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    Daily Digest – Jan 17

    by Davos

    Saturday, January 17, 2009, 2:26 AM

  • Paulson Predicts Banks Are Done For, Shares Drop 
  • Stimulus may bolster dairy industry 
  • Famine USA—7 million dead (1930s Depression) 
  • Clear channel plans revamp
  • Hertz to cut more than 4,000 jobs 
  • Layoff Watch: 11,000 From GE (GE)? 
  • Circuit City to liquidate remaining US stores (34,000 Employees) 
  • Astonishing Worker Layoff Count Today 
  • Rescue of U.S. banks hints at nationalization 
  • Calif. tax refunds to be delayed starting Feb. 1
  • Stimulus plan repeals big tax break for banks 
  • Report: Over 8 in 10 corporations have tax havens 
  • Harsh turn of fortunes for 2 huge U.S. banks  
  • Citigroup Splits Into Two After Losing $8.3 Billion 
  • Paulson, Bair Raise ‘Aggregator Bank’ for Toxic Debt  
  • Foreclosure Heat Map
  • 2009 Bank Failure #1: National Bank of Commerce, Berkeley, IL 
  • Umpqua Bank Acquires the Insured Deposits of Bank of Clark County, Vancouver, WA (Failure #2, 2009) 
  • Can You Help?



Paulson Predicts Banks Are Done For, Shares Drop 

It has begun to dawn on investors. The news about Bank of America (BAC) and Citigroup’s (C) fourth quarter earnings is the beginning of the end of the private enterprise banking system in America. It may return in a few years, but not until the government decides it can sell the stakes it is accumulating as part of the financial bailout. 

Henry Paulson today said that most of the second half of the TARP, the next $350 billion, is going to have to be sent to banks. If only half of that sum goes into the system to keep financial firms from failing, it will overwhelm their current market capitalizations. The government will own a large portion of the equity in the nation’s largest banks, whether that was it intention or not. What Barney Frank wants to do with TARP cash may become irrelevant.

Shareholders in banks are starting to catch on to their dilution problem. The stocks in BAC, JPMorgan (JPM), and Wells Fargo (WFC) are all down between 7% and 10%. The common stock of these companies is headed to the same place the shares of Fannie Mae (FNM), Freddie Mac(FRE), and AIG (AIG) ended up.

Stimulus may bolster dairy industry 

WASHINGTON – A stimulus package may be a lifeline for the nation’s economy, but it could be a death sentence for a lot of cows. 

Lawmakers are looking for ways to use the forthcoming stimulus bill to help dairy farmers, and the number one priority is to dampen milk supplies and prop up prices. Translation: reduce the nation’s dairy herd.

Exactly how Congress will accomplish that remains uncertain. An initial effort to use stimulus money to pay farmers to retire cows failed when House Appropriations Committee Chairman Rep. David R. Obey, D-Wis., objected on the grounds that it violated a promise not to include earmarks in the bill, said Rep. Collin C. Peterson, D-Minn., chairman of the House Agriculture Committee.

Taking milk cows out of production as a way to control milk prices is a controversial approach. The federal government tried that in the 1980s through the whole herd buyout program, and while the policy worked for a time, milk production eventually bounced back and farmers were once again grappling with low milk prices.

The buyout also sent beef prices crashing, as slaughtered cows entered the meat supply.


Famine USA—7 million dead (1930s Depression) 

Another online scandal has been gathering pace recently. Wikipedia, the free encyclopedia, deleted an article by a Russian researcher, who wrote about the USA’s losses in the Great Depression of Indignant bloggers began to actively distribute the article on the Russian part of a popular blog service known as Livejournal. The above-mentioned article triggered a heated debate. 

The researcher touched upon quite a hot topic in the article – the estimation of the number of victims of the Great Depression in the USA. The material presented in the article apparently made Wikipedia’s moderators delete the piece from the database of the online encyclopedia.

The researcher, Boris Borisov, in his article titled "The American Famine" estimated the victims of the financial crisis in the US at over seven million people. The researcher also directly compared the US events of 1932-1933 with Holodomor, or Famine, in the USSR during 1932-1933.

In the article, Borisov used the official data of the US Census Bureau. Having revised the number of the US population, birth and date rates, immigration and emigration, the researcher came to conclusion that the United States lost over seven million people during the famine of 1932-1933.

"According to the US statistics, the US lost not less than 8 million 553 thousand people from 1931 to 1940. Afterwards, population growth indices change twice instantly exactly between 1930-1931: the indices drop and stay on the same level for ten years. There can no explanation to this phenomenon found in the extensive text of the report by the US Department of Commerce "Statistical Abstract of the United States," the author wrote.

The researcher points out the movement of population at this point: "A lot more people left the country than arrived during the 1930s – the difference is estimated at 93,309 people, whereas 2.960,782 people arrived in the country a decade earlier. Well, let’s correct the number of total demographic losses in the USA during the 1930s by 3,054 people."

Analyzing the period of the Great Depression in the USA, the author notes a remarkable similarity with events taking place in the USSR during the 1930s. He even introduced a new term for the USA – defarming – an analogue to dispossession of wealthy farmers in the Soviet Union. "Few people know about five million American farmers (about a million families) whom banks ousted from them lands because of debts. The US government did not provide them with land, work, social aid, pension – nothing," the article says.

"Every sixth American farmer was affected by famine. People were forced to leave their homes and go to nowhere without any money and any property. They found themselves in the middle of nowhere enveloped in massive unemployment, famine and gangsterism." 


The new owners of radio giant Clear Channel Communications will next week begin implementing a massive restructuring plan that seeks to cut $400 million in costs at the company, The Post has learned.

According to three sources with knowledge of the plan, the restructuring will include layoffs across the company’s radio, outdoor advertising and international divisions as well as cuts to programming budgets and consolidation of back-office operations.

A precise headcount for the layoffs could not be obtained. Clear Channel has about 30,000 employees worldwide.

Hertz to cut more than 4,000 jobs 

DETROIT (Reuters) – Hertz Global Holdings Inc said on Friday that it would cut more than 4,000 jobs in a worldwide restructuring through the first quarter due to falling demand, and the car rental company’s shares fell nearly 9 percent. 

Hertz expects annualized savings of $150 million to $170 million in 2009 from the job cuts, it said. It expects to take a fourth-quarter charge of $20 million to $25 million for the cuts.

The cuts are in the car and equipment rental businesses as well as in corporate and support areas in all regions focused on positions that do not have direct contact with customers, Hertz said in a statement.

Hertz will have cut its workforce by 32 percent since August 2006 with the latest round of reductions, it said. 

Layoff Watch: 11,000 From GE (GE)? 

According to Bloomberg, GE (GE) may layoff as many as 11,000 people at its financial unit. 

"General Electric Co.’s finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump." 

Circuit City to liquidate remaining US stores (30,000 Employees)

Bankrupt Circuit City Stores Inc., the nation’s second-biggest consumer electronics retailer, said Friday it failed to find a buyer and will liquidate its 567 U.S. stores. The closures could send another 30,000 people into the ranks of the unemployed.

"This is the only possible path for our company," James A. Marcum, acting chief executive, said in a statement. "We are extremely disappointed by this outcome." 

The company had been seeking a buyer or a deal to refinance its debt, but the hobbled credit market and consumer worries proved insurmountable.

The liquidation of Circuit City is the latest fallout from the worst holiday shopping season in four decases. People have slashed their spending since the financial meltdown in September as they worry about their job security and declining retirement funds.

"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders," Marcum said. 

Astonishing Worker Layoff Count Today

Looking at the headlines at WSJ.com, the majority are about large companies that cut workers today. Circuit City is liquidating, which could put 30,000 people out of work. AMD (AMD) is cutting 1,100. Pfize (PFE) is letting 2,400 salesmen go. 

Hertz (HTZ) is firing 4,000 people and Wellpoint (WLP) laying off 1,500. All that on one web page.

Dark day.

Rescue of U.S. banks hints at nationalization 

Last fall, as Federal Reserve and Treasury Department officials rode to the rescue of one financial institution after another, they took great pains to avoid doing anything that smacked of nationalizing banks. 

They may no longer have that luxury. With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are "too big to fail" and yet unable to function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.

And the new ground rules laid down by Obama’s top economic advisers for the second half of the $700 billion bailout fund, as explained in a letter submitted to Congress on Thursday, call for the government to play an increasing role in the major activities of the banks, from the dividends they pay to shareholders to the amount they can pay executives.

"We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States," said Gerard Cassidy, a banking analyst at RBC Capital Markets. "We are going to go back to a time when the government controlled the banking system." 

Calif. tax refunds to be delayed starting Feb. 1 

SACRAMENTO, Calif. (AP) – California’s controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money. 

Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California’s growing deficit.

With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs.
Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs.

A severe drop in revenue has left the state’s main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available. 

Stimulus plan repeals big tax break for banks 

WASHINGTON (AP) – House Democrats’ version of the $825 billion recession rescue package would end billions of dollars in tax breaks the Bush administration quietly gave to banks last fall.
Already almost exclusive beneficiaries of a $700 billion Wall Street bailout, banks are largely left out of the House stimulus package that President-elect Barack Obama wants passed quickly through Congress. Those getting financial bailout money wouldn’t even be eligible for one of the main business tax breaks aimed at priming the economic pump. 

Homebuilders, manufacturers, retailers and low-income families share the bulk of the $275 billion in proposed new tax cuts.

House leaders moved this week to repeal the tax break for banks even as the Senate voted to help many of those same institutions by releasing the second $350 billion of the widely unpopular Wall Street bailout. Many lawmakers are unhappy with the results after the Bush administration spent the first $350 billion, making them wary of helping banks in the stimulus package.

To address the financial industry meltdown, the Treasury Department last fall issued a new tax rule to make it more attractive for healthy banks to buy troubled ones hit hard by the mortgage crisis. It allowed healthy banks to avoid billions of dollars in taxes by offsetting their profits with the losses of the banks they acquire.
Before, the merged bank could write off only a limited amount of the losses. Removing much of the restrictions enabled the acquiring banks to make huge reductions in their tax liabilities. 

Report: Over 8 in 10 corporations have tax havens 

WASHINGTON (AP) – Eighty-three of the nation’s 100 largest corporations, including Citigroup, Bank of America and News Corp. (NWSA), had subsidiaries in offshore tax havens in 2007, and some of the companies received federal bailout funding, a government watchdog said Friday. 

The Government Accountability Office released a report that said Bank of America Inc., Citigroup Inc. (C) and Morgan Stanley (MS) all had more than 100 units in countries that maintain low or no taxes. The three financial institutions were included in the $700 billion financial bailout approved by Congress.

Insurance giant American International Group Inc. (AIG), which has received about $150 billion in bailout money, had 18 subsidiaries. JPMorgan Chase & Co. (JPM) had 50 units and Wells Fargo & Co. (WFC) had 18; both financial institutions received government bailout money.

Sens. Carl Levin, D-Mich., and Byron Dorgan, D-N.D., who requested the report, have pushed for tougher laws to fight offshore tax havens around the globe. Levin, who leads the Senate Permanent Subcommittee on Investigations, has estimated abusive tax havens and offshore accounts cost the U.S. government at least $100 billion a year in lost taxes. 

Harsh turn of fortunes for 2 huge U.S. banks  

Citigroup capped a devastating 2008 by announcing Friday that it would split into two entities and that it had posted a $8.29 billion loss for the fourth quarter. 

Citigroup’s rival, Bank of America, posted a more modest loss of $1.79 billion during the same period, just hours after receiving a new infusion of government support that could end up costing more than $100 billion.

But underlining the depth of the problems that have emerged from Bank of America’s acquisition of Merrill Lynch, Merrill had a net loss of $15.31 billion, or $9.62 a share, in the fourth quarter, "driven by severe capital markets dislocations," before the acquisition was completed, Bank of America said. Merrill’s results for the fourth quarter were not a part of Bank of America’s. The merger of the two banks closed on Jan. 1.

Even as Bank of America was coping with the challenge of absorbing Merrill, Citigroup was announcing the latest steps in dismantling its own financial supermarket. Citigroup confirmed that it would divide, for management purposes, into two separate businesses – Citicorp and Citi Holdings. Citicorp will focus on international banking, while Citi Holdings will comprise the brokerage, asset management and consumer finance businesses. 

Citigroup Splits Into Two After Losing $8.3 Billion 

Citigroup, scrambling to survive losses triggered by the credit crunch, unveiled plans to split in two and shed troubled assets, and reported a quarterly loss of $8.29 billion. 

The banking giant also said it expected more departures from its embattled board, which is losing former Treasury Secretary Robert Rubin as a director later this year.

Still, the bank’s shares [C 3.50 -0.33 (-8.62%) ] rose, in part because investors hoped the plan to separate its most troubled assets into a new company would help revive the company.

"It’s one of the first steps toward some positive news and the end of this nightmare," said Michael Holland, founder of Holland & Co in New York, which manages more than $4 billion of investment. 

Paulson, Bair Raise ‘Aggregator Bank’ for Toxic Debt  

Jan. 16 (Bloomberg) — The heads of the U.S. Treasury and Federal Deposit Insurance Corp. gave further momentum to the idea of a new government-backed bank to remove toxic assets from lenders’ balance sheets. 

"A lot of work has been done on an aggregator bank" and other ways of using the $700 billion financial-rescue fund "to let it go further when it comes to dealing with illiquid assets," Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have "some merit."

Today’s remarks come days before President-elect Barack Obama takes office, and signal a readiness among regulators to undertake what’s likely to be the most radical effort yet to unfreeze lending. Fed Chairman Ben S. Bernanke earlier this week urged a "comprehensive plan" to address illiquid assets, floating the idea of a "bad bank."

Investors continue to question banks’ viability even after officials committed the first $350 billion from the Troubled Asset Relief Program and after a doubling in the Fed’s balance sheet to $2.1 trillion. Bank of America Corp. today required a further $20 billion injection of taxpayer funds and government backing for a $118 billion pool of bad assets.

‘Barrier’ to Investments. 

Foreclosure Heat Map

2009 Bank Failure #1: National Bank of Commerce, Berkeley, IL 

National Bank of Commerce, Berkeley, Illinois, was closed today by the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Republic Bank of Chicago, Oak Brook, Illinois, to assume all of the deposits of National Bank of Commerce. 

Umpqua Bank Acquires the Insured Deposits of Bank of Clark County, Vancouver, WA (Failure #2, 2009) 

Bank of Clark County, Vancouver, Washington, was closed today by the Washington Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. 

Can You Help?



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