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    Daily Digest – Mar 30

    by Davos

    Monday, March 30, 2009, 3:03 PM

  • Tim Geithner defends bailout plan on "Meet the Press" (Video)
  • Data watchers beware, huge seasonal adjustments distort the numbers
  • Geithner Says Some Banks to Need ‘Large Amounts’ of Assistance 
  • Munchau: Banks Sinking Faster Than Governments Are Bailing Them Out
  • Auto Company Plans Rejected by Task Force
  • GM CEO Forced Out as US Readies Autos Aid
  • January & February Bank Profit? AIG/ Taxpayer Money Responsible…
  • Spain Rescues Caja Castilla With EU9 Billion in Funds
  • Personal Saving and Mortgage Equity Withdrawal

Economy

Tim Geithner defends bailout plan on "Meet the Press" (Video)

Data watchers beware, huge seasonal adjustments distort the numbers

Which makes David think that come the inevitably sharp downward revisions of such distorted data, first-quarter real GDP is likely to suffer a 7.2% drop. Which, together with the 6.3% skid in the fourth quarter of 2008, would be the worst back-to-back contraction in the economy in 50 years.

Geithner Says Some Banks to Need ‘Large Amounts’ of Assistance

March 29 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said some financial institutions will need substantial government aid, while warning against any attempt to tax investors who join a federal program to buy tainted assets from banks.

"Some banks are going to need some large amounts of assistance," Geithner said today on the ABC News program "This Week." The terms of a $500 billion public-private program to aid banks "cannot change" for investors or they’ll lose confidence in the plan, he said on NBC’s "Meet the Press."

The Obama administration is pursuing the most costly rescue of the U.S. financial system in history while facing taxpayer concerns the aid is bailing out Wall Street firms that took excessive risks. After allocating about 80 percent of $700 billion in aid approved by Congress, administration officials want to keep open the option of seeking more.

Geithner said the Treasury has about $135 billion left in a financial-stability fund while declining to say whether he will request additional money.

"If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively," he told ABC News.

Munchau: Banks Sinking Faster Than Governments Are Bailing Them Out

Wolfgang Munchau often has a dour outlook, but his Financial Times comment today, "A new plan needed as the cycle grows vicious" is gloomy even by his standards.

Munchau argues that the heroic seeming measures to aid the banks are insufficient to compensate for the losses they are and will continue to suffer, and that as they understandably rein in lending, it will make the contraction more severe, worsening credit losses and deepening the cycle. Meredith Whitney has been making similar comments, but with a tad less urgency than Munchau.

While I agree with his concern, that a contraction can slip into a vicious circle, focusing on recapitalization as the primary policy response is wrongheaded. The Swedish in their salvage operation not only took over dud banks and hived off the bad assets, but they restuctured those loans and sin some cases even extended more credit to borrowers. And bailouts to banks without banking reform is a bad idea (and I see the Geithner talk of new measures as window dressing to appease the public in the hopes of eliciting support for the inevitable next round of rescues).

The only way out of a financial crisis is default, whether overt, through writeoffs and resturcturings, or covert, through inflation. This process isn’t even seriously underway until we see a lot more renegotiation.

Auto Company Plans Rejected by Task Force

It would be better if we were wrong, but we are of the school that putting the big automakers into bankruptcy, despite its attractions (being able to restructure debt and dealer networks; the UAW contracts are far less significant economically than the media makes them out to be) misses out on one crucial element: you don’t have a business if you don’t have customers. And a GM bankruptcy would be a protracted affair. Even if consumers believe the company will make it, what about their local dealer? If they worry they might have to schlepp to get their car serviced, is it worth it?

GM CEO Forced Out as US Readies Autos Aid

No Word On Successor

There was was no word from the government or others with knowledge of the situation on the timing of Wagoner’s departure or who would replace him. Fritz Henderson, GM’s chief operating officer, is the No. 2 executive at the automaker and widely considered to the leading internal candidate as Wagoner’s successor.

January & February Bank Profit? AIG/ Taxpayer Money Responsible…

I knew something was up the second I heard the bank CEO’s claim to be profitable. Here it is… We already knew that AIG funneled bailout money to the likes of Goldman Sachs, but according to this trader, it was all the banks and it’s been going on for awhile; long enough that the claimed January and February "profits" came from the taxpayer via AIG. Please keep the source in mind, this is via a blogger and his source, not the mainstream media. In other words, it’s probably closer to the truth!
Sunday, March 29, 2009
Exclusive: AIG Was Responsible For The Banks’ January & February Profitability
Posted by Tyler Durden at 6:35 PM
Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good.
I present the insider perspective of trader Lou (who wishes to remain anonymous) in its entirety:
"AIG-FP accumulated thousands of trades over the years, all essentially consisted of selling default protection. This was done via a number of structures with really only one criteria – rated at least AA- (if it fit these criteria all OK – as far as I could tell credit assessment was completely outsourced to the rating agencies).
(More)

Spain Rescues Caja Castilla With EU9 Billion in Funds

March 29 (Bloomberg) — The Spanish government said it will provide as much as 9 billion euros ($12 billion) to Caja Castilla-La Mancha to shore up the regional lender’s finances and protect depositors in the first bank rescue since 1993.
The Bank of Spain said it appointed administrators to run the savings bank after removing Caja Castilla’s management. As part of the rescue the government pledged to guarantee as much as 9 billion euros of the lender’s liabilities.
"The Spanish financial system is still very solid, but nobody is immune to a difficult economic situation that could drag on," said Finance Minister Pedro Solbes after the government met in Madrid to approve the takeover.

Personal Saving and Mortgage Equity Withdrawal

Now that the Home ATM is closed, the saving rate is rising because of less borrowing – as dissavers are forced to live within their incomes.

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