Daily Digest

Daily Digest - February 6

Saturday, February 6, 2010, 10:57 AM
  • G-7 Bankers Collude To Influence and Set Regulations
  • Italian Prosecutor Calls Hand on Merrill Lynch/Bank of America Fraud 
  • The Last Days of Lehman
  • Evidence of criminal wrongdoing in Treasury’s handling of AIG?


G-7 Bankers Collude To Influence and Set Regulations (Claire H.)

Group of Seven finance ministers and central bankers meet on the edge of the map today, with their policies all over it.

Italian Prosecutor Calls Hand on Merrill Lynch/Bank of America Fraud (Claire H.)

Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.

The Last Days of Lehman (Davos) 

Evidence of criminal wrongdoing in Treasury’s handling of AIG? (Robert)

Congressman Darrell Issa, ranking member on House committee on Oversight and Government Reform, confronting Treasury Secretary Tim Geithner:

ISSA: In recent weeks, this committee, receiving these documents, have caused us to better underst the NY Fed pressured AIG to avoid negotiations designed to obtain the haircut, as its called, from its counterparties and to keep the details of the counterparties payments from appearing on the firms’ forms at the SEC.

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Re: Daily Digest - February 6

"The cost of insuring U.S. Treasuries against default ended little changed on Friday, down from a 10-month high, as worries over a possible U.S. government default lingered."

"This week's rise in Treasury CDS prices implied traders have priced in about a 5 percent chance of a U.S. government default in the next five years, according to the credit data firm.""

"Feb. 5 (Bloomberg) -- The $2.8 trillion municipal bond market is a bubble about to burst, as housing and technology did in the past 10 year, said Michael Aronstein, the money manager whose Marketfield Fund returned 31 percent in 2009 by betting correctly on commodity-price swings.

Lulled by ready access to low-cost credit, politicians have piled up unsustainable debt service that the public will soon demand they stop paying, he said."

"the prediction of bank analysts who see as many as 200 institutions closing this year, at a potential cost of more than $50 billion to taxpayers, as risky loans approved in 2006 and 2007 take their toll.

And that represents a projected 43% increase in closures from 2009, which saw 140 failures, the most since 1992 when the U.S. was recovering from the savings and loan crisis.

Gerard Cassidy, a banking analyst at RBC Capital Markets, reckons 175 to 200 banks will fail this year and the number may keep climbing, making 2011 or 2012 the peak year for the current cycle. "

"Portuguese opposition parties defeated a government austerity plan on Friday and passed their own bill that lets the country's autonomous regions rack up even more debt. The move raised new questions about European countries' ability to control their swollen budget deficits.

The vote was also likely to rattle the world's financial markets, which are already concerned that the financial troubles gripping Greece may spread to other vulnerable eurozone countries such as Portugal and Spain.

Portugal's minority Socialist government had fiercely opposed the opposition bill, since it contradicted earlier promises to crack down on ballooning debt. Yet the bill passed 127 to 87, appearing to show that Portugal, western Europe's poorest country, has little appetite for painful austerity measures"

"Automakers face growing deficits as funds bring lower rates of return


Detroit News Washington Bureau

Washington -- The pension plans of Detroit's Big Three automakers, covering nearly 1.3 million people, still face growing shortfalls even though Ford Motor Co. is making money again and its domestic rivals slashed costs dramatically in bankruptcy.

The huge pension liabilities weighing down the companies' balance sheets are left over from the "legacy" costs that for so long made Detroit automakers uncompetitive against their lower-cost foreign rivals.

The obligations are growing as the pension funds earn lower rates of return, driving up future funding needs.

General Motors Co.'s pension fund deficit stands at $18 billion, The Detroit News has learned from documents not yet made public, and Ford said last week that its shortfall worldwide grew to $12 billion as of Dec. 31, up $500 million from a year ago.

GM's pensions were underfunded by $12.7 billion at the end of 2008 using different accounting rules, so it isn't clear precisely how they fared.

Chrysler Group LLC, with about 200,000 participants in its plans, declined to release its pension balance sheet, but as of the end of 2008 pegged it at $3.6 billion."

"As we told you yesterday, the situation in Greece may be worse than we think. According to newspaper reports Athens has just discovered more debt – to the tune of $40 billion euro.

Of course, it’s worth noting the government of Greece insists it does not need a bailout and will have no trouble servicing its debt.

In an effort to wrestle the situation under control, the European Union is urging Athens to cut the country's massive budget deficit, but there's already a backlash against the plan. It calls for pay cuts and tax hikes. "

"Feb. 6 (Bloomberg) -- Group of Seven finance ministers pledged to maintain the flow of stimulus into their economies even as investors focus on mounting budget deficits.

“The position for most countries is to support the economies now and get the budget deficit down as the economy recovers,” U.K. Chancellor of the Exchequer Alistair Darling, 56, said in an interview in Iqaluit, Canada last night as finance ministers and central bankers began meeting. “You will see a determination from the G-7 countries to do just that.”

Governments are trying to spur expansion by spending at a time when investors are increasingly shunning countries with rising debt burdens."

"Clyde Writes ...

Good day Mish

I had an interesting moment with my 14 year old son the other day. I had gone to the US Debt Clock website and was taking a minute to just watch the numbers roll up and down in the various amounts.

The site breaks down the debt into a per person amounts. It is quite depressing.

My 14 year old son walked by and I had him take a look at it all, explaining that someday my son, all this will be yours.

His first words were "Why the hell should I have to pay that back?""

"Imagine if his entire generation comes to the same conclusion someday."

"DETROIT - Gov. Jennifer Granholm has signed legislation increasing the cap for cities issuing fiscal stabilization bonds.

Spokeswoman Liz Boyd says Public Act 4 of 2010 was signed and filed Friday.

It raises the cap from $125 million to $250 million and allows Detroit to sell more bonds as a way to help the city out of its budget deficit."

"CalSTRS officials say controversies at the state's other big pension fund, CalPERS, will complicate the already difficult task of persuading the Legislature to raise pension contributions for teacher retirements.

Staggered by a 25 percent loss in the last fiscal year, the board of the California State Teachers' Retirement System began crafting a strategy Friday to petition lawmakers for higher rates.

The investment loss left CalSTRS some $42 billion underfunded as of last June – an estimate of how much additional cash the fund needs to pay its bills over the next 30 years. The amount of underfunding doubled in about 12 months.

Although there's no immediate crisis, CalSTRS Deputy Chief Executive Ed Derman said the financial problem will only worsen the longer the fund waits to ramp up contributions. CalSTRS gets more than $6.6 billion in annual contributions from the state, school districts and teachers. About $1.6 billion of that comes from the state.

Unlike CalPERS, which has the authority to impose rate hikes, the teachers' retirement system must get permission from the Legislature for an increase from any of its three funding sources.

Derman and other officials said the political climate for an increase is daunting, given that the state is already facing a $20 billion budget deficit."

"CalSTRS officials said taxpayers might not be sympathetic about public employees' retirements. Recently retired teachers get an average monthly pension of $4,200 - a sum that might seem generous even though teachers don't collect Social Security.

"The average Californian doesn't get this kind of benefit," said board member Peter Reinke. Taxpayers might reason that increased funding for pensions would take dollars away from education itself, he said."

"BUFFALO, N.Y. - One day after New York State Governor David Paterson announced the state budget deficit has grown to $8.2 billion, comptroller Thomas DiNapoli is saying the situation is even worse.

"Personal tax collections for January are off by $1 billion," DiNapoli said in a statement posted on YouTube.

WEB EXTRA: Comptroller DiNapoli's YouTube Statement

The comptroller is also concerned the state is not prepared for the decrease in revenue.

"There are many revenue assumptions in that (Governor Paterson's proposed) budget that are not realistic," said DiNapoli.

Income-tax collections are about $550 million lower than expected, while Medicaid costs are up about $400 million because caseloads for the health-insurance program for the poor reached record highs in October, the Governor's Office said on Thursday."

"Senate Bill 1, the top priority of Senate President Brandon Shaffer, received final approval from the Senate on Monday and will be heard in the House next Wednesday.

SB 1 modifies the Public Employees’ Retirement Association (PERA) pension plan to help it reach solvency in less than 30 years. Currently, PERA’s board of trustees project the fund will be out of money in as little as 26 years. Supporters of SB 1 also point to a “death spiral,” which they say will happen in as little as four years — PERA would have to start selling assets in order to pay its benefits obligations. "

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Re: Daily Digest - February 6

How do I get rid of the advertisement in the "Last Days of Lehman" post?


j_d's picture
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Re: Daily Digest - February 6

I know, the ad's annoying. You mouse over the ad, click on the button under it that says, 'close to play', and the video will start playing.

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Re: Daily Digest - February 6

Chart showing job losses in all post WW2 recessions, and how long it takes to get them back.


Aside from 2001-2003 recession, by the 27-29th month of all other recessions, all jobs were regained.  In 2001-2005 it took longer but the depth of the job loss was minor in comparison.

In the current recession we are only now just flat lining here at the 27th month... looking at it graphically is an eye opener

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The Last Days of Lehman

I was just looking for that a couple of days ago and came up blank.  Thanks for reading my mind and posting this video, Davos!

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