Daily Digest

Daily Digest - January 24

Sunday, January 24, 2010, 11:38 AM
  • Wall Street Banks: Too Big To Discipline?
  • Interview with Damien of Wall St. Cheat Sheet
  • Fannie Mae, Freddie Mac Should Be Eliminated, Frank Says
  • FDIC Shuts 5 Banks in 5 States
  • We Stil Haven't Learned from the Great Depression
  • Haiti Rich in Oil with Potential Oil Reserves
  • Oil Spill Has Little Impace on Prices, Unless Cleanup Persists

Economy

Wall Street Banks: Too Big To Discipline? (Doug S.)

Wall Street will convert any attempt to discipline it into another hidden tax upon the longsuffering American public. Every corporation will bear that tax in the price of Wall Street services, resulting in Americans paying more for the products Main Street corporations produce. This is the “too big to discipline” calamity. Another perfect storm. It is hovering over us and blowing its foul breath down upon us like an awful beast. What will be our reward if we weather the attack? More government growth sustained by yet more taxes that are not well fought because they become well concealed.

Interview with Damien of Wall St. Cheat Sheet (Ilene)

This week, Damien Hoffman, founder of Wall St. Cheat Sheet, talks about the stock market, the economy, politics, corporations, and about his plans and aspirations.

Fannie Mae, Freddie Mac Should Be Eliminated, Frank Says (Nickbert)

A top House Democrat on Friday said his committee was preparing to recommend "abolishing" mortgage-finance giants Fannie Mae and Freddie Mac and rebuilding the U.S. housing-finance system from scratch.

FDIC Shuts 5 Banks in 5 States (Nickbert)

Regulators shut down banks Friday in Florida, Missouri, New Mexico, Oregon and Washington, bringing to nine the number of bank failures so far in 2010, following 140 closures last year in the toughest economic environment since the Great Depression.

We Stil Haven't Learned from the Great Depression (Brian C.)

The combination of central bank policies in the 1920s and an over-active engineer in Herbert Hoover were what fostered and prolonged, respectively, the worst economic period in American history and, while Roosevelt was much more effective in restoring confidence than his predecessor, the most important part of history was made before his arrival. To this day, it's striking to me that perhaps the greatest lessons of the Great Depression have still not yet been learned.

Energy

Haiti Rich in Oil with Potential Oil Reserves (Walter D.)

Haiti rich in unexplored hydrocarbons (with potential oil reserves larger than those of Venezuela) , gold, copper, uranium 238 and 235 and strategic metals (iridium).

Oil Spill Has Little Impace on Prices, Unless Cleanup Persists

Saturday's oil spill will complicate logistics for some Gulf Coast refineries that rely heavily on the port of Port Arthur for shipments of crude, but it's unlikely to have much impact on oil and gasoline prices unless the port stays closed for a lengthy period. That's because the weak economy has left the U.S. refining industry with a surplus of gasoline and other transportation fuels, as well as ample spare plant capacity, experts said.

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3 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4167
Re: Daily Digest - January 24

"The term “pension bond” sounds innocuous enough. Surely issuing bonds to shore up pension plans is a good thing, isn't it? Actually, no. In fact, these bonds represent the purest form of generational theft. Here's how they work.

The city of Houston maintains pension plans for its employees. These plans guarantee qualifying employees a certain amount of monthly retirement income. Each year the city and the employees contribute money into a trust to fund these future payments. Periodically, the city hires actuaries to estimate how much should be set aside each year and to assess whether the amounts in the trust funds are sufficient to make the future payments. I am sure you will not be shocked to learn that the city has not set aside enough money to fund the future payments. The amount of the shortfall is subject to a fair amount of guesswork but is currently probably in the $2 billion to $3 billion range.

In 2003, the Texas Legislature authorized Texas cities that are behind in their pension payments to issue 30-year, general obligation bonds to fund their pension shortfalls. “General obligation” means that the city is legally obligated to assess property taxes sufficient to make future payments on the bonds. And just so that we taxpayers would not have to worry our pretty little heads over these complicated financial matters, the Legislature allowed cities to issue these bonds without voter approval. As nearly as I can tell, this is the only situation where any Texas local government can obligate future property taxes without a vote of its residents.

So after 2003, city officials had these options to cover the shortfalls: (1) raise taxes, (2) cut pension benefits for powerful employee union members, (3) cut other budget items or (4) borrow the money on 30-year bonds and kick the can down the road. You have only one guess as to what they did. It was like giving crack cocaine to an addict. I have not been able to find anyone who has totaled all the pension bonds issued in Texas since the 2003 legislation, but it is in the billions of dollars. Houston alone has issued about $600 million.

However, Houston has added its own twist to the pension bond dynamic. In addition to simply borrowing money to make up existing shortages in the pension plans, since 2004 the city has been borrowing funds every year to make part of its current contribution to the pension plans. In doing so, the city has accounted for these borrowed funds as “resources” to “balance” its budget. In any other form this would be deficit budgeting, which is specifically prohibited by state law and the City Charter and obviously is a practice that cannot go on forever.

From 2004 to 2009, the city used about $225 million in pension bond proceeds in this manner. Without these bond proceeds, the city would currently have a deficit in its general fund. In other words, the city would be broke and could not pay its bills had it not used pension bonds to make part of its pension contributions over the last five years. "

More info

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From Wednesday, May 13, 2009

"The trust fund that pays for hospital care under Medicare is now predicted to run out of money in 2017, two years earlier than forecast a year ago. "

"The nation's economic downturn has added to the fragility of Medicare and Social Security because worsening unemployment means that fewer workers are contributing to the two trust funds through payroll taxes. Since the recession began in December 2007, the country has lost 5.7 million jobs. "

.......

Civilians Unemployed for 27 Weeks and Over (Graph 1)

Civilians Unemployed for 27 Weeks and Over (Graph 2. Click and see how unemployment has done since the Social Security/Medicare report came out in May of 2009)

bc0203's picture
bc0203
Status: Member (Offline)
Joined: Nov 28 2009
Posts: 6
Bank Reform: Connecting a Couple of Threads

There was an article called The Quiet Coup, published in May 2009 edition of The Atlantic Weekly written by Simon Johnson, a former chief economist at the IMF that made a pretty accurate diagnosis of problems in our current banking system, as well as the problems with the way the government was trying to fix the problem (and still is), as well as recommendations for how to “right the boat”...

Now I have to admit, while I’m not a big fan of the IMF, what he proposed at the time still makes quite a bit of sense (i.e., flush out the oligarchs and their henchmen, force banks to open up their books and mark assets to market, dissolve/break up the insolvent institutions, etc.)  I just don’t think that the political will is out there do to such a thing – we’re not up against the proverbial wall yet. 

So it was with quite a bit of interest I ran across an article on zerohedge.com about Paul Volker and the Group of 30’s recommendations for changes to the banking system, which seem to be a watered-down version of this medicine.  A link to the actual report is here.   It would seem to me that this is the basis for the reforms that Mr. Volker is trying to push through the system right now - though I do find it odd, for example, that Timothy Geithner’s name is on the list of people who authored the paper.  Is the end result of this actual going to be meaningful reform, or just more posturing?

It will be interesting to find out.

Brian C.
aka bc0203

mooselick7's picture
mooselick7
Status: Silver Member (Offline)
Joined: Jan 22 2009
Posts: 192
Re: Daily Digest - January 24

Haitian oil and strategic metal reserves - how convienent....

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