Deception Factory

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2011-11-27T23:17:00.000-08:00

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Timmy Gets Angry

2009-11-19T09:01:00.000-08:00

NO MORE TIMMY

2009-11-18T19:58:00.000-08:00

Visit msnbc.com for Breaking News, World News, and News about the Economy

Meredith Whitney: Very Bearish on Stocks; Next Leg Down in Real Estate Coming Soon

2009-11-17T13:08:00.001-08:00

Underwater Mortgages Could Sink Even Deeper

2009-11-16T09:40:00.000-08:00

Home prices may be stabilizing in some areas in the nation, but the damage has already been done in the housing markets that saw the biggest boom and in turn the biggest bust.

Home buying in these markets reached a frenzied pace during the middle of this decade, and that means that a good portion of buyers purchased homes at the top of the market. No surprise that they have now sunk deepest underwater on their mortgages.

A new survey from Zillow.com shows that even in those markets where investor competition has returned and prices on the low end are beginning to stabilize, homeowners still owe far more on their mortgages than their homes are currently worth.

Las Vegas leads the way with 81.8 percent of borrowers underwater on their loans in the third quarter of this year, down barely one percent from the second quarter but still up 10 percent from the first quarter.

The bulk of underwater borrowers are in California, Florida, Arizona and Nevada. While home prices nationwide were down 8.5 percent in September from a year ago, prices in these states are still way down -- 34 percent in Las Vegas, 26 percent in Orlando, 23 percent in Phoenix and 11 percent in Los Angeles (National Association of Realtors). Again, that's from a year ago, but many of these cities have seen over 50 percent price declines from the peak of the market.

Some argue that "underwater" borrowers are no different than any other borrowers, as long as they continue to make their monthly mortgage payments, and as long as they continue to want to live in their homes, knowing they will have to wait out the market for home equity to gradually return.

But the danger is for those that need to sell, or for those who can no longer afford their monthly payments and don't qualify for a loan modification.

The government mortgage rescue programs do allow for modifications and refinances on homes with up to 25 percent negative equity, but many homeowners, especially in the hardest hit regions, don't think they will ever see equity again, and therefore see no reason to continue making payments on their loans, whether they are able to or not.

Many are simply sitting in their homes, rent-free, as banks struggle to catch up and contact them. Others are vacating the homes, mailing in the keys, and choosing a credit hit, rather than be strapped to a home that will only ever be a liability.

Home prices are improving, but there is a lot of government stimulus behind that improvement. The extension and expansion of the home buyer tax credit, as well as artificially low mortgage rates backed by the Federal Reserve's purchase of GSE loans and securities, will all expire by the middle of 2010, so it remains to be seen whether the very tenuous recovery we are now seeing in housing can endure on its own.

As foreclosures and unemployment continue to rise, the potential for a double dip in home prices is very real, and borrowers underwater now will only sink deeper.

- Via CNBC

Netherlands to levy 'green' road tax by the kilometre

2009-11-15T01:43:00.000-08:00

The Dutch government said Friday it wants to introduce a "green" road tax by the kilometre from 2012 aimed at cutting carbon dioxide emissions by 10 percent and halving congestion.

"Each vehicle will be equipped with a GPS device that tracks how many kilometres are driven and when and where. This data will be then be sent to a collection agency that will send out the bill," the transport ministry said in a statement.

Ownership and sales taxes, about a quarter of the cost of a new car, will be scrapped and replaced by the "price per kilometre" system aimed at cutting the Netherlands' carbon dioxide emissions by 10 percent.

"Traffic jams will be halved and it helps the environment," the ministry said.

Dutch motorists driving a standard family saloon will be charged 3 euro cents per kilometre (seven US cents per mile) in 2012. That would increase to 6.7 cents (16 US cents per mile) in 2018, according to the proposed law.

Every vehicle type will have a base rate, which depends on its size, weight and carbon dioxide emissions.

Taxis, vehicles for the disabled, buses, motorcycles and classic cars will all be exempt.

"An alternative payment will be introduced for foreign vehicles," the ministry statement added.

The Dutch cabinet approved the road tax bill on Friday. It will need the backing of parliament before it becomes law.

- Via AFP

The Surge: The Untold Story

2009-11-13T17:29:00.000-08:00

Understanding the Surge from ISW on Vimeo.

FHA Reserve Ratio Falls to 0.53%, Lowest in History

2009-11-13T16:40:00.000-08:00

The Federal Housing Administration’s mortgage insurance reserves fell to the lowest level in history and the government said more steps are needed to shore up the agency that guarantees one of every five single-family loans.

The net capital ratio, or reserves after accounting for projected losses, fell to 0.53 percent in the year ended in September, from 3 percent in fiscal 2008 and 6.4 percent in 2007, according to an annual review sent today. While FHA said the fund “has good prospects,” it is changing its risk models to account for the possibility of the ratio falling below zero.

“Additional actions” will be needed to shore up the agency, Housing and Urban Development Secretary Shaun Donovan said at a news conference in Washington today. The insurance fund tripled in size last year and has taken on more risk as private industry sources for lenders to finance and insure home loans dried up and mortgage default rates rose to record highs.

“I don’t want to leave the impression that the reserves are adequate, that we have plenty of money,” said Donovan, whose department includes FHA. “FHA is not in the long-run self supporting, it isn’t returning money to the taxpayer.”

Donovan said the economy is worse than housing officials expected and projected claims against the insurance fund are higher than forecast. The fund is already below the 2 percent reserve threshold FHA is required to maintain by Congress and Donovan said it’s “critical” to build that cushion back up.

No Bailout

Donovan specifically avoided using “the bailout word,” saying there is no extraordinary action Congress needs to take for FHA to continue covering claims.

“We have never had to make an appropriation and we can make adjustments to features of our loans to avoid that,” he said. “FHA is unique and the bailout term doesn’t apply the way most people think of it,” he said.

The 0.53 percent ratio is the lowest since FHA began publishing the data in 1990. FHA said under normal economic scenarios it expects the ratio to rise to 1.1 percent in fiscal 2010, according to the report. The ratio could dip to -1.03 percent if there is a significant drop in mortgage rates that cuts into premium revenue, the report shows.

Donovan said HUD postponed the initial release of the results by a week after instructing its auditors to remodel the projected losses with more pessimistic economic forecasts. The original audit showed the capital reserve ratio at 0.8 percent.

FHA Commissioner David H. Stevens said the forecasts used by auditors for home price declines, loss severities and interest rates accounted for the steeper projected fund losses.
The fund is “being depleted at a rate that gives us pause and caution.”

Temporary Role

FHA, along with federally controlled mortgage-finance companies Fannie Mae and Freddie Mac, accounted for more than 90 percent of all U.S. home loans in the first half of this year.
Donovan said it was a temporary role FHA played in previous economic downturns, and the agency will scale back as private money returns to the market.

“FHA is playing a critical role in restoring health to the housing market by helping working families access mortgage finance when private capital is tight,” Donovan said. “With this temporary increased role comes increased risk and responsibility.”

Stevens announced plans in September to tighten FHA’s underwriting criteria. The agency, which insured almost 50 percent of loans to first-time homebuyers in the second quarter, is increasing appraisal requirements and will have borrowers submit extra paperwork. Stevens also appointed a chief risk officer to help cope with the increased risk on its books.

Real Risks

“There are real risks to the FHA and we are aggressively addressing those real risks with real reforms,” Stevens said in the statement.

FHA’s total reserves are more than $31 billion, giving it an overall capital resource ratio of 4.5 percent, according to the statement. The 0.53 percent net capital loan insurance ratio takes into account projected losses and is the yardstick Congress uses to determine the health of the fund.

FHA is required by Congress to maintain a loan reserve ratio of at least 2 percent to protect the insurance fund from defaults. FHA isn’t in danger of failing, and the mortgage insurance fund will likely recover on its own within two years without any policy changes, Stevens told reporters on a conference call in September.

- Via Bloomberg

FDA finds bits of steel, rubber in Genzyme drugs

2009-11-13T16:21:00.000-08:00

Federal health regulators warned today that tiny foreign particles have been found in five drugs produced by Cambridge biotechnology firm Genzyme.

The Food and Drug Administration said particles including stainless steel fragments, non-latex rubber and fiber-like material were found in drug vials and could cause serious adverse health effects in patients.

The contaminated products, used to treat “rare, serious and life-threatening diseases,” are marketed as Cerezyme, Fabrazyme, Myozyme, Aldurazyme and Thyrogen.

Based on product lots tested to date, the particles were “believed to be found in less than 1 percent of products,” according to the FDA.

Genzyme notified the FDA about the contaminated drug vials through product quality reports that are required to be submitted by drug manufacturers.

“The FDA is actively investigating the nature of the contamination and seeking immediate implementation of corrective actions to mitigate the situation,” the federal agency said. “At this time, no adverse event reports attributed to foreign particle contamination have been received by FDA.”

Potential health affects from intramuscular injections of the contaminated drugs could include local pain, swelling and inflammation, according to the FDA. Potential adverse reactions from intravenous infusions of the contaminated products could be more serious, including damage to blood vessels or embolic events, and anaphylactic, allergic and immune-mediated reactions. The foreign particles also could affect how well the products work, the FDA said.

Shares of Genzyme Corp. dropped $3.67, or 6.9 percent, to $49.50 in afternoon trading.

The FDA announcement is the second case of contamination for Genzyme this year. In June, Genzyme was forced to shut down a key production facility due to viral contamination.

- Via Boston Herald

U.S. Posts $176.36 Billion Deficit for October

2009-11-13T15:23:00.000-08:00

The federal government kicked off fiscal year 2010 by posting its widest-ever October budget deficit, the Treasury Department said Thursday.

The $176.36 billion gap is more than $20 billion wider than the shortfall recorded in October 2008, driven up by lower tax receipts, stimulus-related revenue reductions and consistently high government outlays.

Treasury's monthly budget statement shows receipts were $135.33 billion in October, down 18% from a year earlier and at the lowest level since October 2002. Meanwhile, outlays were $311.69 billion, down 3% from a year earlier and at their second-highest monthly level on record.

The October deficit figure is wider than the Congressional Budget Office's estimate for a $175 billion deficit in the month and wider than the $165.9 billion expected by analysts surveyed by Dow Jones Newswires.

The Treasury on Thursday also revised September's deficit to a slightly narrower $46.57 billion, from a previously reported $46.61 billion. Even with the revision, the U.S. in fiscal year 2009 posted a record total budget deficit of near $1.4 trillion -- three times its previous record.

At the equivalent of 9.9% of gross domestic product, the figure is the widest U.S. deficit as a share of GDP since 1945.

The staggering number has had U.S. Treasury Secretary Timothy Geithner pledging to rein in the deficit as the nation's economy recovers.

The U.S. at this point is expected to post a fiscal year 2010 deficit similar to that posted in fiscal year 2009.

The government paid $17.93 billion in net interest last month on the federal debt. Net interest on the federal debt excludes interest paid on nonmarketable government securities held by federal trust funds, such as Social Security.

- Via WSJ

There Is No Recovery

2009-11-10T17:30:00.000-08:00

Yet more BS Fedspeak, this time in the mainstream media:

In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.

That's because there is no real economic recovery at all.

So why is the stock market up so much?

More than happy to show 'ya.

Two charts should suffice:

That is an overlaid chart (as close as I can easily get them to register) on the dollar and The S&P 500 from the March lows to today.

Notice the near-perfect inverse correlation. The Dollar goes up, the market goes down. The Dollar goes down, the market goes up.

Now today, literally minute-by-minute:

Same correlation - near-perfect.

Folks, you don't have to engage in any sort of "conspiratorial" thinking on this whatsoever. You only need examine the facts.

The rally in the market has exactly nothing to do with the economy and the outlook for it. It is tied to one and only one thing - the decline in the dollar.

A WEAKER, EVEN COLLAPSING, DOLLAR IS NOT COMMENSURATE WITH OR INDICATIVE OF A STRONGER ECONOMY.

You're free to believe in any thesis you'd like with regards to economic recovery. But a strong economy is correlated with a stronger currency - that is, the underlying strength of America, along with her ability to support her currency via current and future production, which translates into the ability to raise tax revenues and thus cover debt.

Since March The Federal Reserve and Federal Government have in fact promulgated and prosecuted policies that do the exact opposite. The stock market has responded not to forward economic prospects, as is often claimed, but rather to the "hot money" flows of foreign and domestic speculators and a dollar-based carry trade engendered by The Fed's zero-percent interest rates.

Yes, the stock market could go to all-time highs - for a short while - if this is allowed to continue. But oil (priced in dollars) would be $300 and the dollar would be at 40 - everything you buy that is imported would literally double (or more) in price, and your standard of living, since energy is in everything, would be cut in half - or worse.

How well will the stock market do over the intermediate and longer term when the 70% of the economy that is consumer spending (that's you, dear reader!) is destroyed by ramping import costs - whether the government calls that "inflation" or not?

Japan tried this same game when they got in trouble 20 years ago and they failed to produce lasting economic growth and prosperity. What they did produce was near-exact correlated market rallies and Yen devaluations, but 20 years later, despite huge rallies in the stock market as we have seen in ours, The Nikkei remains some 60% off it's all-time high, with no realistic prospect of reaching that high at any time in the foreseeable future.

The mainstream media will not show you the above charts, as they put the lie to any claim that the market is "foreshadowing" economic recovery in the next six to twelve months.

It is doing no such thing - it is responding to hot money flows that are being intentionally generated and, if you follow them as an investor (rather than as a minute-by-minute trader) you will be crushed, just as those who bet on recovery in Japan following their original collapse were.

Bernanke, Geithner and the other stooges in our government and media are intentionally misleading you.

Again.

- Via The Market Ticker

Mind Blowing Speech By JBS Founder Robert Welch In 1974!

2009-11-06T17:53:00.001-08:00

Obama Says Administration Pursuing More Jobs

2009-11-06T10:40:00.000-08:00

President Barack Obama said his administration will continue to pursue measures that will stimulate job growth after the Labor Department reported the nation’s unemployment rate jumped to 10.2 percent last month.

The president made his remarks after signing into law a measure extending an $8,000 tax credit for first-time homebuyers and benefits for unemployed workers. It also provides tax refunds to money-losing companies. His spokesman said the administration expects the jobless rate will continue to rise before coming down again.

“My economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and businesses to make buildings more energy efficient,” additional tax cuts, and more steps to ease the flow of credit to small business and promote exports, he said.
Employers have shed 7.3 million jobs since the recession began in December 2007, 3.5 million of those since Obama took office in January. Obama called the October jobs report “a sobering number that underscores the challenge that lies ahead.”

White House press secretary Robert Gibbs said at a later briefing that the administration expects the unemployment rate will get “a little worse before it gets better.”

Political Peril

The jobless rate carries political peril for Obama if the figure remains high in the months preceding the mid-term congressional elections a year from now.

The economy was listed as the most important issue facing the country by 47 percent of the American public in a CNN poll conducted Oct. 30 to Nov. 1, surpassing health care and the wars in Iraq and Afghanistan.

“Although it will take time and will take patience, I’m confident that our economy will recover,” Obama said.

The legislation Obama signed will funnel an estimated $45 billion into the economy this year. It is the first major expansion of provisions in February’s $787 billion economic stimulus package. The bill would extend until April 30 the tax credit for first-time homebuyers that would otherwise expire at the end of this month.

The jobless would get as many as 20 additional weeks of unemployment assistance. Companies would be given expanded ability to apply losses to previous years’ income, allowing them to qualify this year for $33 billion in tax refunds, according to Congress’s Joint Committee on Taxation.

The 10.2 percent jobless rate in October is a 26-year high, up from 9.8 percent in September. The Labor Department said employers cut 190,000 jobs last month, more than the 175,000 expected by economists in a Bloomberg News survey. The jobless rate exceeded 10 percent for the first time since 1983.

- Via Bloomberg

U.S. Economy: Unemployment Jumps to 10.2%, Payrolls Decline

2009-11-06T10:36:00.000-08:00

The unemployment rate in the U.S. jumped to 10.2 percent in October, the highest level since 1983, casting a pall over the prospects for a sustained recovery and risking further erosion of President Barack Obama’s popularity.

Payrolls fell by 190,000 last month, more than forecast by economists, a Labor Department report showed today in Washington. The jobless rate rose from 9.8 percent in September. Factory payrolls dropped by the most in four months, and the average workweek held at a record low.

Treasury two-year notes rose on bets the Federal Reserve is more likely to maintain its pledge to keep interest rates near zero. The figures prompted Obama, who signed a bill today extending jobless benefits, to promise fresh measures to help put some of the 15.7 million unemployed Americans back to work.

“We will certainly have very bad payroll numbers in November and December,” said Harm Bandholz, an economist at UniCredit Global Research in New York, whose forecast for a 10.1 percent unemployment rate matched the highest among economists surveyed by Bloomberg. “We don’t foresee businesses going on a hiring spree anytime soon.”

Two-year note yields fell three basis points, or 0.03 percentage point, to 0.85 percent at 1:16 p.m. in New York. The yield touched 0.83 percent, the lowest since Oct. 2. The Standard & Poor’s 500 Stock Index was little changed after falling as much as 0.7 percent.

Payrolls were forecast to drop 175,000 after an initially reported 263,000 decline for September, according to the median estimate of 84 economists surveyed by Bloomberg News. The jobless rate was projected to rise to 9.9 percent.

Homebuyer Tax Credit

Obama signed into law a measure extending a tax credit of up to $8,000 for homebuyers and benefits for unemployed workers, and he promised to pursue further measures to create jobs.
“My economic team is looking at ideas such as additional investments in our aging roads and bridges, incentives to encourage families and business to make buildings more energy efficient,” additional tax cuts, and more steps to ease the flow of credit to small business and promote exports, he said today at the White House.

For congressional Democrats facing challengers in midterm elections next year, the continuing erosion in the job market puts them at political risk. Voters on Nov. 3 overwhelmingly cited unease with the economy and worries about jobs as they ousted the Democratic governor of New Jersey and installed a Republican governor in Virginia after eight years of Democratic rule there. Obama carried both states in 2008.

Jobs Lost

The U.S. economy has lost 7.3 million jobs since the recession began in December 2007, when the unemployment rate stood at 4.9 percent. Since Obama took office in January, the economy has lost 3.49 million jobs.

The administration said last week that the $787 billion stimulus package plan signed into law in February was directly responsible for saving or creating about 640,000 jobs.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent from 17 percent in September, today’s report showed.

“We’ve got lots of people just giving up and leaving the labor force,” said Julia Coronado, a former Fed economist who now works at BNP Paribas in New York. “Consumer incomes are under pressure, and that raises questions about the sustainability of the improvement we’ve seen in consumer spending.”

Average Work Week

The average work week held at a record low of 33 hours in October, while average weekly earnings rose to $617.76 from $616.11 a month earlier. Workers’ average hourly earnings were 2.4 percent higher than October 2008, the smallest gain since 2004.

Some companies are cutting payrolls amid concern spending will cool as government-assistance programs wane. The New Brunswick, New Jersey-based Johnson & Johnson, the world’s largest health-products company, said Nov. 3 it will shrink its workforce by as much as 7,000 workers.
Factory payrolls dropped 61,000 after decreasing 45,000 in the prior month, today’s report showed. The median forecast by economists called for a drop of 42,000. The decline included a gain of 4,600 jobs in auto manufacturing and parts industries.

Auto Sales

Sales of cars and light trucks rebounded last month after plunging in the wake of the government’s so-called cash-for- clunkers incentive plan. Vehicles sold at a 10.5 million annual pace in October, up from a 9.2 million rate in September.

Inventories at U.S. wholesalers dropped in September for a 13th consecutive month, a separate report today from the Commerce Department showed, clearing the way for a pickup in orders as sales improve.

Today’s report contained some bright spots. Revisions added 91,000 to payroll figures previously reported for September and August, and the number of temporary workers rose by 34,000, the third consecutive gain.

Payrolls at temporary-help agencies often turn up before total employment because companies are not certain increases in demand will be sustainable enough to warrant the expense of taking on permanent staff.

Builders cut payrolls by 62,000 after a loss of 68,000 in September. Financial firms cut payrolls by 8,000, after 9,000 reductions the prior month.

Banks, Restaurants

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 61,000 workers after cuts of 105,000 the prior month. Retail payrolls decreased by 39,800 after a decline of 44,200.

“The rise in the unemployment rate is very ugly,” Ethan Harris, head of North America economic research at BofA Merrill Lynch Global Research, said in an interview with Bloomberg Television in New York. “This is a big backward step to get this high of an unemployment number this early in the recovery.”

The U.S. economy expanded last quarter for the first time in a year, growing at a 3.5 percent pace as government incentives spurred consumers to spend more on homes and automobiles.
Some companies are gaining confidence. Deere & Co., the world’s largest maker of agricultural equipment, said last week it’s recalling 452 workers, the majority of manufacturing employees dismissed earlier this year at a factory in Iowa.

Fed officials met in Washington this week and signaled that a return to economic growth alone won’t result in higher interest rates. Economist Joseph LaVorgna of Deutsche Bank Securities Inc. in New York said in a note to clients that the jobless rate is “the dominant variable driving changes in the fed funds” rate, and the central bank “has never raised rates with unemployment rising.”

- Via Bloomberg

Sheila Bair: All Bark, No Bite

2009-11-02T15:24:00.000-08:00

Sheila is apparently upset at the banks "pushing back" against reform:

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said on Monday that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth.
"That makes me angry," Bair said in a text of remarks prepared for a lecture at Kansas State University.

It does? You're not showing it.

How hard is this Sheila? You have the authority, along with the OTS and OCC, to walk into any bank in the United States with your examiners, look at every asset they hold, compare it against your standards of a "reasonable" mark and take action if you find that the bank could not be liquidated "at or above par."

You not only can do this but Prompt Corrective Action, US Code Title 12, Chap 16, Section 1831o mandates that you do, as that law is liberally peppered with "SHALL"s and has precious few "MAY"s.

Sheila is being gamed because the FDIC has shown over the last two years that whenever the banking industry say "Bark" the response from Sheila is "YIP!" Indeed, when I looked up "lapdog" in an online dictionary I got the following back:

lap*dog
Function: noun
Date: 1645

a small dog that may be held in the lap

a servile dependent or follower

Sheila Bair

Oops, did I make that last one up? Well....

There is already plenty of law on the books to cover what's been going on here, especially when it comes to banking regulation.

The examiners can have their mandate set by Sheila, along with the OTS and OCC. Their job, after all, is to determine what the odds are of loss to the deposit fund and whether a bank is safe and sound (for depositors), not whether the numbers will look good for Wall Street's quarterly parade.

Yes, I'm sure the banks would grouse if the examiners were to show up and demand that banks hold capital against the underwater portion of Home Equity loans, subprime CDOs and similar garbage. They'd also squeal if the examiners decided that any loan that was 60+ had to be reserved against at recovery value.

So what? The response ought from them to be "Talk to the hand."

Those banks that don't like these rules don't have to take FDIC insurance! They can run without it if they're so "safe" - let's see how many depositors they retain without it.

If Sheila doesn't like being the hard-nosed enforcer of capital adequacy and marking assets at recovery value as soon as loans fail to be paid on time then she should resign and cede the office to someone who has no problem getting on the phone - or showing up in person - and raising hell.

I'll volunteer, and suggest that anyone wondering if I have the "sack" for the job should find Mory Ejebat (formerly of Ascend) and mention my name.

Bring a tape recorder and post the result on YouTube.

Alternatively, just read a few Tickers.

- Via Market Ticker

U.S. FDIC's Bair angered by banks fighting reforms

2009-11-02T15:15:00.001-08:00

A top U.S. bank regulator struck out against the portions of the financial industry that are fighting reforms, saying they are using fear tactics.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, said on Monday that some in the financial services sector are trying to argue that regulatory reform would stifle innovation and impede economic growth.
"That makes me angry," Bair said in a text of remarks prepared for a lecture at Kansas State University.
Bair said the extreme market interventions that have occurred during the recent financial crisis have been difficult for her as a life-long Republican and market advocate.
But she said they were necessary and that government needs even more tools to discourage financial firms from getting so large that taxpayers are forced to provide assistance if the firms become unstable.
"The government has been going into places where we don't want to be," Bair said, but she added: "We simply cannot afford to maintain the status quo."

Lawmakers are hammering out a major piece of legislation that would tackle fears that a few elite financial giants are "too big to fail."

The legislation would grant vast powers to a new systemic risk regulatory council, the Federal Reserve and the FDIC to monitor and address risks to economic stability posed by shaky financial holding companies.

It would also create a new consumer agency to police financial products -- a change that is desperately needed to protect the public, Bair said.

"Given the importance of the consumer to our overall economy, it is amazing to me that we haven't done a better job in protecting them," she said.

- Via Reuters

Food Stamps Will Feed Half Of US Kids, Study Says

2009-11-02T15:01:00.000-08:00

Nearly half of all U.S. children and 90 percent of black youngsters will be on food stamps at some point during childhood, and fallout from the current recession could push those numbers even higher, researchers say.

The estimate comes from an analysis of 30 years of national data, and it bolsters other recent evidence on the pervasiveness of youngsters at economic risk. It suggests that almost everyone knows a family who has received food stamps, or will in the future, said lead author Mark Rank, a sociologist at Washington University in St. Louis.

"Your neighbor may be using some of these programs but it's not the kind of thing people want to talk about," Rank said.

The analysis was released Monday in the November issue of Archives of Pediatrics and Adolescent Medicine. The authors say it's a medical issue pediatricians need to be aware of because children on food stamps are at risk for malnutrition and other ills linked with poverty.

"This is a real danger sign that we as a society need to do a lot more to protect children," Rank said.
Food stamps are a Department of Agriculture program for low-income individuals and families, covering most foods although not prepared hot foods or alcohol. For a family of four to be eligible, their annual take-home pay can't exceed about $22,000.

According to a USDA report released last month, 28.4 million Americans received food stamps in an average month in 2008, and about half were younger than age 18. The average monthly benefit per household totaled $222.

Rank and Cornell University sociologist Thomas Hirschl studied data from a nationally representative survey of 4,800 American households interviewed annually from 1968 through 1997 by the University of Michigan. About 18,000 adults and children were involved.

Overall, about 49 percent of all children were on food stamps at some point by the age of 20, the analysis found. That includes 90 percent of black children and 37 percent of whites. The analysis didn't include other ethnic groups.

The time span included typical economic ups and downs, including the early 1980s recession. That means similar portions of children now and in the future will live in families receiving food stamps, although ongoing economic turmoil may increase the numbers, Rank said.

An editorial in the medical journal agreed.

"The current recession is likely to generate for children in the United States the greatest level of material deprivation that we will see in our professional lifetimes," Stanford pediatrician Dr. Paul Wise wrote.

Wise said the Archives study estimate is believable.

"I find it terribly sad, but not surprising," Wise said.

James Weill, president of Food Research and Action Center, a Washington-based advocacy group, said the analysis underscores that "there are just very large numbers of people who rely on this program for a month, six months, a year."

"What I hope comes out of this study is an understanding that food stamp beneficiaries aren't them – they're us," Weill said.

The analysis is in line with other recent research suggesting that more than 40 percent of U.S. children will live in poverty or near-poverty by age 17; and that half will live at some point in a single-parent family. Also, other researchers have estimated that slightly more than half of adults will use food stamps at some point by age 65.

- Via Huffington Post

U.S. Air Force Bug Bots

2009-11-02T14:53:00.000-08:00

Ultrasecret NSA Has Conspicuous Role in New Federal Cybersecurity Center

2009-11-02T14:41:00.000-08:00

Congress and civil libertarians have always been twitchy about involving the ultrasecretive National Security Agency—masters of electronic spying—more deeply in domestic security matters. Revelations that George W. Bush authorized the NSA (Motto: Never Say Anything) in the wake of 9/11 to expand warrantless electronic eavesdropping on Americans caused heartburn for both intelligence officials and private industry. Dragged into the controversy were phone companies and Internet service providers who took part in the program, although Congress later passed legislation that both tweaked and largely ratified Bush administration practices. (Congress gave retroactive immunity from civil lawsuits to private firms that collaborated.)

If anything, the Obama administration, citing the threats of computer hacking and cyberterrorism, is now moving to involve the NSA more deeply in domestic security issues. The growing role of the NSA—a Defense Department agency with thousands of military personnel—in domestic matters was on semi-public display on Friday. Homeland Security Secretary Janet Napolitano visited a nondescript office complex in Arlington, Va., for the formal opening of a new high-tech command post called the National Cybersecurity and Communications Integration Center (NCCIC, pronounced "en-kick"). The facility is officially described as “a 24-hour, DHS-led coordinated watch and warning center that will improve national efforts to address threats and incidents affecting the nation’s critical information technology and cyber infrastructure.” The NSA’s official seal was displayed prominently on a big-screen graphic listing the center’s participants. The NSA’s director, Army Lt. Gen. Keith Alexander, was among the dignitaries standing at Napolitano’s side as she formally cut a ribbon inaugurating the facility, which, without its spooky graphics and tight security cordon, would look like a large newsroom or trading floor equipped with rows of computer workstations.

In keeping with the NSA’s character, Alexander wasn’t exactly bubbling with good cheer when Declassified asked him what his agency’s role would be in operating the cybersecurity command post. “We support DHS [Homeland Security] like everybody else,” is all the general would say. In introductory remarks, officials noted that Alexander has also been tapped by the Pentagon to head U.S. Cyber Command, a new military organization to be based alongside the NSA at Fort Meade, Md., that is intended to consolidate and improve cybersecurity and, presumably, cyberwarfare capabilities. Other officials were vague when asked for more details on the NSA’s role in NCCIC, whose principal mission, according to Homeland Security officials, will be to monitor and assure the security and safety of civilian-government computer networks and to provide early warning to private businesses about cyber-attack threats. As NEWSWEEK reported earlier this year, some cybersecurity experts have long argued that because the NSA traditionally has had the most formidable computer hardware and related brainpower of any agency in the government, it is essential that it become more deeply involved in protecting both domestic government computer networks and the privately run grids that now help run virtually every aspect of American daily life, including this blog.

Amy Kudwa, a Homeland Security Department spokeswoman, said that while NSA does provide "technical expertise" to DHS in connection with its cyber-security responsibilities, details of this assistance are classified. She said that although Alexander was present for the opening of the NCCIC, it was her information that the spy agency would not have representatives seated in the command center on a daily basis. She said that private sector companies eventually will be invited to assign personnel to work in the command center.

- Via Newsweek

Schwarzenegger Budget Director to Step Down as Deficits Loom

2009-11-02T14:38:00.000-08:00

California Governor Arnold Schwarzenegger’s finance director plans to step down after four years of crafting budget proposals for a state that has been battered by the U.S. recession.

Mike Genest, Schwarzenegger’s longest-serving finance director, will leave whenever a replacement is found, said H.D. Palmer, a spokesman for the finance director. Genest, 62, told Schwarzenegger a month ago that he was considering leaving and expected to do so before the end of the year, Palmer said.

The departure comes as Schwarzenegger, a Republican who can’t seek re-election because of term limits, girds for his last political struggle over the state’s $85 billion budget. As tax revenue continues to slide, California is expected to have a deficit of at least $7 billion for the year that begins in July, according to Treasurer Bill Lockyer. Legislators eliminated $60 billion in budget deficits for 2009 and 2010.

“Mike Genest’s tenure has been one of the most challenging fiscal times in modern California history,” Palmer said. “He has served the governor, the public and the Legislature extremely well.”

Genest’s planned departure was reported by the Los Angeles Times.

- Via Bloomberg

California to withhold a bigger chunk of paychecks. Try 10% bigger!

2009-11-02T14:31:00.000-08:00

Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners -- holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.

Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

But with rising gas costs, depressed home prices and double-digit unemployment, the state's added reach into residents' regular paycheck isn't sitting well with many.

"The state's suddenly slapping people upside the head," said Mack Reed, 50, of Silver Lake. "It's appalling how brash that is."

Brittney McKaig, 23, of Santa Ana said she expects the additional withholding to affect her holiday spending.

"Coming into the holidays, we're getting squeezed anyway," she said. "We're not getting Christmas bonuses and other perks we used to get. So it all falls back on spending. The $40 gift will become a $20 gift."

The extra withholding may seem like a small amount siphoned from each paycheck, but it adds up to a $1.7-billion fix for California's deficit-riddled books.

From a single taxpayer earning $51,000 a year with no dependents, the state will be grabbing an extra $17.59 each month, according to state tax officials. A married person earning $90,000 with two dependents would receive $24.87 less in monthly pay.

California will probably continue to collect the tax at a higher rate for many years -- or find an additional $1.7 billion to slice from a future budget, an unlikely occurrence. All workers who have state taxes withheld will see their paychecks shrink.

"Many families are sitting at their kitchen table wondering how they're going to make ends meet," said state Sen. Tony Strickland (R-Thousand Oaks). "At the same time, the state of California is taking a no-interest loan."

The provision is one of numerous maneuvers state lawmakers and Gov. Arnold Schwarzenegger approved in the summer to paper over the state's deficit. Many of the changes, including the extra withholding, were little noticed outside of Sacramento.

Savvy taxpayers can get around the state's maneuver by increasing the number of personal withholding allowances they claim on their employer tax forms, said Brenda Voet, a spokeswoman for the state's Franchise Tax Board.

"People can get out of this," she said, noting that most people would have to change their allowances through their employers. California's budget leaders are banking on the hope that most won't.

The increase is coming at a bad time for store owners, many of whom depend on the holiday shopping season to keep their businesses alive.

"I don't think there's any question it's going to impact consumers' spending," said Bill Dombrowski, president of the California Retailers Assn. "Any time you reduce people's disposable income, there's going to be a negative effect on the retail sector."

But Stephen Levy, director of the Center for Continuing Study of the California Economy, wasn't so sure.

"It's having a relatively small impact on people's income," Levy said, pointing out that many families will receive only $12 to $40 less each month.

Yet Erika Wendt, 28, of San Diego said she already lived on a tight budget: She rides her bike to work, for instance, to save on gasoline and parking costs.

"I am frustrated as this directly impacts my weekly budget -- what groceries I buy, how much I drive and can spend on gas," she said. "Now money will just be tighter, and I'm not sure where else I can cut back."

The extra withholding comes in addition to tax hikes the state enacted this year.

In February, state income tax rates were bumped up 0.25 of a percentage point for every tax bracket. The dependent credit was slashed by two-thirds. The state sales tax rate rose 1 percentage point. The vehicle license fee nearly doubled to 1.15% of a car's value.

Lawmakers and the governor also approved deep cuts to schools, social services and prisons to fend off one of the steepest revenue losses in California history.

Temporary budget bandages, such as the increase in withholding, were included at several points this year to avoid higher taxes and deeper cuts, said H.D. Palmer, a spokesman for the state Department of Finance.

Sacramento, meanwhile, is awash in red ink again. The state controller recently said revenue in the budget year already had fallen more than $1 billion short of assumptions. Outsize deficits are projected for years to come.

Such temporary measures as the withholding tax increase don't really fix the budget gap, "they just more or less hid it," said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. "I call it a fraud."

- Via LA TIMES

Delaware beats Switzerland as most secretive financial center

2009-11-02T14:23:00.000-08:00

Move over Switzerland. The tiny state of Delaware beats the Alpine country in a contest for the most secretive financial jurisdiction, a tax justice rights group said on Saturday.

The United States, led by the eastern seaboard state, took in $2.6 trillion in deposits from non-resident corporations and individuals in 2007, according to a survey of financial jurisdictions analyzed by the Tax Justice Network.

The survey of laws, practices and size of inflows in 60 jurisdictions found Delaware coming in first, followed by Luxembourg and then Switzerland. The Cayman Islands and the United Kingdom round out the top five.

"While the U.S. has been jumping up and down and saying 'Aha, bad, wicked Swiss banks,' the U.S. is doing exactly the same things as far as non-resident bank account holders," said Sarah Lewis, executive director of the group, based in the U.K.

Switzerland has been the poster child for financial secrecy over the past year. The United State sued Swiss global banking giant UBS AG, which paid a $780 million fine to settle a lawsuit against it by the government. As part of the deal, UBS admitted it actively helped Americans evade U.S. taxes.

The ranking is based on a composite of total offshore activity and measures such as whether a jurisdiction obtains beneficial ownership information about companies and the degree of cooperation in turning over requested financial information.

Delaware is attractive because it does not tax profits realized outside the state and does not require companies to be physically present, according to the Tax Justice Network.

UBS and Credit Suisse have about 200 entities in the state, according to the group.

There are nearly 700,000 active entities registered in Delaware -- and about half of those publicly traded in the United States, according to the group.

Total U.S. deposits of non-residents rose from about $1 trillion in 2001 to $2.6 trillion in 2007, according to the study.

In Luxembourg, non-resident deposits rose to $500 billion from $101 billion over the same period. In Switzerland, such deposits rose to $1.45 trillion from $103 billion during the period.

Larry Hamermesh, a business law professor at Widener University in Delaware, said the state gets an unfair rap.

For example, he said tax justice groups criticize the state for not obtaining companies' beneficial ownership information when they incorporate in the state.

But no other U.S. state actually requires such information, Hamermesh said.

"Delaware is no more secret than any other U.S. state," he said, noting that Delaware's attraction to business is its flexible laws and expert courts.

- Via Reuters

It is Japan we should be worrying about, not America

2009-11-02T14:20:00.000-08:00

Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world's second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return.

The rocketing cost of insuring against the bankruptcy of the Japanese state is telling us that the model has smashed into the buffers. Credit default swaps (CDS) on five-year Japanese debt have risen from 35 to 63 basis points since early September. Japan has suddenly decoupled from Germany (21), France (22), the US (22), and even Britain (47).

Regime-change in Tokyo and the arrival of Yukio Hatoyama's neophyte Democrats – raising $550bn (£333bn) to help fund their blitz on welfare and the "new social policy" – have concentrated the minds of investors at long last. "Markets are worried that Japan is going to hit a brick wall: the sums are gargantuan," said Albert Edwards, a Japan-veteran at Société Générale.

Simon Johnson, former chief economist of the International Monetary Fund (IMF), told the US Congress last week that the debt path was out of control and raised "a real risk that Japan could end up in a major default".

The IMF expects Japan's gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014. This has been manageable so far only because Japanese savers have been willing – or coerced – into lending for almost nothing. The yield on 10-year government bonds has been around 1.30pc this year, though they jumped to 1.42pc last week.

"Can these benign conditions be expected to continue in the face of even-larger increases in public debt? Going forward, the markets capacity to absorb debt is likely to diminish as population ageing reduces saving," said the IMF.

The savings rate has crashed from 15pc in 1990 to near 2pc today, half America's rate. Japan's $1.5 trillion state pension fund (the world's biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.

Japan Post Bank is balking at further additions to its $1.7 trillion holdings of state debt. The pillars of the government debt market are crumbling. Little wonder that the Ministry of Finance has begun advertising bonds in Tokyo taxis, featuring Koyuki from The Last Samurai. If Japan's bond rates rise to global levels of 3pc to 4pc, interest costs will shatter state finances.

No one knows exactly when a country tips into a debt compound trap. But Japan must be close, even allowing for the fact that liabilities of the state Loan Programme (FILP) have fallen by 40pc of GDP since 2000.

"The debt situation is irrecoverable," said Carl Weinberg from High Frequency Economics. "I don't see any orderly way out of this. They will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this."

Mr Hatoyama inherited a country that was already hurtling into sovereign "Chapter 11". The Great Recession has eaten up 27pc in tax revenues. Industrial output is down 19pc, even after the summer rebound; exports are down 31pc; the economy is 10pc smaller today in "nominal" terms than a year ago – and nominal is what matters for debt.

Tokyo's price index fell 2.4pc in October, the deepest deflation in modern Japanese history. Real interest rates have risen 300 basis points in a year. It reads like a page from Irving Fisher's 1933 paper, Debt Deflation Causes of Great Depressions.

The Bank of Japan seems oddly insouciant. It will end its (feeble) quantitative easing in December by suspending purchases of corporate debt, much to the fury of the Finance Ministry.

"This is incredibly dangerous," said Russell Jones from the RBC Capital Markets. "The rate of deflation is shocking. The debt dynamics are horrible and there is the risk of a downward spiral."
Tokyo has let the yen appreciate violently – 90 to the dollar, 13 to the Chinese yuan – giving another twist to the deflation knife. Top exporters are below break-even cost, says RBS. The government could stop this, as it did in a wave of manic dollar purchases from 2003-2004. It could print money à l'outrance to stave off deflation. Yet it sits frozen, like a rabbit in the headlamps.

Japan's terrible errors are by now well known. It failed to jettison its mercantilist export model in time. It resisted the feminist revolution, leading to a baby strike by young women. It acquiesced in a mad investment bubble (like China now) in the 1980s, stealing growth from the future.

It wasted its immense fiscal firepower, scattering money for 20 years on half-baked spending projects to keep the economy afloat. QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy. Does Downing Street understand this? Does the White House? Does the European Central Bank? Clearly not.

- Via Telegraph UK

The Doctrine of Preemptive Bailouts and the Biggest Bailout you haven’t Heard About: The U.S. Treasury Plan C and the $3.5 Trillion You will be Paying

2009-10-30T00:15:00.000-07:00

Last week a story which gained very little traction hit the financial newswires. The U.S. Treasury is working on an internal project informally called “Plan C” which seeks to deal with further problems in the economy before they occur. The anonymous report came out stating the administration is reluctant to commit any additional money especially to the level mentioned in the report. However this is a disturbing new development in our bailout nation since this is one of the first times that the U.S. Treasury will try to preemptively deal with a financial problem.

The issues with this Plan C is that it is setup to be a buffer on further deterioration in various loan categories but the big one is commercial real estate. The commercial real estate market is gigantic and many of those loans are still active:

Some $3.5 trillion in commercial real estate loans are out in the market. The problem is complicated because commercial real estate holders simply rollover their debt into new loans. That of course has changed since the economy and credit markets have shutdown and many of these properties are now severely underwater. Take a look at how many loans will be turning over:

*Source: ZeroHedge

The amount of maturing loans in commercial real estate will double in 2010 and will continue upward into 2010. The chart is very clear and this is only for debt in CMBS and not held by regional banks which is over $2 trillion. This is the next multi-trillion dollar bailout you have yet to hear about. In fact, while many are discussing a second half recovery higher up officials are already planning a bailout for the commercial real estate industry. The challenge with this bailout is you are asking a public with 26,000,000 unemployed and underemployed Americans to shoulder the debt of largely speculative plays. To many it is palatable to bailout the residential real estate market because the public can understand that (even if it may be wrong) or bailing out the 2 large U.S. automakers. Yet bailing out the commercial real estate market is going to be a political nightmare.

Of course the U.S. Treasury would like you to believe this is merely a precaution but most of the last precautions we have heard about have turned out to be trillions and trillions in full on commitments shouldered by the American public:

“(WaPo) We are continually examining different scenarios going forward; that’s just prudent planning,” Treasury spokesman Andrew Williams said.

The officials in charge of Plan C — named to allude to a last line of defense — face a particular challenge in addressing the breakdown of commercial real estate lending.

Banks and other firms that provided such loans in the past have sharply curtailed lending.
That has left many developers and construction companies out in the cold. Over the next few years, these groups face a tidal wave of commercial real estate debt — some estimates peg the total at more than $3 trillion — that they will need to refinance. These loans were issued during this decade’s construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.

The credit crisis changed all of that. Now few developers can find anyone to refinance their debt, endangering healthy and distressed properties.”

The end of the road has been reached for commercial real estate. Many regional banks jumped into the commercial real estate market since they had little chance of competing with big subprime and Alt-A mortgage factories like WaMu or Countrywide. Many regional banks saw this as a way to stay competitive in local regions across the country. This is a much more diverse problem and the tentacles of the commercial real estate bust will be felt in every state.

These loans were made on strip malls, doctor’s offices, and drive-through restaurants for communities that are hurting from the recession. This is an enormous amount of debt that is out there that will surely default since there is no way to refinance this debt since many of these projects are literally underwater. Take a look at the composition of over 8,000 banks and thrifts across the country:

Factoring in construction and commercial loans you arrive at a stunning 26 percent of all loans in FDIC banks and thrifts. This is a staggering figure and the U.S. Treasury is well aware of this. The question isn’t whether there will be major defaults here but who will shoulder the cost? So far, each consecutive bailout has largely been taken up by the U.S. taxpayer. The problem of course is the cost of all these bailouts will eventually catch up through a tanking dollar and possibly the long-term viability of our economy. Plan C is a preemptive bailout on an entire industry. The reason the government is devising a plan is that these loans will start going bad in large amounts and they are gearing up on a process of dumping this large mess on the American people. Yet it is going to be a politically hard sell for many to bailout a strip-mall from some large developer.

And make no mistake, the market for commercial loans is all but closed:

You are reading the above graph correctly. In the 1^st quarter commercial loans fell by a stunning 50 percent on a quarterly basis. And the amount of bad loans is only growing:

If you haven’t heard of Plan C you soon will. The commercial real estate bailout is the next ploy from Wall Street and the U.S. Treasury.

- Via My Budget 360

Commercial Real Estate Implosion: 67 Percent Fall in Multifamily Starts, Ghost Buildings, $3 Trillion in Debt, 41 Percent Drop in CRE, and Collapse in Rents.

2009-10-30T00:09:00.000-07:00

Driving along the highway at night, it is an eerie sight to look at some of the vacant buildings. The lights are on but the floors are empty awaiting an audience that will never come. Can it be that commercial real estate, with over $3 trillion outstanding be in worse shape than residential housing? In a short answer, yes. I’ll give you a few reasons but the most obvious is that unlike housing, there is rarely a price point where a commercial real estate development will make sense without a sustainable economy.

For example, there are places in Nevada and Arizona that were built with no residences coming and commercial real estate to feed this ghost population. Another point that makes commercial real estate more problematic is the way commercial projects are financed. These projects are financed with short-term financing that requires refinancing every 5, 7, or even 10 years. This stands in sharp contrast to the 30 year fixed mortgages on residential properties.

If you really want to see what is happening on the ground, you need to look at housing starts. After all, these are the builders and should have a better sense of regional niches and demand. Now their projections are never perfect but they probably have a better sense than say Wall Street which is a few thousand miles from billion dollar construction projects:

Now here is a fascinating case and point. Single family starts have collapsed. This is true. Since the peak, they have been trending lower and lower. The U.S. Treasury and Federal Reserve even with virtually interest free money cannot stimulate demand in an overbuilt market. Single family starts are down 8.7 year over year. But multifamily starts? Try a stunning 67.4 percent. Many of these projects are financed with commercial loans and you can see that the demand is virtually gone. This is one of those unintended consequences that Wall Street and the government fail to notice.

With a tunnel vision focus on propping up the residential housing market, demand for homes has increased. People are buying up foreclosures and financing their purchase with historically low interest rates courtesy of the Federal Reserve. The government has also sweeten the pot with the $8,000 poorly targeted tax credit. But what the Fed fails to see is that vacancy rates were already high for both residential and commercial buildings in the form of say, apartments. So what happens? You shift demand from lower priced rental units to homes. Good news right? Not at all. Now what you have is an increase in defaults for commercial loans instead of residential loans because of even higher vacancy rates.

As I mentioned before, the problem with commercial real estate loans is also how they are financed. Take a look at the turnover profile for the next few years:

Source: Zero Hedge

From 2009 to 2010 the amount of MBS maturing is double and it only elevates from that point on. Who is going to refinance an empty strip mall? Or a gym with no membership? What about an office complex with no tenants? This is the big problem with commercial loans. Consumer demand has shifted. With the U.S. dollar tanking the average American is facing higher costs for daily items like food and is seeing some items like cars drop on the secondary market but what is a priority?
How deep have prices fallen on commercial real estate? Try 41 percent:

Unlike residential housing that has stabilized in terms of pricing because of trillions in bailouts, commercial real estate is on the way down. But make no mistake, the U.S. Treasury has been having off poorly publicized talks about preemptive bailouts in this market. Even without the talks, the Fed is willing to take everything and anything in exchange for Treasuries. While the residential housing market peaked in 2005, it looks like CRE peaked in late 2007. It looks like a two year lag is in the commercial real estate market and this is typical. These projects take longer to build and usually follow residential projects.

Rents have been falling and this has hurt real estate in Manhattan to apartments in Los Angeles. In many cases, you would think that a lower price for something is good but this is only reflecting a weaker American consumer that is confronting an unemployment and underemployment rate of 17 percent. We hear much about this jobless recovery but incomes are low, commercial real estate is a major problem, and the average American is seeing their view of the American Dream become more and more of a mirage. The only winner seems to be Wall Street.
David Einhorn from Greenlight Capital summed it up well:

“And the neighbors are angry, because at some level, Americans understand that the Washington-Wall Street relationship has rewarded the least deserving people and institutions at the expense of the prudent. They don’t know the particulars or how to argue against the “without banks, we have no economy” demagogues. So, they fight healthcare reform, where they have enough personal experience to equip them to argue with Congressmen at town hall meetings. As I see it, the revolt over healthcare isn’t really about healthcare, but represents a broader upset at Washington. The lack of trust over the inability to deal seriously with the party goers feeds the lack of trust over healthcare.”

And this leads us to where we are at. When have we heard prolonged debates regarding commercial real estate or even the bailouts? We sometimes hear the plutocracy argument that we should have bailed out Lehman Brothers. Really? We should have a talk about why we didn’t let more firms fail.
From both parties we get estimates of healthcare reform between $800 billion and $1.2 trillion over a decade. Commercial real estate has 3 times that sum! Not one hour of airtime is dedicated to talking about this. The U.S. Treasury and Federal Reserve have backstopped nearly $13 trillion from the banking sector. The airwaves should be saturated on a daily basis talking about this and the other bailouts that were never fully vetted. Don’t believe it? Here is your bill:

If there is no resistance, we are going to have another major stealth bailout of the commercial real estate industry. The U.S. Treasury already has a nice name of “Plan C” for it. Next time you see those empty buildings keep in mind that you might be paying the mortgage on it pretty soon.

- Via My Budget 360

California AG Wants Pay Option ARM Answers

2009-10-29T19:24:00.000-07:00

California attorney general Edmund Brown Jr. today sent a letter to 10 major bank and loan servicers in the state calling for the disclosure of their detailed plans to help certain homeowners manage the drastic payment increases on their pay option adjustable rate mortgages (ARMs).

California homeowners hold nearly 60% of the nation’s pay option ARMs originated between 2004 and 2008, the attorney general’s office said. Nationally, about 1m of these loans are schedule to reset in the next four years, creating higher payments for many loans on the brink of negative equity.

California accounted for more than 25% of the nation’s foreclosure activity in Q309, the attorney general’s office said, with 250,000 homes receiving foreclosure filings in the state. In addition, foreclosure activity increased nearly 20% from 2008 to 2009, and Brown said pay option ARMs could make that problem worse.

“Homeowners with Pay Option ARMs are sitting on ticking time bombs that the lending industry has the power to defuse,” Brown said. “Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures.”

This is the latest in Brown’s mortgage-related consumer efforts. In October 2008, the attorney general’s office settled an $8.58bn suit against Countrywide Home Loans that claimed the once mighty mortgage lender deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.

Brown’s request was made in a letter sent to Bank of America Home Loans & Insurance; Wells Fargo & Company; JP Morgan Chase & Co.; Litton Loan Servicing; ResCap; Ocwen Financial Corporation; OneWest Bank; American Home Mortgage Servicing; Saxon Mortgage Services, Inc.; and Select Portfolio Servicing.

In the letters, Brown asks the lenders and servicers to provide the attorney general with the number of pay option ARMs secured by California homes, the number of those loans that have negatively amortized, and the average dollar amount of that amortization, an explanation of what customer service efforts the lenders and services are taking, including advance notices for borrowers whose loans are about to reset, as well as what modification programs the lenders and servicers plan to offer to borrowers whose loans are about to reset.

- Via Housing Wire

The White House Stupidly Goes To War With Car Website Edmunds.com

2009-10-29T19:16:00.000-07:00

It is an odd, and we'd say regrettable, pattern of this White House that it lets itself get dragged down into fights with specific media outlets.

George W. Bush experienced acrimony with the New York Times, but for the most part, other than general frustrations of a conservative administration, complaining about a liberal media, it was no big deal.

But in addition to Fox News, now The White House is going after highly-respected and influential car site Edmunds.com.

They're actually using The White House blog to dispute the site's analysis of Cash-For-Clunkers (via Detroit News).

The post is snarkily titled: "Busy Covering Car Sales on Mars, Edmunds.com Gets It Wrong (Again) on Cash for Clunkers"
Harsh!
Here's the full post:
-----

On the same day that we found out that motor vehicle output added 1.7% to economic growth in the third quarter – the largest contribution to quarterly growth in over a decade – Edmunds.com has released a faulty analysis suggesting that the Cash for Clunkers program had no meaningful impact on our economy or on overall auto sales. This is the latest of several critical “analyses” of the Cash for Clunkers program from Edmunds.com, which appear designed to grab headlines and get coverage on cable TV. Like many of their previous attempts, this latest claim doesn’t withstand even basic scrutiny.

The Edmunds analysis is based on two implausible assumptions:

1. The Edmunds’ analysis rests on the assumption that the market for cars that didn’t qualify for Cash for Clunkers was completely unaffected by this program.

In other words, all the other cars were being sold on Mars, while the rest of the country was caught up in the excitement of the Cash for Clunkers program. This analysis ignores not only the price impacts that a program like Cash for Clunkers has on the rest of the vehicle market, but the reports from across the country that people were drawn into dealerships by the Cash for Clunkers program and ended up buying cars even though their old car was not eligible for the program.

This faulty assumption leads Edmunds to a conclusion that is at odds with many independent analyses: Edmunds assumption that more than 80% of the payback from Cash for Clunkers would occur in 2009 isn't how many mainstream analyses, including Moody's and IHS Global Insight approach the problem (see pages 5 and 15 of this CEA report [PDF]). In fact, Deutsche Bank recently concluded that “The important takeaway from recent sales trends is that it suggests that there has been minimal 'payback' for the U.S. government’s 'cash for clunkers' program.”

2. Edmunds also ignores the beneficial impact that the program will have on 4th Quarter GDP because automakers have ramped up their production to rebuild their depleted inventories.

Major automakers including GM, Ford, Honda and Chrysler all increased their production through the end of the year as a result of this program, which will help boost growth beyond the third quarter. The actions of private market participants, who would not increase production if they didn’t think demand for their product would be there through the end of the year, is a far better indicator of market dynamics – and one that Edmunds.com conveniently ignores.

Most importantly, this program is helping boost our economy and create jobs now when we need it most. In a comprehensive report, the Council of Economic Advisers estimated that the Cash for Clunkers will create 70,000 jobs in the second half of 2009. The strength of recent auto sales data suggest that, if anything, this projection underestimates the actual impact of the program. CEA’s analysis is transparent and comprehensive, laying out all of its assumptions for the public to understand. Edmunds.com, on the other hand, is promoting a bombastic press release without any public access to their underlying analysis.

So put on your space suit and compare the two approaches yourself:

Seriously, what's the point of this? Clunkers is over. It just makes The White House look thin-skinned, though it's great publicity for Edmunds. And yes, Clunkers massively distorted this morning's GDP number, as we demonstrated here, but we're with Edmunds that it was a giant waste with little long-term benefit.

- Via TBI

Yep, Gun Sales Have Fallen Off A Cliff (RGR)

2009-10-29T19:08:00.000-07:00

The economic crisis combined with the election of a potentially anti-gun liberal to the White House acted as a big stimulus for the gunmakers.

But it seems that all that happened was that gun demand got pulled forward, because now sales are totally falling off a cliff.

A reader sends along some recent numbers from Ruger (RGR).If you look at the bottom line -- firearm sales -- it only looks like there was a slight sequential dip. But ignore that.

The number to look at is orders received in 3Q, which were down 80%. Due to their backlog, actual firearms sales only dipped a little, but they've only got a few quarters of that left, and then that's finished. The bubble is popped.

- Via TBI

Economy Grows But Jobless Number Still Soars

2009-10-29T19:01:00.000-07:00

The nation's economic pulse is starting to beat more powerfully, but it's still too soon to crack open the champagne, President Obama noted Thursday after new numbers showed the economy grew in the third quarter.

The gross domestic product grew at an annual rate of 3.5 percent, up from a 0.7 percent drop in the second quarter, and "the largest three-month gain we have seen in two years," Obama said at a small business event Thursday.

"This is obviously welcome news and an affirmation that this recession is abating and the steps we've taken have made a difference."

But persistently dismal jobless numbers still dampen any talk of a full recovery in the near future. The Labor Department reported Thursday that weekly numbers for newly laid-off workers fell by 1,000 to a seasonally-adjusted 530,000, less than than the 521,000 government economists had expected.
House Minority Leader John Boehner indicated that's the true measure of recovery.

"I'm pleased that the GDP numbers this morning were up. But the question is, where are the jobs?" he asked.

That's also a sentiment the administration has openly expressed and the president revisited Thursday. "The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well."

The economy's personal impact on Americans has been the central concern of administration critics, who say people don't feel the economic downturn in abstract GDP terms. They feel it, they say, in their paychecks, or lack thereof.

The administration has tried to show it recognizes this. In remarks to a House hearing Thursday, Treasury Secretary Tim Geithner said the situation on American families is "alive and acute."
Still, compounding Republican concerns is the health care reform bill touted by House Speaker Nancy Pelosi Thursday.

"This bill right here, the Pelosi health care bill, will do nothing more than to kill millions more American jobs," said Boehner, R-Ohio.

Council of Economic Advisers Chair Christina Romer chose to look to the horizon.

"The turnaround in crucial labor market indicators, such as employment and the unemployment rate, typically occurs after the turnaround in GDP."

- Via Fox News

Here It Comes... (Option ARMs)

2009-10-29T18:52:00.000-07:00

Hmmmm....

Despite that fact, delinquencies have moved steadily higher with the 30 day + delinquency now reaching close to 50% of all outstanding Option Arms.

"I told you so!"

These loans were never designed to lead to actual home ownership.

They were sold as a means to "buy" a home, but the lenders knew full well that this could never, ever happen given the structure of the note.

These notes were more akin to a levered bet placed on commercial real estate, in that they were worse than the typical commercial "interest-only" loan in their inclusion of a requirement that values continually increase to stay ahead of the negative amortization.

These loans cannot be cured.

The typical OptionARM customer was qualified on the initial rate on the minimum payment, which was usually 2%, interest-only.

For a typical $500,000 California or Florida home, this resulted in a monthly payment requirement of roughly $850 (2% of $500,000 is $833 a month.)

The "real rate", however, on the loan was typically around 6 or 7%, and the rest of the principal and interest was "capitalized". If the amortizing rate was 6% on the note then the P&I for a "full payment" would be $2,982.83, resulting in about $2,100 a month in negative amortization.

If you try to "work these out" and manage to go "to the wall" on the note with a 40 year, 4% amortizing refinance, the note still comes up to $2,082.75 - more than a clean double of the original payment!

The "homeowner", however, can't afford the doubling of the payment. Further, the house isn't worth $500,000 any more - at best it is worth $300,000, which is a big part of why he stopped paying.

These notes were the worst sort of abuse and they're littering the landscape. I know people who have them here in Florida and have defaulted, and there are a scad load of them in California. My prediction originally was that half or more of them would wind up being worth recovery value at best, and this appears to be the case. Since these were nearly all written in the bubble areas, recovery will be fortunate to be 50% of face value.

How many of these are out there? Good question. I have seen numbers from $200 - $500 billion, all from reputable sources. Why don't we have an accurate number from the banks and Fed on these things?

In the "best case" this is another $50 billion in losses and about 25% of the homes purchased in bubble areas from 2003-2006. In the "worst case" this is well over another $100 billion in losses and perhaps as much as half of the homes purchased in those areas during the bubble years.

Either way you slice these losses have not been recognized or accounted for nor has their impact on home inventory and price.

- Via The Market Ticker

How The Home Buyer Tax Credit Inflated The GDP Number

2009-10-29T14:04:00.000-07:00

Is the economy really recovering or was today's GDP number just a sign of an economy on government life support?

Ideally, we'd want a recovery led by genuine business activity. But a huge portion of today's GDP number looks like it was a product of government intervention into the economy.

Our chart of the day shows how the government's cash for clunkers program added 1.66 percentage points to the GDP, boosting it from a pathetic 1.89% gain to 3.5%. Add to that at least a portion of the huge gain in residential spending activity. This number jumped a seasonally adjusted 23.4% and was responsible for more than a half-percent to GDP.

How much of that was due to the home buyer tax credit? The National Association of Realtors says that nearly half of the jump in home sales this year was directly attributable to the tax credit. So we probably need to shave at least another 0.25% off GDP.

Now it is good news that these government programs are working. Gains from government intervention are real gains. People building cars subsized by the government are still building cars. And people who sold homes to first time buyers really do get paid for their homes. Just because it is a subsidy doesn't mean it isn't real.

But the gains are just not necessarily signs of a healthy economy.

- Via TBI

CHART OF THE DAY: Cash-For-Clunkers MASSIVELY Distorted GDP

2009-10-29T14:01:00.000-07:00

If anyone mentions the just-released 3.5% U.S. third quarter GDP growth, just throw this chart in their face. Cash for Clunkers clearly distorted the U.S. economic figures in an unsustainable fashion.

According to the Bureau of Economic Analysis (BEA), motor vehicle output spiked a seasonally-adjusted 157.6% quarter on quarter. This is completely unprecedented. Vehicle output is clearly going off a cliff next quarter. The question will be how low can the blue line below go.

Next quarter, we won't just be returning to business as usual for auto output. Don't forget that Cash for Clunkers pulled future auto demand, ie. some of Q4 demand, into Q3. Thus Q4 is likely to be very weak since many people who planned to buy a car in Q4 probably took advantage of Clunkers and bought in Q3.

To put this into GDP terms, according to the BEA the spike you see below added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% - 1.66%) in Q3.

Now imagine if next quarter the blue line below goes down into negative territory as it did just two quarters ago. Next quarter, not only are we unlikely to get Q3's boost, but motor vehicle output data could subtract from GDP as well. So watch out for the cliff...

- Via TBI

GDP Is..... Better Than Expected?

2009-10-29T09:38:00.000-07:00

Oh what a tangled web we weave....

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

Looks good, right?

Hmmmm.... or is it?

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.
....

Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second.

Ok, from this we can compute a few things.

3.5 - 1.66 - (7.9 * 30%) = -0.53%

Now let's adjust for inventories:

The change in real private inventories added 0.94 percentage point to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.

-0.53% - 0.94% = -1.47%.

Ok, that's bad but not catastrophic and is an actual improvement compared to the second quarter. But....

Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.
Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second.

Eeeeehhh... those are both going the wrong way. Taxes up, income down. And...

Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.

That's worse. A lot worse. Disposable personal income decreased in nominal terms q/o/q by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.4%! That is an enormous swing in purchasing power and not in the right direction!

Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving -- disposable personal income less personal outlays -- was $364.6 billion in the third quarter, compared with $533.1 billion in the second.
The personal saving rate -- saving as a percentage of disposable personal income -- was 3.3 percent in the third quarter, compared with 4.9 percent in the second.

So into decreasing personal income and disposable personal income people tried to spend anyway. Best guess: most of this was "cash for clunkers", which is the worst sort of "spending" - it is the taking on of more debt by replacing a paid-off car with one that now comes with a shiny (and nasty) payment book. The Trade: Go long auto repo outfits (aside: as far as I know there are no publicly-traded repo companies.)

Nothing in here I like; to the contrary, this report sucks and on a drill-down appears to be full of outright lies.

Looking inside the data, the "big change" in private domestic investment is all residential fixed - up 23.4%. I don't believe it. I've been scouring the homebuilder earnings releases and data, and I don't see the numbers that support this. An improvement over the ditch-diving of the last many quarters, yes - but a 23.4% increase, a swing of fifty percent from Q2-Q3? Oh hell no. Where is it? It's not in Home Depot's or Lowe's quarterly results, it's not in the homebuilders, and I can't find it in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

Nor do the export and import numbers look right. Port of Long Beach and LA anyone? Those numbers also don't add up - swings of 20-25% in one quarter? Not reflected in container volumes and freight loadings. Yet it has to be - how do you get something in or out of here without it going through a port?

Government looks right, both federal and state/local. The "Obama will cut defense and war spending" folks have to be bashing themselves with a hammer - there's no evidence for that in the data, now three quarters into his administration. If you're anti-war and "bring the troops home", you may want to re-think whether voting for Barry was a wise decision - he sure as hell hasn't kept that promise. (Note that I didn't think he would either but that lie sure played well in San Francisco, didn't it?)

Forward the big problem is the deterioration in personal income. You can't spend what you don't have without credit creation, and that's fallen off a cliff. The Fed's credit reports continue to come in with huge contractions - this should not surprise, as demanding that banks lend to people who are seeing their income shrink is into the realm of pure idiocy.

The market likes the numbers although a lot of the move - perhaps all of it - is Bucky getting thrown under the bus once again.

You can't expect the cheerleaders on CNBC to read beyond the headline numbers, and they (once again) did not disappoint in this regard. The first 20 minutes of "analysis" brought not one mention of the decease in personal income or disposable personal income, yet on a forward basis this is in fact the most important piece of information in the report.

You cannot have an economic recovery when on a q/o/q basis real disposable income is contracting at a 7.4% annual rate and worse, the spread between nominal and real income is widening, indicating that mandatory purchases such a food, energy and health care - are increasing.

- Via Market Ticker

Stimulus dollars going to accused contractors

2009-10-29T08:41:00.000-07:00

President Obama and members of Congress told federal agencies earlier this year to avoid awarding funds under the American Recovery and Reinvestment Act to contractors with troubled histories of work for the federal government.

But that isn't happening at numerous agencies, a Washington Post analysis shows. So far, 33 federal departments and agencies have awarded more than $1.2 billion in stimulus contracts to at least 30 companies that are ranked by one watchdog group as among the most egregious offenders of state and federal laws.

Government records show that as a group, these contractors have sold defective products, manufactured safety tests, submitted false travel claims and padded contracts with fraudulent fees.
"Even a simple Google search could raise red flags about some contractors' performance," said Rep. Carolyn B. Maloney (D-N.Y.).

Honeywell International, for example, is defending itself against a Justice Department lawsuit accusing it of selling defective shields for bulletproof vests to the Defense and Homeland Security departments, costing the federal government tens of millions of dollars. But that did not prevent the company from winning $2.9 million in stimulus contracts from the Air Force.

On a larger scale, UT-Battelle, a partnership of the University of Tennessee and Battelle Memorial Institute, has been awarded 43 Recovery Act contracts worth more than $331 million by the Department of Energy for work at the Oak Ridge National Laboratory. In every instance, competitive bidding rules were waived, but officials said the contracts were largely extensions of competitively bid work that was already underway at the site.

Obama explicitly warned against awarding contracts without competitive bidding in a memo released to agency heads weeks after he signed the act, saying they create "a risk that taxpayer funds will be spent on contracts that are wasteful, inefficient, subject to misuse." (So far, half of the $16 billion awarded under the stimulus has gone to contractors that did not have to compete for the work.)

The administration followed up on Obama's memo Tuesday, instructing agencies to cut contract spending by 7 percent in the next two years and hire at least 5 percent more contracting officers in the next five years to manage the large contracts. Agencies must also cut 10 percent of their "high risk" or non-competitive contracts this fiscal year.

UT-Battelle was cited in 2005 for serious nuclear safety violations at the former Cold War site. And last year, the inspector general cited the company for using $600,000 in federal money for unapproved expenditures on cigars, wine and gifts, including a pen with a built-in USB flash drive, given to guests at a scientific conference. Officials said the firm has resolved past problems and believes the Recovery Act awards were appropriate.

"UT-Battelle has worked with the Department to address any previous concerns that have been raised about the company," Michael Bradley, a UT-Battelle spokesman, said in a statement.

The Project on Government Oversight, a government watchdog group, compiled data on Honeywell, Battelle and other contractors that have had legal or regulatory issues with federal agencies. For its analysis, The Post compared a list of companies receiving stimulus grants with POGO's data and examined reports from the Government Accountability Office, court records from the Justice Department and other public documents.

In an attempt to curtail contract awards to companies with prior problems, Maloney last year authored a law that requires creation of a government database to track past performance.

The database would include civil and criminal actions in which the contractor lost. None of this information, however, would be made publicly available, and government officials would have to only log and check information. Nothing in the law compels them to use it when awarding contracts.

Honeywell and other large government contractors said using such databases to shape decision-making is simplistic. Business relationships, they said, are uneven. "From time to time, as in all commercial relationships, there are misunderstandings or even disputes between parties that are inevitably resolved," said Honeywell spokesman Peter Dalpe.

Government contract officials said many factors must be considered when awarding work, including a company's expertise. Concerns over federal contracts are acute now because even before the stimulus bill passed, taxpayers in 2008 financed $500 billion in such work, a doubling of the amount spent in 2001.
That figure is expected to climb to at least $525 billion for 2009, and oversight of those dollars will heavily rely on whistleblower reports. With Recovery Act contracts in particular, the public is asked to report any abuse of funds by calling a hotline or filling out an anonymous online form.
Whistleblowers said that for the hotline to work, contractors need to feel a sharper sting when they are caught.

Judith Neal called a hotline and exposed Honeywell for fabricating tests on at least $7 million in ammunition it manufactured and sold in 1987, according to a court finding. She's watched as similar incidents have continued for two decades.

At the time, both Neal, who worked in the company's personnel department, and the Justice Department prevailed in court against Honeywell. However, the federal government secured $2 million from the company and $400,000 in ammunition, not even half the value of the faulty ammunition, records show. Such disparities in cost recoveries continue and are common.

"It is not punitive at all," said Neal, now director of the Tyson Center for Faith and Spirituality in the Workplace at the University of Arkansas. "When you talk about repeat offenders, there are too many profits involved to stop them from doing it again. They just get their hands slapped."

- Via Washington Post

Brother of Afghan Leader Said to Be Paid by C.I.A.

2009-10-29T08:30:00.000-07:00

KABUL, Afghanistan — Ahmed Wali Karzai, the brother of the Afghan president and a suspected player in the country’s booming illegal opium trade, gets regular payments from the Central Intelligence Agency, and has for much of the past eight years, according to current and former American officials.

The agency pays Mr. Karzai for a variety of services, including helping to recruit an Afghan paramilitary force that operates at the C.I.A.’s direction in and around the southern city of Kandahar, Mr. Karzai’s home.

The financial ties and close working relationship between the intelligence agency and Mr. Karzai raise significant questions about America’s war strategy, which is currently under review at the White House.

The ties to Mr. Karzai have created deep divisions within the Obama administration. The critics say the ties complicate America’s increasingly tense relationship with President Hamid Karzai, who has struggled to build sustained popularity among Afghans and has long been portrayed by the Taliban as an American puppet. The C.I.A.’s practices also suggest that the United States is not doing everything in its power to stamp out the lucrative Afghan drug trade, a major source of revenue for the Taliban.
More broadly, some American officials argue that the reliance on Ahmed Wali Karzai, the most powerful figure in a large area of southern Afghanistan where the Taliban insurgency is strongest, undermines the American push to develop an effective central government that can maintain law and order and eventually allow the United States to withdraw.

“If we are going to conduct a population-centric strategy in Afghanistan, and we are perceived as backing thugs, then we are just undermining ourselves,” said Maj. Gen. Michael T. Flynn, the senior American military intelligence official in Afghanistan.

Ahmed Wali Karzai said in an interview that he cooperated with American civilian and military officials, but did not engage in the drug trade and did not receive payments from the C.I.A.

The relationship between Mr. Karzai and the C.I.A. is wide ranging, several American officials said. He helps the C.I.A. operate a paramilitary group, the Kandahar Strike Force, that is used for raids against suspected insurgents and terrorists. On at least one occasion, the strike force has been accused of mounting an unauthorized operation against an official of the Afghan government, the officials said.

Mr. Karzai is also paid for allowing the C.I.A. and American Special Operations troops to rent a large compound outside the city — the former home of Mullah Mohammed Omar, the Taliban’s founder. The same compound is also the base of the Kandahar Strike Force. “He’s our landlord,” a senior American official said, speaking on the condition of anonymity.

Mr. Karzai also helps the C.I.A. communicate with and sometimes meet with Afghans loyal to the Taliban. Mr. Karzai’s role as a go-between between the Americans and the Taliban is now regarded as valuable by those who support working with Mr. Karzai, as the Obama administration is placing a greater focus on encouraging Taliban leaders to change sides.

A C.I.A. spokesman declined to comment for this article.

“No intelligence organization worth the name would ever entertain these kind of allegations,” said Paul Gimigliano, the spokesman.

Some American officials said that the allegations of Mr. Karzai’s role in the drug trade were not conclusive.

“There’s no proof of Ahmed Wali Karzai’s involvement in drug trafficking, certainly nothing that would stand up in court,” said one American official familiar with the intelligence. “And you can’t ignore what the Afghan government has done for American counterterrorism efforts.”

At the start of the Afghan war, just after the 9/11 terrorist attacks in the United States, American officials paid warlords with questionable backgrounds to help topple the Taliban and maintain order with relatively few American troops committed to fight in the country. But as the Taliban has become resurgent and the war has intensified, Americans have increasingly viewed a strong and credible central government as crucial to turning back the Taliban’s advances.

Now, with more American lives on the line, the relationship with Mr. Karzai is setting off anger and frustration among American military officers and other officials in the Obama administration. They say that Mr. Karzai’s suspected role in the drug trade, as well as what they describe as the mafialike way that he lords over southern Afghanistan, makes him a malevolent force.

These military and political officials say the evidence, though largely circumstantial, suggests strongly that Mr. Karzai has enriched himself by helping the illegal trade in poppy and opium to flourish. The assessment of these military and senior officials in the Obama administration dovetails with that of senior officials in the Bush administration.

“Hundreds of millions of dollars in drug money are flowing through the southern region, and nothing happens in southern Afghanistan without the regional leadership knowing about it,” a senior American military officer in Kabul said. Like most of the officials in this article, he spoke on the condition of anonymity because of the secrecy of the information.

“If it looks like a duck, and it quacks like a duck, it’s probably a duck,” the American officer said of Mr. Karzai. “Our assumption is that he’s benefiting from the drug trade.”

American officials say that Afghanistan’s opium trade, the largest in the world, directly threatens the stability of the Afghan state, by providing a large percentage of the money the Taliban needs for its operations, and also by corrupting Afghan public officials to help the trade flourish.

The Obama administration has repeatedly vowed to crack down on the drug lords who are believed to permeate the highest levels of President Karzai’s administration. They have pressed him to move his brother out of southern Afghanistan, but he has so far refused to do so.

Other Western officials pointed to evidence that Ahmed Wali Karzai orchestrated the manufacture of hundreds of thousands of phony ballots for his brother’s re-election effort in August. He is also believed to have been responsible for setting up dozens of so-called ghost polling stations — existing only on paper — that were used to manufacture tens of thousands of phony ballots.
“The only way to clean up Chicago is to get rid of Capone,” General Flynn said.

In the interview in which he denied a role in the drug trade or taking money from the C.I.A., Ahmed Wali Karzai said he received regular payments from his brother, the president, for “expenses,” but said he did not know where the money came from. He has, among other things, introduced Americans to insurgents considering changing sides. And he has given the Americans intelligence, he said. But he said he was not compensated for that assistance.

“I don’t know anyone under the name of the C.I.A.,” Mr. Karzai said. “I have never received any money from any organization. I help, definitely. I help other Americans wherever I can. This is my duty as an Afghan.”

Mr. Karzai acknowledged that the C.I.A. and Special Operations troops stayed at Mullah Omar’s old compound. And he acknowledged that the Kandahar Strike Force was based there. But he said he had no involvement with them.

A former C.I.A. officer with experience in Afghanistan said the agency relied heavily on Ahmed Wali Karzai, and often based covert operatives at compounds he owned. Any connections Mr. Karzai might have had to the drug trade mattered little to C.I.A. officers focused on counterterrorism missions, the officer said.

“Virtually every significant Afghan figure has had brushes with the drug trade,” he said. “If you are looking for Mother Teresa, she doesn’t live in Afghanistan.”

The debate over Ahmed Wali Karzai, which began when President Obama took office in January, intensified in June, when the C.I.A.’s local paramilitary group, the Kandahar Strike Force, shot and killed Kandahar’s provincial police chief, Matiullah Qati, in a still-unexplained shootout at the office of a local prosecutor.

The circumstances surrounding Mr. Qati’s death remain shrouded in mystery. It is unclear, for instance, if any agency operatives were present — but officials say the firefight broke out when Mr. Qati tried to block the strike force from freeing the brother of a task force member who was being held in custody.
“Matiullah was in the wrong place at the wrong time,” Mr. Karzai said in the interview.

Counternarcotics officials have repeatedly expressed frustration over the unwillingness of senior policy makers in Washington to take action against Mr. Karzai — or even begin a serious investigation of the allegations against him. In fact, they say that while other Afghans accused of drug involvement are investigated and singled out for raids or even rendition to the United States, Mr. Karzai has seemed immune from similar scrutiny.

For years, first the Bush administration and then the Obama administration have said that the Taliban benefits from the drug trade, and the United States military has recently expanded its target list to include drug traffickers with ties to the insurgency. The military has generated a list of 50 top drug traffickers tied to the Taliban who can now be killed or captured.

Senior Afghan investigators say they know plenty about Mr. Karzai’s involvement in the drug business. In an interview in Kabul this year, a top former Afghan Interior Ministry official familiar with Afghan counternarcotics operations said that a major source of Mr. Karzai’s influence over the drug trade was his control over key bridges crossing the Helmand River on the route between the opium growing regions of Helmand Province and Kandahar.

The former Interior Ministry official said that Mr. Karzai was able to charge huge fees to drug traffickers to allow their drug-laden trucks to cross the bridges.

But the former officials said it was impossible for Afghan counternarcotics officials to investigate Mr. Karzai. “This government has become a factory for the production of Talibs because of corruption and injustice,” the former official said.

Some American counternarcotics officials have said they believe that Mr. Karzai has expanded his influence over the drug trade, thanks in part to American efforts to single out other drug lords.

In debriefing notes from Drug Enforcement Administration interviews in 2006 of Afghan informants obtained by The New York Times, one key informant said that Ahmed Wali Karzai had benefited from the American operation that lured Hajji Bashir Noorzai, a major Afghan drug lord during the time that the Taliban ruled Afghanistan, to New York in 2005. Mr. Noorzai was convicted on drug and conspiracy charges in New York in 2008, and was sentenced to life in prison this year.

Habibullah Jan, a local military commander and later a member of Parliament from Kandahar, told the D.E.A. in 2006 that Mr. Karzai had teamed with Haji Juma Khan to take over a portion of the Noorzai drug business after Mr. Noorzai’s arrest.

- Via NY Times

Gardasil Researcher Drops A Bombshell

2009-10-29T08:22:00.000-07:00

Dr. Diane Harper, lead researcher in the development of two human papilloma virus vaccines, Gardasil and Cervarix, said the controversial drugs will do little to reduce cervical cancer rates and, even though they’re being recommended for girls as young as nine, there have been no efficacy trials in children under the age of 15.

Dr. Harper, director of the Gynecologic Cancer Prevention Research Group at the University of Missouri, made these remarks during an address at the 4th International Public Conference on Vaccination which took place in Reston, Virginia on Oct. 2-4. Although her talk was intended to promote the vaccine, participants said they came away convinced the vaccine should not be received.

“I came away from the talk with the perception that the risk of adverse side effects is so much greater than the risk of cervical cancer, I couldn’t help but question why we need the vaccine at all,” said Joan Robinson, Assistant Editor at the Population Research Institute.

Dr. Harper began her remarks by explaining that 70 percent of all HPV infections resolve themselves without treatment within a year. Within two years, the number climbs to 90 percent. Of the remaining 10 percent of HPV infections, only half will develop into cervical cancer, which leaves little need for the vaccine.

She went on to surprise the audience by stating that the incidence of cervical cancer in the U.S. is already so low that “even if we get the vaccine and continue PAP screening, we will not lower the rate of cervical cancer in the US.”

There will be no decrease in cervical cancer until at least 70 percent of the population is vaccinated, and even then, the decrease will be minimal.

Apparently, conventional treatment and preventative measures are already cutting the cervical cancer rate by four percent a year. At this rate, in 60 years, there will be a 91.4 percent decline just with current treatment. Even if 70 percent of women get the shot and required boosters over the same time period, which is highly unlikely, Harper says Gardasil still could not claim to do as much as traditional care is already doing.

Dr. Harper, who also serves as a consultant to the World Health Organization, further undercut the case for mass vaccination by saying that “four out of five women with cervical cancer are in developing countries.”

Ms. Robinson said she could not help but wonder, “If this is the case, then why vaccinate at all? But from the murmurs of the doctors in the audience, it was apparent that the same thought was occurring to them.”

However, at this point, Dr. Harper dropped an even bigger bombshell on the audience when she announced that, “There have been no efficacy trials in girls under 15 years.”

Merck, the manufacturer of Gardasil, studied only a small group of girls under 16 who had been vaccinated, but did not follow them long enough to conclude sufficient presence of effective HPV antibodies.

This is not the first time Dr. Harper revealed the fact that Merck never tested Gardasil for safety in young girls. During a 2007 interview with KPC News.com, she said giving the vaccine to girls as young as 11 years-old “is a great big public health experiment.”

At the time, which was at the height of Merck’s controversial drive to have the vaccine mandated in schools, Dr. Harper remained steadfastly opposed to the idea and said she had been trying for months to convince major television and print media about her concerns, “but no one will print it.”

“It is silly to mandate vaccination of 11 to 12 year old girls,” she said at the time. “There also is not enough evidence gathered on side effects to know that safety is not an issue.”

When asked why she was speaking out, she said: “I want to be able to sleep with myself when I go to bed at night.”

Since the drug’s introduction in 2006, the public has been learning many of these facts the hard way. To date, 15,037 girls have officially reported adverse side effects from Gardasil to the Vaccine Adverse Event Reporting System (VAERS). These adverse reactions include Guilliane Barre, lupus, seizures, paralysis, blood clots, brain inflammation and many others. The CDC acknowledges that there have been 44 reported deaths.

Dr. Harper also participated in the research on Glaxo-Smith-Kline’s version of the drug, Cervarix, currently in use in the UK but not yet approved here. Since the government began administering the vaccine to school-aged girls last year, more than 2,000 patients reported some kind of adverse reaction including nausea, dizziness, blurred vision, convulsions, seizures and hyperventilation. Several reported multiple reactions, with 4,602 suspected side-effects recorded in total. The most tragic case involved a 14 year-old girl who dropped dead in the corridor of her school an hour after receiving the vaccination.

The outspoken researcher also weighed in last month on a report published in the Journal of the American Medical Association that raised questions about the safety of the vaccine, saying bluntly: "The rate of serious adverse events is greater than the incidence rate of cervical cancer."

Ms. Robinson said she respects Dr. Harper’s candor. “I think she’s a scientist, a researcher, and she’s genuine enough a scientist to be open about the risks. I respect that in her.”

However, she failed to make the case for Gardasil. “For me, it was hard to resist the conclusion that Gardasil does almost nothing for the health of American women.”

- Via The Bulletin

Peter Schiff on Fast Money CNBC 27 Oct 2009

2009-10-27T23:05:00.000-07:00

Glenn Beck on Obama's Redistributive Change: Nancy Pelosi Said What?! Who Pays for 'Public Option'?

2009-10-27T22:43:00.000-07:00

Iran opens exchange to trade oil, products-ISNA

2009-10-27T08:06:00.000-07:00

Iran, OPEC's second-biggest oil producer, launched its international oil exchange on Monday to buy and sell crude, oil products and petrochemical products, Iran's student news agency ISNA reported.

"The international exchange hall of crude, oil products and petrochemical goods of Iran was inaugurated. Our aim is to shift oil market trade focus in the region to the Kish Island," said Economy Minister Shamseddin Hosseini at the inauguration ceremony, ISNA reported.

The bourse, based on the Gulf economic free zone island of Kish, has been planned for years but had faced repeated delays. The first phase of the exchange for trading oil products was inaugurated in February.

When plans were first mooted, some analysts speculated Iran might use it to undermine the importance of the U.S. dollar by pricing crude in euros or other currencies.

The report did not specify the currency in which trading would take place.

Iran wants to deregulate prices of petrochemicals and other oil products and create more transparency as part of a privatisation drive, aimed at attracting more foreign investment into the country's oil industry.

But investors have shown limited interest mainly because of international sanctions imposed against Iran over its disputed nuclear programme, which the West fears is a cover to build nuclear arms, Iran denies this.

Iran is under U.S. and U.N. sanctions over its nuclear row with the West.

Oil Minister Masoud Mirkazemi, a close ally of hardline President Mahmoud Ahmadinejad, has promised to reinvigorate the Iranian hydrocarbon sector.

He has also signified Iran's need for foreign investment to develop its oil and gas industry. Iran lacks technical capabilities or funds to proceed with its energy projects.

Iran has struggled for years to develop its energy sector and now has to contend with an international lack of credit, as well as the sanctions.

Iran's petrochemical capacity expansion is likely to mainly focus on the rapid expansion programme of the country's refining capacity.

The Islamic state lacks sufficient refining capacity to meet its gasoline needs, leaving it potentially vulnerable to any Western sanctions targeting such trade.

- Via Reuters

Time to bomb them.

Consumer Confidence in U.S. Unexpectedly Decreases

2009-10-27T07:41:00.000-07:00

Confidence among U.S. consumers unexpectedly fell in October for a second month as Americans fretted about a lack of jobs.

The Conference Board’s confidence index dropped to 47.7 from a revised 53.4 in September, a report from the New York- based private research group showed today. A measure of employment availability deteriorated to a 26-year low.

Mounting unemployment threatens to restrain consumer spending entering the Christmas-holiday shopping season. Without a sustained rebound in the biggest part of the economy, the emerging recovery may fall short of expectations.

“There really isn’t any scope for us to see sustained gains in consumer spending for quite some time,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “The labor market remains very weak.”

Stocks dropped after the report, erasing earlier gains, on concern consumers will cut back. The Standard & Poor’s 500 Index was down 0.2 percent to 1,065.05 at 10:21 a.m. in New York. Treasury securities rallied, pushing the yield on the 10-year note down to 3.52 percent from 3.56 percent late yesterday.

Economists forecast confidence would increase to 53.5 from a previously reported 53.1 for September, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from 48 to 57.

Home Prices Firm

An earlier report today showed home prices in 20 U.S. cities rose in August for a third straight month. The S&P/Case- Shiller home-price index climbed 1 percent from the prior month on a seasonally adjusted basis, after a 1.2 percent increase in July. Compared with a year earlier, prices were down 11.3 percent, less than the median forecast of economists surveyed.

The Conference Board’s measure of present conditions dropped to 20.7, the lowest level since February 1983. The gauge of expectations for the next six months decreased to 65.7 from 73.7.
The share of consumers who said jobs are plentiful dropped to 3.4 percent from 3.6 percent. The proportion of people who said jobs are hard to get increased to 49.6 percent, the highest level since May 1983, from 47 percent.

The proportion of people who expect their incomes to rise over the next six months decreased to 10.3 percent from 11.2 percent. The share expecting more jobs fell to 16.3 percent from 18 percent.

Less Spending

Consumers “remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.

Government reports have shown that while companies are slowing the pace of firing they are reluctant to hire. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

Caterpillar Inc. said Oct. 26 it has started rehiring and expects to return a portion of its laid-off employees to jobs as demand increases in the coming months. Even so, while 550 U.S. employees have returned or will return to work before the end of next year, about 2,500 idled U.S. workers are being told they won’t get their jobs back and will be offered a separation package.

“It’s important to remember that we are not close to the record-breaking demand we experienced from 2004 through 2008,” Chief Executive Officer Jim Owens said in a statement.

Buying Plans

Buying plans for automobiles, homes and major appliances within the next six months all decreased this month, today’s report showed.

Today’s report mimics a decline seen in the Reuters/University of Michigan preliminary index of consumer sentiment issued earlier this month.

Economists say the Conference Board’s index tends to be more influenced by attitudes about the labor market.

Consumer spending probably increased at a 3 percent pace in the third quarter, according to the median projection of economists ahead of the gross domestic product report due in two days. Demand will ease to a 1 percent growth rate the final three months this year and then may accelerate to a 1.5 percent rate in the first quarter, according to median forecasts in a Bloomberg News survey earlier in October.
J.C. Penney Chief Executive Officer Myron Ullman told analysts Oct. 23 while the consumer is “still under enormous pressure,” the company is “starting to see some stabilization and some modest improvement in traffic.”

Fed Regions

Most Federal Reserve district banks saw “stabilization or modest improvements” in areas including housing and manufacturing in September and earlier this month, according to the Beige Book business survey released Oct. 21. The report was issued two weeks before the central bank’s next monetary policy meeting and cited continued “weak or mixed” labor markets.

“Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,” the Fed said last week.

- Via CNBC

FDIC Chair Sheila Bair (Video After the Jump)

2009-10-26T23:02:00.000-07:00

Before she appeared at the American Bankers Association annual convention today, Federal Deposit Insurance Corporation head Sheila Bair addressed protesters at the conference.

(Check out HuffPost's coverage of the protests here.)

Bair said she "strongly supports" the creation of a consumer financial protection agency, which would shield Americans from confusing credit card and mortgage offers. Bair also expressed regret that existing regulations hadn't done more to prevent the crisis.
Here's Bair:

"In looking at indecipherable credit card statements and documents, mortgages you can't understand and APRs from payday loans and high overdraft fees, I don't see how anyone can say we've done a good job protecting consumers from financial services."

Bair also added, "It's time to put an end to the 'too big to fail' doctrine... Yes, no more bailouts, no more bailouts!"

9 Signs of America in Decline

2009-10-26T22:56:00.000-07:00

The sky isn't falling, exactly. America isn't on a fast track to irrelevance. Even in a state of total neglect, we could probably shamble along as a disheveled superpower for a few more decades.

But all empires end, and the warning signs of American decline seem to be blinking more consistently. In the latest annual "prosperity index" published by the Legatum Institute, a London-based research firm, the United States ranks as the ninth most prosperous country in the world. That's five notches lower than last year, when America ranked No. 4. The drop might seem inconsequential, especially in the midst of a grueling recession—except that most of the world has endured the same recession, and other countries are bouncing back faster.

China and India have recovered smartly from the recession, for example. Brazil seems to be barreling ahead. Australia is growing faster than expected, prompting worry among government officials who fear they may have overstimulated the economy. The United States, meanwhile, is muddling through a weak, jobless recovery, and we have a lot of problems that could make prosperity feel elusive for a long time.
[See 4 problems that could sink America.]

Real household income in America has flat-lined, for instance, which means many middle-class families are barely keeping up with inflation. The exploding federal deficit hamstrings the government's ability to help. Healthcare is too expensive, America's manufacturing base is eroding, and two open-ended foreign wars are draining the national treasury. This is not a recipe for building national wealth.

There are still millions of diligent, innovative Americans who could help the nation dig out of its hole. But overall, the American population is falling behind, by a variety of measures. Here are some of them:

Jobs. The International Monetary Fund predicts that the U.S. unemployment rate will be 9.3 percent for all of 2010. That's lower than in some European nations, but it's higher than in Canada and a lot worse than most countries in Scandinavia and Asia. Overall, the U.S. unemployment rate is about average for advanced economies and likely to stay that way. It could be worse, but middling job creation isn't a sign of global leadership.
[See 7 ways to survive the jobless recovery.]

Economic growth. The IMF also predicts that the U.S. economy will grow 1.9 percent in 2010. That's a tad better than the average for all advanced economies, but at least 10 developed nations will grow faster. Woo-hoo. Three cheers for mediocrity.

Poverty. The U.S. poverty rate, about 17 percent, is third worst among the advanced nations tracked by the Organization for Economic Cooperation and Development. In that sample, only Turkey and Mexico are worse.

Education. American 15-year-olds score below the average for advanced nations on math and science literacy. But don't worry, our nation's future leaders are still ahead of their peers in Mexico, Turkey, Greece, and a few other places.

Competitiveness. In the latest global competitiveness report from the World Economic Forum, the United States fell from No. 1 to No. 2. Sure, let's console ourselves that the No. 1 country, Switzerland, is a tiny outlier nation and that getting bumped from the top spot doesn't really mean anything. Add an asterisk, and we're still No. 1.
[See 5 myths about the economic "recovery."]

Prosperity. The most prosperous nations, according to the Legatum report, are Finland, Switzerland, Sweden, Denmark, and Norway. These fairly homogenous European countries are the teachers' pets of global rankings, often appearing near the top because of right-sized economies and a relatively small underclass. For a huge economy like America's, a No. 9 ranking is still respectable. And part of the drop from last year's No. 4 spot is a change in methodology that puts more emphasis on the health and safety of citizens. Still, in the index's subrankings, the United States isn't even in the top 10 for economic fundamentals, safety and security, or governance. We should do better.

Health. In the Legatum study, the United States ranks 27th for the health of its citizens. Life expectancy in America is below the average for 30 advanced countries measured by the OECD, and the obesity rate in America is the worst among those 30 countries, by far. And, of course, we spend far more on healthcare per person than anybody else—but get no bang for the extra buck.

Well-being. In the United Nations' Human Development Index, which attempts to measure the overall well-being of citizens throughout the world, the United States ranks 13th, one notch lower than in the prior set of rankings. Norway, Australia, Iceland, and Canada are at the top.
[See 4 countries with better healthcare than ours.]

Happiness. The United States ranks 11th in the OECD's measure of "life satisfaction"—behind Denmark, Finland, the Netherlands, and other usual suspects. That's not bad, but the United States is one of only four countries where life satisfaction is going down, not up. The other downer nations are Portugal, Hungary, Canada, and Japan. Plus, the research behind these rankings predates the recession, so it's likely that Americans are a lot less satisfied these days.

The overall portrait of America isn't exclusively gloomy, and in some areas we still seem to have an important edge. The Legatum prosperity index, for example, ranks America first for entrepreneurship and innovation. And in a GfK Roper survey of how nations rate as global "brands," America rocketed from No. 7 in 2008 to No. 1 in 2009, largely because the world cheered the election of Barack Obama as U.S. president. But a brand-name leader can't just strong-arm his nation back to greatness. He needs a lot of help from educated, healthy, and employed citizens determined to spread the wealth.

- Via USN

California Treasurer Spanks Legislature

2009-10-26T21:29:00.001-07:00

What Copper's Breakout Means

2009-10-26T13:56:00.000-07:00

In the last two weeks, in Reflation Supported By Stocks, Commodities, and Oil, and Gold, Recessions, Bonds, and 1987, we hypothesized that recent bullish moves in gold, oil, and the CRB Index were evidence of successful "reflation" of asset prices via monetary and fiscal policy. This week, we can add copper and emerging markets to the bullish evidence list. From a fundamental perspective, the desire to hold copper is based on economic need (you want to make a product), and inflation protection (you want to own hard assets rather than paper currencies).

Copper and Emerging Markets Are Worth Monitoring

When markets move in an unexpected manner, we should pay attention. In recent weeks, many market observers had noted the following:

Copper had failed to make a new high for over nine weeks.

Many markets have a bearish formation known as a “rising wedge”.

Using these accurate observations, a case was made by some that the "rally has come too far too fast", and that copper was indicating a weak recovery. From where we sit, those were legitimate concerns, and warranted close monitoring, while giving the bull market the benefit of the doubt. If you are bearish, you would expect copper to fail to make a new high for the remainder of 2009, and for "rising wedge" formations to conclude with bearish outcomes. In the case of the Emerging Markets Index and copper, the exact opposite has happened:

Copper experienced an upside breakout and made new highs (bullish).

Emerging Markets recently broke out from a "rising wedge" formation (bullish).

"Dr. Copper" Says Don’t Be Too Quick To Sell

If the current global rally was about to end, would we expect copper to be making new highs? On Wall Street, copper is often referred to as "Dr. Copper, who holds a Ph.D. in economics" based on the metal’s ability to forecast future economic activity. Copper recently made both a new closing high and new intraday high. Copper is bullish – we need to take that into account during any correction.

Emerging Markets Shake Off Bearish Pattern

As mentioned above, many markets, including the S&P 500, currently have what is known as a "rising wedge" formation. A rising wedge is a bearish formation. However, in a bull market bearish outcomes do not always occur after bearish formations. Relative to the Emerging Markets Index, the S&P 500 is a laggard. While we are concerned about the S&P 500’s rising wedge, we need to keep in mind that the Emerging Markets have already broken out of their wedge formation. If the leaders continue to lead, and the laggards continue to follow, then it is possible that the S&P 500 will also see a bullish break from its rising wedge.

Click on chart to enlarge

No Time For Blind Bullishness

Should the breakouts in copper and emerging markets fail to hold, it would be wise for the bulls to pay attention. However, the longer these markets remain in a breakout state, the more bullish these events become. As stated above, when markets move in an unexpected manner, we should pay attention. Therefore, if you have been bearish, it may be worth your time to monitor the sustainability of recent bullish moves in copper and emerging markets. Since we are in a confirmed bull market, the odds favor bullish outcomes until proven otherwise. We will continue to monitor all markets very closely, while continuing to give the bullish trends the benefit of the doubt.

- Via Seeking Alpha

Peter Schiff issues a Red Alert: "Get out of the US dollar"

2009-10-26T13:43:00.000-07:00

U.S. Stocks Retreat on Concern Housing Tax Credit to Phase Out

2009-10-26T13:38:00.000-07:00

U.S. stocks slid, erasing an early rally, on concern lawmakers will phase out a tax credit for homebuyers and Bank of America Corp. will have to sell shares to pay back its government bailout. The dollar rebounded from a 14- month low against the euro and oil wiped out an early advance.

All 12 shares in a gauge of homebuilders slid. Bank of America sank 5.1 percent on speculation government officials will force the company to raise more capital, while Fifth Third Bancorp, SunTrust Banks Inc. and U.S. Bancorp declined at least 3.2 percent after Rochdale Securities LLC analyst Dick Bove downgraded the shares. Treasuries fell, with 10-year yields touching a two-month high.
The Standard & Poor’s 500 Index lost 1.2 percent to 1,066.95 at 4:04 p.m. in New York. The Dow Jones Industrial Average retreated 104.22 points, or 1.1 percent, to 9,867.96. Almost five stocks fell for each rising on the New York Stock Exchange.

“Plenty of news for traders to sell on,” said James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “We’ve still got a rise in loan losses. Some banks will probably have to raise further capital. And on the tax-credit front, we already know we won’t have that forever. But after a nice stock market run, a lot of players wanted to have a pause.”

Equities rallied earlier, sending the S&P 500 up as much as 1.1 percent, as investors grew more confident that better-than- estimated profits will fuel further equity gains. About 80 percent of companies in the S&P 500 that reported third-quarter results have topped analysts’ earnings projections, exceeding the record pace of 72.3 percent for the period ended in June.

Builders Slump

A gauge of 12 homebuilders in S&P indexes slumped 3.4 percent, led by declines of at least 3.8 percent in Pulte Homes Inc. and D.R. Horton Inc. Senate leaders are negotiating to extend and gradually reduce an $8,000 tax credit for first-time homebuyers through 2010, Senator Bill Nelson said. The credit was set to expire at the end of November.

“The phase out is worse than a straight extension and probably worse for housing than the consensus,” ISI Group Inc. analysts said in a note

Banks fell 3.3 percent collectively, the steepest decline in the S&P 500 among 24 industries, after Bove downgraded Fifth Third Bancorp, SunTrust and U.S. Bancorp on concern loan losses will remain high.
Fifth Third, Ohio’s largest lender, retreated 7.9 percent to $9.52. SunTrust, the seventh-largest U.S. bank, lost 5.4 percent to $19.85, while Minneapolis-based U.S. Bancorp dropped 3.1 percent to $24.15. Bank of America, the largest U.S. lender by assets, sank 5.1 percent to $15.40.

‘Meaningfully Harm’

“The government apparently wants the bank to raise $45 billion in the market from a new capital offering before it will let the bank redeem the TARP preferreds,” Bove wrote in a note dated Oct. 23, referring to the Troubled Asset Relief Program. “Selling more stock would meaningfully harm Bank of America’s shareholders. If the bank did what the government wants it would have to sell 3 billion shares or increase its share base by 35 percent.”

Bank of America pared an earlier slide of as much as 7.1 percent after Citigroup Inc. added the stock to its “top picks” list, saying it is “very attractive” after the sell- off.

Federal Deposit Insurance Corp. Chairman Sheila Bair said that banks continue to face “serious challenges.” Bair also said tapping a Treasury Department credit line to replenish funds depleted by a surge of bank failures would harm her agency and the banking industry. She made the comments today during a speech at an American Bankers Association convention in Chicago.

Monsanto Co. fell 6 percent to $70.69, its biggest drop since May. Goldman Sachs Group Inc. lowered its earnings estimates for the world’s largest seed producer, citing company discounts on corn-seed prices.

- Via Bloomberg

A Correction Ahead? The Pros Don't Want To Hear It

2009-10-26T13:34:00.000-07:00

Institutional investors might have become too bullish as of late. Citi's Tobias Levkovich's highlights that he's receiving substantial resistance from clients any time he even mentions the potential for a market correction.

Citi: "We are consistently surprised by the pushback we get when we discuss unpopular topics and while our meetings with investors have remained friendly, we find investors less and less receptive to our concern about a correction."

He highlights that only 10% of stocks on the New York Stock Exchange are at or below their 200-day moving averages now. As shown below, the last time this happened was 2004 when stocks hit a rough patch and went sideways. Given the weaker economic environment we're in, things could be worse this time around.
At very least, even if you find the predictive power of the chart below questionable, the fact that 90% of stocks are now above their 200-day moving average is a testament to just how far we've come from March lows.

(Via Citi Investment Research, "Monday Morning Musings", Tobias Levkovich, 23 October 2009)

- Via TBI

What to expect in tomorrow’s S&P/Case-Shiller August ‘09 Numbers

2009-10-26T13:29:00.000-07:00

Tomorrow is the last Tuesday of the month, which for those of us watching the US housing market, means that the August 2009 values S&P/Case-Shiller Home Price Index get released. While the S&P/Case-Shiller Home Price Index showed a steady rise from May to July 2009 and a 1.6% rise from June to July, our data is showing that rise will be stemmed a bit from July to August. Ask prices fell from August to September and the price of new listings dropped considerably as well. These point to a more negative report coming out tomorrow in our estimation.
Here’s what we’re seeing in our data:

From our October 2009 Real-time Housing Report, The Altos Research 10-City Composite Index was down by 0.5% in September and 1.1% during the third quarter.
Using the housing market ask prices and more specifically, looking at the ask prices of new sellers entering the market each week, it’s clear that new sellers are viewing the market more pessimistically than sellers entering the market during the Spring. This would make sense because of the clear seasonality in the national housing market.

Existing sellers are starting to show more pessimism as well, as the number of active listings with price reductions is starting to show signs of increasing this Fall. This value stabilized in July and is stabilizing again this Fall. The initial stabilization in July 2009 is evidence that sellers initiated price reductions to motivate buyers, influencing aggregate prices to move lower:

Just so you know, we’re now the only ones a little bearish on the housing market this Fall. Negative sentiments are aplenty out there.

- Via Altos Research

Even the Fed Doesn't Want to Hold U.S. Dollars

2009-10-26T04:50:00.000-07:00

This is the scariest image in finance:

The above chart shows the dollar’s performance since the Fed announced its Quantitative Easing program in March. This chart tells us two things:

Americans just got 15% poorer on the world stage thanks to Ben Bernanke
A currency crisis is in the works (and perhaps already starting)

Regarding #1: When the financial crisis hit, the Fed realized it would need to keep interest rates low while it attempted to bail out the banks (80% of the $200+ trillion in derivatives sitting on commercial banks’ balance sheets are related to interest rates).

The problem with this is that it makes Treasuries very unattractive to foreign investors (China & Japan) who want a higher yield. Consequently, the Fed decided to pick up the slack by buying $300 billion worth of Treasuries through the now famous Quantitative Easing program.

As I noted last week, the Fed is now the largest buyer of US debt (it bought more debt than the next three largest buyers combined in 2Q09). China and Japan are no one’s fools. And they’re not going to fund a monetary policy that is both profligate and likely to erode the value of their dollar holdings.

Which brings us to item #2: the coming dollar crisis.

I am not a huge fan of technical analysis, but it is a useful tool for navigating a trader-heavy, liquidity driven, manipulated market such as today’s. On that note, I want to point out that the dollar began forming a falling bullish wedge pattern starting in June (see above chart). This pattern entails an ever-tightening range of lower highs and lower lows and typically precedes major breakouts to the upside.

Except it didn’t.

As you can see, the dollar broke down out of this pattern in late September. It then rallied back up into the trading range before breaking down again. This is bad news. The next line of support (place where the dollar could bounce) is 76. We've already broken that one too.

Now the next line of support is 72. Now, the dollar has only fallen to this level once in the last 30 years (Summer 2008, see the chart below). If we fall below that, then we’re in uncharted territory and a major dollar devaluation is in the works.

Perhaps it’s already happening.

To review a point made earlier, the dollar has lost 15% of its value since March 2009. On an annualized basis, we’re talking about the dollar losing almost a third of its value in one year (30%). That is an absurd level of devaluation. And China, Japan, etc. have had enough. It is now clear that a flight from the dollar has begun; the Fed buys more US debt than the next three biggest buyers combined.

However, what most people don’t realize is that even the Fed itself is shifting away from the dollar. Everyone knows that China and Japan hold massive foreign reserves (the dollar). But the US Federal Reserve does this too (we own euros, yen, etc.). And for some reason the amount of foreign reserve assets (non-dollar assets) on the Fed’s balance sheet skyrocketed by 50% to $133 billion at the end of August.
Now, $133 billion in foreign reserves is nothing compared to China and Japan’s ~$3 trillion. But a 50% increase in one week is an astounding rate of change.

The culprit?

A 500% increase in SDRs: the “global” currency issued by the IMF. The blog ZeroHedge caught this story first and pointed out that SDRs are the IMF’s means of maintaining a “super reserve” currency for the world. SDRs are defined as: a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar.

Now, one has to wonder why the US Federal Reserve decided to suddenly buy $40 billion worth of SDRs overnight. The answer is that the IMF decided to massively increase the amount of SDRs outstanding from SDR 21 billion to SDR 204 billion in late August.

This came as part of a G20 decision made in April 2009 to stabilize the global financial system. Interestingly, of the countries involved in buying SDRs, the US bought the most at SDR 30 billion, compared to Japan (SDR 11 billion), and China (SDR 6 billion).

I realize this is getting a bit technical. But in simple terms this means that the US Fed intentionally participated in a world reserve currency scheme that devalued the dollar.

Folks, even the Fed doesn't want to own dollars. It’s time to look for a currency that can't be devalued.

- Via Seeking Alpha

OPEC to Raise Output if Oil Hits $100: President

2009-10-26T02:43:00.000-07:00

OPEC ministers will raise output to protect the global economic recovery at a meeting in December if oil prices rise to $100 per barrel, the group's president said on Sunday.

Jose Botelho de Vasconcelos, who is also Angola's oil minister, said that both producers and consumers were comfortable with oil prices at between $75 and $80 per barrel and that higher prices could put a brake on the global economy.

"I think that a balanced price is always better," Botelho de Vasconcelos said before boarding a flight to Brazil late on Sunday. "You know that, if necessary, some countries are open to injecting more oil into the market and that will be done."

Asked if a rise in oil prices to $100 per barrel would inevitably prompt OPEC to raise production at its Dec. 22 meeting in Luanda, Botelho de Vasconcelos replied: "I believe so. We need to maintain the balance."

OPEC, which controls about a third of the world's oil production, has been holding down output since September 2008 as the financial crisis hit demand and pressured prices.

Fundamentals

Before increasing output, OPEC will first have to ensure that oil market fundamentals, in terms of supply and demand, are balanced, said Botelho de Vasconcelos, adding that oil stocks remained high while the dollar was weak.

"We know that the dollar has depreciated and that OPEC has played an extremely important role in the global economic recovery," he said. "We are aware that although oil stocks have been declining they are still at a certain level."

Oil prices reached $82 last week, the highest in a year, in a rally many say was triggered by expectations of an economic recovery and a weak dollar rather than a tighter oil supply and demand balance.

OPEC's Secretary-General Abdullah al-Badri said last week that although market fundamentals did not support the current price, the 12-member group was comfortable with oil prices at current levels — especially compared to the price drop to near $30 late last year.

"The secretary general's comments are welcome and I believe that they reflect well the sentiment of producing nations and consumers," said Botelho de Vasconcelos.

Benchmark U.S. crude oil futures [US@CL.1 80.0 -0.50 (-0.62%)] were around $80 a barrel on Monday.

- Via CNBC

China central bank official downplays dollar remarks

2009-10-25T23:36:00.000-07:00

A researcher at the People's Bank of China downplayed on Monday comments that the Chinese central bank should rebalance its reserves away from the U.S. dollar, after the remarks sent the greenback plunging.

Zhou Hai -- a Harbin, China-based member of the central bank's financial research department -- was cited Monday in a PBOC-affiliated publication as saying that, while the dollar should remain the principal currency in China's $2.27 trillion foreign-exchange reserves, the proportion of euros and Japanese yen should increase.

Zhou also said China should reduce pressure from foreign-exchange inflows by gradually improving the yuan exchange-rate mechanism and promoting some capital outflows.

The remarks sent the U.S. dollar to a fresh 14-month low against the euro. See Currencies.
The central bank researcher later told Reuters that the statements were "purely my personal view."
Still, Reuters said that other central-bank have expressed similar views.

The composition of China's currency reserves is a state secret, but bankers estimate that at least two-thirds of the holdings are invested in dollar-denominated securities, according to Reuters.

- Via Market Watch

Detroit House Auction Flops as Buyers Spurn Urban Wasteland

2009-10-25T23:23:00.000-07:00

In a crowded ballroom next to a bankrupt casino, what remains of the Detroit property market was being picked over by speculators and mostly discarded.

After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag.

"OK," he said. "We only have 300 more pages to go."

There was tired laughter from investors ready to roll the dice on a city that has become a symbol of the collapse of the U.S. auto industry, pressures on the industrial middle-class and intractable problems for the urban poor.

On the auction block in Detroit: almost 9,000 homes and lots in various states of abandonment and decay from the tidy owner-occupied to the burned-out shell claimed by squatters.

Taken together, the properties seized by tax collectors for arrears and put up for sale last week represented an area the size of New York's Central Park.

Total vacant land in Detroit now occupies an area almost the size of Boston, according to a Detroit Free Press estimate.

The tax foreclosure auction by Wayne County authorities also stood as one of the most ambitious one-stop attempts to sell off urban property since the real-estate market collapse.

Despite a minimum bid of $500, less than a fifth of the Detroit land was sold after four days.

The county had no estimate of how much was raised by the auction, a second attempt to sell property that had failed to find buyers for the full amount of back taxes in September.

The unsold parcels add to an expanding ghost town within the once-vibrant town known worldwide as the Motor City.

Critics say the poor showing at the auction underscores the limits of using a market-based system to clean up property tax problems. They say the system has enriched a few but failed to deliver a way for Detroit to staunch its dwindling population and could worsen the vacancy crisis.

One proposed alternative would have officials take control of the tax foreclosure process through a land bank program of the kind being used to revitalize the nearby city of Flint.

The stakes in the debate are rising.

The number of Detroit properties in tax foreclosure has more than tripled since 2007 and seems certain to rise further. The lots for sale last week represented arrears from only 2006, well before the worst of the downturn for U.S. automakers.

"We have to keep in mind that GM and Chrysler filed for bankruptcy this year," said Terrance Keith, chief deputy treasurer of Wayne County. "Some people are going to be totally tapped out next year."

Detroit, already stuck with a $300 million budget deficit, is responsible in the meantime for cutting the weeds and responding to fire calls for thousands more abandoned lots.

'Why Am I Competing Against a Bank?'

Many potential homeowners that Detroit desperately needs said they felt enalized by the auction process.

They mostly found themselves outbid by deeper-pocketed investors from California and New York who were in a race to claim the auction book's relatively few livable properties.

Dozens of potential bidders, mostly local residents, were turned away on the first day of the auction by deputies after they failed to meet the morning deadline for registration.

Ross Wallace, a lieutenant in the U.S. Army, turned in his check for $500 and waited on the auction floor in full dress uniform for a chance to buy a Detroit house on the cheap.

Wallace, 27, said he did not want to leave his fiancee and two children with a mortgage before shipping out to Iraq later this year.

"I still have student loans and I'm trying to be responsible. I don't want to leave debt," he said.

Wallace waited for the auction to roll around to Detroit's Boston-Edison district, a once stately area that was home to boxing legend Joe Louis and Motown founder Berry Gordy.

But he was quickly outbid. An unidentified investor at the front of the room who had scooped up several dozen properties took the home Wallace wanted for about $15,000.

"Why am I competing against a bank?" he said later. "It would be common sense to have a separate process for people who want to move back to the city or it's going to stay empty."

Nearby, a Dutch-born local woman, Riet Schumack, 54, knitted patiently through the auction for a chance to bid on a lot in Brightmoor, one of the most blighted neighborhoods.

Schumack, who runs a community garden near her home that employs 14 neighborhood children, said she had been battling through a maze of bureaucracy for years to try to buy an abandoned lot nearby to expand and plant fruit trees.

She learned the lot had been taken back from its previous owner -- an absentee investor with more than 100 abandoned lots in Brightmoor -- only because of her constant calls to city and county officials, she said.

When officials told her she would have to wait for a fourth day to bid on the property, Schumack broke down into tears.

"Anybody with a job is not able to sit here for days. So you are left with the sharks," she said.

Opinions were divided on whether the investors buying lots and homes by the dozen were a sign of better times ahead.

"They weren't here two years ago. So why are they here now? Unless, as speculators, they believe this is the bottom," said Keith of the Wayne County treasurer's office.

Bill Frank, a Detroit realtor trying to buy a small house for a just-married friend, found himself repeatedly outbid.

"Speculators are often not good for a city and, from my experience, they are going to lose a fortune," he said. "But there are no easy answers. It's a declining city."

- Via CNBC

Lender Capmark Financial Group Files for Bankruptcy

2009-10-25T14:37:00.000-07:00

Capmark Financial Group Inc., the lender owned by firms including Goldman Sachs Group Inc. and KKR & Co., filed for bankruptcy protection after posting a second- quarter loss of about $1.6 billion.
The company listed consolidated debt of $21 billion and consolidated assets of $20.1 billion as of June 30 in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware.

Horsham, Pennsylvania-based Capmark is one of the largest U.S. commercial real estate finance companies, with more than $10 billion in originations, according to Moody’s Investors Service. The company services more than $360 billion of debt.

Capmark, formerly known as GMAC Commercial Holding Corp., said it struck a deal with Warren Buffett’s Berkshire Hathaway Inc. and Leucadia National Corp. to sell its loan servicing and mortgage business to the companies for as much as $490 million, according to a Sept. 2 statement.

The company had its senior unsecured ratings lowered to C from Caa1 by Moody’s Investors Service Inc. after the announcement of the potential sale, its release of the operating results and its restructuring efforts, according to a Sept. 9 credit opinion issued by Moody’s.

“Unsecured lenders and bondholders, either in a default or restructuring scenario, would experience substantial losses,” Moody’s said in the opinion. The C rating reflects the potential loss severity, according to the report.

KKR, the New York-based private-equity firm run by Henry Kravis and George Roberts, wrote their investment in Capmark down to zero as of March 31 of this year, according to data provided by its publicly traded investment vehicle.

- Via Bloomberg

First Daughters Not Vaccinated Against H1N1

2009-10-25T11:15:00.000-07:00

President Obama's school age daughters have not been vaccinated against the H1N1 flu virus. White House Press Secretary Robert Gibbs says the vaccine is not available to them based on their risk.

The Centers for Disease Control recommend that children ages 6 months through 18 years of age receive a vaccination against the H1N1 flu virus. At this time only children with chronic medical conditions are receiving the vaccination because their immune system is not strong enough to fight off the strain. The CDC also says a regular seasonal flu shot does not protect against the virus.

- Via Fox News

Edward Pinto: The Government's Loan Modification Numbers Are A Total Sham

2009-10-25T11:10:00.000-07:00

Mortgage expert and one-time Fannie Mae Chief Credit Officer Edward Pinto blasts the claim that 500,000 homeowners have entered into HAMP (Home Affordable Modification Program).

Based on comments being made by industry participants and program results to date, HAMP is rapidly becoming: I will pretend to modify your loan if you pretend that you will make the payments.

On October 9 Treasury Secretary Geithner announced that the Obama administration’s HAMP had enrolled its 500,000 participant.

However, only about 1200 borrowers have entered the permanent modification phase; with the balance being in the 3-5 month trial period. This is in spite of the fact that there were 200,000 trials in progress back in July.

The reason for this snail like progress is, in an effort to reach its previously announced target of 500,000 modifications by November 1, program documentation guidelines were loosened. According to Michael Young, vice chairman of the Mortgage Bankers Association, 99% of the loan modification packages are incomplete. This has led to speculation that many of the 500,000 will never submit the necessary documentation or will not qualify.

Also of concern is the expected dropout of a sizable number of qualified borrowers who fail to make all the payments required during the trial period.

This fear has been heightened by the concern of some servicers that borrowers will use the trial period to game the foreclosure process and delay their own foreclosures by another 5 or 6 months.

Finally, in an effort to get more modifications approved, unemployment compensation will be counted (see attachment).

The number of permanent modifications resulting from these 500,000 trial modifications could be low as 100,000-200,000. Finally, at a 50% ultimate redefault failure rate, only 50,000-100,000 performing loans will result. At this success rate, it is mathematically impossible for the administration to meet its announced goal of keeping 3 to 4 million Americans in their homes by preventing avoidable foreclosures with loan modifications . To do so would require putting 15 -30 million loans into trial modifications to reach the stated goal.

- Via TBI

$13 an Hour? 500 Sign Up, 1 Wins a Job

2009-10-25T10:41:00.000-07:00

BURNS HARBOR, Ind. — As soon as the job opening was posted on the afternoon of Friday, July 10, the deluge began.

C.R. England, a nationwide trucking company, needed an administrative assistant for its bustling driver training school here. Responsibilities included data entry, assembling paperwork and making copies.

It was a bona-fide opening at a decent wage, making it the rarest of commodities here in northwest Indiana, where steel industry layoffs have helped drive unemployment to about 10 percent.

When Stacey Ross, C. R. England’s head of corporate recruiting, arrived at her desk at the company’s Salt Lake City headquarters the next Monday, she found about 300 applications in the company’s e-mail inbox. And the fax machine had spit out an inch-and-a-half thick stack of résumés before running out of paper. By the time she pulled the posting off Careerbuilder.com later in the day, she guessed nearly 500 people had applied for the $13-an-hour job. “It was just shocking,” she said. “I had never seen anything so big.”

Ms. Ross had only a limited amount of time to sort through the résumés. While C. R. England has not been immune to the downturn, it has added significantly to its stable of drivers and continued to hire office staff members to support them. Ms. Ross was also trying to fill more than two dozen other positions.

The 34-year-old recruiter decided the fairest approach was simply to start at the beginning, reviewing résumés in the order in which they came in. When she found a desirable candidate, she called to ask a few preliminary questions, before forwarding the name along to Chris Kelsey, the school’s director. When he had a big enough pool to evaluate, she would stop. Anyone she did not get to was simply out of luck.

She dropped significantly overqualified candidates right away, reasoning that they would leave when the economy improved. Among them was a former I.B.M. business analyst with 18 years experience; a former director of human resources; and someone with a master’s degree and 12 years at Deloitte & Touche, the accounting firm.

Over the course of four days, Ms. Ross forwarded 61 résumés to Mr. Kelsey, while rejecting 210 others. The remainder never even got a look. Many were, in fact, never uploaded to the company’s internal system because there were too many.

Just before the advertisement was removed, a standard one-page résumé arrived from Tiffany Block, 28, who lived in nearby Portage and had lost her job four months earlier as an accounts receivable manager at a building company when it closed its Indiana office.

Someone she knew had applied for the job and had said so on Facebook. Ms. Block went to the company’s Web site and filed an application online, which many others had not. By doing do, her application went directly into the company’s system. She was hardly optimistic, since she had not had an interview in months.

Ms. Ross, however, passed it on the next day to Mr. Kelsey.

Attendance at Mr. Kelsey’s school has surged during the recession. Mr. Kelsey, 33, had just promoted one of his three administrative assistants, who handle the paperwork needed for drivers to hit the road. He needed a replacement quickly.

The overwhelming response astonished him. He asked Cheree Seawood, one of his current assistants, to go through the résumés and help pick out several to interview. To make the task easier, he decided they should be even more rigorous in ruling out anyone who appeared even slightly overqualified. Mr. Kelsey, an ardent New England Patriots fan, compared his personnel strategy to the team’s everyman approach.

“We like to get the fair and middling talent that will work for the wages and groom them from within,” he said.

In other words, he said, he did not want the former bank branch manager Ms. Ross had sent, or the woman who had once owned a trucking company, or even the former legal secretary.

He also realized that in this climate he could afford to be extra picky and require trucking industry experience.

The company eventually settled on eight people to interview, inviting in the first two just five days after the job was posted.

In the past, Mr. Kelsey had mostly ad-libbed interviews, but this time he asked his company’s human resources department for help. They sent him a list of 13 questions, as well as an eight-page packet with 128 questions grouped under 50 “competencies.” He decided he would ask them all.
At the end of each hourlong interview, he and Ms. Seawood each jotted down a rating for each applicant and then compared them.

Invariably, the candidates’ job search travails came up. One woman who lost her job had started working as a waitress and confessed she had come directly from her job on the overnight shift.
But Mr. Kelsey resolved to keep his personal sympathies at bay. “If you start judging applicants on want or need, eventually that want, or need, will go away when they get the job and their financial situation stabilizes,” he said. “Then you’re left with whatever skills they have.”

Before Ms. Seawood called Ms. Block to schedule an interview, she had been getting increasingly depressed.

“I felt like, I’m 28 years old, and I don’t have a job,” she said. “What am I doing with myself?”
But Mr. Kelsey was immediately impressed when she came in on the second day of interviews. Dressed in a conservative business suit, Ms. Block patiently answered all of the 100-plus questions. Mr. Kelsey liked that she remained consistent in her answers and showed independence.
Afterward, Mr. Kelsey gave Ms. Block a 9; Ms. Seawood rated her at a point lower.

The next week, however, Ms. Seawood gravitated to a different candidate. The woman had just had nose surgery and came in wearing a protective mask. Besides her qualifications, the fact she had not tried to postpone impressed Ms. Seawood.

But when Mr. Kelsey invited the woman back, the interview was a disaster. She grew visibly irritated amid his battery of questions.

Mr. Kelsey immediately called Ms. Block to ask if she could come in for a second interview.
Was an hour from now too soon?

Momentarily panicked, Ms. Block quickly assented.

Mr. Kelsey marched through many of his questions again. Then, trying to gauge her ability to be assertive among truck drivers, he added a new hypothetical: if she were in the stands at a baseball game and a foul ball came her way, would she stand up to try to catch it, or wait in her seat and hope it fell her way?

The other finalist had said she would wait. But Ms. Block said immediately that she would jump up to grab it.

Mr. Kelsey decided he had found his hire.

- Via NY Times

Possible Credit Dislocation: Be Warned

2009-10-25T09:11:00.000-07:00

I have reason to suspect that the "monetary transmission mechanism" is full of rocks (again), and we are about to have another instance of what could colloquially be called "fun." (Yes, that's sarcasm.)
Here's what we know and what I can deduce from it:

JP Morgan's "cash position" was analyzed by a writer who published on SCRIBD, which showed that actual cash held has deteriorated radically. By more than half in the last year. The deterioration is continuing, not slowing.
I am hearing repeated anecdotes from multiple areas that foreclosed property held by banks with multiple full-price offers that include a financing requirement are being sold instead to people with actual cash at radical reductions from that price. This implies that these financing contingencies are regarded as not only potentially no good but factually no good, as if the banks know for a fact that the credit pipeline will (not might), within weeks or months (in the time required to close), disappear. There is no other rational explanation for this behavior.
Citibank's credit-card terms change implies a willingness to accept and even provoke a complete and intentional destruction of their credit card business as a very high probability outcome, given that nobody in their right mind will accept a 30% interest rate who has an alternative. The obvious implication is that only those who can't transfer balances out will remain and if your credit is that impaired there's a good chance you will default - either intentionally or otherwise. This too implies foreknowledge of a near-complete impending freeze in the credit markets.
The change in terms on credit accounts is NOT confined to Citibank. I have received a fax from a customer of Infibank with substantially identical terms, in which both the standard and penalty rate was adjusted to 29.99%. This strongly implies that whatever Citibank smells the problem is not confined to them.
Both of these credit card "adjustment" letters are of course marginal rate changes. That is, they are both based off the PRIME rate. The importance of that is missed by many. Don't be one of them (more on that below.)
I recently received a back channel communication indicating that The Fed is aware that this has been and still is a solvency problem and has so briefed certain members of Congress. This from a source believed reliable, but which cannot be independently confirmed.

This data is not conclusive. But - if you are dependent on credit access and these anecdotes are in fact indicative of actual knowledge of an impending lock-up you are at grave financial risk.
Note that "margin" type rates that are based on the PRIME rate could hurt you far worse than you believe. With PRIME at historic lows should any such dislocation spike the prime rate your interest rate could go much higher with little or no notice or ability to do anything about it.

IF this is going to manifest as a dislocation of some sort it will probably occur within the normal closing window for real estate transactions, since the anecdotes related to that have the best-defined "reach", and the discounts being accepted to avoid this risk are massive to the point of denoting near-certainty of this event in the minds of the market participants who are electing to accept these cash-discounted offers.

Therefore, if you are dependent on such credit access I would take immediate action to do whatever is necessary to mitigate, to the extent you are able, the consequences of such a dislocation.
Consider how you survive returning to what essentially amounts to a cash economic posture in your business and personal life.

Note that the indications above are far stronger than what we saw going into last fall before the wheels came off. As a consequence if these actions are those of people with real knowledge (and this is not a guess on their part) I would expect the outcome to be worse than what we saw last fall in terms of economic impact.

Those who are short dollars (synthetically or in the actual market) need to beware - if I am reading this correctly you're about to get a really ugly surprise.

If you want to speculate on this outcome levered bets on radical dollar appreciation look like one of the best choices out there, followed closely by bearish levered bets on commodities. I would not consider such a speculative play that is not characterized by defined risk, as this analysis is based on nothing more than observation of behavior by market participants that all point toward their foreknowledge of an event that might happen in the reasonably-near future and is not, at present, backed up with actual significant credit-spread widening or other objective criteria.

- Via The Market Ticker

HDR in San Fran

2009-10-25T06:08:00.001-07:00

ipod_5724_5_6_tonemapped, originally uploaded by EVANGAGE|PHOTO.

Rainbow homes

Major Commercial Real Estate Lender Capmark To File Chapter 11

2009-10-24T16:58:00.000-07:00

It's happening. The long-awaited bankruptcy of big-time commercial real estate lender Capmark is just about here.

WSJ: In 2006, a group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners acquired the lender GMAC LLC's commercial-real estate business and renamed it Capmark. As of March 31, the investor group owned about 75% of the company, with GMAC and its employees owning the balance.

The Horsham, Pa., company recently reported a $1.6 billion second-quarter loss and warned it might be forced to seek Chapter 11 bankruptcy protection. KKR has already written down its investment in Capmark to zero.

Capmark recently entered an agreement to sell its North American servicing and mortgage-banking operations to a new company owned by Warren Buffet's Berkshire Hathaway and Leucadia National Corp. for as much as $490 million. Under the deal's terms, the sale could occur while Capmark is in bankruptcy, but would require a bigger cash payment. Read the whole thing >

Even before the filing, the battles have begun.

Reuters: A Sumitomo Mitsui Financial Group Inc affiliate sued Credit Suisse Group AG , saying the Swiss bank failed to reimburse $21.64 million for its share of a loan to troubled commercial real estate company Capmark Financial Group Inc.

In a lawsuit filed Tuesday in Manhattan federal court, Sumitomo Mitsui Banking Corp said Credit Suisse sold it a $200 million stake in a $5.25 billion bridge loan, a form of temporary financing, made to Capmark, in 2006.

Capmark repaid $590.6 million of the bridge loan as part of a May refinancing, Sumitomo said, adding it expected Credit Suisse to reimburse $22.72 million to reflect Sumitomo's pro rata share.

- Via TBI

CBS Reveals that Swine Flu Cases Seriously Overestimated-

2009-10-24T16:38:00.000-07:00

The U.S. Centers for Disease Control and Prevention (CDC) states on their main flu Web site http://www.cdc.gov/flu/ that flu activity is increasing in the United States, with most states reporting "widespread influenza activity."
The CDC goes on to say, and I quote:
"So far, most flu is 2009 H1N1 flu (sometimes called "swine flu")."
But wait stop the presses.
A three-month-long investigation by CBS News, released earlier this week that included state-by-state test results, revealed some very different facts. The CBS study found that H1N1 flu cases are NOT as prevalent as feared. A CBS article even states:
"If you've been diagnosed "probable" or "presumed" 2009 H1N1 or "swine flu" in recent months, you may be surprised to know this: odds are you didn't have H1N1 flu. In fact, you probably didn't have flu at all."
Obviously CBS News and the CDC are completely contradicting each other. So who is right?
Well, CBS reports that in late July 2009 the CDC advised states to STOP testing for H1N1 flu, and they also stopped counting individual cases.
Their rationale for this, according to CBS News, was that it was a waste of resources to test for H1N1 flu because it was already confirmed as an epidemic.
So just like that virtually every person who visited their physician with flu-like symptoms since late July was assumed to have H1N1, with no testing necessary because, after all, there's an epidemic.
It's interesting to note that at the same time as the CDC decided the H1N1 epidemic warranted no further testing for cases due to its epidemic status, Finnish health authorities actually downgraded the threat of swine flu.
In late July the health ministry and the National Institute for Health and Welfare (THL) in Finland actually removed swine flu from a list of diseases considered dangerous to the public because the majority of cases recovered without medication or hospital care!
And, as the CDC continues to use fear to motivate and control Americans with their worst-case swine flu scenarios, they say nothing of the experience of those in the southern hemisphere, which just finished their flu season and found it was not as bad as expected.

CBS News Finds H1N1 Tests "Overwhelmingly Negative"

Before beginning their investigation, CBS News asked the CDC for state-by-state test results prior to their halting of testing and tracking. The CDC did not initially respond so CBS went to all 50 states directly, asking for their statistics on state lab-confirmed H1N1 prior to the halt of individual testing and counting in July.
What did they find? CBS reported:
"The results reveal a pattern that surprised a number of health care professionals we consulted. The vast majority of cases were negative for H1N1 as well as seasonal flu, despite the fact that many states were specifically testing patients deemed to be most likely to have H1N1 flu, based on symptoms and risk factors, such as travel to Mexico."
As you can see from this CBS News graphic, not only are most cases of suspected flu-like illnesses not H1N1, they're not even the flu but more likely some type of cold or upper respiratory infection!

(Image from CBS News)

Where is the CDC Getting Their Data?

Given CBS News' findings that most cases of flu-like illnesses are neither H1N1 nor the flu, it begs the question: Why is the CDC reporting that most flu in the United States is in fact H1N1?
Barbara Loe Fisher, founder of the National Vaccine Information Center who I spoke with in the interview above, was a consumer representative on the FDA Vaccines and Related Biological Products Advisory Committee in 2003, and she asked the head of the influenza branch of the CDC how much of the flu-like illness that occurs in America every year is actually due to the flu.
The answer was about 20 percent, which corresponds more closely with the CBS News data from 2009.
According to the CBS News study, when you come down with chills, fever, cough, runny nose, malaise and all those other "flu-like" symptoms, the illness is likely caused by influenza at most 17 percent of the time and as little as 3 percent! The other 83 to 97 percent of the time it's caused by other viruses or bacteria.
So remember that not every illness that appears to be the flu actually is the flu. In fact, most of the time it's not.
Curiously, the CDC still advises those who were told they had 2009 H1N1 (and therefore should be immune to getting it again) to get vaccinated unless they had lab confirmation.

Is the CDC Purposely Misinforming the Public to Sell More Flu and H1N1 Vaccines?

Conflicts of interest are rampant in the vaccination infrastructure. The same people who are regulating and promoting vaccines are also evaluating vaccine safety.
For instance, Dr. Paul Offit of the Children's Hospital of Philadelphia earned at least $29 million as part of a $182-million sale by the hospital of its worldwide royalty interest in the Merck Rotateq vaccine. He also formerly sat on the CDC's Advisory Committee on Immunization Practices (ACIP) to help create the market for rotavirus vaccine
This type of conflict of interest has been going on for some time.
In August 1999, the Committee on Government Reform initiated an investigation into Federal vaccine policy. During the investigation the Committee extensively reviewed financial disclosure forms and related documents and interviewed key officials from the Food and Drug Administration (FDA) and the CDC.
It was revealed that many individuals on two key advisory committees had financial ties to pharmaceutical companies that manufacture vaccines. These individuals were even granted waivers allowing them to fully participate in discussions about vaccine licensing and recommendations for children, despite the fact that federal law states members of advisory committees are required to disclose such ties and recuse themselves from such discussions and decisions.
Further, the investigation revealed that the FDA's and CDC's conflict of interest rules were not strongly enforced while the rules themselves were weak. Specific problems noted by the Committee included:
The CDC routinely granted waivers from conflict of interest rules to many members of its advisory committee.
Those CDC advisory committee members who were not allowed to vote on certain recommendations due to financial conflicts of interest were still allowed to actively participate in committee deliberations and advocate specific positions.
The Chairman of the CDC's advisory committee owned 600 shares of stock in Merck, a pharmaceutical company with an active vaccine division.
Members of the CDC's advisory committee often left key details out of their financial disclosure statements, and were not required to provide the missing information by CDC ethics officials.
And, when the FDA and CDC approved the controversial rotavirus vaccine in 1998 and 1999, the Committee's report said:
3 out of the 5 FDA advisory committee members who voted to approve the rotavirus vaccine in December 1997 had financial ties to the pharmaceutical companies that were developing different versions of the vaccine.
4 out of the 8 CDC advisory committee members who voted to approve guidelines for the rotavirus vaccine in June 1998 had financial ties to pharmaceutical companies that were developing different versions of the vaccine.
The rotavirus vaccine was pulled from the market one year after approval, after it was found to cause severe bowel obstructions.
Given their sordid history, can the CDC really be trusted, even today? Do you think that much has changed in just one decade?

Is the H1N1 Vaccine Really Safe as the CDC Says it Is?

CDC officials are screaming that H1N1 is so different from the seasonal influenza strains that have circulated in the past few decades that a national alarm must be sounded and everyone needs to be so afraid that we all should get vaccinated to prevent a deadly pandemic.
Yet, they say the new H1N1 vaccine is safe based on vaccines for that very same flu strain from which it is so different. They write on their Web site "the 2009 H1N1 influenza vaccines are expected to have similar safety profiles as seasonal flu vaccines ..."
Another contradiction.
While symptoms of H1N1 flu and seasonal flu are virtually identical, the H1N1 vaccine is showing signs of being quite different from the seasonal flu shot.
Although both are produced using antiquated 50-year-old technology that involves injecting the virus into eggs and allowing it to grow, the virus being used to produce the swine flu vaccine has been found to reproduce much more slowly in eggs than the ordinary flu virus.
And according to a separate CBS News report, the U.S. government is now funding newer unprecedented technologies to speed up vaccine production, including one that involves growing the virus inside animal cells and another that involves flu proteins grown inside insect cells.
The risks of these, and the current fast-tracked swine flu vaccine, are truly unknown at this time.
There is NO Incentive for the CDC or Vaccine Manufacturers to Care About Safety
You may think that the CDC and the vaccine manufacturers must be concerned about safety, as if they released a dangerous vaccine and promoted it to the American public, imagine the lawsuits they would face.
This is actually no longer reality as the U.S. government has granted vaccine makers total legal immunity from any lawsuits that result from the new swine flu vaccine.
In fact, drug manufacturers got a major boost in protection and were granted unprecedented powers to experiment on the population with the passing of the 2006 Public Readiness and Emergency Preparedness Act (the PREP Act).
This law allows the DHHS Secretary to invoke almost complete immunity from liability for manufacturers of vaccines and drugs used to combat a declared public health emergency, which the "swine flu pandemic" qualifies as.
The PREP Act removes your right to a trial jury unless you can provide clear evidence of willful misconduct that resulted in death or serious physical injury. But that's not all. First you must apply for and be granted permission to sue by the DHHS Secretary.
The most problematic aspect of the PREP Act is that it removes all financial incentive to make a safe product.
In fact, vaccine makers now have a negative incentive to test it for safety, because if they are aware of problems, then they could potentially be held liable for willful misconduct!
As long as they can prove they "didn't know" of any problem, they will not be liable for damages. Hence it's in their best interest to know as little as possible about the adverse reactions it might cause.
It seems unimaginable, but you and your children are now being enlisted as an unpaid human trial subjects for experimental, fast-tracked vaccines like the swine flu vaccine.

Even if They Were Effective or Safe, Most Vaccines Will Come Too Late

Recent national polls have revealed that 30 percent to 50 percent in many communities are not planning to get a swine flu shot ... but there are many who are still ready to stand in line.
If you have not yet made up your mind and have questions, we have created some fact-filled posters that you can print and post ALL over your community, your local stores, office and schools.
You can also visit the special section of my site that is devoted to giving you all the latest H1N1 Swine Flu Alerts. This is an excellent go-to source to stay updated on all the new swine flu developments.
But I wanted to share one final detail, and that is a new study just released by Purdue University researchers and published in the journal Eurosurveillance.
The researchers found that at this point in time any vaccinations that are given in the United States will likely have little effect on the number of infections. The researchers state:
"The model predicts that there will be a significant wave in autumn, with 63% of the population being infected, and that this wave will peak so early that the planned CDC vaccination campaign will likely not have a large effect on the total number of people ultimately infected by the pandemic H1N1 influenza virus."
In other words, infections are predicted to peak in late October (now) and by the end of the year it's estimated that 63 percent of the U.S. population will have been infected with H1N1 swine flu.
What does this mean? By the end of the year the majority of the U.S. population will have likely acquired natural immunity.
Natural immunity is what you gain when you recover from influenza and natural immunity is what is protecting older Americans, who have recovered from exposure to H1N1 strains of influenza in the past and are therefore less susceptible today.
This new revelation, coupled with CBS News' finding that swine flu cases are already being greatly overestimated ... and the fact that vaccines do not offer long-term immunity anyway ... and the questionable motives behind CDC's massive vaccination campaign ... puts an entirely different slant on the swine flu "epidemic," don't you think?
If you are still concerned about the swine flu, you should know that it is relatively easy to improve your immune response to fight this infection. If 99.9% of the people are not having any serious complications from H1N1, it would seem perfectly rational to believe that minor lifestyle changes could have dramatic effects on fighting this infection, and none of these involve taking potentially dangerous and unproven vaccine interventions.

Simple Measures That Can Help You Fight Illness

Vitamin D has been well documented to increase the production of over 200 anti microbial peptides that fight infection.
Eliminate sugar from your diet as that will impair your immune response
Get plenty of rest
Exercise appropriately

You can also help make a BIG difference in protecting your right to make informed, voluntary vaccination choices by supporting the National Vaccine Information Center.

I have made this non-profit organization -- America's Vaccine Safety Watchdog -- one of my favorite charities and I urge you to become a donor member and help NVIC protect your informed consent rights and your children's health.

Watch CBS News Videos Online

- Via Mercola & CBS

Two Amazing Videos With Colleen Rowley About the 9/11 and Her Role At the FBI

2009-10-24T16:29:00.000-07:00

Soros: Wall Street Profits Are ‘Gifts from the State’

2009-10-24T15:54:00.000-07:00

The chorus is getting louder. Spread the word.
Soros in an interview with FT:

The big profits made by some of Wall Street’s leading banks are ‘hidden gifts’ from the state, and taxpayer resentment of such companies is ‘justified’, George Soros, the fund manager, said in an interview with the Financial Times.
‘Those earnings are not the achievement of risk-takers,’ Mr Soros said. ‘These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.’
That would push the risk-takers who are good at taking risks out of Goldman Sachs into hedge funds, where they actually belong, because hedge funds take risks with their own capital, not with deposits and not with government guarantees.

- Via Bearish News

Motorcycle makers cutting staff and product lines as sales plunge

2009-10-24T15:46:00.000-07:00

A year ago, it looked as if fuel-sipping motorcycles might be the option for motorists facing increasing gas prices. This year, little seems to be working for bike makers.

Sales of motorcycles plummeted 37.3% in the third quarter from the same period a year earlier, with the biggest drops coming in cruisers and sport bikes, two of the industry's biggest product lines, according to the Motorcycle Industry Council. Sales of scooters, which were gaining a year ago, also have fallen sharply.

The council, which doesn't release revenue figures of the mostly privately held member manufacturers, said overall sales of bikes fell to 136,876 in the quarter from 218,242 in the previous year's quarter.

The only bright spot was that sales were dropping at a slower pace: The number of bikes sold in the second quarter fell 53.5% from the same period a year earlier. Historically, the second and third quarters are strongest for the industry because the weather is warm throughout the country and buyers are gearing up to ride.

Industry leaders tried to put a good face on the numbers, saying the sales climate was "challenging" or "tough." But they also called it "painful."

"Every category is down, and it keeps going down," said analyst Don Brown of Irvine. "It's not the old, 'Let's get out there and sell more' that works anymore. . . . People just don't have the money."

Despite a federal stimulus that allows new bike buyers to write off the sales tax, companies are cutting staff and other expenses.

Last week, publicly held Harley-Davidson Inc. reported an 84% drop in quarterly earnings to $26.5 million. The company said it was getting out of the sport bike business, shutting down the longtime Buell line and selling its MV Agusta operation, a high-end Italian brand it bought last year.

Already this year, the Milwaukee manufacturer joined the likes of Honda, Kawasaki, Yamaha, Suzuki and Victory in laying off employees, reducing production and lowering prices to help dealers shrink swollen inventories.

Even high-end motorcycles have been hit. Confederate Motor Co., the Alabama maker of the $92,000 Wraith, expects to sell 30 bikes this year, down from 37 last year, company founder Matt Chambers said.

His affluent clients aren't as affected by the economy, he said, but with the deep recession, "it was very fashionable to not be buying a high-end luxury product like ours."

Many manufacturers have introduced programs to add value to their products.

Twice in the last year, for instance, Harley-Davidson operated a "ride free" program, which allowed buyers of new Sportsters to get credit for the original retail price of the bikes on trade-ins for more expensive models. Yamaha Motor Co. introduced its Pro Yamaha initiative, directing dealers to be more informed about products and follow up with customers to ensure that they were happy.

Ducati North America, which has seen a 30% quarterly drop in sales, began giving its customers one year of free scheduled maintenance. And Victory Motorcycles, which suffered a 56% decline in sales in the July-to-September period, began offering a five-year warranty to show "significant confidence to buyers," said Mark Blackwell, Victory's vice president.

"We haven't laid everybody off. We haven't totally stopped advertising. We've kept up the product development because we're positioning this business for when the market stabilizes and grows," he said.

Blackwell predicted that the market wouldn't begin to stabilize until at least next spring and that growth wouldn't come until later.

Harley-Davidson and Victory Motorcycles, a division of Polaris in Minnesota, hope to stem U.S. losses, in part, by growing overseas sales. Harley is pursuing emerging markets such as India and China; Victory is going after Europe, where motorcycle sales haven't fallen as much as in the U.S.

For 14 years, through 2006, U.S. motorcycle sales had increased every year. Sales started to drop in 2007, but still topped the 1-million mark.

Last year, as gasoline prices pushed toward $5 per gallon, fuel-efficient two-wheelers got a boost. Despite the worsening economy, street bike sales were down only 3.3% for the year, and scooters had their best year ever, posting a 41.5% gain from the previous year, the Motorcycle Industry Council said.

"Last year, with gas prices, we could sell scooters without a whole lot of work," said Kevin Andrews, Vespa's North American brand manager. "With the economy, we're talking about operational cost."

The cost of owning and operating a car, for instance, is $750 a month, Andrews said, citing American Automobile Assn. data. But owning and operating a scooter costs less than $300. It's a message Vespa is promoting through advertising with its dealers and on its website. Still, scooter sales are down 62% through the first three quarters, but, he said, the declines slowed in August.

"We had a period of constant increases, and I think the industry grew complacent," industry analyst Brown said. "Then the economy hit hard, and it's only gotten worse."

Confederate Motor's Chambers expects his sales to increase next year, thanks in part to a strategy most manufacturers are using: making lower-priced bikes.

Manufacturers also are coming up with ways to help buyers finance purchases.

Since April, Piaggio Group Americas, which sells Vespa scooters, has offered 7.9%, 36-month loans. And Harley-Davidson Financial Services, aided by $300 million in notes placed with Warren Buffet's Berkshire Hathaway Inc. this year and a stronger financial market recently, should support any funding needs throughout 2010, Harley spokesman Bob Klein said.

Most manufacturers, meantime, are scaling back on advertising, and long-standing enthusiast publications are finding the advertising climate "harsh," with revenue down sharply, said Larry Little, senior vice president of Cycle World magazine. "Everybody's fighting for survival up and down the food chain."

Yamaha spokesman Bob Starr said his company had to be "very focused on where, when, how and why we're advertising."

Yamaha experimented this year with low-cost viral marketing on the Internet. This summer the company produced three YouTube videos featuring some of its biggest names in racing. Each of the videos have been viewed more than 100,000 times. Whether they sold any bikes is another issue.

"Did somebody come in to a dealership and say, 'I saw this video . . . and it was so funny I'm going to buy a bike?' It's hard to say," Starr said.

Sport bike sales are down 51% so far this year.

With the riding season over for much of the country, summer 2010 can't come fast enough for the industry.

- Via LA Times

Obama declares H1N1 emergency

2009-10-24T15:29:00.000-07:00

President Obama has declared a national emergency to deal with the "rapid increase in illness" from the H1N1 influenza virus.

"The 2009 H1N1 pandemic continues to evolve. The rates of illness continue to rise rapidly within many communities across the nation, and the potential exists for the pandemic to overburden health care resources in some localities," Obama said in a statement.

"Thus, in recognition of the continuing progression of the pandemic, and in further preparation as a nation, we are taking additional steps to facilitate our response."

The president signed the declaration late Friday and announced it Saturday.

Calling the emergency declaration "an important tool in our kit going forward," one administration official called Obama's action a "proactive measure that's not in response to any new development."
Another administration official said the move is "not tied to the current case count" and "gives the federal government more power to help states" by lifting bureaucratic requirements -- both in treating patients and moving equipment to where it's most needed.

The officials didn't want their names used because they were not authorized to speak on the record.
Obama's action allows Health and Human Services Secretary Kathleen Sebelius "to temporarily waive or modify certain requirements" to help health care facilities enact emergency plans to deal with the pandemic.

Those requirements are contained in Medicare, Medicaid and state Children's Health Insurance programs, and the Health Insurance Portability and Accountability Act privacy rule.

Since the H1N1 flu pandemic began in April, millions of people in the United States have been infected, at least 20,000 have been hospitalized and more than 1,000 have died, said Dr. Thomas Frieden, director of the Centers for Disease Control and Prevention.
Watch how to find out if you have H1N1

Frieden said that having 46 states reporting widespread flu transmission is traditionally the hallmark of the peak of flu season. To have the flu season peak at this time of the year is "extremely unusual."
The CDC said 16.1 million doses of H1N1, or swine flu, vaccine had been made by Friday -- 2 million more than two days earlier. About 11.3 million of those had been distributed throughout the United States, Frieden said.

"We are nowhere near where we thought we would be," Frieden said, acknowledging that manufacturing delays have contributed to less vaccine being available than expected. "As public health professionals, vaccination is our strongest tool. Not having enough is frustrating to all of us."

Frieden said that while the way vaccine is manufactured is "tried and true," it's not well-suited for ramping up production during a pandemic because it takes at least six months. The vaccine is produced by growing weakened virus in eggs.

- Via CNN

Dollar Weakens Past $1.50 Per Euro First Time in 14 Months

2009-10-24T15:22:00.000-07:00

The dollar weakened to $1.50 per euro for the first time in 14 months as more evidence of a recovery in the global economy from recession increased demand for higher-yielding assets.

The Canadian dollar fell against most of its major rivals this week after Bank of Canada Governor Mark Carney said Oct. 22 that intervention to weaken the currency “is always an option.” The U.S. economy expanded in the third quarter for the first time since June 2008, a Commerce Department report will show next week, according to the median estimate of 65 economists in a Bloomberg survey.

“We’ve reached these milestones,” said Andrew Chaveriat, a currency strategist at BNP Paribas Securities SA in New York. “The downtrend in the dollar is still there.”

The dollar fell 0.7 percent this week to $1.5008 per euro, from $1.4905 on Oct. 16. The U.S. currency touched $1.50 on Oct. 21 for the first time since August 2008. The yen declined 1.3 percent to 92.06 versus the dollar, from 90.89, in its biggest decline since August. Japan’s currency depreciated 2 percent to 138.15 per euro, compared with 135.48 a week earlier.

The pound fell 1 percent this week to 92.02 pence per euro after the U.K.’s economy unexpectedly contracted, fueling speculation that the Bank of England will increase its 175 billion-pound ($286 billion) program to buy bonds.

The Office for National Statistics said yesterday that U.K. gross domestic product dropped for a sixth month, declining 0.4 percent in the third quarter from the second. Economists predicted a 0.2 percent increase in a Bloomberg News survey.

Dollar Index

The U.K. central bank began buying government and company debt with newly printed money in March as it sought to hold down borrowing costs in an attempt to haul the economy out of deepest recession since World War II.

“The U.K. is showing it’s a laggard compared to the rest of Europe,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. The Bank of England “might have to extend” asset purchasing, he said.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the euro, yen, Swiss franc, pound, Swedish krona and Canadian dollar, touched 74.94 on Oct. 21, the lowest level since August 2008, as optimism about the global recovery increased. Reports this week showed German business confidence rose to the highest level in 13 months and China’s economy grew at 8.9 percent in the third quarter, the fastest pace in a year.

Refuge Demand Reversed

All but 20 of the 138 companies in the Standard & Poor’s 500 Index that reported third-quarter results this week beat the average analyst estimate, including Apple Inc., Caterpillar Inc. and Morgan Stanley, according to data compiled by Bloomberg.

The greenback reached a 2 1/2-year high against the euro on Oct. 28, 2008, as investors sought the safety of U.S. government debt after the Sept. 15, 2008, bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.

The dollar has plunged 18 percent from that level as efforts by global central banks restored liquidity and signs of economic recovery encouraged investors to buy higher-yielding assets at the expense of the greenback. The Federal Reserve’s benchmark interest rate is near zero, compared with 3.25 percent in Australia and 2.5 percent in New Zealand.

A weak dollar helped push crude oil to $82 a barrel this week and copper prices to the highest level in a year.

Central banks from Europe to South America are trying to find ways to slow the appreciation of their currencies versus the dollar as more expensive exchange rates threaten their exports.

Real’s Appreciation

Brazil announced on Oct. 19 that it’s imposing a 2 percent tax on foreign purchases of fixed-income securities and stocks to curb the real’s 35 percent appreciation this year. The real, the best performer among major currencies in 2009, lost 0.3 percent this week to 1.7173 per dollar, its first weekly drop since August.

Canadian central bank Governor Mark Carney said on Oct. 22 that investors lost their “focus” on the central bank’s commitment to meet a 2 percent inflation target, and that action to weaken the currency is “an option.” The Canadian currency lost 1.6 percent to C$1.0538 per dollar this week, ending a three-week rally and reducing its gain this year to 16 percent.

In Europe, officials voiced concern that the euro’s gain versus the dollar may delay economic recovery. An exchange rate of $1.50 for the currency “is a disaster for the European economy and manufacturing sector,” said Henri Guaino, counselor to French President Nicolas Sarkozy, at a conference in Paris.

Interest Rate Speculation

The dollar recovered some lost ground yesterday and Treasury yields rose after Philadelphia Fed President Charles Plosser told Bloomberg Radio on Oct. 22 that his “instinct is the time for raising rates will be before many of my colleagues” think it is.

“The market is anticipating a more hawkish posture out of the Fed and that in turn is turning into better yields, and the most direct way that’s reflected in the currency market is dollar-yen,” said Boris Schlossberg, director of currency research at online currency trader GFT Forex in New York. “There’s a potential that they could even raise rates in the first half of 2010.”

The U.S. gross domestic product probably grew 3.2 percent in the third quarter, after contracting 0.7 percent the previous three months, according to the Bloomberg survey. The Commerce Department report is due Oct. 29.

- Via Bloomberg

Bernanke's trillion-dollar decision

2009-10-24T15:15:00.000-07:00

The biggest decision of the economic recovery will be made in the next six months, and Barack Obama will have almost nothing to do with it.

Forget the debate over TARP, and never mind the questions about a second stimulus. This decision is about when to pull out $1 trillion that’s propping up the U.S. banking system. And it will be Federal Reserve Chairman Ben Bernanke and his Fed colleagues who make the call.

That’s hard enough for a White House that knows its political fortunes rise and fall with the economy.

What’s worse is that Bernanke and Obama – like many presidents and Fed chairmen past – won’t necessarily have the same goals for this trillion-dollar decision.

Fed chiefs worry about inflation. Bernanke wants to take the money out quickly enough to prevent the economy from overheating and causing a jump in prices that strangles growth. But move too fast, and the economic recovery runs out of fuel.

Presidents worry about jobs. Obama probably wouldn’t mind a little overheating, say, next summer – when voters are starting to make up their minds about the 2010 congressional elections, and he hopes the economy can shake the 10-percent unemployment rate doldrums.

“Any chairman of the Fed will do what’s right for the country, not what’s right for the administration,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years at the New York Fed. “That’s his job – that’s why he’s apolitical.”

“The exit will be so difficult,” said economist Joseph Brusuelas of Moody’s Economy.com. “Bernanke wants to engineer a recovery that does not include inflation. Obama wants a more robust recovery and like many political actors may be willing to forgo a little inflation for a little more employment.”

The White House is already worried that jobs won’t be coming back fast enough next year, Fed or no Fed.

Obama economic adviser Christina Romer warned a congressional panel Thursday that the jobs picture will remain “painfully weak” through 2010, with a seriously elevated unemployment rate for another year.

So all the White House can do is watch and wait, and hope it doesn’t pay a political price for any missteps by Fed officials they can’t control.

“It’s a dicey thing to do, and they know it,” said Sen. Richard Shelby (R-Ala.), the ranking member on the Senate Banking Committee. “They have to be careful.”

The Fed’s moves are shrouded in secrecy, their prerogative to move the levers of the economy closely guarded – so much so that there’s been a recent a rise in populist anger about this all-powerful agency that exists largely outside the democratic process.

But because the Fed is an independent agency, it’s even considered bad form for a president to talk much about it – and indeed, the White House refused to comment for this story.

Last fall, the Fed injected $ 1 trillion-plus into the nation’s banking system – at times, by providing financial institutions with cash to cover their losses as the global meltdown spread. Now Fed officials are already talking about the need to withdraw the funds injected into the economy during the darkest days of the crisis, moves that are credited with largely saving the United States from plummeting into an economic depression.

“Given the highly unusual economic and financial circumstances, judging when the time is appropriate to remove policy accommodation, and then calibrating that removal, will be challenging,” said Federal Reserve Vice Chairman Donald Kohn in a speech to the Cato Institute on Sept. 30. “Still, we need to be ready to take the necessary actions when the time comes, and we will be.”

Translation: “policy accommodation” is the cash, and “the necessary actions” are the decision to ease it out of the economy.”

And is the Fed prepared to the pull the trigger? “We will be” seems to cover it.
Already, the Fed is already showing some signs of restlessness. On Monday, the New York Fed tested its “reverse-repo” process -- one tool the Fed could use to use to pull the money out when the time comes. The test run was widely interpreted as a sign the Fed is getting ready to act – but when, nobody knows.

The Fed can also tap on the brakes at the first sign of inflation by raising interest rates, now near zero. The Fed has said it will keep the rock-bottom rates for an extended period, but it won’t be more specific when they could go up – a decision that is bound to be controversial when it comes.

Patrikis thinks the Fed will make a decision on withdrawing liquidity either during the second quarter of 2010, or after the November elections that year – but that it won’t make any dramatic moves in the run-up to Election Day.

Still, he said, it is too early to predict what the Fed might do. And Patrikis points out that Obama will have indirect input into the decision, because there are two vacancies on the Fed’s board now that Obama will fill in the coming months. The president will surely select board members whose economic judgment he trusts.

Between the two vacancies, a member who Obama appointed earlier this year and Bernanke himself, the president will likely have named four of the seven members of the Fed’s Board of Governors by the time they make the call.

But the Fed knows actions like that can have political consequences. “There are few politicians who like higher interest rates,” said one former Fed official. “And President Obama is a politician.” That said, the official continued, “I suspect they will be broadly on the same page.”

That’s because Obama, too, has a longer-term time frame in mind: 2012, when he will be running for reelection. It’s in Obama’s interest for the Fed to take inflation prevention measures now so that he doesn’t have to run a tricky reelection campaign in a high-inflation environment.

Tensions between Presidents and Fed chairmen are nothing new.

In the 1980s, Fed Chairman Paul Volcker declared war on inflation. His strategy: raising interest rates. Volcker jacked the Fed funds rate to 20 percent, which contributed to the deep early 1980s recession that caused howls of protest from the White House and incumbent Republicans on Capitol Hill. The Fed, grumbled then-Senate Majority Leader Howard Baker (R-Tenn.), should “get its boot off the neck of the economy.”

Nonetheless, Volcker’s strategy worked, and the Fed broke the back of the inflation cycle. Ironically, Volcker is a top economic adviser to Obama today.

In the 1990s, President George H.W. Bush blamed Fed Chairman Alan Greenspan for his election loss to Bill Clinton. Bush didn’t believe Greenspan was lowering interest rates fast enough to pull the nation out of a recession – which gave Clinton, with his famous “it’s the economy, stupid” campaign, an opening to trounce the elder Bush.

Mark Gertler, a professor of economics at New York University, says the lesson of history is that politicians should not interfere with the central bank. “If the Fed doesn’t act independently, the economy is endangered,” said Gertler. “It would be dangerous if the administration appeared to be interfering with the Fed.”

Financial Services Committee Chairman Barney Frank (D-Mass.) doubts they’ll be any daylight between Obama and Bernanke – who Obama just reappointed over the summer at a time when Wall Street needed a signal that there would be continuity at the Fed.

He argues that Bernanke and Obama will have the same agenda in 2010: fixing the economy.

“I think they are very much in sync,” said Frank. Asked about potential divergence between the Fed and the White House, he said, “That reflects a journalist’s hope that there will be friction. Obama and Bernanke have both argued that at some point they’re going to unwind this.”

- Via Politico

New US bill on "too big to fail" fix seen Monday

2009-10-23T21:40:00.000-07:00

The Obama administration plans to unveil on Monday a new plan for dealing with troubled financial giants, said a senior U.S. lawmaker, who also mentioned potentially big changes for the insurance industry.

Barney Frank, chairman of the House Financial Services Committee and a chief architect of the financial regulation overhaul, declined on Friday to give details on the administration's new bill, which would give the government the power to dismantle large financial companies that get into crises.
The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration's original plan, and may take out some language that would allow for temporary bailouts.

Giving the government "resolution authority" would serve as a rebuttal to the concept that some firms are too big to fail. Federal Reserve Chairman Ben Bernanke on Friday highlighted the need for this authority as well as other measures to reduce the likelihood that one firm could destabilize the financial system.

Frank also said Congress is discussing whether to create an optional federal charter for insurers.
Insurance companies are currently regulated by the states.

"If we do get into national chartering it will be in life insurance ... and maybe large commercial entities," Frank said during remarks to a banking symposium.

He said lawmakers would not likely try to federally regulate property and casualty insurers, however.

NO SUPER BANK COP

Frank's committee has cranked its efforts to overhaul financial regulation into high gear in recent days.
On Thursday it voted to approve legislation that would create a federal financial consumer watchdog. It has also passed new rules to police over-the-counter derivatives like the credit default swaps that helped fuel the financial crisis, and the full House has approved efforts to curb abusive pay practices.
While Frank's committee has made significant headway, the reform effort faces an uncertain future in the Senate and may be pushed into next year.

One idea that does seem to be gaining steam in the Senate is the move to consolidate all federal banking supervision into one super agency. Currently, four regulators share responsibility.
Christopher Dodd, chairman of the Senate Banking Committee, is a leading advocate of the consolidation, and has said he will push it forward despite regulators' reservations.
Frank, however, does not think it will pass.

"There is no remote chance of it happening," he said.

He said lawmakers will likely merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency, but allow the Federal Reserve and the Federal Deposit Insurance Corp to keep their supervisory roles.

Frank also commented on the rulings of pay czar Kenneth Feinberg, who on Thursday slashed compensation for many of the top earners at seven firms that have received billions of dollars in taxpayer funds.

"I think he did a good job," he said.

On the same day that Feinberg released his rulings for the seven firms, the Federal Reserve revealed its own pay guidelines to encompass a larger chunk of financial firms.

The Fed's bank pay guidelines, while not specific, are designed to curb forms of compensation that entice employees to take large risks.

Frank said the Fed's guidelines should have a large impact and said Congress is working to finalize legislation that would clarify that the Fed does have the authority to closely police pay.
- Via Reuters

Obama's Weekly Address: Working with Small Business to Drive Recovery

2009-10-23T21:32:00.000-07:00

The Dollar is now collapsing - Peter Schiff | Part 2

2009-10-23T21:09:00.001-07:00

Unemployment, Poverty and the Recession

2009-10-23T20:56:00.001-07:00

T. Boone Pickens on Iraq: 'We leave there with the Chinese getting the oil'

2009-10-23T20:45:00.000-07:00

A leading energy developer said the United States has been excluded from Iraq's revived energy market.

T. Boone Pickens told Congress that U.S. companies were losing opportunities in the Iraqi crude oil and natural gas sectors to competitors from China and Europe. The senior executive said the United States could lose all influence in the Iraqi oil sector after the military withdrawal in 2011.

"They're opening them [oil fields] up to other companies all over the world," Pickens told the Congressional Natural Gas Caucus on Oct. 21.

"We leave there with the Chinese getting the oil," he said.

Pickens urged Congress to demand a U.S. share of Iraqi oil exploration and development contracts.
In 2009, Iraq awarded its first oil contracts to foreigners, selecting British Petroleum and China's state-owned CNPC. ExxonMobil and ConocoPhillips have been competing with Russia's LukOil to develop Iraq's West Quran oil field.

- Via World Tribune

Bank failures stack up: Now 106 for 2009

2009-10-23T20:37:00.000-07:00

The tally of bank failures easily broke past the No. 100 milestone on Friday night, with regulators announcing the year's 106th closure.

That's more than four times the number that were closed in 2008, and the highest total since 1992, when 181 banks failed.

Earlier on Friday evening the dubious honor of the 100th failure went to Partners Bank, of Naples, Fla., which had $65.5 million in assets, according to the Federal Deposit Insurance Corp.

The 101st failure was American United Bank, of Lawrenceville, Ga., which had $111 million in assets.

The 102nd failure was another Naples, Fla., institution: Hillcrest Bank Florida, which had $83 million in assets.

The 103rd closure was Bradenton, Fla.-based Flagship National Bank, with $190 million in assets.

The 104th was Bank of Elmwood, based in Racine, Wis., which had $327.4 million in assets.

The 105th failure was Riverview Community Bank of Otsego, Minn., with $108 million in assets.

The 106th failure was First Dupage Bank in Westmont, Ill., which had $279 million in assets.

Customers of all seven banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, covers customer accounts up to $250,000. This is funded through premiums paid by member banks.

In fact, to reassure borrowers, FDIC chair Sheila Bair posted a video message to the agency's Web site, saying "for the insured depositor, a bank failure is a non-event."

Still, Bair cautioned that "until the healing process is complete, there will be more bank failures."
What happens to the banks. Fort Lauderdale, Fla.-based Stonegate Bank will assume control of all Partners Bank's $64.9 million in deposits. It will also take over Hillcrest Bank's $84 million in deposits. The two branches of Partners Bank and six branches of Hillcrest will reopen on Monday as branches of Stonegate.

Moultrie, Ga.-based Ameris Bank will pay the FDIC a premium of 1.02% to take control of American United's $101 million in deposits. The FDIC and Ameris Bank entered into a loss-share transaction on $92 million of American United's assets, an agreement in which Ameris will share in the losses on the assets covered.

The single branch of American United Bank will reopen on Monday as a branch of Ameris.

Lake City, Fla.-based First Federal Bank will take over all of Flagship National Bank's $175 million in deposits. The four branches of Flagship will reopen Monday as branches of First Federal.

Bank of Elmwood's $273.2 million in deposits are now controlled by Tri City National Bank, based in Oak Creek, Wis. The five branches of Bank of Elmwood will reopen on Saturday as branches of Tri City.

Stillwater, Minn.-based Central Bank will take control of Riverview Community Bank's $80 million in deposits. The FDIC and Central Bank entered into a loss-share transaction on $75 million of Riverview's assets.

First Dupage Bank's $254 million in deposits are now being handled by First Midwest Bank of Itasca, Ill. The FDIC and First Midwest Bank entered into a loss-share transaction on approximately $247 million of First Dupage Bank's assets. The sole First Dupage branch will reopn Saturday as an outpost of First Midwest.

The failure of the six banks will cost the Deposit Insurance Fund an estimated $356.6 million, according to the FDIC.

Why regional banks are failing. While larger financial institutions have received aid from the federal government, smaller banks have found themselves left adrift. Like their larger counterparts, many of these banks made risky loans to individuals and real estate developers during the boom years and are now facing large numbers of defaults as the recession drags on.

Rising unemployment has made it difficult for many individuals to keep up with expenses, and businesses are feeling the crunch of consumers' reduced spending power. As a result, regional banks are left holding loans their customers can't repay.

Problem banks list looms. The FDIC keeps a list of "problem banks," though it does not disclose the names to the general public out of fear that depositors at those institutions may prompt a "run on the bank."

In June, the agency said 416 banks were at risk of failure -- the highest level in 15 years.

It's a whopping figure, to be sure. But even as the pace of failures accelerates, 2009's numbers remain far from what happened during the savings and loan crisis two decades ago. More than 1,900 financial institutions failed from 1987-1991, peaking at 534 closures in 1989.

Federal coffers running dry. An average of 10 banks have failed per month this year, and the federal coffer is thinning under the massive strain. The fund now stands at $7.5 billion, down significantly from $45 billion a year ago.

When the FDIC factors in expected closures, the agency says the fund is in the red and will likely remain there through 2012. Bank failure costs are expected to total $100 billion over the next four years, leaving regulators strapped for cash.

Last month, the FDIC discussed how to raise quick cash to replenish the fund. The agency proposed that banks prepay their deposit insurance premiums for the next three years.

- Via CNN

Whitney Tilson: Yes, Housing Recovery Is Still "Mother Of All Head-Fakes"

2009-10-23T11:51:00.001-07:00

AIG’s Top Swaps Managers Kept Bonuses, Feinberg Says

2009-10-23T10:01:00.000-07:00

American International Group Inc.’s highest-paid executives in the unit blamed for pushing the insurer to the brink of collapse haven’t returned bonuses as they’d promised, according to the Obama administration.

Four of five managers in AIG’s Financial Products unit under the jurisdiction of pay master Kenneth Feinberg didn’t make good on pledges to return the retention bonuses as of August, Feinberg said in documents released yesterday. The fifth employee hadn’t made any promise, Feinberg said. The pay master rejected AIG’s proposal to pay the five executives a total of $13.2 million this year.

“The performance of AIG Financial Products has contributed significantly to the deterioration in AIG’s financial health,” Feinberg said. Compensation proposed by New York-based AIG for the staff doesn’t “adequately reflect the role of AIG Financial Products” in the decline of the insurer, he said.

AIG, which received a $182.3 billion U.S. government bailout, ignited a backlash after giving about $165 million in March to its derivatives staff. The insurer said the pay was needed to keep staff to unwind money-losing trades. President Barack Obama called the bonuses an “outrage,” and then-Chief Executive Officer Edward Liddy asked employees getting more than $100,000 to return half.

Financial Products employees have returned $19 million of the $45 million they committed to surrender from the March awards, Neil Barofsky, the chief watchdog of the U.S. financial rescue program, said in a report last week. AIG officials told Barofsky that employees were waiting to secure agreements on a pending retention award before returning the March bonuses.

Deadline Approaching

“Employees have until the end of the year to fulfill their commitments to return a portion of their March 2009 payment,” Christina Pretto, an AIG spokeswoman, said in a telephone interview. The insurer expects the workers to honor their commitments, she said.

Feinberg, who has jurisdiction over the 25 highest-paid employees at AIG and other firms that got U.S. bailout funds, ruled that cash salaries at the insurer couldn’t exceed $500,000 a year unless “good cause” was shown. Compensation would also include stock units tied to four major AIG divisions that are paid out in three annual installments.

He said the changes resulted in a 91 percent decrease in cash pay from 2008. Thirteen employees that would have been under Feinberg’s jurisdiction have left AIG, he said.

‘Ongoing Discussions’

In an August report to the pay master, AIG suggested increasing the Financial Products executives’ base salaries to as much as $950,000 and awarding bonuses of as much as $2.6 million.
The executives should return the bonuses and will receive only their cash base salaries this year, Feinberg said. He is in “ongoing discussions” with AIG regarding these workers, he said.
The highest-paid workers who have left can receive their cash salaries through the date of their employment and up to $25,000 in other compensation, he said.

Feinberg approved a $10.5 million annual pay package for AIG CEO Robert Benmosche, according to a Treasury Department letter earlier this month. Benmosche will get a $7 million annual salary and as much as $3.5 million in long-term incentives.

- Via Bloomberg

LAPD's iWatch Terrorism Ad: Important Or Incredibly Creepy? (VIDEO)

2009-10-23T09:55:00.000-07:00

Jesse Benton of Campaign For Liberty on Cavuto 10/22/2009

2009-10-23T01:03:00.000-07:00

Love the comment at the end by Jesse