was quite long and I didn't want this to get missed
  2. I didn't see the usual millions, billions, trillions so I wrote trillions, meaning for instance Citi has $38,673,000,000,000.00 in derivatives (38 trillion)
Sorry for any inconveniences, take care
Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: Daily Digest - Feb 14

Is Exxon Mobil headed for a fall?

Full article link: 

http://articles.moneycentral.msn.com/Investing/Extra/is-exxon-mobil-headed-for-a-fall.aspx 

A cautious discipline helped the oil giant become the world's most profitable company. But in today's high-risk, high-reward environment, the prize may go to the gamblers.

[Related content: Exxon, oil, stocks, investments, value stocks]

Like the ever-expanding universe, Exxon Mobil (XOM, news, msgs) seems to know no bounds. Its $45 billion profit in 2008 was the biggest haul ever by a public company. The runner up? Exxon, in 2007. No. 3? Exxon, in 2006.

Plunging oil prices are sure to devour some of those earnings. But even that presents opportunity, for Exxon -- long the unchallenged exemplar of Big Oil -- has an enormous stockpile of cash and shares with which to buy rivals.

Indeed, it's difficult to imagine a scenario in which the company would soon be knocked from its perch. Even in this sharp recession, Exxon shares have held up, falling just 15% last year compared with a 22% decline by its rivals and 38% for the Standard & Poor's 500 Index ($INX).

"If one oil company is left standing, it will be Exxon," says Fadel Gheit, a long-time industry analyst for Oppenheimer (OPY, news, msgs).

Yet despite its seeming invincibility, Exxon is surprisingly vulnerable. Interviews with industry analysts, consultants and current and former employees cast doubt on its strategy and growth prospects.

Most immediately, Exxon's oil reserves and production are shrinking, and it is relying on less valuable natural gas to replenish them. Worse, it is getting much of that gas from a single country -– Qatar -- that could change the terms of their deal at any moment.

More broadly, Exxon seems overly wedded to a playbook drafted decades ago. The company's aversion to risk, a point of pride, has caused it to withdraw from lucrative exploration projects prematurely. And Exxon's perceived arrogance, reflected in its dismissal of alternative energy and its strained relations with foreign governments, has cost it business.

All the Big Oil companies face the conundrum of size, but none more than Exxon. Its very bigness makes it hard to grow -- or even sustain itself. Since the 1999 merger with Mobil, Exxon's total reserve base of oil and natural gas has barely budged, while production has fallen. Buying another oil company would add to its cash flow but wouldn't alter its inability to grow on its own.

Exxon's production numbers represent a failure. In 2001, former CEO Lee F. Raymond vowed to increase daily oil production to 5 million barrels by 2005, from 4.25 million. Instead, output fell. In 2006, with oil prices surging, daily production averaged 4.2 million barrels, and Exxon extended its 5 million goal to 2010. In 2007 it pumped just 4.1 million barrels. As prices soared in 2008 before crashing later in the year, production dropped to 3.9 million.

Shares of Exxon and other integrated energy companies have fallen with crude oil prices. This presents an opportunity for patient investors, reports Clare McKeen of Barron's. (Jan. 26)
Exxon's performance raises a question once unimaginable: Has the company effectively reached the limits of its productive capabilities?

Company spokesman Alan Jeffers brushes off such notions. He says Exxon never set specific production targets but rather "estimates of production capacity growth." Those estimates, he says, turned out wrong: "Plans are plans, and actual events may be different." ..........

The article continues, but I got stuck on the first page my emphasis added in the italicized and bolded section above.

I suppose if you call it "aversion to risk" and say things like Jeffers did in the last paragraph above that resonates well with shareholders and in the business world.  I think the PTB at Exxon have probably been aware of Peak Oil for quite awhile.

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - Feb 14

Our CIA and the Big Oil companies have been aware of Peak Oil for a long time. I am just curious as to what their plan is for the future. It seems that they will continue to produce what we demand and right now, there is (apparently) just too much profit to be made in oil for the the oil companies to really emphasize alternatives.

Two years ago, I took a class that was taught by a career ExxonMobil chemical engineer. He taught the entire class about peak oil and didn't seem to have much to say in the arena of "technology will save us." He wasn't exactly a doomer, but I can say he did not hold out much hope that anything could replace the role that oil plays in our life.

I don't worry too much about profitability or troubles at the oil companies. If our government thought that the Detroit Three were worth bailing out, you better believe Big Oil will be. As oil becomes an even more strategic resource - particularly since we have so little - I have think that America will progress along the path towards de facto nationalization of the oil companies.

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Re: Daily Digest - Feb 14

Regarding the above entry concerning the liklihood of a debt default & dollar collapse.  This is probably a naive thought, but I wonder what would be the likely response of a Senator or Representative (excluding Rep. Ron Paul) upon presentation of the Crash Course material?

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
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Re: Daily Digest - Feb 14
hucklejohn wrote:

Regarding the above entry concerning the liklihood of a debt default & dollar collapse.  This is probably a naive thought, but I wonder what would be the likely response of a Senator or Representative (excluding Rep. Ron Paul) upon presentation of the Crash Course material?

Something along the lines of:

"Holy sh*t.  So much for getting reelected."

I just hope that enough people become aware of CC material fast enough and the economic meltdown is slow enough, that "We the People" can get rid of the professional politicians who have failed to represent us, time and again.  Unfortunately, I think it will take a disaster for people to wake up and take action against the incompetence that is Washington, DC. 

 

joemanc's picture
joemanc
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Re: Daily Digest - Feb 14

FYI - The link to the 25 people to blame for the financial crisis does not work. I'm sure I could probably name a few!

joemanc's picture
joemanc
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Re: Daily Digest - Feb 14

RE: Bill Moyers/Simon Johnson interview - Very interesting, especially when Johnson suggested that he thought that the banks have more control than the president. See link for Obama's top campaign donors and notice all the major banks on the list:

http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

 

Johnson also said that the FDIC was expert at shutting down small banks with no disruptions to bank customers, citing Indymac as an example. I recall customers of Indymac being handed an FDIC check for their deposits, then attempting to re-deposit said check at another bank, only to be told that the customer would have to wait 2-3 weeks for the funds to clear.

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kemosavvy
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Re: Daily Digest - Feb 14

great video today davos! i only had time to watch that today. i wonder if the futures trading chief made a valiant defense (is there a video of that) because it seems as though it is an indefensible argument for naked credit default swaps. i also wonder why there is even a market for naked credit default swaps against mortgage backed securities anymore, you'd have to be insane to offer such a product, i have a hard time believing anyone could buy one today.

tonight i spent my 'steve time' watching 'house of cards' by david faber on msnbc, absolutely fantastic. i've had a hard time believing that there were so many fraudelant loans made to wall street but now i'm a believer.

it's a depressing time in history.... but one that fascinates me.

Davos's picture
Davos
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Re: Daily Digest - Feb 14

Hello Hello KemoSavvy:

I don't have cable or dish, so I'm hoping I can stream House of Cards, glad to hear it is good, one of the few times I'm actually regretful I don't have TV other than 1 local chanel so I only watch about 20 minutes a day, if that.

It amazes me, and reminds me of this article about the hedge fund manager who took talks about people taking the other side of his bets. "A hedge fund manager who made what is thought to be one of the biggest percentage profits of all time bowed out of the business yesterday with a fierce attack on the "idiots" running big banks who were willing to take the other side of his bets."

What I'm trying to wrap my mind around is knowing the stimulus won't work, knowing the Financial Stability Plan will flop, knowing the next step is nationalization of the banks all I can do is wonder about is how the domino's will fall when they mark down $175,841,765,000,000.00 of toxic debt and let the "investors" (my read poor [email protected] who were handcuffed to pension fund 'managers') suffer the losses. Seems to me like a lot of pension funds and people are going to be broke.

My wife just came back from the eye doctors, the guy had to come out of retirement (at well past the  retirenment age) due to investments in the real estate market in FL, it sounded like he also had to relocate for employment. Seeing professionals in this situation is startling. Thinking this could be massive, and he could be one of millions is profound. What I think I'm driving at is that my gut feeling is that we are about to see the folks out of the work force decimated.

My HS economic take: Most retirement funds will be obliterated and the numbers of folks being added to the workforce is going to be mammoth. Another huge monkey wrench in the cogs of any possible fix.

I totally agree, this is fascinating to watch as it unfolds, just wish it was history and not present day. Take care

 

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joemanc
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Re: Daily Digest - Feb 14

Davos - Are you like me, waiting for this one watershed moment to happen that starts the domino's to fall? So far, we've just heard some talk of nationalization, bond prices falling, gold prices rising. I just feel like one big thing is going to happen and set off the chain reaction crash. I don't know what it might be, but I agree, it will be fascinating to watch as it unfolds.

Mike Pilat's picture
Mike Pilat
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Re: Daily Digest - Feb 14

From Jim Sinclair's site:

From Jim Sinclair's site

 

Davos's picture
Davos
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Re: Daily Digest - Feb 14

Hello JoeManC:

Yup, that door that Chris talked about is looking like it is getting smaller and smaller and going to be really crammed.

This past holiday's Wal Mart tragedy, might be sadly prophetic, just with everyone rushing to get out - not in.

Take care

 4_61_112808_wal4.jpg

 

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Re: Moyers/Johnson

As usual Bill Moyers has an informative and easy to follow presentation of complex material. Simon Johnson's comment abou the power of banks & bankers vis-a-vis politician is similar to the historical narrative in Niall Ferguson's The Ascent of Money. I just starting reading Prof. Ferguson's book, and highly recommend it.

I'd also like to plug Tuesday's Frontline that has a promo at the end of the Moyes' segment. It's called Inside the Meltdown.

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Re: Daily Digest - Feb 14

Darling declines to rule out Lloyds nationalisation | Business | guardian.co.uk

The chancellor, Alistair Darling, last night declined to rule out the option of nationalising Lloyds Group after the bank warned of potential £11bn losses at HBOS, which it rescued with government backing in the autumn.

Shares in Lloyds, which is 43% owned by the taxpayer, closed 32% lower on the warning yesterday.

...

The Liberal Democrat Treasury spokesman, Vince Cable, said: "It looks increasingly as if Lloyds is being dragged under by the dead weight of HBOS, a financial disaster created by Andy Hornby and his predecessor, Sir James Crosby. Obviously we need to digest the detail, but it looks increasingly as if Lloyds HBOS will now go into majority public ownership, followed inevitably by nationalisation."

...
 
"The taxpayer money pumped in through the first bail-out in October is all but wiped out by these losses and we still have no details of the government's plans for a second bail-out," he said. "The government's dithering is damaging confidence and making the recession longer."
 
 
Denny Johnson's picture
Denny Johnson
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Re: Daily Digest - Feb 14
Davos wrote:

I don't have cable or dish, so I'm hoping I can stream House of Cards, glad to hear it is good, one of the few times I'm actually regretful I don't have TV other than 1 local chanel so I only watch about 20 minutes a day, if that.

Davos..........I've found that if something won't stream.................it usually works to PAUSE it, let it buffer, and watch it later. Tho occasionally PAUSE seems to interfere w the buffering and I need to PLAY it muted and replay later.

Davos's picture
Davos
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Re: Daily Digest - Feb 14

Hello Denny:

Thank you Smile take care 

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