Links 11/14/08 « naked capitalism

Friday, November 14, 2008

Links 11/14/08

Woman out $400K to ‘Nigerian scam’ con artists Katu

Bailout Lacks Oversight Despite Billions Pledged Washington Post (hat tip reader Brian)

Housing market ‘far worse’ than figures suggest Independent

Wilbur Ross Says GM Bankruptcy Filing Would Be a `Total Mess’ Bloomberg

Paulson is handing out free money like candy to a baby Ed Harrison. The offense du jour is pretty outrageous: Citi is acquiring a profitable bank (Chevy Chase) rather than use its TARP money for its intended purpose, making loans.

NY Banking Probe Target: $250,000 Bonuses CFO. Um, that is less than the average bonus at Goldman in 2006 across the firm (meaning including secretaries and back office).

T.A.R.P. R.I.P.: Illiquency Watch Anna Gelpern Credit Slips

Central Banks Shun the US Long Bond Auction – “Too Many Unknowns” Jesse’s Cafe Americain

Financial Haiku Open Day Cassandra

Antidote du jour. From the Boston Globe, “Zoo Babies” (hat tip reader Megan):

14 Comments:

doc holiday says:

November 14, 2008 at 3:38 am

Finally, after months of hell, this is cute and unrelated to economics. Is that a bad sign?

River says:

November 14, 2008 at 4:05 am

Off Topic:

Heard in a Larry Fink speach yesterday…this comment struck me as humorous although I dont think Fink intended it to be…

snip…’Foreign investors are really angry about all those crappy assets we sold them. We’re going to have a lot of Treasuries to sell, so we better hope they get over their anger. BlackRock trading partners in Saudi Arabia, Singapore and Kuwait called when Barack Obama was elected president to say they were really proud of what America did on Election Day, that it made them believe America is, in fact, the place they always thought it was. This sentiment will make it easier for us to sell them our debt.’…snip…

•Foreign investors are really angry about all those crappy assets we sold them. We’re going to have a lot of Treasuries to sell, so we better hope they get over their anger. BlackRock trading partners in Saudi Arabia, Singapore and Kuwait called when Barack Obama was elected president to say they were really proud of what America did on Election Day, that it made them believe America is, in fact, the place they always thought it was. This sentiment will make it easier for us to sell them our debt.

http://curiouscapitalist.blogs.time.com/2008/11/13/larry-fink-gave-a-speech-and-i-was-there/

Jojo says:

November 14, 2008 at 4:07 am

One of the best photo blogs on the web is here (some photo’s of animals occasionally):

http://www.boston.com/bigpicture/

Jojo says:

November 14, 2008 at 4:30 am

Interesting story here:
=================
For Many, 20% Down Payment Is All That’s Left

Posted on November 11th, 2008 in Daily Mortgage/Housing News – The Real Story, Mr Mortgage’s Personal Opinions/Research

This news has been a long time coming and is very damaging to the housing market. This announcement from Wells is the first I have seen but others should follow suit this week.

I have done numerous reports on the mortgage insurers and how it does not matter what Fannie and Freddie do with respect to loan-to-value, its all about what the mortgage insurers will do.

In CA (other states as well) due to mortgage insurer ‘challenges’, the MINIMUM credit score required to do any loan (Fannie/Freddie included) over 80% is now 720 from the previous 620. I am not sure the percentage of folks with over 720 scores vs. under but regardless, this will take a massive number of people out of the market.

Credit scores are dropping across all demographics very quickly due to the banks chopping revolving (credit card) and home equity loan credit limits dramatically in the past few months. In most cases, banks are dropping the credit limits to right above what people owe. This hurts credit scores badly because a large portion of your score is based upon total credit available vs. used. For example, if you have a $1000 credit limit and you use $299, it is under 30% which is optimal. The next tier is 50%. However, if you have a balance of $501 through $999, your will can be hit hard for each revolving line you have in this condition. So, by banks chopping lines they are essentially hurting the consumers ability to borrow just as credit guidelines are tightening. This is as bad as it gets.

Additionally, putting 20% down is a very rare thing especially in this housing market. Over 50% of all sales came from the foreclosure stock and move-up buyers are not driving force – it is first-time home buyers, renters and investors. While investors usually have to put down at least 20%, first-time buyers and renters can put down less through Fannie and Freddie. Until recently, in CA you could purchase a home with 5% down under 720 score.

This just made affordability drop in a big way. To compensate, house values have to fall even further. This will also shuffle folks over to FHA for loans over 80% where rates are higher and where much fewer programs are available, which I am sure is part of the master plan.

Ultimately, this will be great for housing in the future, as home owners will be nowhere near as leveraged in their home. But between now and the years it takes to get to ‘ultimately’, you must be aware of how damaging things like this can be to housing. -Best, Mr Mortgage

================================

River says:

November 14, 2008 at 4:31 am

Off Topic:

Mayor Daley: Prepare For Mass Layoffs
CEOs Tell Mayor They Plan Huge Layoffs In Novrmer, December

…snip…’Mayor Daley says corporate leaders told him huge layoffs will impact the city this month and hnext, and into the new year. He also says city, county and state governments should be prepared for their revenue to fall dramatically because of the souring economy.’

‘Each [CEO] tells me what they are going to be laying off and they’re going to double that next year. We’re talking huge numbers of permanent layoffs for people in the economy. It’s going to have a huge effect on all businesses.’…snip…

http://cbs2chicago.com/local/daley.city.layoffs.2.863161.html

Anonymous says:

November 14, 2008 at 6:29 am

Economy = Submarine with a screen door.

Good thing I have a fantastic recipie for red beans and rice from my days in Coasta Rica.

Skippy

Anonymous says:

November 14, 2008 at 9:07 am

“BlackRock trading partners in Saudi Arabia, Singapore and Kuwait called when Barack Obama was elected president to say they were really proud of what America did on Election Day, that it made them believe America is, in fact, the place they always thought it was. This sentiment will make it easier for us to sell them our debt.”

….suckers

River says:

November 14, 2008 at 9:29 am

Skippy…I have Aretha Franklins recipe for red beans and rice. Wanna trade?

I am always looking for new and better recipes. Currently have about 100lbs of rice and a couple of hundred pounds of various beans in dry storage. Hurricane supplies, you know?

On my walk through the neighborhood last Friday I stopped at a yard sale where I found a box of candles for sale. The seller had them marked .25 each. I asked how much for the entire box…$2.00. Most have been used once for a few minutes and the box weighs a good 20 lbs. Great to have around when the power goes out.

Don says:

November 14, 2008 at 9:56 am

"pressing the Federal Reserve to expand purchases of commercial paper to include them"
Well, here we go. Anchors Away on government guarantees. Maybe there is something to this socialism idea after all. Via Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a6.zX8Uh5DcI&refer=home

"Nov. 14 (Bloomberg) — A group of companies including Textron Inc., Home Depot Inc. and Honda Motor Co. is pressing the Federal Reserve to expand purchases of commercial paper to include them, two people briefed on the matter said.

The coalition, which also counts Dow Chemical Co. and Nissan Motor Co. as members, wants the Fed to go beyond top-rated paper and buy debt with the second-highest grade, the people said on condition of anonymity. American Electric Power Co. Chief Financial Officer Holly Koeppel said the group is seeking to add more companies and preparing a letter to outline its case."

Preparing a letter. Is it more like a list of demands? Calling all politicians.

"Second-tier issuers of commercial paper, debt that matures in nine months or less and is a form of IOU for day-to-day expenses such as payrolls and rent, argue they're disadvantaged by the Fed's new Commercial Paper Funding Facility. "

Let's call this the " I'm Disadvantaged Argument. I Can't Get Up. Help Me!", principle.

Remember this yesterday on Yves Smith:

"Without a similar guarantee, U.S. banks will be “at a significant disadvantage'' to their U.K. and European counterparts because their government-backed debt will be more expensive for borrowers and less attractive to investors, the letter said."

Our story continues:

"While accepting lower-grade debt could reduce borrowing costs for a broader group of companies, it would also expose the taxpayer to greater risk. The request is one of a number of attempts to get a share of federal rescues, with industries from automakers to heating-oil retailers seeking funds.

“We are really creating a mindset where no one fails,'' said Adolfo Laurenti, a senior economist at Mesirow Financial Inc. in Chicago."

Let's go past tense here Adolfo.

“Manufacturers that have A-2/P-2 paper are getting nailed,'' Senator Bob Corker, a Tennessee Republican, said at a congressional hearing two weeks ago. “All of a sudden, they're at a 500 basis-point disadvantage and basically getting ready to lay people off,'' he said, pressing Fed Governor Elizabeth Duke to revise the central bank's policy.

Fed's Objective

Duke responded to Corker that the Fed's objective was to get the market “moving again,'' and once the top-tier portion is reenergized, “then that will move the other parts of the market as well.''

The Fed has argued that limiting the program to the highest- rated securities provides protection for taxpayers."

Corker to Duke: I'm a politician. Get my contributors some of this TARP money or something similar fast. Otherwise, your decision looks arbitrary. I told Willem Buiter this yesterday. Once you give up moral hazard, expect decisions on where and when to intervene to look stupid and arbitrary.

“A lot of companies that qualify below the A-1/P-1 level are good performing companies,'' said Bill Himpler, executive vice president at the Washington-based American Financial Services Association.

The commercial-paper market was roiled by the failure of Lehman Brothers Holdings Inc. in September, which prompted money- market funds, among the biggest buyers of commercial paper, to retreat into the relative safety of government debt."

Lehman again. Didn't I say that lack of clearly enunciated principles and apparent arbitrariness of intervention are the main culprit that lead to the political avalanche against moral hazard.
"Laissez Les Bailouts Roulez"

Don the libertarian Democrat

doc holiday says:

November 14, 2008 at 3:42 pm

I just read the link to: T.A.R.P. R.I.P.: Illiquency Watch Anna Gelpern Credit Slips.

Re: "TARP's third incarnation as a consumer lending catalyst goes straight to my pet crisis peeve. I am endlessly flummoxed at the authorities' insistence on throwing liquidity at a solvency problem — with TARP I, AIG, and now, the consumers."

> For some reason, TARP is starting to remind me of this link:

http://www.nakedcapitalism.com/2008/10/paulson-plan-mlec-version-20.html

SUNDAY, OCTOBER 5, 2008
The Paulson Plan = MLEC Version 2.0
I can be painfully slow to see things sometime…..

Hank Paulson attempted to ride to the rescue with an idea, the so called Master Liquidity Enhancement Conduit, that we said virtually from the get-go would not work.

Oh Yves (ol' boy) WTF is going on and why do I have to be here at your side playing this stupid game???

Don says:

November 14, 2008 at 4:32 pm

http://ftalphaville.ft.com/blog/2008/11/14/18276/you-couldnt-make-this-up-hartford-financial-edition/

“so the insurer can be eligible for the Treasury rescue program.”

This is going too far. From Alphaville:

“Bloomberg:

Nov. 14 (Bloomberg) — Hartford Financial Services Group Inc. said it’s buying a Florida bank [Federal Trust Bank] for $10 million so the insurer can be eligible for the Treasury rescue program.

Hartford, based in the Connecticut city of the same name, expects to qualify for $1.1 billion to $3.4 billion under Treasury guidelines, the company said in a statement distributed today by Business Wire.

What blatant abuse. From the statement:

“We are taking these actions as a strong and well-capitalized financial institution looking for maximum flexibility and stability,” said Ramani Ayer, The Hartford’s chairman and chief executive officer. “Securing capital at the terms available through the Capital Purchase Program could be a prudent course in this market environment and would allow us to further supplement our existing capital resources.”

(Translation: Pay $10m, get $3.4bn of funding? Where do we sign?)”

So, today we have cities applying, possibly foreign banks like UBS, and this.

Remember the Fact/Parody Jinx? I’m sorry, but Alphaville is partly to blame for this madness. Never defy the gods.

Don the libertarian Democrat

River says:

November 14, 2008 at 6:15 pm

And yet another take on Hartford applying for a place at the trough…

Hartford Insurance Becomes A Savings And Loan And Taps Uncle Sugar’s CCP

‘There seems to be a bias to do whatever it takes to support big bonus and dividend paying financial companies, even one as diverse as GE, but to continue to let the manufacturing sector and blue collar jobs go to hell in a handbasket for the sake of global competitiveness and lower wages.

Yesterday the talking heads on Bloomberg and CNBC were ripping US manufacturing for its bad management practices, and blue collar workers for their extravagant wages, while praising the use of public money to generously subsidize the financial sector that caused this mess.

It was a truly Orwellian moment. What a collection of shameless, self-serving parasites!

Hartford’s stock jumped 25% on the news, and helped to buoy the market. This did not last as the markets sold off heavily in the last half of hour trading. This Administration’s economic policies are as bankrupt as they have left the Treasury.’…snip…

http://jessescrossroadscafe.blogspot.com/2008/11/hartford-insurance-becomes-savings-and.html

donna says:

November 14, 2008 at 7:09 pm

Tapirs not TARPS!

Let’s replace Paulson with a tapir. Do more good….

Anonymous says:

November 14, 2008 at 7:47 pm

Another gritty irony of Bush’s war on America is that credit card companies will borrow tax payer money at 1 – 1.5 % …… and charge Americans 33 pct to borrow these dollars from them.

America is under siege.

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