Posted tagged ‘Debt’

Ministry of Plenty 100% Sure It Will Control Inflation

December 7, 2010

Bernanke Is 100% Sure

From ZeroHedge.com:

I don’t know about you, but I’m not 100% sure about anything. The older I get, the less sure I am about everything. I question things that I was sure were true when I was 25 years old. I’m not sure I’ll wake up in the morning. I’m not sure I’ll survive my commute to work. That is why I was flabbergasted last night as I watched Scott Pelley interview Ben Bernanke on 60 Minutes.

As a side note, boy this show has gone downhill. In the old days of real journalism, Mike Wallace would have scorched Ben Bernanke, pointing out his phenomenal ability to be wrong or clueless on every financial issue the country has faced in the last 10 years. Today, Pelley underhands softball questions to Bernanke and never challenges him. It was a pathetic display of journalism.

Below is the dialogue that made me almost fall off my chair:

Pelley: Is keeping inflation in check less of a priority for the Federal Reserve now?
Bernanke: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow inflation to rise above two percent or less.
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.

The hubris in this statement is breathtaking. The U.S. economy is a complex interaction of thousands of variables and is intertwined with the policies and actions of hundreds of other countries throughout the world. No one has a handle on the worldwide economy and no model can predict anything with any amount of accuracy. And still, this pompous professor from Princeton who has never worked a day in his life in the real world is 100% SURE that HE knows what will happen and when it will happen. I’m sure his track record of predictions and analysis will give you comfort in this statement:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

March 28th, 2007 – Ben Bernanke: “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,”

May 17th, 2007 – Bernanke: “While rising delinquencies and foreclosures will continue to weigh heavily on the housing market this year, it will not cripple the U.S.”

June 20th, 2007 – Bernanke: (the subprime fallout) “will not affect the economy overall.”

continued..

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Bernanke’s Secret Plan To Raise Rates Too Late

November 4, 2009

Business Insider’s Henry Blodgett explains:

Explainer: Bernanke’s Secret Plan To Raise Rates Too Late (3 min):

Why is Ben Bernanke being so slow to start talking about raising rates, much less start raising them?  Because he has a secret plan that he can’t talk about.

What’s Ben’s secret plan?

Intentionally keep rates too low for too long, thus encouraging uncomfortably high inflation.

Why would Ben want that when he keeps talking about the importance of managing inflation?

Two reasons:

  • Faster economic growth, which leads to more jobs, fewer angry constituents, and a Congress that’s happier with Ben Bernanke
  • Faster erosion of the real value of our debts.  Consumers and the government are drowning under a massive debt load.  One way to make paying off this debt easier is to make the dollars it is denominated in worth less.  Bernanke will try to hasten this process as much as possible, taking it right to the point where our creditor China is mad as hell–but not quite to the point where China actually stops lending to us.

Click for video.

Constituents? Happier Congress? But I thought the whole argument against a full audit of the Fed is that it is supposed to be independent of politics. So which is it?

“Consumers and the government are drowning under a massive debt load. One way to make paying off this debt easier is to make the dollars it is denominated in worth less.”

That works for government and the biggest of the TBTF bankers (GS, JPM) because the dollars aren’t really devalued until they are released into the economy at large. By the time they reach the consumer, the prices of everything consumers might buy have already risen in response to the inflated money supply.

Another Bailout for GMAC? Seriously?

October 28, 2009
From Clusterstock:
Tim Geithner’s getting ready to shovel more taxpayer money down the rat hole, this time to GMAC.

GMAC, in case you’re in understandable denial, has been bailed out twice already.

And now Tim Geithner wants to shovel another $2.8 billion in.
What is the US taxpayer getting in exchange for all these GMAC bailouts?

Preferred stock.

Why are we getting preferred stock, which is neither a claim on the future upside of the company’s equity, nor a senior debt security that will be completely repaid in the event that taxpayers finally get mad as hell and won’t take it anymore?

Because Tim Geithner is worried that if he makes the folks who voluntarily lent money to GMAC — the bondholders — lose so much as a cent, the entire US economy will collapse.

Unbelievable. Sooner or later something has to give. And when it does, it won’t be pretty.

Debtor’s Revolt!

September 9, 2009

I am free, no matter what rules surround me.  If I find them tolerable, I tolerate them; if I find them too obnoxious, I break them.  I am free because I know that I alone am morally responsible for everything I do. 

~Robert A. Heinlein, The Moon is a Harsh Mistress

 *************

Human history begins with man’s act of disobedience which is at the very same time the beginning of his freedom and development of his reason. 

~Erich Fromm, Psychoanalysis and Religion

**************

As long as the world shall last there will be wrongs, and if no man objected and no man rebelled, those wrongs would last forever. 

~Clarence Darrow

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.

004-0123231011-money_burning

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…

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.

Continue reading

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.

Continue reading

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“.

March Economic Picture

April 4, 2009

Let’s start with the good (?) news.

Stock Market

The stock market rallied at the end of March. The Dow had its worst January ever and worst February since the Depression, then, in March, turned in its best month in six years.

On March 23, 2009, Joe Weisenthal at Clusterstock wrote:

On the day when Geithner first announced the non-details of his bank plan, the stock market began a hard tumble.

Today, as the government confirms that taxpayer money will be used to replenish bank coffers and help hedge funds make huge profits, stocks are soaring.

Continue reading…

Naturally, some “experts” like Doug Kass and Jim Cramer were quick to call the bottom.  But let’s see where we really are.

four-bears-large1

Judging by dshort.com‘s “Four Bad Bears” chart, it looks like the bottom callers are being a bit hasty. They just may end up on a modern version of the “1927 – 1933 Chart of Pompous Prognosticators“, especially considering that Nouriel Roubini is still predicting an L-shaped recovery.

Banking

The Office of the Comptroller of the Currency reported in March that banks lost $9.2 billion in derivatives trading losses in the 4th quarter.

Citigroup saw its shares drop below $1.00 and hover there for much of March.

Five banks were added to the FDIC ‘s failed bank list.

But good news (for banksters anyway) came from the Financial Accounting Standards Board when it relaxed the “mark to market” rule for bank assets on April 2. With banks no longer required to value assets based on reality, April at least will probably be a good month for banks.

Retail

retailyoyfeb2009

February Retail Sales Chart from Calculated Risk

Retailers reported continued sales declines in February, though not quite as steep as those seen in January.

Call me a doom-and-gloomer, but I suspect most sales increases seen in February and perhaps March (we should see those numbers soon) are due primarily to people getting – and spending – tax refunds. Let’s wait and see what the reports look like later this spring before we get too optimistic.

Wal-Mart, on the other hand, showed February growth of approximately 5% (about twice what was expected). Wal-Mart is doing so well, that on March 19, it announced $2 billion in bonuses to be given to hourly employees:

Wal-Mart Stores Inc is awarding approximately $2 billion to its U.S. hourly employees through financial incentives, including handing out $933.6 million in bonuses on Thursday, after the world’s largest retailer gained market share amid a recession.

In a memo distributed to Wal-Mart employees and obtained by Reuters, Wal-Mart CEO Mike Duke said the retailer is awarding roughly $2 billion to U.S. hourly employees, which includes $933.6 million in bonuses, $788.8 million in profit sharing and 401(k) contributions, millions of dollars in merchandise discounts, and contributions to its employee stock purchase plan.

Continue reading…

And now the not so good news.

Unemployment

Unemployment Claims Chart from Calculated Risk

Unemployment Claims Chart from Calculated Risk

697,000 jobs were cut in February and 742,000 were cut in March. The total number of people claiming unemployment benefits is currently about 5.56 million – the highest number since May 1983.

Broader measures showed the February unemployment rate at 14.8%, or 1 out of 7 Americans unemployed. This figure includes the “discouraged” job seekers and those working part-time jobs who want full-time work.

Unemployment rates rose in all US metro areas in February, with 7 states reporting rates at or above 10%.

Recent photo taken in San Diego. Click for source.

Recent photo taken in San Diego. Click for source.

I keep hearing that unemployment is a “lagging indicator” of the overall economy. Maybe I didn’t get enough government sponsored education, but it seems to me that a real recovery can’t happen until people are working again, earning money they can then spend. When the unemployment rate starts dropping instead of increasing by such huge amounts every month, that is when I’ll start to believe the recovery has begun.

Housing and Personal Finance

With so many unemployed, you know there is nothing good happening in housing and personal finance.

Case Shiller House Prices for January Chart from Calculated Risk

Case Shiller House Prices for January Chart from Calculated Risk

Home prices are still falling.  “The national peak-to-trough decline is now 27%, and it will likely exceed 40% before we hit bottom.  If there’s any good news here, it’s that the rate of decline appears to be stabilizing.

While this is certainly bad news for individual homeowners, it’s actually good news for the economy in general. It is evidence that in spite of all the doomed efforts being made by the government and the Fed to reinflate the bubble, the market is doing its job and the necessary correction is proceeding quite well.

The January drop in home prices is record setting, however, and it does contribute to severe financial problems for individuals. A study released early in March showed one in five US mortgages to be underwater.

Another report said 12% of all mortgages (one in nine) are now delinquent or in some stage of foreclosure. In fact, the rate of foreclosures in February rose 30% over the previous year.

On March 31, an FHA spokesman said FHA loans were “seriously delinquent” at the end of February.

Not surprisingly, foreclosures are especially rising in California.

February New Home Sales Chart from Calculated Risk

February New Home Sales Chart from Calculated Risk

The February new home sales report showed a 4.7% increase, leading many to believe the bottom was in for housing. Not likely, though, since even with the increase the numbers are the lowest sales for February since the Census Bureau started tracking sales in 1963.

Existing home sales also increased slightly in February, though nearly half of those sales were buyers taking advantage of extreme savings on forclosed properties. Many of these buyers, apparently, are foreign investors.

According to a Labor Department report, consumer prices rose 0.4% in February.

The Administrative Office of the US Courts reported bankruptcy filing were up 31% in 2008.

Early in March it was reported that food stamp enrollment had climbed to a record 31.8 million people.

All of which leads to the unsurprising news that consumer confidence is still at nearly record lows and personal savings increased to 5%.

US Auto Industry

The US Auto Industry was all over the headlines again in late March, beginning with a $5 billion bailout for auto suppliers and reports of steep drops in auto sales – 37% in March.

But the biggest headlines appeared when the Obama administration, operating in a weird double standard, forced GM CEO Rick Wagoner to step down – a move that sent GM stocks freefalling to a 74-year low.

GM’s new CEO, Fritz Henderson (former head of GMAC mortgage finance), is apparently more open to the possibility of bankruptcy than Wagoner was.

The Obama administration now plans to take a key role in “reshaping” GM’s board of directors, though Obama also said he has “no intention” of running GM. Good thing, too, since the administration’s  “plan” for the auto industry is pretty lightweight.

A great many comments posted to online articles about the big news at GM boiled down to “if they’re taking government money, the government can do whatever it wants”. Right or wrong, such thinking only highlights the moral hazard of government bailouts of private industry in the first place.

Shortly after the government’s de facto takeover of GM, Ford announced that it would cover car payments for buyers who lose their jobs. GM quickly followed with a similar program.

The Obama administration also announced that the government will guarantee all GM car warrantees (but remember, they’re not running the company). Auto shops run by the DMV maybe? Sounds great!

One last related bit of auto news caught my attention in March. It seems that an increasing number of desperate people, unable to continue making their auto loan payments, are instead setting their vehicles on fire to collect the insurance money.

Federal Government Spending

Early in March, President Obama signed the pork-laden $410 billion government spending bill.

The US Deficit in Global Perspective

The US Deficit in Global Perspective

Also early in March, the national debt hit a record $11 trillion, or about $36,000 for every man, woman and child in America. In the fastest increase of debt in American history, in Barack Obama’s first 50 days as president the Congress voted to spend $1.2 trillion, or “$1 billion an hour”, according to Senator Mitch McConnell.

 

 

In an exclusive interview with the NY Times, Mr. Obama floated the idea of another $750 billion to be given to banks, even though the amount already spent on “financial rescue” is nearly equal to GDP – in other words, the same amount as the value of everything the US produced last year.

All of this was enough to make China worry that the US might not be able to repay its debts. Of course, our dear leader reassured the Chinese that we’re still good for it (even if it means we have to inflate our currency to the moon and back).

Big news was also made in March by AIG and its $218 million executive bonus payments. Taxpayers were outraged (sort of) and Congress moved quickly to pass a 90% tax on “TARP bonuses”.

Signing a retroactive tax would have been a political disaster for the Obama administration, plagued with questions of the “who knew what and when did they know it” variety. Luckily for Obama, New York Attorney General Andrew Cuomo managed to get the AIG executives to return the money before the 90% tax bill landed on his desk. Instead, the administration will look to limit pay at all businesses receiving government money.

If government is going to dictate employee pay, they need to start with Fannie Mae and Freddie Mac. Freddie asked for another $30.8 billion after losing over $50 billion in 2008. Freddie’s $24 billion Q4 loss breaks down to $3000 per second lost yet Fannie and Freddie plan to pay more than $210 million in employee retention bonuses over the coming year.

And we want to retain these employees, why?

The “Newspaper Revitalization Act” was introduced in the Senate during the last week of March. The mainstream media bailout would rewrite tax law to allow newspapers to operate as tax-exempt nonprofit organizations, just as long as they don’t make official endorsements of political candidates. Critics say such a bailout would lead to government control of the news.

That would be different, how?

Also, the US Postal Service is going broke (again).

President Obama’s proposed budget was the main topic of a prime-time news conference in March. Fact checking afterwards showed the enormity of this president’s doublespeak capabilities.

Senator Judd Gregg, who turned down the nomination for Commerce Secretary, said “we’ll go bankrupt under Obama’s budget“. Sounds about right.

Obama Deficit in Pictures

Obama Deficit in Pictures

 

The Federal Reserve

With demand for US Treasurys declining, the Fed launched a “bold” plan to dump another $1 trillion into the US economy.

The Financial Times Alphaville blog posted some early reactions including one from Yves Smith of Naked Capitalism calling the Fed’s move “shock and awe” and comparing it to when that phrase was used at the start of the Iraq war.

Following the Fed’s “shock and awe” announcement, Treasurys continued to decline and the dollar fell dramatically against other currencies. It seems that more than a few analysts are certain the Fed’s plan has killed the dollar.

China and Russia are also skeptical, it seems. They are calling ever more loudly for a new reserve currency.

US Treasury

Tim “Tax Cheat” – “Markets won’t solve the crisis” Geithner (finally) announced his plan to resolve make taxpayers pay for banks’ toxic assets.

For a very limited amount of risk, private investors will “partner” with taxpayers to pay over-market-value for banks’ toxic assets, thus re-creating solvency for the banks. If it later turns out the assets really weren’t worth much, the private investors loses only their small (7%) investment in the deal. The taxpayers will be left holding the bag for the rest.

Even if the private investors make money on any of the deals, the taxpayers are still likely to get fleeced.

Here’s a more detailed explanation: Message from Cumberland Advisors.

Even though the Treasury said they don’t know if this plan will work, the stock market was overjoyed with it, closing up nearly 4% and kicking off the recent rally.

Geithner’s plan has been widely criticized by some heavy economic hitters including James Galbraith, Nassim  Taleb, and Nobel laureates Paul Krugman and Joseph Stiglitz.

And isn’t this plan really just a slightly modified version of the original Paulson-Bernanke plan from September – the one Paulson ended up scrapping, saying it couldn’t possibly work? Yes, actually, that’s just what it is.

Oh, by the way, the NewSpeak term for toxic assets is now “legacy assets“. After all, the only reason nobody wants these things is because we keep calling them “toxic”, right? It has nothing to do with the fact that they are piles of paper representing nearly worthless, defaulted loans. Right?

Last Words

The Quiet Coup by Simon Johnson in The Atlantic Magazine is highly recommended. Synopsis:

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

And finally, if you have not yet seen Daniel Hannan’s heroic March 26, 2009 speech in the EU in which he calls British PM Gordon Brown (to his face) “the devalued Prime Minister of a devalued government”, click below and enjoy.

Mr. Hannan’s words could should be repeated to the governments and central bankers of every nation.