What is wrong with the US economy? Part 2

[Astronuc]

New U.S. stake in Citigroup may not calm doubts
http://news.yahoo.com/s/nm/20090223/ts_nm/us_citigroup

NEW YORK (Reuters) – Even if the government took a large common equity stake in Citigroup Inc, worries would likely persist about the bank's ability to absorb soaring losses in a deepening recession.

The third-largest U.S. bank by assets is in talks with federal regulators on a plan for the government to increase its stake, a person familiar with the matter said. Converting $45 billion of preferred stock, which the government obtained last fall, to common stock is one of many options, the person said.

An agreement could be announced Monday or Tuesday, CNBC television said.

Citigroup shares rose on Monday after the White House repeated that President Barack Obama believes keeping banks in private hands is "the best way to go.

U.S. bank regulators, meanwhile, said they stood ready to provide more capital to the sector and keep "systemically important financial institutions" viable.

But investors remained worried that losses from credit cards, emerging markets, trading and toxic assets could overwhelm Citigroup Chief Executive Vikram Pandit's efforts to restore the bank's fiscal footing. Analysts do not expect the New York-based bank to be profitable in 2009 or 2010.
. . . .
Washington got the Citigroup preferred shares, which equate to a 7.8 percent stake, when it bailed out the bank last fall and agreed to share in losses on $301 billion of toxic assets.
. . . .

And yet there are still more losses.

Losses are still being written off at other large national and international banks.

 

[Astronuc]

Freddie Mac investigates self over lobby campaign
http://news.yahoo.com/s/ap/20090223/ap_on_go_ot/freddie_mac

WASHINGTON – Lawyers hired by mortgage finance giant Freddie Mac are quietly investigating the firm's own $2 million lobbying campaign, The Associated Press has learned. The lobbying effort helped quash proposed new regulations on the company before the housing market collapsed.

It was not immediately clear how much Freddie Mac is spending to investigate its own conduct or whether it is spending any federal bailout money on the internal probe. The firm was placed under U.S. government control due to its massive investment losses.

The inquiry inside Freddie Mac follows stories by the AP about the company secretly hiring Republican consulting firm DCI Group of Washington to stop a proposal in the Senate in 2005 sponsored by Sen. Chuck Hagel, R-Neb. The legislation would have forced Freddie Mac and Fannie Mae to sell hundreds of billions of dollars worth of assets from their portfolios of mortgages and mortgage-backed securities. At the time, the portfolios were highly lucrative but their value plunged when the housing market collapsed.

The DCI Group did not file lobbying reports describing the work it was performing. . . .


One of Washington's leading law firms, Covington & Burling LLP, has spent more than a month interviewing current and former Freddie Mac employees and executives, according to three people familiar with the matter. These people spoke on condition of anonymity The people familiar with the internal inquiry told the AP that Anthony has interviewed current and former Freddie Mac employees about three issues raised by the AP stories:

_An accounting of the work done for the $2 million in payments to the DCI Group. It targeted 17 Republican senators in 13 states working to defeat Hagel's regulatory legislation by convincing prominent constituents and financial contributors the bill would hurt the housing boom. The measure was never brought to a vote and died.

_An accounting of six-figure payments to 52 outside lobbying firms and political consultants in 2006, including details about what work, if any, the consultants performed for the money paid to their firms. The consultants included former House Speaker Newt Gingrich and ex-Sen. Alfonse D'Amato. The payments to the 52 consultants amounted to $11.7 million. D'Amato's firm, which was paid $240,000, declined to comment. Gingrich's firm was paid $300,000 for strategic advice on a number of issues.

_An accounting of personal use by Freddie Mac executives of company-paid tickets and a company-leased skybox at the Verizon Center.

. . . .

I wonder how much the lawyers are going to make out of this one?

 

[Astronuc]

American International Group, the insurance giant bailed out by the United States government last year, has received a preliminary offer of $11 billion from MetLife for its American Life Insurance Company subsidiary, The New York Times said, citing people with knowledge of the discussions.

But the offer might slip to about $8 billion, as more becomes known about how the global downturn is affecting the unit, called Alico, which has operations in more than 55 countries.

Moreover, A.I.G.'s need for capital appears to be growing so quickly that $8 billion, or even $11 billion, would not come close to filling the hole. A.I.G. is expected to report fourth-quarter losses of perhaps $60 billion early next week, and losses on that scale could initiate a domino effect like the one that flattened the company last September.

The situation appears to leave A.I.G. with two distasteful options, The Times said: selling prized assets to competitors or handing over a big part of its business to the federal government.
. . . .

A.I.G. Unit Gets Bids as Survival Options Shrink
http://dealbook.blogs.nytimes.com/2009/02/25/as-aigs-losses-grow-its-survival-options-shrink/

The American International Group faced two distasteful options on Tuesday: selling prized assets to competitors or handing over a big part of its business to the federal government.

Grappling with huge losses, A.I.G. appears to have few choices as the government focuses on trying to keep the giant insurer from toppling and perhaps injuring other institutions, The New York Times’s Mary Williams Walsh and Michael J. de la Merced write.

The insurer has received a preliminary offer of $11 billion from MetLife for its American Life Insurance Company subsidiary, called Alico, The Times said, citing people with knowledge of the discussions.

But they said MetLife’s offer might slip to about $8 billion, as more became known about how the global downturn is affecting Alico, which has operations in more than 55 countries. The same sources said A.I.G. had received an offer from AXA, for all of Alico except its operations in Japan. The price was not disclosed.

But A.I.G.’s need for capital appears to be growing so quickly that $8 billion, or even $11 billion, would not come close to filling the hole. A.I.G. is expected to report fourth-quarter losses of perhaps $60 billion early next week, and losses on that scale could initiate a domino effect like the one that flattened the company last September. First would come a credit downgrade, then calls from trading partners to post the billions of dollars in collateral that their contracts stipulate after a downgrade.

If A.I.G. failed to produce the required amounts, the financial institutions holding its contracts would have to recognize losses of their own. That would erode their capital, leaving them at risk of downgrades as well.

 

[turbo]

Check the 2/25 story on the Grand View Coffee shop. The owner was running out of options, so he opened a coffee shop staffed with topless wait-staff. There are actually a few guys on the crew, though most are women. He had over 150 applicants for 10 positions in unpaid, tips-only jobs.

http://morningsentinel.mainetoday.com/news/local/5989595.html

 

[mheslep]

Check the 2/25 story on the Grand View Coffee shop. The owner was running out of options, so he opened a coffee shop staffed with topless wait-staff. There are actually a few guys on the crew, though most are women. He had over 150 applicants for 10 positions in unpaid, tips-only jobs.

http://morningsentinel.mainetoday.com/news/local/5989595.html

You paid a visit yet? Where does it say the owner was running out of options?

 

[mgb_phys]

Check the 2/25 story on the Grand View Coffee shop. The owner was running out of options, so he opened a coffee shop staffed with topless wait-staff. There are actually a few guys on the crew, though most are women. He had over 150 applicants for 10 positions in unpaid, tips-only jobs.

Presumably not such an attractive option for the Union of AutoWorkers?

 

[turbo]

You paid a visit yet? Where does it say the owner was running out of options?

No, and given my horrible reactions to perfumes, I won't be visiting. The "running out of options" was part of the back-story. He had tried to start up and run several businesses in that location over the last few years until he decided to try to "topless coffee shop" gimmick. It's a small town, and there was some very vocal opposition from some residents; however the planning board had no legal reason to deny the business a permit. This has been in and out of the news since his initial application for the permit.

 

[Astronuc]

Insurance giant AIG facing possible breakup
http://news.yahoo.com/s/ap/20090227/ap_on_bi_ge/aig_bailout

CHARLOTTE, N.C. – Nearly six months after American International Group Inc. got its first massive bailout from the government, it's still stumbling.

The big insurer keeps losing money and is unable to sell some of its biggest assets. Some Wall Street analysts have stopped tracking it. And it appears on the verge of getting another helping hand from Washington.

Like Citigroup Inc., which on Friday received another round of federal support, AIG is considered too big and too important to fail.

"If the government let's AIG fail, I think you are going to see an enormous sort of shock wave across all industries because AIG had their finger in a lot of different areas," said Russell Walker, a risk management professor at Northwestern University in Chicago.

Expectations are that AIG and the government will announce soon, perhaps as early as Monday, their latest plan to prop up the New York-based company. Late Friday, AIG confirmed it will report its fourth-quarter earnings on Monday before the market opens.

The Financial Times, citing people who spoke on condition of anonymity, reported this week that the government will swap the 80 percent stake it currently holds in AIG for even bigger pieces of three units that would be split off from the company: AIG's Asian operations, its international life insurance business and its U.S. personal lines business. A fourth unit made up of AIG's other businesses and troubled assets could be created as well or sold off in pieces, according to the FT report.

In return for the breakup, the government would relax the terms, or cancel, a portion of the $60 billion loan that was at the center of a restructured $150 billion rescue package, the newspaper said.

The company may also need another loan, its fourth, from the government as it is expected to report a $60 billion fourth-quarter loss Monday.

. . . .

The government is apparently about take a 36-38% stake in Citigroup.

The government revised the contraction of GDP downward from -3.8% to -6.2% on an annual basis.

Banks and economy to keep bears' grip on stocks
http://news.yahoo.com/s/nm/20090227/bs_nm/us_column_stocks_outlook

NEW YORK (Reuters) – Wall Street is unlikely to get a reprieve next week as relentless worries about U.S. banks and the economy could embolden bears to drive the market below the 12-year lows hit on Friday.

Investors will also be looking for further action from the government in its campaign to shore up the financial system. The Federal Reserve will release details early next week on its latest plans, a massive program to support consumer and small business lending, a Fed official said on Friday.

The Term Asset-Backed Securities Loan Facility, also known as TALF, is a key part of the efforts to stop the unraveling of the financial system in the wake of the credit crisis and U.S. housing collapse. The program could grow to up to $1 trillion in size.

A raft of data due out is expected to show the recession-hit economy is worsening. Among the reports, non-farm payrolls for February will shed light on the labor market, with analysts expecting unemployment to reach 7.9 percent.

Following Friday's fall in U.S. stocks, with the S&P 500 closing at a 12-year low, analysts are watching to see if indexes can hold and recover from these lows, suggesting a bottom has been formed, or whether stocks have further depths to plumb.

. . . .

http://marketplace.publicradio.org/display/web/2009/02/27/pm_gdp/

. . .
In this economy the Commerce Department's models didn't work, at all. They overestimated the amount businesses would spend on inventories by $25 billion -- inflating the GDP. But Lowe says the fact business spent less is actually good news.

Lowe: The biggest fear in a recession is that products start to pile up on the shelves to such an extent that stores don't need to order anything anymore.

That leads to more layoffs. But don't get too excited. The Commerce Department also overestimated consumer spending and business spending on big-ticket items, which fell an astounding 27 percent.
. . . .

 

[Astronuc]

Insurer AIG reports $61.7B 4th-qtr loss on continued market turmoil, gov't provides new aid
http://biz.yahoo.com/ap/090302/earns_aig.html

CHARLOTTE, N.C. (AP) -- American International Group is reporting that continued financial market turmoil has resulted in a large fourth-quarter loss.
Monday's results come as the U.S. government is announcing a restructuring of a bailout plan for the troubled insurer, extending $30 billion in additional aid to the company.

New York-based AIG, once the world's largest insurer, said Monday it lost $61.7 billion, or $22.95 per share, after a loss of $5.3 billion, or $2.08 per share, a year ago.

The latest results include $7.2 billion in unrealized losses and credit valuation adjustments at AIG Financial Products, the source of credit-default swaps, and pretax losses of $21.6 billion tied to the declining value of AIG's investment portfolio.
. . . .

HSBC to raise $17.7 billion, cut 6,100 jobs in US after 70 percent drop in 2008 profit
http://biz.yahoo.com/ap/090302/eu_britain_earns_hsbc.html

LONDON (AP) -- HSBC PLC, Europe's largest bank by market value, on Monday reported a 70 percent drop in 2008 net profit and said it would raise $17.7 billion in new capital through a share issue while cutting 6,100 jobs in the U.S.

HSBC said it would scale back its consumer lending in the U.S. after being hit hard by the subprime mortgage crisis there, shrinking its consumer loan business there -- although its HSBC USA branch banking business will remain.

By turning to investors for new capital instead of asking for government aid, the bank would avoid the strings that go with the bailouts given to other British banks. It also said it would cut its dividen and not pay bonuses to top executives.

In 2008, net profit tumbled to $5.7 billion from $19.1 billion a year earlier as the company wrote down the value of assets, particularly in the U.S.

. . . .

Dow set to break below 7,000 [a loss of 50% since it's all time high] as AIG gets more gov't funding, posts $61.7B loss
http://biz.yahoo.com/ap/090302/wall_street.html

NEW YORK (AP) -- Wall Street headed for another big drop Monday, one that could hurl the Dow Jones industrials below 7,000, after American International Group Inc. posted a $61.7 billion quarterly loss.

The government said it would give AIG another $30 billion in loans, in addition to the $150 billion it has already given the ailing insurer.

Concerns about the struggling financial sector and the weakening economy have sent stocks to their lowest levels in 12 years. The Dow Jones industrial average has dropped for six consecutive months, and is worth less than half of its October 2007 record high of 14,164.53.

Billionaire Warren Buffett, in his highly anticipated annual letter to investors Saturday, said his insurance and investment company, Berkshire Hathaway Inc., had its worst year ever in 2008. The grim news came a day after the government said gross domestic product for the fourth quarter shrank at an annual rate of 6.2 percent.

Buffett said he is sure "the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond -- but that conclusion does not tell us whether the stock market will rise or fall."

Ahead of the market's open, Dow futures tumbled 152, or 2.16 percent, to 6,900. Standard & Poor's 500 index futures sank 14.60, or 1.99 percent, to 719.60, while Nasdaq 100 index futures lost 21.25, or 1.90 percent, to 1,095.75.
. . . .

The Dow 30 would be even lower if AIG had remained a component.

 

[DrClapeyron]

AIG and this rest of this crisis are a bigger scam than Enron and World Com and the US Government wants to bail them out? It appears that AIG has less to do with insuring and more to do with investing.

 

[Astronuc]

AIG and this rest of this crisis are a bigger scam than Enron and World Com and the US Government wants to bail them out? It appears that AIG has less to do with insuring and more to do with investing.

Gambling actually - and they lost big time. All those Credit Default Swaps that went bad - because way too many people defaulted and folks like Bear Stearns, Lehman Brothers, Merrill Lynch, et al had huge losses simultaneously.

But business is business.

Dow30 - 10:44am ET: 6,901.40 -161.53 (-2.29%)

Dow industrials fall below 7,000; lowest since '97
Dow breaks 7,000 for first time since '97 as AIG gets more gov't funding, posts $61.7B loss
http://finance.yahoo.com/news/Dow-falls-below-7000-as-apf-14510516.html

NEW YORK (AP) -- The Dow Jones industrial average plunged below 7,000 Monday for the first time in more than 11 years as investors grew pessimistic about the health of banks, and in turn the economy.

The Dow hadn't traded below 7,000 since Oct. 28, 1997, and last closed below that mark on May 1 of that year. The credit crisis and recession have now slashed half the average's value since it hit a record high over 14,000 in October 2007.

Investors are again fleeing stocks in response to bad news about financial companies. The government said it would give American International Group Inc. another $30 billion in loans, in addition to the $150 billion it has already given the insurer. AIG also said it lost a record $61.7 billion in the fourth quarter.

Investors are worried about European financial companies, too. HSBC PLC, Europe's largest bank by market value, reported a 70 percent drop in 2008 profit and said it needs to raise $17.7 billion and cut 6,100 jobs.

Meanwhile, billionaire Warren Buffett wrote in his annual letter to investors Saturday he is sure "the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond -- but that conclusion does not tell us whether the stock market will rise or fall."

. . . .

No more buying on margin.

 

[Astronuc]

Not a good day in the equities markets.

12:24pm ET: 6,836.33 -226.60 (-3.21%) Dow Jones Industrial Average (^DJI)


Perhaps it will recover somewhat this afternoon.

Update:

3:27PM ET: 6,781.53 -281.40 (-3.98%)

About 1/2 hr to go and recovery no where in sight.

Ouch!
Dow 6,762.82 -300.11 (-4.25%) 4:03 PM (12 yr low)
Nasdaq 1,322.85 -54.99 -3.99%
S&P 500 700.82 -34.27 -4.66% (12 yr low)


S&P 500's trouble mostly rooted in just 10 issues

NEW YORK (MarketWatch) -- Ten companies, led by ConocoPhillips, Time Warner Inc. and recently acquired Merrill Lynch, are behind the bulk of the carnage that helped fuel the worst two-month start ever for the S&P 500 Index, which on Monday made another run through its November lows.

 

[Astronuc]

A volatile day after yesterday's selloff.

3:45pm ET: 6,725.46 -37.83 (-0.56%) - not bad, but the index has been up and down twice today - bottomed out about noon, recovered by 12:30, the bottomed again just after 1:30 pm, then rallied through 3 pm, then bottomed out about 4 pm.

Back to the future: Stocks' fall may be a milestone
Breach of 12-year lows has some analysts wondering if it's 1932 or 1974

NEW YORK (MarketWatch) -- As U.S. stocks on Tuesday tried and then failed to bounce back from the prior day's stumble to 12-year lows, analysts, technicians and would-be historians debated the significance of the fall, which may or may not signal an important market milestone.
. . . .

GE is down near $7. GE's 52-wk range: $7.02 - 38.52 Hay caramba! Warren Buffett bought it at about $20. Ouch!

GE didn't expect global crisis; aims to `weather the cycle'

TEL AVIV (MarketWatch) -- General Electric Co.'s top executives never expected the financial system's failure and the economic fallout that followed, Chairman and Chief Executive Jeffrey Immelt said in a letter to shareholders. The executive said in the letter that he couldn't say how deep the recession will be or how long it will last but that management is "running GE to `weather the cycle.'" The Fairfield, Conn., industrial and financial-services giant is geographically diverse, taking in 53% of revenue from outside the U.S., and it has a $172 billion backlog in infrastructure projects, Immelt said. But despite management's efforts, he said, GE stock "got hammered. Companies with a presence in financial services, like GE, are simply out of favor." Going forward, the financial industry will be less leveraged, with fewer competitors "and a fundamental repricing of risk," he said.

Yikes! Oops!

 

[mheslep]

...GE is down near $7. GE's 52-wk range: $7.02 - 38.52 Hay caramba! Warren Buffett bought it at about $20. Ouch!...

Yes I'd like that kind of an ouch - guaranteed 10% dividend on preferred shares, net $300m/yr, forever, unless GE pays a penalty to pay him off. Buffett only gets hurt if his dividend gets inflated away. This goes for a lot of the news about his company B. Hathaway - the accounting has to periodically update based on the value of the underlying falling assets but in many cases, so what, the cash is still flowing.
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=4220&NewsAreaID=2&MenuSearchCategoryID=
http://online.wsj.com/article/SB122288377688594651.html

 

[nottheone]

I wonder what it would be like now if a certain idiot hadn't occupied the white house for the last 8 years and the man that really won the election had been president till now.

 

[OmCheeto]

I wonder what it would be like now if a certain idiot hadn't occupied the white house for the last 8 years and the man that really won the election had been president till now.

And would he still have won the Nobel prize?

 

[Astronuc]

GM auditors raise doubts on automaker's viability
http://biz.yahoo.com/ap/090305/gm_annual_report.html

. . . .
GM says in its report that its auditors cited recurring losses from operations, stockholders' deficit and an inability to generate enough cash to meet its obligations in raising substantial doubts about its ability to continue as a going concern.

World stocks mixed as China stimulus hopes fade
European markets fall ahead of interest rate decisions by Europe's leading central banks
http://biz.yahoo.com/ap/090305/world_markets.html
Thursday March 5, 6:44 am ET

. . .
Europe's two leading central banks are expected to cut interest rates, but with the scope for further reductions limited, speculation is growing that the European Central Bank and the Bank of England will effectively start printing money to give their ailing economies a kick start.

Amid increasingly grim economic news, the European and British central banks are likely to cut their benchmark rates by a half percentage point to new record lows of 1.5 percent and 0.5 percent.

. . . .

 

[Count Iblis]

http://www.google.com/hostednews/ap/article/ALeqM5gHs5OM3gFG_DytQQZFbWfgPT08MAD96O0H2G1"

 

[Astronuc]

Citigroup stock falls below $1 a share
http://news.yahoo.com/s/ap/20090305/ap_on_bi_ge/citigroup_stock

CHARLOTTE, N.C. – Shares of Citigroup Inc., once the nation's most powerful bank, fell below $1 a share Thursday.

The stock fell to 97 cents in late morning trading, down 16 cents or 14.2 percent from Wednesday.

New York-based Citi has lost more than 85 percent of its value so far this year, and is down more than 95 percent from a year ago as the bank was pummeled by the financial market crisis.

Citigroup's shares will remain on the New York Stock Exchange. Last week, the NYSE relaxed its listing rules to allow stocks that fall under $1 to still be listed and traded on the exchange.

The exchange said the change was warranted given the "current period of unusual market volatility and decline."

Ordinarily, an NYSE-listed company's shares cannot remain below $1 for more than 30 consecutive days. If that happens, the company gets about six months to prove to the NYSE it can boost its stock price.

. . . .

What a difference a year makes.

 

[Greg Bernhardt]

http://www.comedycentral.com/?source=SEO_SSP_Y&intcmp=SEO_SSP_Y&extcmp=SEO_SSP_Y

 

[Astronuc]

2:33pm ET: 6,625.50 -250.34 (-3.64%)

12 pct. are behind on mortgage or in foreclosure
http://news.yahoo.com/s/ap/20090305/ap_on_bi_ge/states_foreclosures

NEW YORK – A stunning 48 percent of the nation's homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure, and the rate for homeowners with all mortgage types hit a new record, new data Thursday showed.

But that's not the worst of it.

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis are no longer driving up the nation's delinquency rate. Instead, the foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs.

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

. . . .

 

[LowlyPion]

http://www.comedycentral.com/?source=SEO_SSP_Y&intcmp=SEO_SSP_Y&extcmp=SEO_SSP_Y

Sadly I think Stewart has a legitimate point about CNBC. Many of them spew the company propaganda in order to secure their continued access. Maria was always deferential to that toad that ran the NYSE Dick Grasso, while he was sucking down his huge salary. These days Gasparino is a total toady to his "sources" defending their high salaries and poor performances. A number of them have done a real disservice to the investing public.

As for Rick Santelli, I think he has gotten a bit of a bad rap. He's always spoken his mind and reflects a certain thinking in the CBOE that only has interest in making profit. At least that's honest. Cramer and that total Republican Party suck up Larry Kudlow, have other agendas than investor well being and reporting the actual news. Like Limbaugh they have figured out that adopting extreme positions, means bread and butter for them.

Broadcasters should be required to carry broadcast malpractice insurance. But of course they are quick to hide behind all their disclaimers after practicing disingenuous dissemination in the name of entertainment.

 

[mheslep]

Broadcasters should be required to carry broadcast malpractice insurance. But of course they are quick to hide behind all their disclaimers after practicing disingenuous dissemination in the name of entertainment.

And posters.

 

[Astronuc]

Headlines from a WSJ/MarketWatch email (March 5, 2009)

Citigroup pushed below a buck a share in latest sell-off

BOSTON (MarketWatch) -- Citigroup Inc. shares dropped below a dollar on Thursday for the first time ever amid the latest sell-off in financial shares as investors questioned the future of the embattled banking giant.


Reporter's Notebook: Plenty of hybrids at AutoNation

AutoNation CEO Mike Jackson has a problem: There are way too many Toyota Prius hybrids sitting on his car lots across America.


GM, auditor express doubts over survival; shares skid below $2

General Motors and auditor Deloitte & Touche voice doubts over the automaker's ability to survive, which in part will depend on car sales rising next year. Shares of GM and smaller rival Ford both come under selling pressure.

 

[Count Iblis]

http://oxdown.firedoglake.com/diary/1884"

 

[Astronuc]

Investors worry about GE's outlook
http://marketplace.publicradio.org/display/web/2009/03/05/pm_ge/

GE shares close lower, even as it defends finances
http://biz.yahoo.com/ap/090305/na_us_general_electric_stock.html

GE Says Capital Unit Will Be Profitable in First Quarter, Full Year
http://online.wsj.com/article/SB123627807190242471.html

General Electric Co.'s troubled financial unit will be profitable for the first quarter and full year and won't need fresh capital or government assistance except under an unlikely disaster scenario, GE's chief financial officer said Thursday.

In a written statement and a TV interview, CFO Keith Sherin said recent speculation about risk at GE Capital is "overdone." Mr. Sherin said GE has enough capital to fund itself through 2010, with $45 billion in cash and an additional $60 billion available under the U.S. government's Temporary Loan Guarantee Program. There are no short-term "triggers" that would strain the cash position, he added.

Mr. Sherin spoke one day after GE shares sank to 18-year lows amid record volume of 752.9 million shares on Wednesday, according to FactSet Research System. On Thursday, the share price fell 3 cents to $6.66, as major market indexes fells sharply.

GE expects to generate $16 billion in cash this year, but Mr. Sherin said funding would be adequate even if it were to fall to $14 billion. Below that, he said the company could conserve cash by making fewer new loans at GE Capital.
. . . .

Apparently GE has cut its dividend.


Both parties play the blame game for economic woes
http://news.yahoo.com/s/ap/20090305/ap_on_go_co/spin_meter_whose_economy

Safe to say that both parties and the last several administrations have contributed to the current problems.

 

[LowlyPion]

Sadly that's what GM, BoA, Bear Sterns, etc. were saying last year.

 

[edward]

Someone needs to tie a long rope to a big rock and drop it into this toxic crud and see how deep it really goes. I have a feeling we haven't come close to the bottom yet.

 

[turbo]

With Citi under a buck and GM under two bucks, who is willing to buy stock and hang onto them? After the auditors' reports on GM came out today, I don't think I would be buying stock in that company... Citi?... Well, if the US government thinks that bank is "too big to fail", their penny-stocks might be a fun low-risk buy.

 

[Astronuc]

I heard a report today that the newest wave of foreclosures is tied to unemployment or loss of income, and those foreclosures are happening outside the 4 states (CA, FL, AZ, NV) at the heart of the subprime mortgage crisis.


Here's an interesting perspective on the mortgage crisis:

They Warned Us About the Mortgage Crisis
http://www.businessweek.com/print/magazine/content/08_42/b4104036827981.htm

It seems that the federal government undermined states' efforts to rein in the mortgage companies who were pushing risky mortgages.

More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern warning for the nation's top bank regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of "predatory" lending. They urged Hawke to give states more latitude to limit exorbitant interest rates and fine-print fees. "People out there are struggling with oppressive loans," Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn't budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the nascent fight against reckless real estate finance. The OCC "took 50 sheriffs off the job during the time the mortgage lending industry was becoming the Wild West," Cooper says.

This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the heart of the current financial crisis. Federal officials brushed aside their concerns. The OCC and its sister agency, the Office of Thrift Supervision (OTS), instead sided with lenders. The beneficiaries ranged from now-defunct subprime factories, such as First Franklin Financial, to a savings and loan owned by Lehman Brothers, the collapsed investment bank.

Some states, including North Carolina and Georgia, passed laws aimed at deterring rash loans only to have federal authorities undercut them. In Iowa and other states, mortgage mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision. In Ohio the story took a different twist: State lawmakers acting at the behest of lenders squelched an attempt by the Cleveland City Council to slow the subprime frenzy.

A number of factors contributed to the mortgage disaster and credit crunch. Interest rate cuts and unprecedented foreign capital infusions fueled thoughtless lending on Main Street and arrogant gambling on Wall Street. The trading of esoteric derivatives amplified risks it was supposed to mute.

One cause, though, has been largely overlooked: the stifling of prescient state enforcers and legislators who tried to contain the greed and foolishness. They were thwarted in many cases by Washington officials hostile to regulation and a financial industry adept at exploiting this ideology.

The Bush Administration and many banks clung to what is known as "preemption." It is a legal doctrine that can be invoked in court and at the rulemaking table to assert that, when federal and state authority over business conflict, the feds prevail—even if it means little or no regulation.

. . . .

But this started under Clinton.

 

[OmCheeto]

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis

Can we sell those states to China, or Saudi Arabia? Kind of like we did land deals about 200 years ago?

At $1e5 per acre, we might be ahead after it's all said and done.

Then we could travel to foreign countries by just bicycling across a border.

 

[turbo]

Can we sell those states to China, or Saudi Arabia? Kind of like we did land deals about 200 years ago?

At $1e5 per acre, we might be ahead after it's all said and done.

Then we could travel to foreign countries by just bicycling across a border.

Maybe Dubai would buy CA and take it off our hands... That would take off a lot of the load.

 

[Count Iblis]

With Citi under a buck and GM under two bucks, who is willing to buy stock and hang onto them? After the auditors' reports on GM came out today, I don't think I would be buying stock in that company... Citi?... Well, if the US government thinks that bank is "too big to fail", their penny-stocks might be a fun low-risk buy.

Buying credit default swaps could perhaps be more profitable, provided the banks who issued them can pay out if GM fails

 

[Astronuc]

How to Handle Your Job and Finances If There's a (Yikes!) Depression
http://finance.yahoo.com/banking-budgeting/article/106695/How-to-Handle-Your-Job-and-Finances-If-There-Is-a-Depression

I think some are not calling the current economic sitution "The Great Recession"

Brace yourself, America. What if the already terrible economy gets even worse? And not just a little bit worse, but a lot worse? Look at it this way: If you put a group of brainiac economists together in a room and told them to create a computer model of a Great Depression 2.0, the key ingredients would probably be a) plunging stock prices, b) collapsing home values, c) soaring unemployment, and d) a banking system on the verge of complete implosion.

And do we have all those terrible factors in play today? Check, check, check and check. But there are also some big positives to counterbalance those huge negatives, such as a Federal Reserve that is lowering interest rates and printing money, as well as trillion-dollar government plans to stimulate the economy and keep people in their homes.

But things can get a lot nastier without reaching a total Great Depression scenario where the economy shrinks by 25 percent and unemployment soars by 25 percent. So just how bad might the economy get? And if there is a mini-depression, what should you do about it? Your questions, our answers.

. . . .

Workers clobbered by relentless layoffs
http://biz.yahoo.com/ap/090306/economy.html

Employers resorting to bigger layoffs to survive recession and there's no relief in sight

WASHINGTON (AP) -- Cost-cutting employers are resorting to even bigger layoffs as they scramble to survive the recession, feeding insecurities among those who still have jobs and those who desperately want them.

The Labor Department on Friday is slated to release a report expected to show that February was an especially cruel month for America's workers.

Employers likely slashed a net total of 648,000 jobs last month, according to economists' forecasts. If they are right, it would mark the worst month of job losses since the recession started in December 2007. It also would represent the single biggest month of job reductions since October 1949, when the country was just pulling out of a painful recession, although the labor force has grown significantly since then.

"The pace of layoffs is fast and furious," said Stuart Hoffman, chief economist at PNC Financial Services Group. "We're still in the teeth of this recession and the bite has not let up at all."

With employers slashing payrolls, the nation's unemployment rate is expected to jump to 7.9 percent, from 7.6 percent in January. If that happens, it would mark the highest jobless rate since reaching 8 percent in January 1984, a time when the unemployment rate was still slowly moving down after having topped 10 percent during the early 1980s recession.
. . . .
General Dynamics Corp. said Thursday it will lay off 1,200 workers due partly to plummeting sales of business and personal jets that forced it to cut production. Defense contractor Northrop Grumman Corp., and Tyco Electronics Ltd., which makes electronic components, undersea telecommunications systems and wireless equipment, also are trimming payrolls.

"This is basically cleaning house for a lot of firms," said John Silvia, chief economist at Wachovia. "They are using the first quarter to cut back employment and figure out what they want."

Disappearing jobs and evaporating wealth from tanking home values, 401(k)s and other investments have forced consumers to retrench, driving companies to lay off workers. It's a vicious cycle in which all the economy's negative problems feed on each other, worsening the downward spiral.
. . . .

Former KB Home CEO indicted on fraud charges
http://news.yahoo.com/s/ap/20090306/ap_on_bi_ge/kb_home_backdating

A federal grand jury has charged the former chairman and chief executive of KB Home with multiple counts of fraud and other crimes related to a stock option backdating scheme that authorities say bilked the homebuilder's shareholders out of millions of dollars.
. . . .
Last month, another ex-KB executive, Gary A. Ray, pleaded guilty to conspiring with Karatz to obstruct justice by causing KB Home to file a false report on its option-granting practices in a bid to avert an SEC probe.

Stock option backdating isn't necessarily illegal as long as the stock options are properly recorded on the company's books. But if the accounting of the perks is bungled, it can exaggerate corporate profits and improperly lower taxes.

According to the indictment, for seven years, Karatz altered the grant date on his options to one on which KB Home shares traded more cheaply, but didn't report it in public filings. That hid the actual value of stock-based compensation that KB was awarding him and other executives, prosecutors said.

This enabled Karatz to reap millions of dollars when he exercised his options, while making it appear the gains were the result of the normal appreciation of the market value of KB's stock, prosecutors said.
. . . .

 

[Art]

The UK government announced yesterday it was going to try quantitative easing to try and keep their economy afloat. Initially they will create £75 billion of new money rising to £150 billion over the next 3 months. The idea being once this money is placed on deposit with Britain's investment banks it will flood the financial market with cash thus improving liquidity. There is a certain symmetry about buying fictitious assets with fictitious money.

The Japanese used this mechanism in the 90's but instead of lending the money to customers their banks just sat on it. Given the option it is likely the British banks will do the same but what is different about this is the gov't appears to be planning on lending around £50 billion of the total directly to businesses in return for bonds and commercial paper.

Unfortunately, although these figures looked huge, they were dwarfed by news the same day that Lloyd's bank may require a handout of £250 billion just to survive