Non Sequituir for 4/6/09:

[quote=cheesehead;168340]Here's Stratfor's interim take after Obama's first speech in Turkey but before the end of the trip:

"Obama's Strategy and the Summits"

[URL]http://www.stratfor.com/weekly/20090406_obamas_strategy_and_summits[/URL][/quote]

Good article. Much better than the previous one.

Corp. Bond Defaults Spike | GM Readies Chapter 11?
 

[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=afIlin8GVb6c]Corporate Bond Default Rate Highest Since Great Depression[/url]: [i]Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody’s Investors Service.[/i]
[quote]The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7 percent from 4.1 percent at the end of last year, Moody’s said in a report today. So far this year, 79 companies rated by Moody’s have defaulted, the New York-based ratings firm said.

Almost $1.3 trillion of losses and writedowns at financial institutions worldwide, combined with the deepest economic slowdown since World War II, have weakened companies’ finances, reducing their ability to pay debt. The global default rate will peak at 14.6 percent in the final quarter of the year, Moody’s predicted, lower than last month’s 15.3 percent forecast.

In the U.S., the default rate at the end of the first quarter was 7.4 percent, up from 4.5 percent at the end of 2008, and in Europe it jumped to 4.8 percent from 2 percent at the end of the final quarter of last year.

European default forecasts remain the highest and are expected to peak at 21 percent in the fourth quarter, down from the 22.5 percent the ratings firm’s model calculated last month.[/quote]
[i]My Comment:[/i] An estimated debt default rate of over 20% in Europe - wow. Note that I wouldn`t trust an outfit like Moody`s on anything requiring subjective judgment (e.g. debt ratings, especially of, oh, say, Warren Buffett`s Berkshire Hathaway holding company), but in this case these are actual data they are summarizing.


[url=http://money.cnn.com/2009/04/07/news/companies/gm_prep_bankruptcy.reut/index.htm]GM braces for possible bankruptcy[/url]: [i]Automaker plan would split the company into profitable and less-profitable divisions.[/i]
[quote]NEW YORK (Reuters) -- General Motors Corp. is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters Tuesday.

A plan to split the company into a new company made up of the most successful units, and an 'old company' of its less-profitable units is gaining momentum and is seen as the company's best configuration for the future, said another source familiar with the talks.[/quote]
[i]My Comment:[/i] Looks like the "new" Fritz-Henderson-led GM may not wait for the recent "get your act together" deadline set by the Obama administration to file Chapter 11.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=afmB.7qR9z2M&refer=news]OppenheimerFunds Probed by Five States Over College Savings-Account Losses[/url]: [i]OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co., is under scrutiny by attorneys general in five states for investment losses in college-savings accounts that used its bond funds.[/i]
[quote]The inquiry undertaken by the civil enforcement offices of the attorneys general is focusing on accounts that invested in Oppenheimer Champion Income Fund, which fell 79 percent in the past year, and Oppenheimer Core Bond Fund, which lost 41 percent. Oppenheimer Limited Term Government Fund and U.S. Government Trust are also being investigated.

...
Angelo Manioudakis, the manager who oversaw the bets at Champion Income, Core Bond and the two government bond funds, left OppenheimerFunds in December and other managers have been appointed to run them.

Champion Income held total-return swaps that bet that the prices of mortgage-backed securities would rise. Instead, in November, they dropped. The fund plunged 71 percent in the fourth quarter of 2008, including 54 percent in November alone.

OppenheimerFunds faces a lawsuit and arbitration claims stemming from losses by Champion Income by shareholders who invested in the fund outside of college-savings plans. The lawsuit, filed in February in the U.S. District Court in Colorado, [u]alleges that OppenheimerFunds marketed and sold the fund as a conservative high-income option[/u].[/quote]


[url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNR3f9WE2L9s]Soros Says Gain in U.S. Stocks Is ‘Bear-Market Rally’[/url]: [i]George Soros, the billionaire hedge- fund manager who made money last year while most peers suffered losses, said the four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still shrinking.[/i]
[quote]“It’s a bear-market rally because we have not yet turned the economy around,” Soros, 78, said in an interview yesterday with Bloomberg Television, referring to the recent rebound in stock prices. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

The Standard & Poor’s 500 Index of largest U.S. companies has climbed 24 percent since March 9 on optimism the worst of the 16-month U.S. recession is over. The economy continues to contract, and there’s a risk the U.S. falls into a depression, Soros said.

...Soros gave a mostly positive review of the President Barack Obama’s administration.

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009). [u]“Unfortunately, there’s just a little bit too much continuity with the previous administration.”[/u]

Soros said the U.S. housing market hasn’t bottomed, even as transactions in states such as California have increased.

“There are some signs of hitting bottom, but we are not there yet,” he said. “A lot has been done to forestall foreclosures.”

...Soros said the banking system is “seriously under water” with banks on “life support.”

“They are weighed down by a lot of bad assets, which are still declining in value,” he said in the interview in his New York office. “The amount is difficult to estimate, but I think it’s in the region of maybe a trillion-and-a-half dollars.”

Soros said the change to fair-value accounting rules will keep troubled banks in business, stalling a U.S. recovery.

“This is part of the muddling-through scenario where we are going to keep zombie banks alive,” Soros said. “It’s going to sap the energies of the economy.” [/quote]
[i]My Comment:[/i] I'm guessing Soros loaded up his short positions in the weeks leading up to this interview. ;)


[url=http://globaleconomicanalysis.blogspot.com/2009/04/neither-krugman-nor-bernanke-can.html]Krugman Keeps Pumping the "Savings Glut" Myth[/url]
[quote]"How does this end? What can make this better? One answer is a stronger European economy. This problem would be much easier if Europe was a vigorously growing economy with a positive rate of inflation.

Around the world people want to save more than business is willing to invest. We have a global paradox of excessive savings. The best thing that could happen to the economy would be to find a lot more investment opportunities, anything that provides quantum leaps into what we can do that would be worth doing even in a depressed economy."[/quote]
[i]My Comment:[/i] Classic debtor-nation economic claptrap there, about the "desirability" of inflation. Regarding the "stop saving!" rubbish, we see how well the U.S. paradigm of excessive spending worked all around us these days, don`t we? And the combination of "investment opportunities" with the potential to provide "quantum leaps" ... sounds like he might be talking about the mortgage-backed securities market there, and all the "innovative investment opportunities" it blessed us with.


[b]Today's featured Article: "From Bubble to Depression?"[/b]

There was a fascinating column in yesterday`s WSJ on housing-bubble economics by Steven Gjerstad and 2002 Nobel economics Laureate [url=http://en.wikipedia.org/wiki/Vernon_L._Smith]Vernon Smith[/url], titled [url=http://online.wsj.com/article/SB123897612802791281.html]From Bubble to Depression?[/url]. In particular they focus on why the puncturing of this last bubble was so much worse than that of the DotCom bubble a few years previously. One of their core conclusions is that both the current crisis and the Great Depression had their origins in excessive levels of consumer debt, with much of that borrowing having gone toward financing an unsustainable runup in asset prices, especially real estate. Another key conclusion echoes a point I have made frequently in this ongoing discussion, namely that the government`s gerrymandering of consumer-price (CPI) computations beyond all recognition - especially via substitution of fuzzy (and easily manipulable) concepts such as "owner`s equivalent rent" (OER) for actual housing prices and widescale application of "hedonic adjustments" (e.g. that laptop PC you just bought didn`t "really" cost $1000 - because it`s 10x faster than the last one you bought for the same price, it "cost" just $100 - never mind that with the latest Windows OS you need at least 10x more processing power to get the "owner`s equivalent work" done), they have been grossly underestimating real consumer prices in the "what folks actually pay for shit" sense for years. For instance OER led the Greenspan-led Fed to conclude that all through the Great Housing Bubble, even though the portion of incomes devoted to servicing mortgage debt skyrocketed, that "inflation was tame". Similarly the Bernanke Fed completely missed the massive asset-price *deflation* which started in 2006, and through 2007 and much last year were still "worried about inflation." Now that the economy has gone right off the rails they have of course forgotten abut inflation and are printing money like mad, never mind that all that money has to end up somewhere, begging the question, "once the deflation/deleveraging ends as it eventually must, have you not sowed the seeds for a potential hyperinflationary event?" Oh, we`ll worry about that later, seems to be the Fedster`s attitude. In other words, the Fed`s MO seems to be to serve as a boom/bust amplifier, precisely the opposite of the role their charter charges with.

Extremely worthwhile rewarding for all students of bubble-and-Ponzi-conomics.

Barry Ritholtz also comments on the same piece, and one of his (justifiably) angry readers comments thusly:
[quote]The CPI has been a fraud for years, thanks in part to the evil Allan Greenscam who helped in its implementation. (This man ought to be executed in front of a firing squad for the role he played in destroying America’s wealth and impoverishing the nation.)

The people over at [url]http://www.shadowstats.com[/url] have been estimating the CPI using both the new and old methodologies documenting the fraud.

They (BLS) have been substituting lower priced items in the basket of items used to measure price increases to artificially deflate the true cost of living. So if apples have increased in price this month, oranges will be substituted if the price is lower.

They have done this for several reasons. Social Security, Federal salaries, or any COLA (cost of living adjustments) that rely on the CPI are never inflation adjusted. This is why the elderly living on a fixed income are now impoverished and can’t pay for food, energy, medicine and housing. Their SS checks are not inflation adjusted. These people worked hard all their lives only to be impoverished by evil banksters like Allan Greenscam.

COLA payments would, of course, increase the Federal budget deficits, so America’s true deficits are hidden from view.

The phony CPI numbers are used to hide the true nature of the collapse of the US economic system.

Using the substitution methodology, Americans are now supposed to substitute dog food for chopped beef.

So last night I made a wonderful ‘meatloaf’ using Alpo, topped with wonderful tomato sauce from a Martha Steward [i][sic][/i] recipe.[/quote]

[quote=ewmayer;168394]Barry Ritholtz also comments on the same piece, and one of his (justifiably) angry readers comments thusly:[/quote]
[quote]Social Security, Federal salaries, or any COLA (cost of living adjustments) that rely on the CPI are never inflation adjusted.[/quote]Since they [I]are[/I] inflation-adjusted, I presume that he really means never [U]sufficiently[/U] inflation-adjusted.

[quote]This is why the elderly living on a fixed income are now impoverished and can’t pay for food, energy, medicine and housing. Their SS checks are not[/quote]sufficiently[quote]inflation adjusted.
. . .

COLA payments[/quote], sufficiently adjusted,[quote]would, of course, increase the Federal budget deficits, so America’s true deficits are hidden from view.[/quote]OTOH, we all know the Social Security system was paying out more than it should have to be sound. The stealth CPI adjustments could be viewed as a stealthy way to reduce Social Security (and other) payments to whittle down the imbalance. Doesn't ire the AARP as much as doing it out in the open. So it could be regarded as a practical way of making politically-unpopular but necessary adjustments ... except for its sneakiness.

The sneakiness, however, is a moral hazard. The associated refusal to face the facts of the nation's fiscal situation has only put off the reckoning.

World Economy: 1929 vs 2009
 

[url=http://www.nakedcapitalism.com/2009/04/world-economy-falling-faster-than-in.html]NakedCapitalism.bom | World Economy Falling Faster Than in 1929-1930[/url]: [i]Barry Eichengreen, an expert on the Great Depression, and Kevin O'Rourke, take issue with the notion that the current downturn is less severe than the Great Depression. While the slump in the US is not as bad, that mis-states the global picture.[/i]


[url=http://money.cnn.com/2009/04/07/news/economy/bank_stress.reut/index.htm?section=money_latest]Source: Bank 'stress test' results delayed[/url]: [i]Treasury will wait until after first-quarter earnings season to release results in order to soften impact on stocks.[/i]

[i]My Comment:[/i] The stress tests are at best a ridiculous charade, and at worst will [url=http://finance.yahoo.com/tech-ticker/article/225897/Geithners-Stress-Test-%22A-Complete-Sham,%22-Former-Federal-Bank-Regulator-Says]amount to outright fraudulent misinformation[/url].


[url=http://money.cnn.com/2009/04/07/news/economy/consumer_credit/index.htm]Consumer credit resumes pullback[/url]: [i]Government says a decrease in credit card debt paces an overall drop in consumer lending.[/i]
[quote]Consumer credit fell in February, led by a sharp decline in credit card usage, a government report said Tuesday, as the ailing economy and widespread unemployment curbed spending.

Total consumer borrowing fell a seasonally adjusted $7.4 billion, or 3.5%, to $2.564 trillion in February, according to the Federal Reserve.

Revolving credit, which includes credit card debt, tumbled $7.8 billion, or 9.7%, to $955.7 billion.
0:00 /1:01Ending credit card debt

Economists predicted a decline in total borrowing at $1.5 billion in February, according to a consensus survey from Briefing.com. January saw a revised surprise jump of $8.1 billion in total consumer borrowing.[/quote]
[i]My Comment:[/i] This is why the government`s continued calls for banks to increase lending are so misguided - you cannot lend to a person who is trying to reduce their debt load, which describes the typical overleveraged American consumer. Note that despite the "dramatic" decreases in accumulation of new consumer credit, the total outstanding credit is still massive - total consumer borrowing works out to an average of nearly $10,000 for every man, woman and child in the U.S.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=anYvL_DeRSXU&refer=news]Weil Gotshal May Reap $230 Million Legal-Fee Bonanza If GM Goes Bankrupt[/url]: [i]Weil Gotshal & Manges LLP may earn an estimated $230 million in legal fees should General Motors Corp. file for bankruptcy protection -- more than the record the firm is likely to take in advising Lehman Brothers Holdings Inc. on the largest bankruptcy in U.S. history.[/i]
[quote]GM may pay the lead bankruptcy counsel that much, topping the estimated $209 million Weil will charge Lehman, said Lynn LoPucki, who teaches bankruptcy law at the University of California, Los Angeles. Weil, a longtime GM counsel now advising the company on restructuring, hopes to take charge of the bankruptcy case if the carmaker’s out-of-court restructuring effort fails, said a person familiar with the 1,300-lawyer firm.

A bankruptcy for GM, the biggest U.S. automaker, might yield $1.2 billion for bankers, accountants and lawyers, surpassing estimated judge-approved charges of $906 million for Lehman, said LoPucki, who maintains a database to calculate fees. Energy trader Enron Corp.’s three years of bankruptcy cost $757 million, including $149.4 million paid to Weil, he said.

More than 500 Weil lawyers worked on Enron, the energy trader that collapsed in 2001, according to court papers.

...

The U.S. Treasury would have the power to knock fees down if it was lending money to help GM reorganize in court, or guaranteeing the loans. The government could shave costs by limiting the number of lawyers GM brought to court, and putting a lid on the number of committees of stakeholders recognized by the court, which GM would have to pay for, said James Shein, a professor at Northwestern University Kellogg School of Management and turnaround consultant.[/quote]

"Pulp Nonfiction"
 

This caught my attention. Forgive me if this has previously been brought to light. But, after all, we're paying for it.

[URL="http://www.thenation.com/doc/20090420/hayes"]http://www.thenation.com/doc/20090420/hayes[/URL]

[QUOTE]
Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry--handsomely--to use more fossil fuel. "Which is," as a Goldman Sachs report archly noted, the "opposite of what lawmakers likely had in mind when the tax credit was established."


The massive tax subsidy has barely been reported in the press, but it's caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. "Everybody's talking about it," paper industry analyst Brian McClay told me. "In the US and elsewhere in the world--in Canada and Brazil and Chile and Europe."
[/quote]

Non Sequituir for 4/7/09:

cooking the CPI
 

[url="http://www.bogleheads.org/forum/viewtopic.php?t=35335"]Nice thread[/url], one of a great number of them, from the Bogleheads about whether there's a government conspiracy to underreport inflation in the US

Edit: [url="http://www.bls.gov/cpi/cpiqa.htm"]Direct link[/url] to BLS FAQ on the subject

[quote=jasonp;168511][URL="http://www.bogleheads.org/forum/viewtopic.php?t=35335"]Nice thread[/URL], one of a great number of them, from the Bogleheads about whether there's a government conspiracy to underreport inflation in the US[/quote]

If you check [URL]http://en.wikipedia.org/wiki/List_of_price_index_formulas[/URL] you'll see that all formulas involve some sort of averaging, so there are degrees of freedom. Since inflation is 'bad' the administration has the incentive to understate inflation, so we expect the government's estimator will biased towards zero, which is rational behavior and not a conspiracy.

One thing that is much easier to measure and has fewer degrees of freedom is [URL]http://en.wikipedia.org/wiki/Money_supply#M1[/URL], so some economists (like me!) turn the argument around and simply state that larger money supply will eventually lead to higher prices for goods & services.

If we assume there is a constant long-term growth-rate of goods & services, the critical term is the expected change in money supply growth: C=E(d^2(log(M1(t)))/dt^2)

Specifically, if C!=0 you have a real problem, because your system is unstable.

Go, AIGies! | Roubini: CNBC's Cramer "A Buffoon"
 

As a followup to the polemical piece on AIG by Rolling Stone's Matt Taibbi, note that the Washington Post had a 3-part series at the end of last year on the same topic, which is more thorough from a historical and financial-evolutionary context. In particular it casts at least as much of the blame for AIG`s eventual fatal binge of credit-default swap selling (based on the assumption that the housing market would always - at least at the aggregated national level - go up and that AIG`s sterling credit rating would never lose its luster) on longtime AIG head Ace Greenberg, who hand-picked Joseph Cassano (the fall guy in the RS piece) to run AIG's Financial Products division, and approved of the ever-bigger dealings in the CDS market. An excellent read, but one needs to set aside a few hours for it. Links to the articles - I chose the lower-bandwidth single-page printer-friendly versions; if you want to see the originals in their full ad-sponsored glory just remove the "_pf" from the URL:

Part 1: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/28/AR2008122801916_pf.html]The Beautiful Machine[/url]: [i]Greed on Wall Street and blindness in Washington certainly helped cause the financial system's crash. But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: Risk.[/i]

Part 2: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/29/AR2008122902670_pf.html]A Crack in The System[/url]: [i]By 1998, AIG Financial Products had made hundreds of millions of dollars and had captured Wall Street's attention with its precise, finely balanced system for managing risk. Then it subtly turned in a dangerous direction.[/i]

Part 3: [url=http://www.washingtonpost.com/wp-dyn/content/article/2008/12/30/AR2008123003431_pf.html]Downgrades And Downfall[/url]: [i]How could a single unit of AIG cause the giant company's near-ruin and become a fulcrum of the global financial crisis? By straying from its own rules for managing risk and then failing to anticipate the consequences.[/i]


[url=http://www.guardian.co.uk/business/2009/apr/08/cramer-roubini-mad-money-bear-sterns]Economist Roubini: US finance pundit Cramer a 'buffoon'[/url]
[quote]Wall Street's favourite jester has fallen foul of the prophet of doom. A tense feud has broken out between the outspoken tele­vision stockpicker Jim Cramer and the notoriously gloomy economist Nouriel Roubini.

Roubini, a New York University professor who famously forecast a dire world recession as far back as 2006, has taken exception to remarks on a blog by Cramer that he is "intoxicated" with his own "prescience and vision" and is refusing to see green shoots of recovery in the financial markets.

"Cramer is a buffoon," said Roubini. "He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong."

The confrontation pits two of the financial world's biggest egos against each other. While Roubini has won plaudits for correctly predicting that the credit crunch would cause a domino effect around the world, Cramer has long been a cheerleader for mass participation in the stockmarket.

Cramer's CNBC show, Mad Money, has come under repeated attack in recent months for its bullish enthusiasm in a highly volatile environment. The comedian Jon Stewart recently roasted Cramer and the broader financial media for missing warning signs of a "once in a lifetime financial tsunami".

Roubini, who believes the situation is so gloomy that leading US banks may need to be nationalised, was dismissive of Cramer: "After all this mess and Jon Stewart, he should just shut up because he has no shame."

Speaking to the Associated Press ahead of a speaking engagement in Toronto, the economist continued: "He's not a credible analyst. Every time it was a bear market rally he said it was the beginning of a bull, and he got it wrong."

With his catchphrase "boo-ya" and a variety of colourful props, Cramer, 54, is a household name in the US. A former hedge fund manager, he casts himself as a self-made man who was once so impoverished that he had to sleep in his car. He took prolonged flak last year for telling viewers that Bear Stearns was "not in trouble" just a week before the 85-year-old investment bank collapsed – a remark which, he insists, was misinterpreted and taken out of context.

But Cramer has continued to attack doom-mongers, recently referring to Roubini and the Nobel prize-winning economist Paul Krugman as part of a "nationalisation jihad" for their advocacy of public intervention in the financial sector.

Last week, Cramer told his viewers that the recent 20% rally in Wall Street markets was sufficient to judge that the downturn was past its worst: "Right now, right here, on this show – I am announcing the depression [is] over!"[/quote]
[i]My Comment:[/i] Cramer remains a very reliable contrary indicator, though.


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aazS4bEfFmzs&refer=news]GM Pension Vow Seen as `Garbage' as Bankruptcy Might Wipe Out $16 Billion[/url]: [i]Den Black, a retired General Motors Corp. engineering executive, says he’s worried and angry. The government-supported automaker is going bankrupt, he says, and he’s sure some of his retirement pay will go down with it.[/i]
[quote]“This is going to wreck us,” said Black, 62, speaking of GM retirees. “These pledges from our companies are now garbage.”

As the biggest U.S. automaker teeters near bankruptcy, workers and retirees like Black are bracing for what may be $16 billion in pension losses if the Pension Benefit Guaranty Corp. has to take over the plans, according to the agency. As many as half of GM’s 670,000 pension-plan participants might see their benefits trimmed if that happened, an actuary familiar with the company’s retirement programs estimates.

The possibility that GM might dump its pension obligations is likely to intensify debate over the treatment of executives of companies that receive U.S. aid. GM Chief Executive Officer Rick Wagoner, ousted by the Obama administration last month, may receive $20.2 million in pensions, according to a regulatory filing.

“The core issue is fairness,” said Harley Shaiken, a labor professor at the University of California at Berkeley. “To have workers lose a significant amount of their pension after giving a lifetime to building a company is devastating under any circumstance. It’s made all the more worse by the symbolism of a $20 million payoff at the top.” [/quote]

A 12-Step Program for Banks to Pay Back TARP $
 

[url=http://money.cnn.com/2009/04/09/news/companies/wells_fargo/index.htm]Wells Fargo predicts a $3 billion profit[/url]: [i]San Francisco-based bank forecasts earnings per share of 55 cents for first quarter, well ahead of Wall Street estimates; stock soars.[/i]
[quote]Wells Fargo attributed the latest results to strong performances in its traditional banking and mortgage businesses.

Mortgage applications surged during the quarter, with the company reporting $83 billion in applications during the month of March alone.

During the first three months of the year, Wells Fargo said it funded over $100 billion in mortgage loans, either through home purchases or refinancings, suggesting that government efforts aimed at getting banks to lend again may be having an effect.

Wells Fargo received $25 billion last year from the Treasury Department as part of the government's roundly criticized Troubled Asset Relief Program, or TARP, which was launched to help get credit flowing in the economy again.

Top executives at Wells Fargo have indicated they are eager to repay those funds following a number of government restrictions that have been implemented retroactively. Currently, the government is "stress testing" the nation's largest banks in an effort to determine if they may need to raise additional capital.

Wells Fargo also said Thursday its recent purchase of Wachovia was exceeding expectations. The company announced it planned to acquire Wachovia, which was on the verge of collapse during the height of the credit crisis, last October.[/quote]
[i]My Comment:[/i] I expect several such "positive earnings surprises" over the next few weeks, via a combination of accounting tricks (banks still valuing many toxic parts of their loan portfolios at near face value) and "your tax dollars at work" cheap-money fattening of the bottom line. Heck, if I were a big bank CEO and I wanted to have my TARP cake and eat it too, here`s a 12-step program I would use to quickly make a fat profit using the government-supplied free (or very cheap) money:

1. Take a bunch of TARP money from the government, with the aim of making a fat profit and returning the original capital as soon as possible;

2. Use the TARP money to buy back of bunch of my own company`s beaten-down shares on the cheap (think Citigroup when its shares dipped below $1 last month), and the government-financed binge of mortgage refinancings to fatten my real bottom line (even if it`s a one-time offer, since rates will likely not go any lower);

3. If I`m really ballsy, also buy a bunch of beaten-down leveraged long-financial ETFs, such as UYG or FAS;

4. About a month before real earnings are reported, coordinate a "leaked" internal memo to the effect of "earnings have been surprisingly good ... we actually expect expect to be profitable this quarter";

5. Watch stock and financial-EFT price soar and sell into the resulting rally;

6. Get FASB to change accounting rules for toxic assets to allow me to maintain the fictional valuation of my toxic loan portfolio for just a little longer, while I lobby hard to get the government to take it off my hands at taxpayer expense;

7. Watch financial share prices again drift lower as reality (crisis is far form over, most big banks still likely insolvent at any reasonable portfolio valuation) creeps back in. If I'm bored, perhaps coordinate some negative-sounding media spin about my own bank and the financial sector in general in order to drive share prices down, so I can again buy back shares on the cheap;

8. With new phony-valuation accounting rules in place and bottom line fattened by recent TARP-money stock play, announce "better than expected earnings", again watch share price soar, again sell into the ensuing rally;

9. Repeat step (7);

10. Announce that you no longer need and are paying back the TARP money. Again watch share price soar, again sell into the ensuing rally;

11. With TARP money returned and accompanying executive-compensation rules lifted, pay myself and all my henchman (henchpersons?) huge frickin` bonuses;

12. Since Geithner`s [url=http://en.wikipedia.org/wiki/PPIP]PPIP[/url] (the only means by which my bank can actually unload the worst of its toxic-loan garbage and thus stay viable) falls under the TARP umbrella and thus similarly comes with executive-compensation limits, use the window between paying back TARP money and the inevitable whoops-we-changed-our-mind-and-now-want-back-into-the-government-fold-or-under-the-tarp-if-you-will to golden-parachute outta there.


[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=awBH28fPFX.k&refer=news]Trade Gap in U.S. Unexpectedly Plunges to a Nine-Year Low as Demand Slumps[/url]: [i]The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.[/i]
[quote]The report showed some U.S. trading partners may not bypass the recession unscathed as American demand for Asian cars, toys and electronics plunged. The improvement in exports, the first since July, is likely to be short-lived as economies shrink worldwide.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.[/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aFTPC.EzvUsA&refer=news]`Lehman Shock' Fuels New Homeless Wave in Osaka as Factory Jobs Evaporate[/url]: [i]Within two months of losing his job packing shelves at a cold-storage company in Osaka, Toshiyuki Miki says, he was homeless. “Lehman Shock” turned his life upside down, he says.[/i]
[quote]Lacking the 60,000 yen ($600) a month he needs to pay rent, Miki, 40, sleeps in cardboard boxes under the elevated Hanshin expressway in Umeda, Osaka’s central business district. It’s his home as the global recession triggered by the implosion of Wall Street banks batters Japan. About 460,000 people have lost their jobs since the Sept. 15 collapse of Lehman Brothers Holdings Inc., according to government data.

“I never realized it would affect me in this way,” said Miki, who picked up the Japanese phrase “Lehman Shokku” from the pages of discarded newspapers. “Before, I could always find some kind of job, but now there’s nothing.”

Miki’s loss of housing shows how Japan’s 2.95 million unemployed people threaten to fuel a rise in homelessness. Prime Minister Taro Aso may unveil a 15.4 trillion yen stimulus package tomorrow, according to a document obtained by Bloomberg News. Finance Minister Kaoru Yosano said April 6 the package will include a new social safety net for non-regular workers. [/quote]
[i]My Comment:[/i] This is the how-many-eth stimulus package tried by Japan in the past 2 decades? Yeah, the previous ones worked really well ... if the aim was to indebt the government and do not a damn thing for the economy.


[url=http://www.bloomberg.com/apps/news?pid=20601095&sid=agBgxsJtNYX4&refer=east_europe]Russia Banks' Bad Loans May Quadruple to $70 Billion in 2009, Survey Shows[/url]: [i]Russian banks’ bad loans will quadruple to $70 billion this year, deepening the country’s worst financial crisis since the government’s 1998 debt default, a Bloomberg survey shows.[/i]
[quote]The World Bank said last week that a “silent tsunami” of bad debt threatens to stall a recovery in Russia, the world’s largest energy-exporting economy. The government may need to provide as much as $50 billion for bank bailouts, more than twice the amount already pledged to banks in this year’s budget, according to UniCredit SpA, Italy’s biggest bank.

...Russian banks are seeing a 20 percent increase in delinquent debt every month, OAO Sberbank Chief Executive Officer German Gref said yesterday. Russia’s biggest lender plans to increase reserves for bad debt to as much as 9 percent of loans while still posting a profit this year, Irina Kibina, a bank spokeswoman in Moscow, said by e-mail. Sberbank’s bad debt will more than triple to 8.9 percent in 2009, according to the survey. [/quote]
[i]My Comment:[/i] I smell another 1998-style Russian debt crisis coming on - unlike the U.S. they don`t have the luxury of simply printing money and issuing nearly-unlimited amounts of underpriced government debt. And their economy is overly dependent of natural resource prices, which will remain far below what the Russian government has planned around for at least the next few years, until some kind of broad-based global recovery begins to take hold.


[url=http://money.cnn.com/2009/04/08/news/companies/berkshire_moodys_downgrade.reut/index.htm]Buffett's Berkshire loses top rating[/url]: [i]Moody's cut its rating on Warren Buffett's holding company two notches, saying investment losses were hurting the company's ability to meet its funding needs.[/i]
[quote]The cut by Moody's comes nearly four weeks after Fitch stripped Berkshire of its top rating, saying it believed "AAA ratings are not appropriate at the holding company level for financial-oriented enterprises," lowering its rating to AA.

Fitch also raised so-called "key man risk," pointing to 78-year-old Buffett's lack of a publicly named successor.

Berkshire is still clinging to its triple-A rating from Standard & Poor's. But on March 25, S&P changed its outlook on Berkshire to negative, indicating a downgrade is now more likely.

S&P on Wednesday cut the ratings on all major U.S. mortgage insurers, saying the deterioration in the residential mortgage market had translated into greater delinquency rates than it had anticipated.

Moody's cut to Berkshire's ratings leaves only four other companies with its top rating: Johnson & Johnson, Exxon Mobil Corp, Microsoft Corp and Automatic Data Processing Inc.

Financial fallout. Analysts said Berkshire's downgrade reflected what investors already knew -- that no one is immune from the worst financial crisis in decades. [/quote]
[i]My Comment:[/i] The ratings agencies have over and over showed that they are very good at telling informed investors what they already knew. Still, I`m surprised Moody`s beat S&P to the punch here, since Berkshire is a major Moody`s stakeholder - nothing like a good old-fashioned huge conflict of interest, eh?