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Daily Digest - Feb 18

Tuesday, February 17, 2009, 6:22 PM
  • Bank Leverage Stats, 12/31/08 (Hat Tip CM, Check Out GE)
  • The Case for Nationalization (Chart)
  • Top 20 banks receiving US aid are lending: Treasury 
  • Frontline, Inside the Meltdown PBS
  • Cashing in on Trading Down (Video, Humor until 1:28 minute point, 2,500 shopping centers closing)
  • "Worst Is Yet to Come:" Americans' Standard of Living Permanently Changed (Hat Tip Ron S)
  • Median Family Net Worth Down ~1/3 
  • Stimulus Watch
  • S&P Loss 4Q [1:01 Minute Point]
  • Four Bad Bear Markets, Update
  • GM asks for $16.6 billion, to cut 47,000 Jobs 
  • California Kills Its Part Of The Federal Stimulus Program 
  • More...
  • The Curious Case of the US Dollar
  • In-Depth Look - Eastern Europe Collapse Continues
  • Switzerland threatened with bankruptcy 
  • Kansas budget crisis: State tax refunds on hold 
  • The Self-Destructing Economy (Hat Tip Christopher Peters)
  • S&P sees new systemic risk in CLO defaults 
  • U.S. regulators accuse Houston fund firm of fraud
  • Big Lessons in Finance From a Little Bank You've Never Heard Of (Hat Tip Steve S)

Economy 

Bank Leverage Stats, 12/31/08 (Hat Tip CM, Check Out GE) 

As you can see, Morgan Stanley and Goldman have cut their leverage significantly. Citi is in worse shape. BofA and Chase are treading water. 

GE is the scary one. I mean, is Timmy Geithner going to stress test them too? I'm pulling balance sheet data from their quarterly earnings release, which doesn't offer any detail on shareholders' equity. I'm assuming that the published equity figure of $104.7 billion includes the $3 billion preferred investment that Warren Buffett announced on October 1st. I'm deducting that amount from tangible common equity in order to get GE's leverage ratio. If I have that incorrect, hopefully a better-informed reader will let me know.

December 30th's was the first balance sheet the banks have published since they received TARP capital. Common shareholders are still in a first-loss position relative to the government, however, because TARP investments were in the form of preferred shares. So I have backed these out in order to arrive at the tangible leverage ratios above.

One BIG caveat with this calculation is that these companies carry "other assets" on the balance sheet, some of which might be intangible in nature. Also, each has significant risk exposure via off-balance sheet entities. The point is, even though these leverage calculations seem high, they actually understate the risks facing common shareholders... 

The Case for Nationalization (Chart)

Top 20 banks receiving US aid are lending: Treasury 

Some 400 banks in 47 states have participated in the program since it began in October. 

Frontline, Inside the Meltdown PBS

Cashing in on Trading Down (Video, Humor until 1:28 minute point, 2,500 shopping centers closing 4:20 pt)

"Worst Is Yet to Come:" Americans' Standard of Living Permanently Changed (Hat Tip Ron Shimshock)

Median Family Net Worth Down ~1/3 

Using data from the Survey of Consumer Finances, Baseline Scenario attempts to compute a "composite picture of the median family": 

For each asset or liability, I include it if more than 50% of the families in the middle income quintile have it; in that case, I record the median amount held by families who hold that asset. This isn't the median family, but we might call it a "typical" family.

Click for larger image 

Stimulus Watch

S&P Loss 4Q [1:01 Minute Point]

Four Bad Bear Markets, Update

GM asks for $16.6 billion, to cut 47,000 Jobs 

General Motors Corp. on Tuesday said it will need as much as $16.6 billion in additional aid from the U.S. government and could run out of money as soon as next month if it doesn't receive at least some of that funding. 

[GM] ... laid out a plan to close more factories, eliminate thousands of dealerships and slash 47,000 jobs this year around the world.

GM, however, said it failed to strike critical deals with the United Auto Workers union and bondholders to reduce labor costs and shrink its $47 billion debt load. Negotiations with both parties are expected to continue. 

California Kills Its Part Of The Federal Stimulus Program 

California has decided to demonstrate how quickly a state can dig a hole and swallow up most of the money the national stimulus package is supposed to put into its local economy through municipal aid and private sector financing. 

If the new bill to be signed by the President today is meant to save or create three million jobs, the bleeding out of the economy may simply make that impossible.

For the federal government program to work, California, the country's most populous state, can hardly afford to watch tens of thousands of people put out of work with that number growing each day.

But, the state government is doing what it can to ruin its local economy. It will lay off 20,000 workers because of revenue shortfalls which are projected to create a $42 billion budget deficit, about 5% of the value of the entire federal stimulus program.

California will also halt all public works projects which is likely to cause lay offs in its private sector.

The California debacle shows just how hard it will continue to be to get out in front of the effects of the recession.

The Curious Case of the US Dollar 

The US Dollar has been a peculiar "risk-flight" trade throughout the credit crisis, as global investors have flocked to the currency with the belief that other sovereign nations are even worse off than the US. This comes at a time when gold is also rallying to new highs, and the US money supply is increasing at an astounding rate. 

In-Depth Look - Eastern Europe Collapse Continues

Switzerland threatened with bankruptcy 

In an interview with Swiss daily Tagesanzeiger, a well-known economist has warned that Switzerland risks bankruptcy, if the recent market turmoil centering on Eastern Europe is not contained quickly. At issue are loans made in Swiss Francs to Eastern European debtors. With many countries in the region falling into depression, currencies and asset prices are plunging. Therefore, debtors domiciled in Eastern Europe are increasingly expected to have difficulty with mounting foreign debt loads - and that spells trouble for Switzerland. 

Below is my translation of the Tagesanzeiger article. 

The Self-Destructing Economy (Hat Tip Christopher Peters)

Kansas budget crisis: State tax refunds on hold 

State tax refunds, Medicaid reimbursements and payments to local schools are all on hold because of a political showdown between Kansas legislative leaders and Gov. Kathleen Sebelius. 

The Kansas Finance Council was to meet at 1 p.m. today to vote on whether to borrow $225 million from healthy state funds to cover expected payments to schools, state workers and taxpayers. The state did the same thing last December when it ran into a cash-flow problem. 

S&P sees new systemic risk in CLO defaults 

A rating agency has flagged another systemic risk that could yet emerge from the structured credit markets. 

Investors in about €80bn ($102bn) of debt issued by complex structured loan funds could be at greater risk of losses than they realise if only a few companies default on their debt.

Standard & Poor's has highlighted that many collateralised loan obligations - which pool leveraged loans and sell differently rated investment notes with varying risk profiles - have exposure to the same group of borrowers. The default of just one of these widely held borrowers on their debt could have a negative effect on the credit quality of the portfolios of nearly 90 per cent of European CLOs, the agency said in a report.

In fact, the debt of just 35 different borrowers appears in nearly half of the 184 CLO portfolios that S&P rates. In total, those funds hold at least €90bn in assets.

For example the debt of Ineos, the UK chemicals group, which is trying to renegotiate its debts, is held by 84.2 per cent of CLOs. Debt of Télédiffusion de France, the French broadcaster, is held by 87.5 per cent of CLOs. Amadeus, the travel distribution and software company, is held by 82.6 per cent. 

U.S. regulators accuse Houston fund firm of fraud 

The Securities and Exchange Commission accused Robert Allen Stanford, the chief of the Stanford Financial Group, on Tuesday of conducting "a massive ongoing fraud" in the sale of about $8 billion of high-yielding certificates of deposit held in the firm's bank in Antigua. Also named in the suit were two other executives and some affiliates of the financial group. 

Big Lessons in Finance From a Little Bank You've Never Heard Of (Hat Tip Steve S) 

Citizens is among the stronger and more conservative banks in the Charlotte market. Despite setting aside $3.2 million last year for expected loan losses, the bank managed to post a profit of $3.1 million, down from $5.7 million the year before. Citizens never got into subprime lending or 100 percent loans, and for its caution lost a lot of business during the go-go years. Now, however, its reward is that its nonperforming loans are less than half of 1 percent of all its loans.

 

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15 Comments

Davos's picture
Davos
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Re: Daily Digest - Feb 18

345,http%3A%2F%2Fd.yimg.com%2Fa%2Fp%2Fafp%2F20090216%2Fcapt.photo_1234797081815-1-0.jpg?v=2

suesullivan's picture
suesullivan
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Re: Daily Digest - Feb 18

okay, either ditch the hair coloring or get a facelift, arnie, you look silly....

Vanityfox451's picture
Vanityfox451
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Re: "It's Official, The UK Government Is Bankrupt"

It's Official, The UK Government Is Bankrupt :-

http://www.peakprosperity.com/forum/its-official-uk-government-now-bankrupt/13513

Paul

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andrewj
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Re: Daily Digest - Feb 18

Every one in the USA should read this by Michael Hudson. Its an excellent piece on your Government ineptitude.

 

http://informationclearinghouse.info/article22026.htm

 

   Today
it is easier to see that the Western economies cannot go on the way
they have been. They have reached the point where the debts exceed the
ability to pay. Instead of recognizing this fact and scaling debts back
into line with the ability to pay, the Obama-Geithner plan is to bail
out the big banks and hedge funds, keeping the volume of debt in place
and indeed, growing once again through the “magic of compound
interest.” The result can only be an increasingly extractive economy,
until households, real estate and industrial companies, states and
cities, and the national government itself is driven into debt peonage.

 

  Calling
the $12 trillion giveaway to bankers a “subprime crisis” makes it
appear that bleeding-heart liberals got Fannie Mae and Freddie Mac into
trouble by insisting that these public-private institutions make
irresponsible loans to the poor. The party line is, “Blame the victim.”
But we know this is false. The bulk of bad loans are concentrated in
the largest banks. It was Countrywide and other banksters that led the
irresponsible lending and brought heavy-handed pressure on Fannie Mae.
Most of the nation’s smaller, local banks didn’t make such reckless
loans. The big mortgage shops didn’t care about loan quality, because
they were run by salesmen. The Treasury is paying off the gamblers and
billionaires by supporting the value of bank loans, investments and
derivative gambles, leaving the Treasury in debt.

 

 

read it!

Orangedem's picture
Orangedem
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Frontline: Inside the Meltdown

The word is: "confidence." If it was said once, it was said 50 times during the hour-long program. Every reference to Bernanke and Paulson was either followed by "took this move to restore confidence in _____ market/bank/institution" or these figures used the term themselves.

I guess economics is a confidence game. Wink

Davos's picture
Davos
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Re: Daily Digest - Feb 18

OrangeDem wrote:

 guess economics is a confidence game. Wink 

I think that ever since credit came along everything has been a facade. I'm posting this chart on tomorrows DG but looking at it - everything makes sense http://4.bp.blogspot.com/_eB31NsfANe8/SZwafq3D-uI/AAAAAAAAA3s/tJgpr9SwKZc/s1600-h/090218+wolf.jpg 

jkibbe's picture
jkibbe
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Re: Daily Digest - Feb 18

FYI - The PBS Frontline special is reairing at some obscure time.  I set my DVR to check it out...!  :)

Orangedem's picture
Orangedem
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Frontline episodes also available online

at pbs.org

mainecooncat's picture
mainecooncat
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Re: Daily Digest - Feb 18

I thought the PBS special was a joke. It's basically a collection of still photos of Bernanke and Paulson looking frazzled, confused, discombobulated, and disoriented in varying degrees of panning in and panning out as the deep-voiced, methodical Frontline host offers no insight or anything new.

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gregroberts
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Re: Daily Digest - Feb 18

Gold Climbs As Economic Catastrophe Looms

"Not only have gold spot prices risen in the face of such selling
pressure, but the price of physical gold is now some $20 to $40 per
ounce above spot. This would indicate that investors are now so nervous
that they are insisting on taking physical delivery.

Make no mistake, the economy will not turn around soon. When the
recovery fails to materialize, look for governments around the world,
and especially in the U.S., to send another massive wave of liquidity
downriver. When it does, the value of nearly everything, except for
gold , will diminish. Don't be intimidated by the recent spike in gold.
Buy now while you still can."

http://www.europac.net/externalframeset.asp?from=home&id=15482

Greg

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RedShift
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Calling it for what it is...

The Central Bankers are the enemy now, far far worse than Al Quida, because the damage they have caused the world is so much higher than one guided missile destroyer (USS Cole), four passenger jets, three great buildings, 7000+ lives and two wars. Their effects will crush nations; kill hundreds of millions through starvation, exposure, disease and violence; and turn peaceful and productive first world nations into warring third world thiefdooms. Central Bankers will profit via interest payments on everlasting war, reconstruction, aid and bailout debts.

Here is their one possible plan for America:

1) Continue "shoring up" the debt markets by printing even more debt, thereby postponing a total erosion in confidence and relative peace.
2) Nationalize the banking system, thus installing the criminal financial fasists that drove us into this mess into the general security ring of the Federal government where they can rule by **DECREE** and not by *LAW*.
3) Widen the "Homeland Defense* perimeter by creating a new enforcement division referred to here as the "Banking Police" that will be responsible for keeping "peace and order" in the final phases of systemic failure. Responsibilities will include evictions and confiscations, including private firearms; operating debtors prisons for political and "violent" (i.e. those trying to protect their assets from confiscation using firearms) protestors;
and generally enforcing additional nationalization decrees, including the automobile industry, energy, trucking and rail industries, light manufacturing, on and on. Some token businesses will be spared nationalization, such as Walmart and McDonalds, as they will be most successful in feeding the bloodlust of consumerism since they are most effective in winning the Race to the Bottom (i.e. paying below poverty wages, selling inferior products and unhealthy food-like edible substances, etc.)
4) The final victory for the "Banking Police" will be the banning of labor and trade unions.
5) The citizens will applaud the "peacekeeping" and "stabilization" efforts, and look to Walmart as an example that the old system is still valid and functional, even though representative democracy and free enterprise capitalism will be effectively dead.
6) A national identification card system will be deployed nationwide, which gives citizens
looking for food, shelter and employment a means to participate in the central rationing and allocation system. Most jobs will become "temporary" in nature. The best paying jobs will protect and service the government and its assets.
7) Religious organizations will either play ball, or will risk being categorized into an "Islamic Fundementalist"-like status. Loyalty to State sanctioned religious leaders will keep people off the state "person of interest" lists and secure their national id card validity.

Our only hope is an honor-bound United States military. If and when the generals realize that the United States country has been overrun by Central Bankers and needs to be cleaned up, they might take control temporarily and try to restore basic freedoms, starting with a fresh Constitutional Convention. They need to re-establish and enforce that the money supply will be regulated by a democratically elected ***CONGRESS****, and not greedy foreign central bankers.

If the military does not take control, then the US will regress slowly in to a facist state (i.e. power shared between Federal Government and major Corporations).  We may expect somewhere along the way, the various states and regions will attempt to organize or declare independence, which will result in a series of tragic shooting civil wars where many lives will be lost.

Timeframe: 10 years or less.

joe2baba's picture
joe2baba
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Re: Calling it for what it is...

red shift

i dont think you should sugar coat it like that.

btw we will not have nationalization of anything. the government has actually been privatized. it started in 1913..........sort of it actually started before the ink dried on that ridiculous piece of parchment we continue to think of as the law of the land.

joe

Vanityfox451's picture
Vanityfox451
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Re: Daily Digest - Feb 18

Redshift,

watch and read :-

http://www.peakprosperity.com/forum/statism-dead/12560

Is this a near accurate take on the Real World?  

Excuse some of the static, it was inevitable... 

Paul

SweetLou's picture
SweetLou
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Re: Daily Digest - Feb 18

Long time reader, but first time poster.

 

Living in South Korea (and being paid in local currency), I've had the unfortunate circumstance of witnessing the flight to safety in the US dollar firsthand.  One year ago, I was able to exchange my salary at less than 1000 Korean won to the dollar. Nowadays, that figure is hovering above 1500:1 (an effective 33% reduction in salary since I remit most of it back to the States). 

 

My question: what do you foresee needing to happen before this (in my opinion) idiotic, non-sensical behavior is reversed and people no longer consider the dollar as a safe haven? The graph seen in "The Curious Case of the US Dollar" above is astonishing...how long will the herd mentality continue? Will the euro pick up the slack as a reserve / safe haven? The yen?  Will people move over to gold in even larger numbers? I can't imagine that would be possible unless we're talking highly leveraged ETFs -- would there be enough physical gold to meet potential demand?

 

Looking for some insight here...I'm quite interested in this aspect of things but lack any formal training in economics / understanding the global money supply.

 

Thanks,

-Lou

 

P.S. On a different topic (unemployment rate calculation), but has this been posted yet? Quite interesting. 

http://www.eataddict.com/2009/02/reality-bites.html

Davos's picture
Davos
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Posts: 3620
Re: Daily Digest - Feb 18

Hello SweetLou:

You wrote:


Living in South Korea (and being paid in local currency), I've had the unfortunate circumstance of witnessing the flight to safety in the US dollar firsthand.  One year ago, I was able to exchange my salary at less than 1000 Korean won to the dollar. Nowadays, that figure is hovering above 1500:1 (an effective 33% reduction in salary since I remit most of it back to the States).  

My question: what do you foresee needing to happen before this (in my opinion) idiotic, non-sensical behavior is reversed and people no longer consider the dollar as a safe haven? The graph seen in "The Curious Case of the US Dollar" above is astonishing...how long will the herd mentality continue? Will the euro pick up the slack as a reserve / safe haven? The yen?  Will people move over to gold in even larger numbers? I can't imagine that would be possible unless we're talking highly leveraged ETFs -- would there be enough physical gold to meet potential demand? 

 

I'm not a financial planner and I have no chrystal ball: With that out of the way, a few weeks ago I posted somewhere something to the effect that I thought other countries with curriencies under pressure would cause people in those countires to move money to countries they thought had better currencies. This (years ago ) happened in Japan. A lot of people think UST and the USD are very safe.

Why I don't know. Maybe it is the cooked GDP and the 63+++ trillion in debt and obligaitions they find enticing. 

I think I also mentioned that if things got really bad for just one country a percentage of those folks would move into bullion. From what I read there is not the actual bullion out there to cover anything near what is traded in paper.

My personal take: It will take but one or two currencies, or large banks to set off a ripple effect, which will scare people into physical metal. My out there take is that this is an insolvency crisis, it is not a period of wealth destruction but a period of perception destruction and once the perception that we looked wealty is destroyed the dollars will re re-denominated. That I think will be a very painful event for those in the dollar(s) and I feel it will bring very expensive assett and commidity prices as a result. Seeing that one country can't even do better than treat symponts and not address the root cause let alone turn on a dime makes me realize that getting 20 or more countries to agree will also take time.

That is my cheery take on it.  

 

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