Posted tagged ‘bailout’

CIT Files Bankruptcy

November 1, 2009

mushroom_cloudThis has been a long time coming. CIT became a bank-holding company in December 2008 in order to qualify for a bailout from the Treasury taxpayers.  And what about the $2.3 billion of bailout money CIT received? You weren’t really expecting to ever see that again, were you?

Asian markets are in a tailspin after this announcement. I expect tomorrow will be another blood bath on Wall Street. 

This filing is significant not only because it is the fifth largest US bankruptcy ever, but also because CIT was a major source of financing for small and mid-size businesses. The pain from this collapse is going to spread all up and down Main Street.

Nov. 1 (Bloomberg) — CIT Group Inc., a 101-year-old commercial lender, filed for bankruptcy to cut $10 billion in debt after the credit crunch dried up its funding and a U.S. bailout and debt exchange offer failed.

CIT listed $71 billion in assets and $64.9 billion in debt in a Chapter 11 filing in U.S. Bankruptcy Court in Manhattan. The U.S. Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT.

The bankruptcy “will allow CIT to continue to provide funding to our small business and middle-market customers,” said Chief Executive Officer Jeffrey Peek in a statement.

CIT, which filed the fifth-largest bankruptcy by assets, said it plans to exit quickly due to support from bondholders, who voted in favor of a so-called prepackaged plan. None of CIT’s operating subsidiaries, including Utah-based CIT Bank, were included in the filing, and operations will proceed as normal, CIT said in a statement.

CIT has $1 billion from investor Carl Icahn to fund operations while it reorganizes. The credit line, to be drawn on until Dec. 31, will be a so-called debtor-in-possession loan. It also expanded its $3 billion credit facility by another $4.5 billion on Oct. 28.

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Profit From TARP? Not So Much

September 7, 2009

Reporter Matt Taibbi sees through the smoke and mirrors surrounding the supposed “profit” taxpayers have made from the Treasury’s TARP program.

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It was inevitable that the same people who pushed through the multi-trillion-dollar bailout of Wall Street would come out later on and tell us what a great idea theirs turned out to be, in retrospect and under the light of evidentiary examination. And we’re getting that now, with a pair of reports, the above one in the New York Times and another in the Financial Times, telling us the bailout is working because the government has made some money on TARP. They came to this conclusion by quoting Fed officials, who apparently calculated how much interest the Fed earned on TARP investments above what it would have earned on T-bills. The amount so far, according to these worthy gentlemen: $14 billion.

This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up. Forgetting for a moment that TARP is only slightly relevant in the entire bailout scheme — more on that in a moment — the TARP calculations are a joke, apparently leaving out huge future losses from AIG and Citigroup and others in the red. Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven’t retired their obligations yet, it’s crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.

…it speaks to a level of intellectual desperation and magical-thinking unusual even for a banker in the subprime/MBS era

Read the rest…

Bailout Tracker Update

September 7, 2009

pile-o-moneySo how much has the government’s intervention in the financial crisis costing us? According to CNN’s Bailout Tracker, the total amount committed to date is $11 Trillion, with $2.8 Trillion invested so far.

The list of recipients includes AIG, auto suppliers, automotive financing, Bear Stearns, Citigroup, Fannie Mae, Freddie Mac, Bank of America and numerous programs run by the Fed, Treasury and the federal government itself. The total cost to the FDIC alone is $35.5 Billion. See all the gory details here.

Social Security crunch coming fast

August 18, 2009

From MSN Money (emphasis added):

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By Bill Fleckenstein

The debate over health care has captured everyone’s attention, but it appears the next big government program that needs to be addressed will be Social Security. That’s the focus of the July 30 article “The next great bailout: Social Security” by Allan Sloan, Fortune’s senior editor at large.

Those who’ve been paying attention have long known there is no money in the Social Security Trust Fund — it’s all been spent. Thus, former Vice President Al Gore’s famous assessment that Social Security receipts should be placed in a “lockbox” was actually correct.  

Given that so few people really understand the Ponzi nature of the current Social Security financing scheme — created in 1983 by a commission chaired by none other than the world’s greatest serial blower of bubbles, Alan Greenspan — I decided to reprise Sloan’s article. (The Social Security problem is especially important because it likely will put additional pressure on the dollar and on bonds, and exacerbate the funding crisis down the road.)

The story begins: “In Washington these days, the only topics of discussion seem to be how many trillions to throw at health care and the recession, and whom on Wall Street to pillory next. But watch out. Lurking just below the surface is a bailout candidate that may soon emerge like the great white shark in ‘Jaws‘: Social Security.

Perhaps as early as this year, Social Security, at $680 billion the nation’s biggest social program, will be transformed from an operation that’s helped finance the rest of the government for 25 years into a cash drain that will need money from the Treasury. In other words, a bailout.

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Obama Says US Debt Load Unsustainable

May 15, 2009

000-0404012252From Bloomberg:

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

Now he figures it out? Now? After tripling the deficit, spending billions trillions on bailouts and “stimulus” that achieved pretty much nothing and continuing the biggest federal power grab in history? Riiiiiight….

There is one way Obama can prove he believes even one word of what he said yesterday – cancel all the new spending in his 2010 budget that we cannot afford. If he would restrict the federal government to spending only the money it actually has, I would believe he has seen the light.

 I won’t be holding my breath.

April Economic Picture

May 4, 2009

Corporate Earnings

First quarter corporate earnings statements were released throughout April. Here are the ones I caught as they were announced:

Losses

3M 1st-quarter profit slips 48%
Altria Group 1Q profit drops, but beats view
AMD posts deeper loss, shares fall
AmEx 1Q profit drops 63 percent
AT&T earnings fall
Boeing posts 50 pct decline in 1Q profit
CAT reports first loss since ’92, cuts forecast
Charles Schwab 1Q earnings fall 29 percent
Chevron 1Q profit falls 64 pct
Coca-Cola 1st-quarter profit falls
ConocoPhillips says profit down 80 percent
Delta posts $794 million 1Q loss
Dow Chemical 1Q profit drops 97 percent
DuPont 1Q profit falls, cuts outlook
EBay 1st-qtr profit, sales fall on weak economy
Exxon profit sinks on slumping oil demand
Gannett 1Q profit tumbles as ad declines deepen
GE Q1 earns fall 36 pct, hurt by finance
Kodak posts wider 1Q loss, suspends dividend
MasterCard 1Q profit falls 18 pct
Mattel posts wider loss in 1st quarter
Merck sees 57 percent drop in first-quarter profit
Morgan Stanley loses $578M in 1st quarter
New York Times posts quarterly loss
Nokia profit plunges 90 percent in Q1
Pfizer profit dips 2 percent, sales fall much more
Procter & Gamble profit falls as consumers cut back
Shell 1Q profit down 62 percent
Sony Ericsson posts loss, to cut 2,000 jobs
Southwest Airlines posts 1Q loss
Time-Warner post 1Q loss
Toshiba expects bigger loss, contract job cuts
UPS 1Q profit plunges more than 55 pct
US Bancorp’s 1Q profit falls, but beats estimates
Whirlpool 1Q profit drops on weakening demand
Yahoo Posts 78% Profit Drop, Cuts Jobs

Gains

Amazon 1Q profit, revenue jump on strong sales
Bank Of America Posts $4.2 Billion Profit
Citi Posts A Profit
Goldman $1.66B 1Q earns beat Wall Street estimates

Google Solid Q1
Humana 1Q profit more than doubles
Microsoft Earnings Weak, But No Disaster
Netflix post solid Q1 sales
Pre-Easter bounce helps lift Hershey 1Q profit
Verizon 1st-qtr profit, revenue beat expectations
Wells Fargo Announces Strong Earnings

Don’t get too excited about those bank profits, though. Bank earnings are actually very weak so far. It’s all just accounting magic, mostly due to the FASB suspension of the mark-to-market rule. Wells Fargo made billions on the mark-to-market change. Goldman’s big numbers are also mostly meaningless.

But don’t take it from me. Here’s former bank regulator and current University of Missouri – Kansas City economics professor William Black:

Banking

Since William Black talked about the stress tests in the above video, let’s start with that topic.

As posted previously, the stress tests are asinine for a number of reasons, not the least being that they are designed by the same geniuses who did not see the housing bubble burst coming. Meaningless as they are, however, they did generate a lot of news in April.

Early in the month we were told that all 19 of the nation’s largest banks passed the stress test. But we couldn’t be certain of that because the Fed ordered all the banks to keep silent about their results.

By the end of April there was a leak. The whisper was that Citi and Bank of America actually failed the stress test and both were being told to raise more capital.

The next day, word was that six banks failed the stress test and now need to raise funds. And now, as of today, Bloomberg is reporting that 14 of the 19 stress tested banks are in trouble.

But there’s nothing to worry about – if you’re a bankster, that is.

The Fed says the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.

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004-0123231011-money_burningA source at Treasury said no banks will close based on stress test results. None, even though Citi needs $10 billion more bailout dollars and Bank of America needs $70 billion more.

After several delays, stress test results will be released Thursday, May 7.

 

Failed Banks

Eight banks were added to the FDIC failed bank list in April, bringing the current total for this year to 29 and surpassing the total of 25 for all of 2008. Also in 2008, only 2 banks had failed by April. This means that bank failures are up more than 1000% this year.

sheilabair-sad_tbi-0_74x0_74With so many banks already seized by the FDIC this year, some are wondering, who’s going to bail out the FDIC?

 

Credit Card Crisis

It was only a matter of time before credit card defaults and other concerns bubbled up to the top of the news.

The Greatest Credit Card Debt Plunge Ever

Consumer credit plunged far faster than expected in February, with Americans taking on far less credit card debt.  Credit card debt fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms ever (although the records only go back to 1968.) It’s the  steepest percentage fall since 1978.

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Capital One says their current credit card default rate is 8.4% and it is expected to “surge past 10%”.

It should be no surprise that millions of unemployed people are finding it difficult to make their credit card payments. That’s just common sense. And yet, Citibank said higher unemployment won’t lead to credit card losses.

TARP

What was the idea behind the TARP program again? To help banks get back to lending money? So much for that plan. The banks are now lending even less than when the TARP was first launched.

The entire TARP program is becoming very unpopular with the very banks it was supposedly designed to help. Some banks that took (or were forced to take) TARP funds want to pay it back in order to get out from under the government’s thumb. Although Treasury Secretary Geithner doesn’t want the banks to repay TARP, he may not have any legal means to refuse them.

You can’t blame the banks that are healthy enough on their own for wanting to be left alone. Citi has had to go to Treasury to ask permission to pay retention bonuses. The discussion is ongoing.

It’s all about control.

Treasury

geithner3Treasury reported in April that it still has about $110 billion of the original $700 billion bailout fund. Expect that to be used up by the banks that need more capital based on their stress test results.

If the TARP bailout money is almost gone, why is Geithner refusing to let banks pay back the TARP funds they got? Weren’t the taxpayers supposed to be repaid as soon as the banks could manage it?

PPIP

The long-awaited Geithner plan for dealing with legacy securities toxic assets is doing, well, nothing really. Potential investors have shied away, with good reasons. So the deadline for investment applications was extended and the requirements for applicants were loosened.

As of April 29, 2009, Treasury is proud to announce over 100 applications to participate have been received. Wow.

Expanding TARP?

Early in April, Treasury announced it may expand TARP to bail out life insurance companies. It’s a plan scam that helps only bondholders, period.

Fraud?

Say it ain’t so! Neil Barofsky, special inspector general for the TARP, has already launched twenty investigations into possible securities fraud, tax violations, insider trading and other crimes related to the bailout funds.

In the 250-page report Barofsky submitted to Congress he also expressed serious concerns about Treasury’s latest bailout propgram, the PPIP. As Reuter’s blogger Felix Salmon observed, “not only is Barofsky worried about PPIP participants gaming the system, he’s also worried that the whole thing could easily become a front for money launderers”.

Federal Government

000-0404012252Q1 GDP -6.1%.

Budget

Congress passed the $3.5 trillion budget proposed by President Obama, “a level of spending over 10% more than the final year of the Bush administration… [with] almost all of Obama’s wish lists intact.”

President Obama has also asked Congress for a supplemental spending package of $83.4 billion for the wars in Iraq and Afghanistan.

With the largest budget in history passed and two ongoing wars to fund, we learned that the federal budget deficit grew to a record $956.8 billion while federal tax receipts are off 28%.

Revenue

The federal government ran out of cash on Sunday, April 26th, making this the earliest “debt day” ever. With no cash on hand and tax revenue shrinking at an alarming rate, federal borrowing quadrupled.

But the President wants you to know he’s serious about cutting the deficit and spending responsibly. That’s why he ordered his Cabinet to cut $100 million from their combined budgets in the next 90 days. Translated into numbers more like the ones you and I deal with on a daily basis, that’s like cutting “a latte or two out of your annual budget“.

As my dear granny would have said, “oh boy, could you spare it?”

Bailouts

The Congressional Budget Office raised its estimate of what the bailouts will cost taxpayers. As of April 4, the new estimate is $356 billion ($167 billion more than earlier estimates).

Surprise

“And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.” – Sen. Dick Durbin of Illinois

Retail and Commercial Real Estate

3ff5d97338b1d48cMarch retail sales overall fell 1.8 percent. Excluding Wal-Mart, sales fell 5 percent. And Wal-Mart itself saw less of an increase than expected at 1.4 percent in March.

“Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade” and “ghost malls are scaring suburbs“. Commercial real estate defaults quintupled.

The second largest US mall owner, General Growth, declared bankruptcy in April.

On a somwhat related note, office vacancies rose to 12.5 percent in Q1 – the highest they’ve been in three years.

US Auto Industry

Auto sales fell to near 30-year lows in April.

Chrysler

Chrysler

Chrysler made the President happy when it filed for Chapter 11 bankruptcy at the end of April. This means Chrysler will get another $8 billion of taxpayer money to help them “restructure”.

But not everyone is happy with the bankruptcy terms Chrysler proposed.  A group of non-TARP senior hedge fund creditors are fighting to get their clients the settlement they are legally due in a bankruptcy situation. These creditors did not make the President happy.

gm_03181GM

GM will cut 1600 more jobs, force more than 1000 dealerships to close and shut down its plants for most of the summer in order to qualify for more government aid. And indeed, GM received another $2 billion from the Treasury to keep it going another month or so.

GM’s CFO announced that the company will not be making its June 1st debt payment of $1 billion. Instead, they will have “an open debt-for-equity exchange offer for bondholders on June 1”.

Bankruptcy is still a possibility for GM. Preparations are being made for this contingency, with a taxpayer cost $70 billion.

Yet another possibility for GM is a proprosal it made to Treasury that would give the UAW 39% of the company, the federal government 51% and bondholders 10%. Treasury is still mulling the idea over but my bet is that this is how it will go down. A deal that gives the government and a major labor union ownership of the company will be much to enticing for Geithner and Obama to pass up.

fordFord

Meanwhile, Ford is quietly making due without government money, capturing 16 percent of a severly limited car market in March, thanks primarily to its hybrid vehicle, Fusion.

So while Ford is still losing money as most automakers are in this economy, Ford’s stock shares were up in April.

I’m keeping my fingers crossed for Ford. If they can survive this crisis without taking any taxpayer money they will be heroes in my book.

Housing and Personal Finance

Housing

house_ablazeForeclosures were up 24% in Q1. More than 10% of recent FHA loans are delinquent. Even prime mortgage losses are exceeding expectations, at least for JP Morgan.

Housing prices continue to decline according to the Case Shiller Home Price Release for March 2009. Take a look at Mish’s excellent analysis here.

The government’s mortgage modification program seems to be doing little or nothing which should be no surprise to anyone who looked at the details of that program.

Personal Finances

Consumer Prices Suffer First Annual Decline Since 1955, yet consumer spending still fell for the first time in three months, down 0.2%. Americans are re-learning thrift, it seems.

Bankruptcies are still rising, both business and individual. 130, 831 bankruptcy cases were filed in March 2009 – an increase of 46% over March 2008 and an 81% increase over March 2007.

And somehow, in spite of all the bad news surrounding them, consumer confidence rose in April to its highest level since last November. Huh?? My guess is that the average consumer has been watching the Dow and taking it as an indication of the economy’s general health. That and Bernanke’s “green shoots” along with Barack Obama’s “glimmers of hope”.

Having watched the stock market and other economic news much more closely over the past six months than ever before in my life, I can tell you that gauging the nation’s economic health by the stock market is stupid. Wall Street is completely disconnected from reality.

Unemployment

souplineUnemployment rose again in all US metro areas in March. Continued claims remain at an all-time record, 6.27 million.

The government’s official unemployment rate is now at 8.5% but in reality it is now 15.6%.

Unemployment figures combined with housing reports points to an extended period of recession still ahead of us.

Last Words

Trying to figure out what’s happening in the economy and what is ahead is a difficult proposition, perhaps even impossible. A New York Times reporter went to a number of conferences and talks and wrote about the conflicting information he heard – all based on the same data.

Nobel prize winning economist Joseph Stiglitz has blunt criticism of the Obama administration’s economic programs so far. Read the eye-opening Bloomberg interview here.

And finally, just to keep things real, have a look at “The Top 10 Signs You are Living in a Banana Republic“.

Banksters Part I: Bernanke to Banks – We Take Care of Our Own

April 26, 2009

gf-familyThe Federal Reserve said Friday, “the 19 companies that hold one-half of the loans in the U.S. banking system won’t be allowed to fail — even if they fared poorly on the stress tests.”

Besides the fact that according to some analysts including Oppenheimer analyst Chris Kotowski and Wells Fargo CEO Dick Kovacevich, the stress tests are “asinine“, even banks that “pass” the test may still have harder times ahead.

As reported by Bloomberg, stress tested banks “may struggle to raise money after bad assets at the biggest lenders almost tripled on average in the past year”.

And what about the Fed’s balance sheet? It has already taken about $9.6 billion worth of losses on toxic assets it purchased since last fall. Does the Fed need a bailout too?