Daily Digest

Daily Digest - April 6th

Tuesday, April 6, 2010, 9:51 AM
  • "Extend and Pretend": Where Are We After One Year Of The Suspension Of FASB Rules?
  • Looting Main Street
  • Inflation Warning Etched In Steel
  • On Sheila Bair's Lies
  • Ratigan Discusses Wikileaks Video, Observes Implications On US Rules Of Engagement And Foreign Response To US Actions
  • Few Signs Of Economic Recovery For Small Business On Main Street
  • The Municipal Market
  • U.S. Bonds - The End Of A 30-Year Bull Market
  • Sharp Increase in March in Personal Bankruptcies
  • Michigan Ranks Second In Nation For Worst Roads
  • Oil Surges 2% To Near $87 On Economy Data
  • Peak Asphalt: The Return Of Gravel Roads


"Extend and Pretend": Where Are We After One Year Of The Suspension Of FASB Rules? (Erik T., pinecarr)

Volcker gambled, and won: The US banks indeed took the Latin American debt hit, but grew their way out of their hole. None of the large American banks were pushed to bankruptcy in 1982, and by 1983, the worst had passed. By 1984, the biggest chunks of Latin American debt had either been renegotiated or written off—so far as the American banking system was concerned, the crisis was over, with not a single name bank going broke. And most importantly, stability and calm reigning all the while.

Looting Main Street (Repost, Christian W.)

What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street — and misery for people like Lisa Pack.

Inflation Warning Etched In Steel (mhoop)

One shouldn't underestimate the psychological impact of an "event" like this, because at some point other industries will try to raise prices (some will be able to, others not), and intermediaries will attempt to pass along the price increases they get. At some point, price increases will become acceptable or almost expected, and that's how inflation eventually takes hold.

On Sheila Bair's Lies (hucklejohn)

The FDIC has a law called "Prompt Corrective Action" (USC 12 Chap 16 Section 1831o) which the FDIC and other regulators have absolutely ignored for the last three years.

This law applies to all insured depository institutions, including the "too big to fails" such as Wells, Citibank and JP Morgan. It was put in place after the S&L crisis specifically to prevent the abuses that were rampant during those years, including evasion of capital requirements, lies about asset valuations and other forms of control fraud that led to bank executives stealing billions from taxpayers and prudent institutions during the S&L crisis.

Ratigan Discusses Wikileaks Video, Observes Implications On US Rules Of Engagement And Foreign Response To US Actions (Erik T.)

As pertains to the video, Julian states the obvious: if indeed the military believed him to be an insurgent, the wounded man should be interrogated and asked about what he was doing. The army's desire is merely "to kill as many people as possible, to get as high a score as possible, and then brag about it to the rest of the troops." McGurk is laconic "this is a tragic, tragic video."

Few Signs Of Economic Recovery For Small Business On Main Street (Christian W.)

A survey conducted by Brother International Corp. found that small-business owners are strengthening their cash reserves to buffer the impact of a prolonged recession.

The survey revealed that 53 percent of small-business owners believe stockpiling cash is the best strategy for surviving the current economic climate, as opposed to investing in their businesses.

The Municipal Market (Christian W.)

Well, guess where we have a market that is (1) leveraged and opaque, that is (2) very big and tied to the credit markets; and is (3) viewed by investors as being diversifiable by holding a geographically broad-based portfolio; with (4) huge portfolios where assets and liabilities are apparently matched; and with (5) questionable analysis by rating agencies; and where (6) there are many entities, entities that may not approach default with business-like dispatch, and that have already mortgaged sources of revenue that are thought to support their liabilities?

Answer: The municipal market.

U.S. Bonds - The End Of A 30-Year Bull Market (Christian W.)

“Are you prepared for a secular bear market in bonds? Bond owners beware”. As shown, the yield is just below its secular down trendline and it would not take a large move in yields to mark the end of the almost 30-year secular decline. What will this do to the US’s debt burden, the economic recovery and stock market valuations?

Sharp Increase in March in Personal Bankruptcies (Christian W.)

More Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened in October 2005, a new report says, a result of high unemployment and the housing crash.

Michigan Ranks Second In Nation For Worst Roads (Christian W.)

38 counties in Michigan have pulverized more than 100 miles of pavement back to gravel because they don’t have the money needed for repairs.


Oil Surges 2% To Near $87 On Economy Data (mhoop)

U.S. crude oil for May delivery settled up $1.75 to $86.62 a barrel. Prices have risen by 8.3 percent since March 26, in their steepest 5-day winning streak since December.

Peak Asphalt: The Return Of Gravel Roads (Christian W.)

In the end, the problem seems to be that peak oil - arriving or already arrived - is placing a tremendous strain on the world's economy. Because of this strain, the kind of money used for maintaining roads is quickly disappearing and the result is the return of unpaved roads.

Please send article submissions to: [email protected]


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Re: Daily Digest

"April 6 (Bloomberg) -- The euro dropped against the dollar for a third day amid concern European countries including Greece will struggle to raise funds to pay off maturing debt."

""People are concerned that it's not just Greece, there are some definite sovereign debt issues in the region," said Phil Burke, chief dealer for global currencies and rates at JPMorgan Chase & Co. in Sydney."

..................1A) Greek banks hit by wealthy citizens moving their money offshore

"Greek banks are being hit by a wave of redemptions as the country's most wealthy citizens and corporations look to move their money offshore or to international financial institutions perceived as safer homes for their assets. "

................1B) Greece faces rising urgency as IMF advisors arrive

.................1C) Greek Bond May Get Cool Asian Response

..................1D) Instant view: Greek spreads hit record high, doubt weighs

"The premium investors demand to hold 10-year Greek government bonds rather than euro zone benchmark German Bunds rose to 408 basis points, the highest level since Greece joined the euro zone in 2001."

.................1E) Greek debt concerns return to hit euro

"Adjusting the discount rate used on liabilities to a risk-free rate, we estimate the combined funding shortfall of CalPERS, CalSTRS, and UCRS prior to the 2008/2009 recession at $425.2 billion (see Table 2). At the time of this writing, the funds have not released more recent financial reports, but due to the previously mentioned $109.7 billion loss the three funds collectively sustained, we estimate the current shortfall at more than half a trillion dollars."

.............................2A) State's pension liability tops $500 billion, Stanford study finds

..............................2B) Governor Schwarzenegger Issues Statement on Stanford Pension Report

.............................2C) More stories on California's pension deficit



"Fannie and Freddie are among the biggest buyers of interest-rate swaps. The swaps are two-way derivative contracts in which one party pays a fixed rate in exchange for a rate that floats along with the market."

"There were $342 trillion of interest-rate swaps outstanding as of June 2009, according to the Bank for International Settlements. Fannie Mae and Freddie Mac have more than $2 trillion of interest-rate swaps on their books, according to public securities filings."

"Bankruptcy is not a viable option to most candidates seeking to replace two Jefferson County commissioners who have favored bankruptcy to solve the county's sewer debt crisis.

If those candidates win, it could almost guarantee a negotiated settlement between the county and creditors over the $3.2 billion sewer debt."

"Lisa Pack, an administrative assistant in the county's roads department also running in District 3, said bankruptcy would drag down every municipality in the state.

"It's a domino effect," she said. "Everybody's already been affected by everything that has happened with our financial rating and our credit rating, and I don't want to make it any worse that what it is.""

"European banks may face a €156 billion shortfall in funds needed to refinance commercial real estate debt in the next two years, a new report warns.

About €480 billion of property loans will mature by the end of 2011, according to research by the London based broker DTZ.

It warns that banks won’t be able to refinance all of the debt, particularly when loans exceed the value of the properties backing them."

"Sometimes numbers tell a story. But others tell you just how harrowing a story might be.

Count a report on the city of Detroit released Monday by the politically agnostic Citizens Research Council among the latter.

It's probably the most detailed look to date at the city's finances and economic outlook. And there's nothing comforting about it."

"CRC says those evaporated revenues, plus an estimated operating deficit for this year that's north of $100 million, plus anticipated further declines in state revenue sharing, likely put the city's accumulated year-end deficit at about $450 million, on a general fund of $1.6 "

.................6A) New Report Says Detroit Needs Big Changes

"(Detroit, MI) -- In order to avoid bankruptcy, a new report says the city of Detroit needs some drastic restructuring. "

..................6B) Report: Detroit bankruptcy looms without drastic change


Illinois, struggling with a depressed economy and smarting from a ratings downgrade, is likely to be forced to pay up when it sells bonds this week.

The Midwest state plans to sell $356 million in Build America Bonds and taxable general obligation bonds Tuesday, with maturities every year from 2011 through 2035. While Illinois is rated higher than California, it may lose some of its advantage in interest rates because of its troubled economy and a budget deficit equal to half its general fund.

"The market is making a statement that the state must rectify this deficit," said Richard Saperstein, managing director and principal of Treasury Partners, a division of HighTower Securities in New York.

Saperstein said the risk premium, or the compensation over risk-free Treasurys, on Illinois' new long-term bonds may come in around 235 to 250 basis points, or 2.35 to 2.5 percentage points over Treasurys of comparable maturities. "

"April 5 (Bloomberg) -- Los Angeles will run out of cash on May 5, city Controller Wendy Greuel said today in a release in which she requested a $90 million transfer of reserve funds to pay bills.

The controller said she received a letter from the Los Angeles Department of Water and Power today indicating the utility wouldn’t send an anticipated $73 million payment to the city’s general fund. That money is part of an annual contribution of 8 percent of power revenue that the utility makes in lieu of paying taxes to the city, according to Ben Golombek, a spokesman for the controller.

“The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.”"

"Fitch Ratings today withdrew its AA- rating on $720 million of bonds the department planned to sell this month, according to a press release. "

..............................8A) City Gets Slapped By Credit Rating Agency Over Budget Mess (Los Angeles...Blog)

..............................8B) Pension costs for Los Angeles

"NEW YORK, April 5 (Reuters) - Pimco, which operates the world's largest bond fund, continues to avoid UK gilts and U.S. Treasury bonds because debt levels in the two countries pose a serious threat to investors' returns, Bill Gross, Pimco's co-chief investment officer, said on Monday."

"But, said Gross, they do matter. Investors in 30-year Treasuries should be aware that the Congressional Budget Office estimates that the present value of unfunded future social insurance expenditures (Social Security and Medicare primarily) was $46 trillion as of 2009, which is four times the United States' current outstanding debt, he said.

"That may be a primary reason why 30-year bonds yield 4.6 percent whereas two-year debt with the same guarantee yields less than 1 percent," he said.

"The trend promises to get worse, not better. "

"Iceland’s credit rating outlook was lowered at Moody’s Investors Services after talks aimed at resolving a depositor dispute with Britain and the Netherlands stalled, putting into question an international bailout.

Moody’s cut its outlook on Iceland’s Baa3 rating, one level above junk, to negative from stable, the rating agency said Tuesday. The outlooks on the Baa2 foreign currency bond ceiling and Baa3 foreign currency deposit ceiling were also changed to negative from stable, Moody’s said. "

"FLINT, Michigan — The city of Flint might borrow $13 million or more — again — to help dig itself out of debt.

Flint Mayor Dayne Walling’s administration is considering asking the state to allow the city to take out a multimillion-dollar financial recovery bond to help relieve the city’s past and current deficits.

Without the bond, the resulting cuts that would have to be made could be like an “atom bomb” to the community, City Administrator Gregory Eason said Monday night."

....................11A) Commission approves recall language against Flint Mayor Dayne Walling

"FLINT, Michigan — Third time's a charm for Flint school board member David Davenport.

The Genesee County Elections Commission this morning approved Davenport's petition language to recall Flint Mayor Dayne Walling for "laying off police department and fire department personnel.""

"April 5 (Bloomberg) -- The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said.

“New York needs to stop playing games with the deficit,” DiNapoli said in a statement. By shifting money between accounts in a “fiscal shell game,” state officials and lawmakers “cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,” DiNapoli said.

In the year ended March 31, the state used $6.4 billion of funds shifted and borrowed between accounts, and rolled $3 billion of payments into the current year, which began April 1, the report said. Lawmakers haven’t agreed on a plan to close a deficit of more than $9 billion this year in a $135.2 billion budget proposed by Governor David Paterson.

“We agree with much of the Comptroller’s report,” said Matt Anderson, a spokesman for the Division of Budget. “That’s why we are focused on recurring spending cuts to close deficits instead of one-time transfers,” he said. Paterson has said he wants 75 percent of the budget gap closed by reoccurring cuts that would also shrink future deficits."

............................12A) Paterson delays school aid for a second time (New York)

"April 05, 2010

One day before state school aid was set to be paid to local districts, Gov. David A. Paterson decided that due to a shortfall in the state's cash flow, the aid will be delayed by up to two months.

Paterson released a statement saying $2.1 billion in school aid, which was originally slated to go to school districts last Wednesday, could be held until June 1 — assuming there will be cash available then — to keep the state government operational. "

"Korea's national debts soared to nearly 360 trillion won last year as the government outspent its earnings to prop up the sagging economy against the unprecedented worldwide economic crisis.

The Ministry of Strategy and Finance said Tuesday that the state debts surged by 50.6 trillion won to 359.6 trillion won in 2009 from the previous year, accounting for 33.8 percent of the nation's gross domestic product (GDP).

The 33.8 percent debt to GDP ratio was much higher than the 30.1 percent recorded in 2008, with the government borrowing money through bond issuance to finance a range of expansionary fiscal policies and other pump-priming measures."

"Trinity Area School Board is the latest board to consider asking the state Legislature to revamp the employee pension system because of projected escalating costs.

The pension system is set up so employees, local districts and the state pay into it. Districts must pay a certain percentage of salaries into the system each year, which is determined by the Pubic School Employees' Retirement Board. It's a defined benefit plan, so the amount of a member's pension benefit is not tied to investments of the fund.

This year, districts paid 4.78 percent into the system. Next year, they will pay 8.22 percent. By 2014-15, that number is projected to be 33.6 percent."

  • Other headlines and stories:

US Apartment Rents Decline as Vacancies at Record, Reis Says

More than 200000 Americans to lose unemployment check today (Blog)

Huge rise in UK defined benefit pension deficits (Try this one if the link doesn't work)

State plan considers tax hike on beer, candy (WA...would triple the beer tax)

Canadian dollar hits parity vs. U.S. dollar

Oil rises to fresh 18-month high above $87

GrouchoMarxist's picture
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Russia / Venezuela $5bn arms talks

Russian arms sales to Venezuela may reach $5bn  (BBC)

"...Reacting to the news, the US said it failed to see what legitimate defence needs Venezuela had for the equipment."  Oh, the liers, butter wouldn't melt in their mouths.

The obvious answer is perhaps Chavez's legitimate fears of a US attack. He has been on the US hit list for years but USA seems to be getting bogged down in Iraq & Iran, and now seems to be getting bogged down at home with the financial crisis.

I have a lot of time for John Perkins (Confessions of an Economic Hitman) Perkins talks very highly of Chavez.

Interesting times


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Re:#2 Cahvez / Putin

Correction . Sorry folks wrong link to John Perkins site.

Correct link here  (http://www.johnperkins.org/)


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Re: Russia / Venezuela $5bn arms talks

I find it far more likely that Chavez is angling to start a war against Columbia.  He is desperate to find some way of taking the focus off his failed policies and rally his people against some common enemy.  I'm sure he'd prefer a war with the U.S., but if the U.S. does not give him one, he'll start his own.    Personally, I think he deeply underestimates Columbia's military and think Columbia would deal him a swift smack-down job.  Hopefully, he would become history in the process.

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Re: Russia / Venezuela $5bn arms talks

+1  !!

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Re: Daily Digest - April 6th_Sheila Blair

Maybe ..too big to fail.. should be called.. too Big to speak the truth!

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Re: Daily Digest - April 6th

SagerXX's picture
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Re: Russia / Venezuela $5bn arms talks
Farmer Brown wrote:

I find it far more likely that Chavez is angling to start a war against Columbia. 

And regardless of what Chavez's plans are, the idea of the US looking askance at anybody else's military spending is laughable. 


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Re: Daily Digest - April 6th


A.T. Biopower Cancels Power Projects on Shortage of Rice Husks

By Ann Koh

April 6 (Bloomberg) -- A.T. Biopower Co., a Thai utility that makes electricity from plant waste, cancelled two projects to build biomass-fuelled generators because of difficulties in procuring feedstock.

A shortage of rice husks is hampering expansion and A.T. Biopower will instead invest in solar plants, Chief Executive Officer Natee Sithiprasasana said in an interview in Singapore. The company’s 22-megawatt biomass-fired plant in Pichit, Thailand, needs at least 500 metric tons a day of husks, a by- product of milling rice, according to A.T. Biopower’s Web site.

“There’s not enough rice husk for such power capacities,” Sithiprasasana said. The company is considering “small-capital projects” that can produce 2 to 3 megawatts of solar power, he said, estimating that a plant of that scale would cost about 200 million to 300 million baht ($6.2 million to $9.3 million).

Thailand is drafting a 20-year energy plan aimed at getting 3,000 megawatts of electricity from biomass by 2030, compared with current output of 700 to 1,000 megawatts, Sithiprasasana said. It will struggle to reach that goal because demand for biomass such as sugar-cane fiber and rice husks will outstrip supply, he said.

“Rice straw, cassava and corn-crop waste has higher yield but not easy collection,” Sithiprasasana said. “It’s spread out on the field and that increases costs.”

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