• Blog

    Daily Digest – July 15

    by Davos

    Wednesday, July 15, 2009, 7:43 PM

Note from Chris Martenson:  we are undergoing some changes in staffing duty and the DD did not get posted today while I was in transit due to a miscommunication.  My apologies for the lapse.

  • Budget deficit tops $1 trillion for first time
  • Condo Association Files Bankruptcy
  • Citigroup: AIG Equity May Be Worth Zero
  • Budget Cuts: Up To 10,000 Illinois Prisoners May Be Released
  • California IOUs can be considered securities, SEC says
  • Video, Tim Sykes & Barry Ritholtz in “Broke”
  • Nantucket…Oops (Video)
  • Loan Mods Default Rates
  • Meredeth Whitney: The Internet NEVER SLEEPS


Budget deficit tops $1 trillion for first time

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October.
Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.
Congress already approved a $700 billion financial bailout for banks, automakers and other sectors, and a $787 billion economic stimulus package to try to jump-start a recovery. Outlays through the first nine months of this budget year total $2.67 trillion, up 20.5 percent from the same period a year ago.
There is growing talk among some Obama administration officials that a second round of stimulus may eventually be necessary.

Condo Association Files Bankruptcy

The significant drop in property values is a key factor pushing associations toward bankruptcy filings, said attorney Robert Kaye of Kaye & Bender in Fort Lauderdale. … “In prior times, there was enough equity in all the properties [in an association] so that assets would likely exceed liabilities,” he said. “Now, since a large percentage of associations are upside down, that’s changing their view about bankruptcy. Their debts have overtaken their assets.”

 Citigroup: AIG Equity May Be Worth Zero

Note that the amount authorized for bailout is $180 billion,"only" $134 billion has been committed to date. The Citigroup analyst suggests the taxpayer may just get out whole on the loans, but one has to wonder whether he is merely steering clear of voicing an opinion on the debt, since that is not his beat anyhow. Regardless, this report raises doubts about full recovery of the funds, much the less any supposed upside.

From Reuters (hat tip reader Joe C):
American International Group Inc, the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.

Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.

Potential markdowns in AIG Financial Product unit’s regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG’s liquidity, Citigroup analyst Joshua Shanker said.

Yves here, If I am not mistaken, those "regulatory CDS" are the infamous $300 billion provided to allow European banks to lower required regulatory capital, and if so, the article puts a lower value on it, suggesting writedowns have already occured. Some readers have said those were used to hedge AAA rated structured paper, like CDOs (eek). I am not sure of how this trade worked (Basel II arcana, needless to say) but I believe unhedged AAA was treated as needing only 20% as much equity as riskier credits (A or BBB equivalent?). UBS was big in this practice, and the CDS may have been the reason the bank was able to carry only 1% equity against assets.

Any readers who know details, please elaborate or correct. If you prefer, you can e-mail me at [email protected] and I will amend the post as needed. Back to Reuters:
"Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar

 Budget Cuts: Up To 10,000 Illinois Prisoners May Be Released

CHICAGO (CBS) ― There are plans to layoff 1,000 corrections workers at Stateville Prison. Up to 10,000 convicted criminals could soon be released early from prisons across Illinois. It’s all because of the state’s budget mess. Gov. Pat Quinn says cutting those prisoners loose could save more than $100 million. But at what cost to you?

California IOUs can be considered securities, SEC says

California is dealing with an unresolved $26 billion budget deficit and is expected to deplete its cash reserves by the end of July. To stave off these issues, the state started issuing IOUs or warrants to cover sales expenses and pay bondholders. The state is expected to send out $3.3 billion in IOUs in July to a wide variety of recipients including individuals, corporations and municipal governments.

Large financial institutions, including J.P. Morgan Chase & Co. (JPM 33.17, -0.45, -1.34%) , Citigroup Inc. (C 2.63, -0.06, -2.23%) and Bank of America Corp. (BAC 11.64, -0.33, -2.76%) , as well as some smaller banks have said that after Friday they won’t accept the IOUs.

 Video, Tim Sykes & Barry Ritholtz in “Broke”



The Cap & Trade Energy bill will eventually be rammed through by the Democratic controlled Congress. It is being spun as a bill that will reduce greenhouse gases and create thousands of green jobs. What is a green job? Will we turn unemployed investment bankers and auto salesmen into solar panel and wind turbine manufacturers? The green agenda bill will penalize manufacturers, refineries, natural gas producers and electric utilities with increased taxes. Sounds great. Let’s penalize the polluters. Every company that produces something will pass their costs along to their customers. This bill will increase the average family’s energy costs by $1,500 per year. It will convince many companies to move operations and jobs to China and India where these regulations don’t apply. Our agriculture industry will bear the brunt of this burden as they use tremendous amounts of energy in farming. Expect food costs to go up a lot. Since low income families spend a greater percentage of their income on energy, this bill will damage their finances the most. It will also trigger the coming Crisis.

Nantucket…Oops (Video)

Loan Mods Default Rates

Meredeth Whitney: The Internet NEVER SLEEPS

Related content
» More

No Comments