Daily Digest

Daily Digest - November 2

Monday, November 2, 2009, 10:49 AM
  • How Goldman secretly bet on the U.S. housing crash
  • Commercial Lending Giant CIT Files Bankruptcy
  • The Biggest Trade Deal Of The 21st Century
  • Japan May Be Worse Off Than America
  • Is Catastrophic The New Normal?
  • US, EU Urged To Find Common Ground On "Too Big To Fail"
  • Madoff Documents Reveal Incredulous, Unfocused SEC
  • Credit Card Issuers In Support Of Debt Repayment Program
  • How Moody's sold its ratings - and sold out investors 
  • California's New Gold Rush 
  • Getting Hotter: Geothermal Power Is Attracting The Big Boys
  • A New Tool For Wind Power


How Goldman secretly bet on the U.S. housing crash (Claire H.)

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Commercial Lending Giant CIT Files Bankruptcy (M.W.)

CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government will lose the $2.3 billion it sunk into CIT last year. The bankruptcy protection filing is one of the biggest in U.S. corporate history.

The Biggest Trade Deal Of The 21st Century (M.W.)

Negotiations between Canada and the EU for a free-trade agreement (FTA) have reached a successful conclusion, with both sides optimistic that a deal can be signed as early as the summer of 2010. When that happens, a push will begin for a NAFTA-EU trade zone. "The U.S. will lose its leadership position in trade unless it comes up with a new strategy," says Steven Schrage, a specialist in international business at the Center for Strategic and International Studies in Washington..

Japan May Be Worse Off Than America (M.W.)

After decades of cheap borrowing from a captive bond market, the world's second largest economy may be at the point of no return. Simon Johnson, former chief economist of the IMF, told the US Congress last week that the debt path was out of control and raised "a real risk that Japan could end up in a major default."

Is Catastrophic The New Normal? (M.W.)

If it takes government stimulus money to boost the nation's GDP, then we may have truly entered a new epoch. One in which declining personal income, falling consumer spending, and double-digit unemployment make up the new normal. So long as the government remains both the lender and spender of last resort.

US, EU Urged To Find Common Ground On "Too Big To Fail" (M.W.)

The U.S. and Europe are moving down divergent paths toward dealing with troubled multinational financial giants, despite promises of transatlantic coordination.

Madoff Documents Reveal Incredulous, Unfocused SEC (M.W.)

U.S. securities investigators raised repeated concern over how Bernard Madoff could be running an honest business, but never followed through on the red flags they uncovered.

Credit Card Issuers In Support Of Debt Repayment Program (M.W.)

Ten of the major credit card companies have announced changes in debt management plans allowing consumers the chance to lower payments and qualify for enhanced benefits in recognized credit counseling services programs. Among the highlights: lower interest rates, waived late fees and minimum payments.

How Moody's sold its ratings - and sold out investors (Claire H.)

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.


Getting Hotter: Geothermal Power Is Attracting The Big Boys (M.W.)

The federal government handed out $338 million in grants Thursday to speed up the development of geothermal energy and what really caught our eye was how many big companies were looking for ways to participate.

A New Tool For Wind Power (M.W.)

When President Obama unveiled a $3.4 billion plan to upgrade the electricity grid, one of his points was that a better grid would be better for clean energy, but actually building out the new power grid will take a while. In the meantime, there might be a way to make existing clean energy fit better into the existing system.


California's New Gold Rush (M.W.)

With gold over $1000 an ounce, amateurs and pros are trying their hands at prospecting in California streams. The same rivers that drew prospectors to the California gold rush of 1849 are busy again with people panning.


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Re: Daily Digest - November 2

If you're looking for good news on unemployment, Moodys.com chief economist Mark Zandi doesn't have it.

Zandi told CBS' "The Early Show" Monday that the nation's near 10 percent unemployment rate will "stay there throughthis time next year" 

"Nov. 2 (Bloomberg) -- The Federal Deposit Insurance Corp., replenishing funds after the worst financial crisis since the Great Depression, faces additional strains on its resources after spending $2.5 billion to shut nine banks last week."

"The MTC estimates it will be short $40 billion over the next two decades to fulfill its long-range plans. Caltrans needs $6 billion a year to maintain the state's highway system, but has only $1.5 billion to spend. San Jose has $17 million a year to fix city streets, but needs $37 million a year.

It's just as bad with transit. The Golden Gate District has a $132 million deficit, San Francisco Muni $129 million and the Valley Transportation Authority $98 million."

"By state law, the city must provide fire and police pensions, and the amount the city pays is determined by a third-party actuarial, and the city must provide retirement benefits for other employees through the Illinois Municipal Retirement Fund, Eisenhauer said.

But the majority of the $700,000 increase in property tax levy expenses comes from pension costs. The police pension is expected to increase from $1.3 million to $1.7 million next year, or 25 percent, and the fire pension is expected to increase from $1.8 million to $2.1 million, or 20 percent, Eisenhauer said."

"United Way for Southeastern Michigan is asking the Pension Benefit Guaranty Corp. for help with United Way's troubled group pension fund.

The PBGC is expected in Detroit on Thursday to meet with United Way and the other 20 nonprofit employers still active in the plan.

Collectively, they represent more than 2,000 past and present employees covered by the plan."

"Ford has culled $4.6 billion in costs during the first nine months including $1 billion eliminated in the third quarter alone. The company now expects to eliminate a total of $5 billion in costs.

However, Ford is still carrying $26.9 billion in debt with $1.6 billion maturing over the next year. Another $7 billion to $8 billion will be added to the overall debt due to payments made to the United Auto Workers retirement fund."

"The New York State Pension Fund is plowing money back into hedge funds, with plans to invest more than $1 billion by year's end. This comes after the hedge fund industry experienced its worst year in recent memory, with typical funds losing an average of 28% over 2008.

The state workers' fund just closed a $50 million investment in Stamford, Conn.-based Diamondback Capital and has several more hedge fund deals expected to close by 2010, a spokesman for state Comptroller Thomas DiNapoli says.

The New York Common Retirement Fund took a beating in 2008, dropping to about $110 billion from more than $150 billion. As the equity markets rebound, the fund aims to make back some of those losses."

"After digesting a record amount of debt last week, government-bond investors will get news of more supply this week with the announcement of the Treasury's financing needs to year-end.

The news comes in two stages: Monday, the government will outline its funding needs for the October-to-December quarter. Wednesday, it will present details on how it plans to raise funds to replace maturing debt.

In its quarterly refunding announcement, the government is expected to increase the amounts of its three-, 10- and 30-year sales -- to be sold in the second week of November -- by $1 billion each, selling $40 billion in three-year notes, $24 billion in 10-year securities and $16 billion in 30-year bonds.

That is a fraction of the total issuance for the quarter given the record budget deficits that need to be financed. A survey from industry group Securities Industry and Financial Markets Association projects net Treasury bill, note and bond issuance will hit $444.5 billion in the fourth quarter, up from the net $392.5 billion issued in the third."

"Nov. 2 (Bloomberg) -- The rate of defaults and late payments on real estate loans sold as commercial mortgage-backed securities surged more than fivefold in the third quarter and may worsen with the potential default of loans on Manhattan’s biggest apartment complex, Reis Inc. said.

There are $3 billion of loans included in five CMBS issues backing the 2006 buyout of Stuyvesant Town-Peter Cooper Village, the New York-based real estate research firm said in a report today."

"FRANKFORT, Ky. — The state has been writing IOUs to the teachers’ pension fund for the past six years to cover retirees’ health insurance costs, and officials are increasingly worried that it won’t ever be able to pay up.

So the Kentucky Teachers’ Retirement System has launched a push to get the state to pay off its $521 million debt to the roughly $15 billion system and find a sustainable way to pay for retired teachers’ health insurance in the future."

      "The average rate offered to a consumer with a solid 700 credit score is now 11.51 percent on a variable rate card, up from 10.66 percent in March, according to Bankrate.com." (more info)


......Buried under a mountain of credit card debt? Don't worry, when you're down the credit card company will be there for you.

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Re: Daily Digest - November 2

Good read.

Bill Moyers and James Galbraith: Our Free Market Makes Economic Collapse Inevitable


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State Bank Of North Dakota

This must really piss-off the central bankers...

Lets form the virtual State of Martenson and create our own State Chartered Bank.

Ha....sorry, I'm in a silly mood.

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Re: Daily Digest - November 2

World Risks Depression if Stimulus Is Pulled: Economist


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Re: State Bank of North Dakota

What a great post and video. Glad to see some people somewhere are doing it right with the banking system.

JAG-----Nice work on the new Martenson currency. Keeps us smiling after reading all the "news" !!


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Re: Daily Digest - November 2

From our financial advisor early this AM:


November 2, 2009



Dear White Oak clients:


After spending seven of the past eight months in a positive position, one of the main equity risk indicators that we follow, the NYSE Bullish Percent, has recently reversed down, turning this indicator to a more cautionary stance.  We will be shifting our focus to a defensive, wealth preservation posture, which may involve selling weak stocks, buying portfolio insurance through the inverse markets, selling laggards, or simply raising stop-loss points so that profitable positions remain profitable.  Since many of these options are not available to you in your annuities and retirement plans, we recommend that you move to safety within those plans, i.e., money markets, fixed accounts, or stable value funds.  Please contact us if you have questions.


While it is our hope that this increase in supply will be short-lived and turn out to be a great buying opportunity for our clients, we must react to the call for defense. With our indicators suggesting a more cautionary approach, we are reviewing all of the positions in your portfolio to determine the appropriate courses of action that will keep the odds stacked in your favor.  Rest assured that we are taking all necessary actions to manage risk in your accounts and keep your portfolio in line with your investment goals.


Please call or email us if you have any questions.  If you think this type of analysis would be of benefit to anyone you know, please share this communication and invite them to contact us for an appointment.  Thank you for the confidence you have placed in us.




Laura C. McCue, Kevin Martin, and Priestley Ford


P.S.  For those of you who would normally be required to take a Required Minimum Distribution from your IRA, that distribution is NOT required for 2009.  However, unless we hear from you regarding this option, we will go ahead and send you the form to have your 2009 RMD issued, since we believe that federal and state tax rates may increase going forward.


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Re: Daily Digest - November 2

"Mumbai: The Reserve Bank of India, or RBI, is buying 200 tonnes of gold from the International Monetary Fund (IMF), nearly half of what the fund plans to sell."

""Another one of the nation's largest lenders has filed for bankruptcy. On the brink for months, CIT filed for Chapter 11 protection on Sunday.

The prepackaged plan allows CIT to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses. The plan keeps CIT's operations alive and makes it possible for the company to exit bankruptcy by year's end."

But here's the bad news: While senior debt holders will only lose 30% of their investment, we, the U.S. taxpayer, will lose the entire $2.3 billion we lent the company this summer."

"The pension plans are underfunded by about $100 million to $120 million, according to recent estimates. The PGBG would be liable for about $100 million of the costs."

"The U.S. commercial real estate market has been in a downward spiral for more than two years. On the whole, U.S. commercial real estate values have fallen about 40 percent from their peaks in 2007. Borrowers face shortfalls in financings when loans come due, while other borrowers are struggling to meet even monthly payments.

The delinquency rate of U.S. commercial real estate loans that had been securitized into Commercial Mortgage-Backed Securities (CMBS) hit 4.8 percent in October, up from 4.36 the prior month and dwarfing the 0.77 rate a year earlier, according to Trepp, which tracks CMBS loans."

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Re: State Bank Of North Dakota

I'm with Tommygun, JAG; excellent video on the State Bank of North Dakota!  What a great story at a time when examples of "how things could be done better" inspire hope!  And maybe even action.

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Re: Daily Digest - November 2

Re: Geothermal link - I looked at a geothermal system earlier this year for a home. I think it only lasts for 20-25 years, and you still need electricity to get it to run. Does anyone use geothermal? I'm not crazy about it, but maybe there is more to it that some research money will find for us.

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Re: Daily Digest - November 2
joemanc wrote:

Re: Geothermal link - I looked at a geothermal system earlier this year for a home. I think it only lasts for 20-25 years, and you still need electricity to get it to run. Does anyone use geothermal? I'm not crazy about it, but maybe there is more to it that some research money will find for us.

I had a Geothermal Heat Pump in Minnesota in the early 90s. My utility bills were less than half of my neighbor's. Same house, same number of occupants. I'd do it again on anew home. It's pretty pricy to go vertical. It was much cheaper to lay it in trenches. IIRC it ran parallel to the septic lines.

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Re: What Strikes Me Most

I was standing in a Ralph's supermarket the other day--checking out--and a woman comes up to the cashier and says, "I found this in the parking lot," and she hands a gold money clip with a wad of $100 bills about 1/4 thick to the cashier. She continues, "Maybe you should make an announcement on the speaker system that I found this. The man is probably in here shopping."

You don't need to guess how old the woman was. The woman turned and wandered out the door, dissapearing around the corner. The clerk and I talked as she rang up my groceries, and she said another woman found a diamond necklace in the parking lot "about a month ago." I said, "Same age?" The clerk stopped sweeping things across the barcode reader for a moment, looked at me with a kind of Ah hah! look, and slowly, pensively, turned back to my groceries.

What strikes me most is that we have no good Americans left. We've raised a couple of generations of thieves; theives who admire more prominent theives and who aspire to steal more.

I learned the lessons of my grandparents, though I feel as if I am the only one left in America at times. Where have all the decent people gone? How could there have been a failure at so many levels such that Wall Street has been able to perpetrate their crime against our country? Perhaps there are no innocent victims; the fact that the "consipiracy" was able to happen when so many levels of compliance (tacit or otherwise) were necessary for it all to happen suggests that perhaps middle-class America has gotten exactly what it deserves--and will get what it never could have conceived, over the next few months/year or two.

Even  the vigilantes that will arise and take a few bankers with them, out of  desperate indignance, will be of little comfort to me--as consolation for what some of us who listened to our grandparents would have had America be...

As the song says: "This is not America..." No longer...perhaps it never was...

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Re: Daily Digest - November 2

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Re: Daily Digest - November 2
joemanc wrote:

Re: Geothermal link - I looked at a geothermal system earlier this year for a home. I think it only lasts for 20-25 years, and you still need electricity to get it to run. Does anyone use geothermal? I'm not crazy about it, but maybe there is more to it that some research money will find for us.


Just to clarify, there's geothermal power generation, which uses the Earth's heat to boil water and run steam turbines and there are ground source heat pumps, which have mistakenly been called geothermal, systems for home heating/cooling.

As another poster noted, GSHP systems for homes can work tremendously well if they are installed right. They work exactly the same as a normal home heat pump except instead of extracting energy from the air, they extract it from the ground.

If you want to learn the nitty-gritty about how it works, I have a description on my web site.


If you're building a new home in a cold or hot climate, typically, a GSHP system will pay for itself in lower utility costs when the cost is bundled into a long-term mortgage. the up-front costs are much higher because of drilling, though as another poster noted, laying ground trenches is much less expensive. However, the long term performance of vertical well systems is sgnificantly better than a trenched system.





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