Econ 2009

[rogue]

I was at a party this past weekend and heard the comment "The media planned and caused the economic meltdown so that Obama would get elected."



This person admitted that there was a housing bubble, but said that the media deliberately burst the bubble before the election to discredit Bush and the Republicans. If the media wanted to get Bush and the Republicans out of power, they would have burst the bubble in 2004...

Isn't that akin to saying that the CIA waited until after Bush was in the White House before it flew planes into the World Trade Center?

[ewmayer]

U.S. deficit soars to $485.2 billion: The budget gap in first three months of the fiscal year surpasses the level recorded for all of '08.

NEW YORK (CNNMoney.com) -- The federal budget deficit expanded by $83.6 billion in December, the Treasury Department reported Tuesday, bringing the total deficit for the first three months of the 2009 fiscal year to $485.2 billion.

By comparison, the budget deficit for all of fiscal year 2008 was $455 billion. In fiscal 2007, it was $161 billion.

The deficit has ballooned in the first quarter of the fiscal year as the Treasury, Federal Reserve and FDIC began spending record amounts on the $7.2 trillion committed so far to bailouts, financial stabilization efforts and capital investments. The numerous emergency actions began as a result of the credit crisis that started in mid-September.

A decline in tax receipts, stemming from the 1.5 million jobs lost in the first three months of the fiscal year, also contributed to the soaring deficit.

Budget experts have projected that the federal deficit for this fiscal year, which began Oct. 1, will be nearly $1.2 trillion. But that total doesn't count the economic recovery package that President-elect Barack Obama has started to push forward.

My Comment: So we're looking at a 2009 account deficit of over $2 Trillion - very nice. Wonder which fool is gonna be willing to buy up all that debt at the current near-zero yields?


UK economy downturn 'frightening': Business leaders warn of 'bleak' 2009 Business leaders have painted a bleak picture of the UK economy, with a survey suggesting a "frightening deterioration" towards the end of 2008.

The British Chambers of Commerce (BCC) said its survey results were "awful" and the worst since it began in 1989.

Elsewhere, a separate report suggested it had been the worst December for UK retail sales in at least 14 years.

On 23 January, official figures are set to confirm the UK is in recession with six months of negative growth.

The British Retail Consortium figures on sales from the High Street and online said that like-for-like sales in December were down 3.3% on a year ago while total sales shrank 1.4%.

This is despite the government cut in value added tax (VAT), which took effect in December.

This made for the worst December since the survey began in 1995

Shane Co., U.S. Jewelry Retailer, Seeks Bankruptcy

Jan. 12 (Bloomberg) -- Shane Co., the family-owned jewelry retailer with 23 stores in 14 states, sought bankruptcy court protection blaming “disappointing” holiday sales and a “grim” outlook on the deepening U.S. recession.

The 38-year-old company, based in Centennial, Colorado, listed both assets and debt of $100 million to $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Denver. The company lined up turnaround financing from an unspecified source, Shane said in a statement.

“The severity of this past holiday season dramatically impacted existing liquidity requiring the company to seek this bankruptcy protection,” Chief Executive Officer Tom Shane said in the statement. “The company plans to continue operating the business without interruption.”

My Comment: Translation into Da Ali G Show-ese: "Check it - Nobody be `avin da cash to be buyin` da bling dis year". We have a Shane store in Cupertino, in the same little shopping complex where I get my coffee and newspaper on weekends - I`ve come to call it "The Crystal Palace". In better years there would be a steady stream of couples going in and out on weekends - on exit, the women would typically be all smiles and chatty as can be, and the guys would have looks ranging from bemused to dazed to "what just happened?"


Hedge Funds Lost $350 Billion Last Year, Most on Record, Amid Market Rout: Hedge funds lost $350 billion globally in 2008, the most on record, as the biggest financial crisis since the Great Depression crippled returns and caused investors to pull money out, according to an industry report.


A Metaphor for Government Meddling:

Eradication of Cats on Faraway Macquarie Devastates Island`s Environment: Eradicating the cat population on Macquarie, a remote island between Australia and Antarctica, has damaged the local environment, allowing rabbits to rapidly reproduce in their absence.

Wiping out the feral cats that were introduced on Macquarie in the 19th century to control rabbits, brought to the island by sealers as a source of food, has instead led to a rabbit explosion, the British Ecological Society’s Journal of Applied Ecology reported. Hungry rabbits and rats have caused 40 percent of Macquarie’s native flora to vanish, helping erode island slopes.

“The lessons for conservation agencies globally is that interventions should be comprehensive, and include risk assessments to explicitly consider and plan for indirect effects, or face substantial subsequent costs,” said Dana Bergstrom of the Australian Antarctic Division, which administers the island.

Macquarie, a United Nations World Heritage Site, is among the island ecosystems where plants and animals introduced by humans as a source of food have overrun native species. Rats eat rare bird and reptile eggs on Ecuador’s Galapagos Islands while Brown tree snakes, which came to Guam in ship cargo holds, prey on native lizards and birds, according to the U.S. Department of Agriculture.

Rabbits, first brought to Macquarie in 1878, became the main prey of feral cats that arrived earlier. The rabbit population reached 130,000 in 1978, then fell to 20,000 as the result of a viral disease introduced to reduce their numbers. The cats lost their main source of food, resorting to eating native burrowing birds, and were then eradicated from the island in 2000.

My Comment: Why do I post this in the Econ 2009 thread?, you ask. The reason is that is such a perfect metaphor for the typical effects of governmental meddling in complex interconnected systems - in this case an ecological one [complex predator-prey dynamics in an island ecosystem], but in the financial markets we have similar meddling-with-what-you-don`t-really-understand going on. And I expect the end result will be the same kind of "King Merdas Effect" - whatever the government meddlers touch is only made worse as a result, and turns to complete shit. let`s review the MacQuarie Island case:

- Rabbits introduced in the early 1800s as food for whalers multiply rapidly, as do the rats carried by the same ships. The combination of rabbits competing for limited food and rats preying on eggs decimates the island`s small native fauna;

- Cats introduced in the late 1800s to keep the rabbits and rats in check. Of course the cats also eat the native fauna.

- In the 1980s some governmental agency decides that the rabbit population is still too great, so a virus is introduced in an effort to wipe out the bunnies. This eliminates the cats` main source of food, so they revert to - you guessed it - decimating the island`s remaining native fauna;

- Some governmental agency decides that we can`t have the cats eating the native fauna, so in the late 1990s the cats are eradicated. But alas the virus used to decimate the rabbits hasn`t killedf them all, so once the cats are gone, the remaining rabbit population - now dominated by virus-resistant rabbits - explodes.

And, just as with the housing bubble collapse, I'll betcha somewhere the meddling bureaucrats who only made things worse (and at great expense, most likely) are saying "it was a series of completely unforeseen events - we were caught completely off guard - no one could have possibly predicted this..."

[ewmayer]

Germany to ban excessive government borrowing: [i]Germany will change its constitution to ban excessive public borrowing and impose strict new rules to ensure the extra debt created by its latest fiscal stimulus package is paid off as soon as possible, Angela Merkel, the chancellor, said on Tuesday.[/url]

Underlining Berlin’s concern about the erosion of fiscal discipline in Europe, the chancellor said she was determined to balance public-sector budgets in the medium term.

“We will have to borrow more,” she said. “But we must also be credible vis-à-vis future generations when we say we intend to repay this debt.”

Ms Merkel’s comments were made as she unveiled a two-year €49.25bn ($65.5bn, £44bn) package of growth measures, including public investments and tax cuts. These will raise the amount Berlin is spending to fight the economic crisis this year to 1.5 per cent of gross domestic product.

Under the constitutional amendment outlined on Tuesday it will be illegal for any government to raise the state’s public deficit above 0.5 per cent of GDP “in normal economic times”. For 2008, such a rule would have capped borrowings at €12bn.

The finance ministry is also to set up a “redemption fund”, with binding rules that commit the government to repaying the cost of the stimulus package by a set time. The fund would be similar to one created in 1995 to manage the repayment of the €171bn in extra borrowings linked to German unification – a goal finally met last year.

This measure could force future governments to tap windfall tax revenues to repay debt once economic growth reached a given threshold, Ms Merkel said. Alternatively, it could earmark Bundesbank profits for debt repayment.

Ms Merkel is keen for Germany to remain a fiscal role model despite adopting the biggest stimulus since the federal republic was created 60 years ago – and the largest in Europe since the start of the financial crisis.

Senior members of the chancellor’s coalition gave warning on Tuesday that Berlin was facing a borrowing spiral that would take decades to reverse.

“I am expecting a federal deficit of €60bn this year,” Steffen Kampeter, public finance expert for Ms Merkel’s Christian Democratic Union in parliament, said. This would be €20bn above the postwar record. “The government is giving the impression that it is again opening the deficit floodgates.”

My Comment: Meanwhile, here in the good old land-of-endless-credit USA, our public officials seem relatively unconcerned about a debt expansion of $2 Trillion (on the order of 15-20% of GDP) THIS YEAR ALONE, which is going to be added to roughly $50 Trillion of unfunded current-account obligations. Whatever will future generations think of us?

[garo]

I think it is amazing that Germany which is the only government to be behaving somewhat responsibly in this crisis - actually incredibly responsibly considering what all the other governments are doing - was pilloried for standing in the way of the grand stimulus plans for reviving the global economy.

I'm moving all me cash to Germany

[Fusion_power]

Nortel Networks declared bankruptcy today.

http://ca.news.finance.yahoo.com/s/1...seeks-u-s.html

TORONTO - North American stock markets are in for a sharply lower open as Canadian tech giant Nortel Networks (TSX: NT.TO) filed for bankruptcy protection in the U.S. and American retail sales for December came in far worse than expected.

The telecom's stock has been halted on the TSX. It finished at 38.5 cents Tuesday, down 12.5 cents.

In mid-2000 before the tech wreck, those shares were worth more than $1,100 each, adjusted for a stock consolidation that took place in late 2006.

The bankruptcy filing came two days before Nortel is due to repay a $107-million interest debt on bonds.

Last month, it was reported that the company hired legal advisers to explore bankruptcy court protection from creditors, but Nortel said at the time that a filing was not imminent.

Just as an fyi, I work for Nortel and have for 28 years.

I will be here doing my job and supporting my customers.

DarJones

[ewmayer]

Originally Posted by Fusion_power

Nortel Networks declared bankruptcy today.

Ya beat me to it, Dar - good luck to you and your fellow NT employees.

Nortel files for bankruptcy: Canadian telephone equipment maker files for Chapter 11 protection a day before deadline on $107M interest payment.

TORONTO (Reuters) -- Nortel Networks Corp., North America's biggest maker of telephone equipment, filed for bankruptcy protection Wednesday, as the global economic downturn further erodes its once high-flying business.

The filing came a day before the Toronto-based company was due to make an interest payment of about $107 million.

Nortel (NT) and a number of its affiliates filed for Chapter 11 bankruptcy protection in the United States, according to a court filing.

Its shares plunged more than 76% to 7.5 cents in electronic pre-market trading.

"Based on this filing, the board of directors must believe that not only is the fourth quarter bad, but that the first quarter is going to be just as bad or worse," said Duncan Stewart, an analyst at DSAM Consulting in Toronto.

"Although they have cash in the short term, even the medium-term outlook is not enough to make the company viable as a going concern."

According to the court filing in U.S. bankruptcy court for the district of Delaware, Nortel's major creditors include Bank of New York Mellon, with claims valued at nearly $4 billion.

Nortel's shares have tumbled along with the company's fortunes, sinking into penny-stock territory in recent months. In mid-2000, at the zenith of the company's success, they were worth more than C$1,100 each, adjusted for a stock consolidation that took place in late 2006.

My Comment: See the stock chart I posted here (it`s at the bottom of the post) for a graphic illustration of Nortel`s comedown since the high-flying days of the dotcom bubble.


Holiday sales: Much worse than feared: Retail group says combined November-December sales fell 2.8%, after expecting a modest gain.

NEW YORK (CNNMoney.com) -- The retail industry's leading trade group blamed a "deep recession, severe winter weather and five fewer shopping days" for a 2.8% drop in 2008 holiday sales - a far worse outcome than the industry expected.

The National Retail Federation had originally forecast holiday sales for the combined November-December shopping months to grow 2.2%, which would still have been the weakest pace of gain in at least six years.

As it was, it turned out to be the first-ever decline in the measure since the group initiated it in 1995.

The two-month holiday period can account for as much as 50% of retailers' annual profits and sales.

"The current economic crisis proved to be more challenging than any had anticipated," NRF Chief Economist Rosalind Wells said in a report "Consumers showed they were more than willing to wait out retailers this year causing increased pressure on prices."

My Comment: Where these folks got the idea that retail sales would grow versus last year, given the current economic climate, is absolutely beyond me.


Citi plunges as investors brace for break-up: In the first step of an expected overhaul, the bruised bank is selling 51% of Smith Barney to Morgan Stanley; Citi bumps earnings release to Friday.

NEW YORK (CNNMoney.com) -- Citigroup said late Tuesday that it plans to merge its Smith Barney brokerage division with that of peer Morgan Stanley, a move that is expected to mark the beginning of a break-up of the troubled banking giant.

A source close to the matter indicated that the company will unveil a reorganization plan in the coming weeks. The Wall Street Journal reported that the company could time the announcement to coincide with its fourth-quarter results.

Citigroup was originally expected to announce those results on Jan. 22. But the bank announced Wednesday morning that it was moving the release to this Friday.

A company spokesman declined to comment on speculation about a restructuring.

Investors, however, appeared little encouraged by the news. Citigroup shares plunged 16% in Wednesday morning trading. Morgan Stanley stock lost more than 8%.

My Comment: C shares down over 20% as I write this. Bloomberg has a commentary which can be summarized as "this was a long time coming":

Citigroup Crisis Is Emblem of Capital Drought: Time and again, big banks such as Citigroup Inc. argued that irrational and seized-up markets, not the woeful state of their balance sheets, were to blame for convulsing share prices.

For more than 18 months, the government went along with that thinking. Instead of demanding that banks recognize their losses, overhaul operations and quickly raise equity from private sources, regulators bet a flood of money would unclog credit markets.

When that didn’t work, the government doled out billions of dollars to more than 100 banks through the Troubled Assets Relief Program, or TARP, again with few demands that banks take harsh medicine. That hasn’t done the trick either.

The reason is pretty simple. This has never been a liquidity crisis. It’s a capital crisis. Namely, investors don’t think banks have enough of it, especially when it comes to tangible common equity.

My Comment: The government did much more than merely "go along" with that thinking - the Bernanke-led Fed actively promoted that fiction, and wasted hundreds of billions in taxpayer dollars trying to maintain the illusion. On a jobs-related note, Mish, in his commentary on the Citigroup breakup, notes that Citi currently has a whopping total of 140,000 IT positions - I fear a lot of those good-paying jobs are alas going to disappear this year.


Christmas is Over:

The Santa Claus market rally proved to have been a good one to short - hopes of that stretching into an "Obama Inaugural Rally" appear to have vaporized.

As I wrote my investment buddy garo last week, the late-December rally reminded me very much of last year's "April Fools" rally, a monthlong bout of delusional optimism which occurred in the face of unmistakably horrid numbers coming out of the real estate markets and the banking system. Last April was a brutal month for those of us who had gone short and sat there shaking our heads in disbelief as the markets shrugged off one multibillion-dollar bank writedown and dilutive capital-raising effort after another, but anyone who stuck it out [and managed to avoid getting a margin call followed by a forced position liquidation] was rewarded handsomely.

These days the "running of the bulls" bear market rallies tend be ever-shorter and ever-weaker. That means a healthy degree of fear has penetrated even the lair of the most hard-core permaBulls, the Abby Joseph Cohens and Jim Cramers of the world - but it also makes playing the short side a lot trickier.

[ewmayer]

Latvia Is Shaken by Riots Over Its Weak Economy

Violent protests over political grievances and mounting economic woes shook the Latvian capital, Riga, late Tuesday, leaving around 25 people injured and leading to 106 arrests.

In the wake of the demonstrations, President Valdis Zatlers threatened Wednesday to call for a referendum that would allow voters to dissolve Parliament, saying trust in the government, including in its ability to deal with growing economic problems, had “collapsed catastrophically.”

For years, Latvia boasted of double-digit economic growth rates, but it has been shaken by the global economic downturn. Its central bank has spent a fifth of its reserves to guard against a steep devaluation of its currency, the lat, and experts expect a 5 percent contraction of the country’s gross domestic product in 2009. Salaries are expected to fall substantially, and unemployment to rise.

The violence followed days of clashes in Greece last month over a number of issues, including economic stagnation and rising poverty as well as widespread corruption and a troubled education system. In Bulgaria on Wednesday, separate riots broke out in the capital, Sofia, after more than 2,000 people — including students, farmers and environmental activists — demonstrated in front of Parliament over economic conditions, Reuters reported.

Mr. Zatlers has long been aligned with the governing coalition, so his threat to dissolve Parliament came as a surprise — and was testament to nervousness about how economic troubles in the region could intersect with simmering political grievances.

The rioting broke out Tuesday after around 10,000 people protested in historic Dome Square over the economic troubles and grievances involving corruption and competence of the government.

Several hundred protesters lingered after most of the crowd had left and started throwing snowballs and cobblestones at government buildings.

Several demonstrators also threw Molotov cocktails, according to Mareks Mattisons, a spokesman for Latvia’s Interior Ministry. In a public statement on Wednesday, President Zatlers denounced the violence, but said it was more important to ask “why people gathered in Dome Square.”

“We must not face further confrontation, we must do the things that are demanded by the public,” he said. “I refer to constitutional amendments, a plan to stimulate the economy, and reform of the national system of governance.”

Krisjanis Karins, a member of Parliament and former leader of the opposition New Era party, said the violence showed that financial woes had injected a new vehemence into old political complaints.

Protests in Latvia, he said, tended to follow a pattern of “standing, singing and just going home,” but the young protesters who showed up on Tuesday evening “seem to think the Greek or French way of expressing anger is better,” he said.

“In our neck of the woods, this just doesn’t happen,” he said. “But it did this time. Everyone is trying to figure out how much of this was provoked. Who are these people? Where did they come from?”

Whatever the answer, he said, Tuesday’s protests seem likely to force political change.

“In six months, we’re going to look back and yesterday will be a watershed,” he said. “I would be deeply surprised if it were not.”

President Zatlers made a series of strict demands of the Parliament, including a constitutional amendment that would allow voters to dismiss Parliament, and a new supervisory council to oversee economic development and the state’s use of loans.

He called for “new faces in the government,” chosen for competence rather than “their influence in the relevant party.” He said the changes must be made by March 31, or else he would propose a referendum that could dissolve Parliament.

“Only with such specific work can we calm the public down and offer at least a bit of hope that the process in this country will develop in a favorable direction,” he said.

[Fusion_power]

I've thought about this a bit and decided to post a few internal thoughts about a company going through bankruptcy. Here are the basics.

1. Nortel borrowed heavily to finance overall operations as a routine measure. This heavy borrowing led to serious vulnerability in a market downturn of the current magnitude. In Nortel's favor is a current cash position that is still close to $2 billion and a 4th quarter performance that while not stellar is solid in the face of utter market weakness.

2. The basic objective of the bankruptcy will be to continue daily operations while shedding billions of debt. More to be said on this later.

3. Who will be hurt worst? unsecured creditors, stockholders, terminated employees, etc. You can look up the meaning of unsecured creditors and stockholders are the people who purportedly own the company. Their position will essentially be wiped out. The terminated employees include any who were terminated in the last 3 months who are still covered under a severance package. In other words, employees who are still drawing a paycheck. Any new terminations will be done without severance, in other words, those employees will be kicked out without a fare the well.

4. The crucial balancing act is in retaining customers during this process. We are fortunate to have really good relationships with most of our customers at this time. The logistics of maintaining service are complicated by the need to purchase materials, turn them into products, and market the result. Nortel long ago farmed out most manufacturing operations which means we don't purchase raw materials and then manufacture hardware, instead, we purchase finished goods. Now how do you think companies feel about selling to a company in the first stages of bankruptcy? Essentially, they are unsecured creditors. One of the first steps of the bankruptcy was to reach agreements with these critical suppliers. Most now have agreements in place and the remaining few are being addressed.

5. I received a copy of a letter issued by Mike Zafirovski to the director of AT&T, forwarded to me from an AT&T employee. I forwarded that letter to my immediate management with a comment that "We deal with these people day to day. I want to retain their trust and respect." and "I am talking to some people in AT&T with the clear message that we are here and we will be here to support their projects. I would suggest we have the other engineers use a consistent message without getting tied up in financial specifics." So one of the key elements in this restructuring bankruptcy will be keeping key employees in position and maintaining communication with customers.

6. A really big concern is morale of employees. How do you keep people working at a high level of performance with so much uncertainty in their lives? I have quite a bit to say on this issue, but will save it for another post.

DarJones

[ewmayer]

Many thanks for the insights into the Nortel bankruptcy, Dar.

Speaking of insolvency, here in California the day of forced budget reckoning draws ever closer, as our state legislators continue to dither, refuse to make hard choices which would upset their various labor-union constituents (teachers, firefighters/police, medical workers, state employees, etc, all have incredibly powerful lobbies here, and none of them wants to give up a single god-damned thing in order to help close the yawning fiscal deficit) - and as I recently found out, interestingly enough there is no provision in law for a state-level bankruptcy, as there is for municipalities. So if they run out of money and cannot close their budget gap via expenditure-slashing, states have relatively few options:

1. Federal help;
2. Issuance of bonds (an unlikely option for a state which is insolvent)
3. Fire sale of assets - anybody want to buy a hundred-year lease for Yosemite? (I know, its a national park, but perhaps the state could still find some way to "rent it out" for $);
4. Default on its existing debt - this is the "unthinkable", the "nuclear option" - but then again, we've had a whole lot of "unthinkable" stuff happen in last several couple of years.

-----------------------

Forgot to post this last night before leaving work:

Jobless claims surge: Number of Americans filing for unemployment benefits breaks half-million mark for first time in 2009.

The last time jobless claims exceeded the half-million mark was the week that ended Dec. 20, when claims surged to a 26-year high of 589,000.

Ian Shepherdson, an economist with High Frequency Economics in New York, said that the impact of the Christmas and New Year's Day holidays continue to cloud the data of the weekly report.

However, he thinks that that jobless claims will rise and he doubts that the peak in claims will be reached before fall.

"The weekly numbers are always volatile, but we think a peak above 750,000 is a reasonable, if very depressing, expectation," Shepherdson wrote in a research note.

My Comment: So much for the ridiculously optimistic predictions by many "experts" of "only" 2-3 million job losses in the U.S. in 2009 - we could pass the 2M mark by April at this rate, and not even the deficit-swelling $850 Billion stimulus package being crafted in Washington is going to provide more than a band-aid for that, especially since much of it is going to amount to little more than grossly overpaying for various politicians` pork-barrel projects without laying any kind of real foundation for long-term quality job creation. The only part of the package that has a chance of doing the latter is the various http://money.cnn.com/2009/01/14/tech...and tax breaks included in the stimulus package.


CRE Loan Distress Levels Escalating Rapidly

The distressed loan situation in commercial real estate is taking a striking turn for the worse, according to a CoStar Group analysis of December loan information on more than 83,000 loans in commercial mortgage backed securities.

The amount of loans placed in special servicing - generally an indication of a delinquency or failure to pay off a mature loan - rose dramatically in the fourth quarter - from about $400 million per month in September to more than $1.6 billion in November.

And that trend is likely to continue in the near term as the number of loans identified by CMBS servicers as having potential credit issues more than doubled from about $3.5 billion per month to about $7.5 billion in November.

In preparation for its first market outlook presented last week, CoStar also undertook its first-ever analysis of delinquent and distressed properties in the CMBS market, examining loans with a total value of more than $700 billion.

CoStar identified nearly 1,200 commercial real estate loans that were either delinquent in loan repayments or had reached maturity without pay off of the loan. The principal and interest outstanding on those loans as of mid December totaled nearly $8.2 billion.

My Comment: One of the readers of the above article comments in Haiku form thusly:

Polygon strip malls
across these States
drying up like
beached starfish.


Intel Fourth-Quarter Profit Drops 90% as U.S. Recession Curbs Chip Demand: Intel Corp., the world’s biggest maker of semiconductors, said fourth-quarter profit dropped 90 percent after the recession curbed demand and forced the company to write down the value of its investments.

[ewmayer]

Circuit City to shut down: Court filing shows bankrupt electronics retailer seeks approval to sell merchandise in its remaining 567 stores.

Bankrupt electronics retailer Circuit City Inc. said Friday it has asked for court approval to close its remaining 567 U.S. stores and sell all its merchandise.

The company said it has 30,000 employees.

"We are extremely disappointed by this outcome," James Marcum, acting CEO for Circuit City, said in a statement. "We were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction in the limited timeframe available, and so this is the only possible path for our company."

In a filing with the U.S. Bankruptcy Court for the Eastern District of Virginia, Circuit City - the No. 2 electronics retailer after Best Buy (BBY, Fortune 500) - said it had reached an agreement with four companies to start the liquidation process.

The company said the sale would begin Saturday and run until March 31, pending court approval.

"This is very significant. It shows you how bad things are for the the retail industry," said George Whalin, president and CEO of Retail Management Consultants.

Whalin said management mistakes over the past few years combined with the recession brought down Circuit City.

"This company made massive mistakes," he said, citing a decision to get rid of sales people and other mismanagement.

What`s more, given the credit market freeze, Whalin added that no manufacturer wants to sell to any retailer who doesn`t have money to pay for the merchandise.

My Comment: First big one of the post-holiday retailer bankrupticies. Plenty more to come.


Benefits on the chopping block: A growing number of companies are scaling back health coverage, among other benefits, to save money. But that could cost employees less too.


Taming inflated home appraisals: New guidelines aim to reduce the pressure that real estate appraisers feel to boost home values.

Washington policy makers have taken aim at one of the main contributing causes to the housing crisis: inflated appraisals.

When home prices were soaring, one of the driving factors was that appraisers, pressured by loan officers and mortgage brokers, kept hyping home values. Not only did homebuyers wind up paying more, but the exotic mortgage products they needed to finance their purchases later exploded, setting off the financial and economic turmoil the nation is facing today.

Now, the Federal Housing Finance Agency (FHFA), the government agency created to oversee Fannie Mae and Freddie Mac, has announced a plan to curb the influence that loan originators exert on appraisers to overvalue homes. A new Home Valuation Code of Conduct, which will take effect this May, is an attempt to improve the reliability of appraisals for mortgages sold to the two companies. The guidelines prohibit lenders from coercing, extorting, colluding with, intimidating or bribing appraisers into making inaccurate appraisals.

My Comment: Had the various laws and lending-and-mortgage-industry "guidelines" and "standards" already on the books not been deliberately ignored on a massive nationwide scale by everyone from the consumers lying about their incomes and deluding themselves into believing they could actually service an 80-percent-of-income mortgage, to appraisers getting paid to inflate appraisals by mortgage companies who then quickly sold the resulting crapMortgages to investment banks and te GSEs, who then handsomely paid the government-sponsored ratings agencies to rate their junk paper AAA, who did so for years right under the noses of their supposed government regulators - well, we never would have had the housing bubble, would we? Does anyone really believe that simply writing a new set of "guidelines" will magically ensure they actually followed? Classic feel-good legislation at its finest here.


Bank of America Has First Loss in 17 Years, Gets $138 Billion U.S. Bailout: Bank of America Corp., the largest U.S. bank by assets, posted its first loss since 1991 and cut the dividend to a penny after receiving emergency government funds to support the acquisition of Merrill Lynch & Co.


U.S. Consumer Prices, Industrial Production Tumble on Record Drop in Sales: Consumer prices and industrial production tumbled in the U.S. as a record slide in retail sales destroyed companies’ pricing power and idled more than a quarter of factory capacity.

The cost of living fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said today in Washington. Industrial output shrank 2 percent, and the capacity-utilization rate slid to 73.6 percent, the Federal Reserve said. A private survey showed consumer sentiment little changed in January.

The figures indicate a deepening threat to earnings at businesses from manufacturers to retailers. A survey of chief executive officers today showed the lowest level of confidence in at least three decades. Further declines in prices would raise the danger of deflation, which would deepen the recession by making debts harder to pay off.

“Companies in many different areas are cutting prices in order to try to preserve business,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We don’t have evidence yet that the rate of decline” in the economy is slowing, he said.

My Comment: In fact, the rate of decline appears to be increasing, with mass layoffs and fear about jobs taking even more spending out of the economy than mere housing-price and equity-portfolio drops would account for. If it looks like a depression, and acts like a depression...


Trichet Vision Unravels as Investors Demand Higher Rates From Spain, Italy: European Central Bank President Jean-Claude Trichet’s vision of economies converging behind the shield of a shared currency may be unraveling.

The gap between the interest rates Spain, Italy, Greece and Portugal must pay investors to borrow for 10 years and the rate charged to Germany has ballooned to the widest since before they joined the euro. The difference may grow further as Europe’s worst recession since World War II hurts budgets and credit ratings across the region.

Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

“It will act as an additional braking mechanism on these economies,” said Julian Callow, chief European economist at Barclays Capital in London. “For the ECB it makes it harder to determine the future evolution of the economy.”

Trichet has asserted that the ECB, which was modeled on the Bundesbank, and the prospect of euro membership helped some nations import the credibility built up by Germany in the decades after World War II. In May, Trichet said the euro prompted a “convergence of market interest rates” to the level set by “the most credible national currencies” before monetary union.

My Comment: You can`t simply "import credibility" - you can at best try to fake or "borrow" it, as the aforementioned EU member states did, but that game only works as long as times are good. The funny thing is that the EU member states whose debt is now being increasingly shunned look like Extreme Savers in term of their debt-to-GDP ratios compared to the insolvent Debt Bomb that is the good ole U.S. of A. Ooh, "Spain’s deficit could top 6 percent this year" - six percent is for pansies, real deadbeat countries gotta have at least 10% there. Throw in a taxpayer bailout and quasi-nationalization of your entire banking system, irresponsible mortgage lenders and profligate consumers, and you too can reach "manly debt numbers" territory.


Central Bank's Zhang Attacks Paulson's `Gangster Logic,' on Savings Rates: A Chinese central bank official attacked reported comments by U.S. Treasury Secretary Henry Paulson that China’s high savings rate helped trigger the global credit crisis.

“This view is extremely ridiculous and irresponsible and it’s ‘gangster logic,’” Zhang Jianhua, the bank’s research head, said. His comments were in an interview with the state-run Xinhua News Agency, posted on a government Web site today.

Commentaries by China’s state media this month had already accused Paulson and Federal Reserve Chairman Ben S. Bernanke of playing a “blame game” over the cause of the crisis.

Friction between the two nations includes a U.S. complaint to the World Trade Organization last month that China uses prohibited subsidies to boost exports. The U.S. also regards China’s currency, the yuan, as undervalued and a factor in global trade imbalances.

Massive savings accumulations in countries such as China helped to trigger the crisis by squeezing interest rates and pushing investors toward riskier assets, the Financial Times reported Jan. 2, quoting Paulson.

Zhang countered that U.S. policies that aggravated imbalances in that nation’s economy, which was excessively dependent on consumer spending, were a key cause. He also cited failures in corporate governance and risk management at investment banks.

My Comment: Don`t often find myself saying this, but I goota agree with the Chinese Central Bank official here. None of the usual sources of friction between U.S. and China over trasde imbalances, protectionism and currency manipulation would be a big dea if the U.S. weren't such a colossal nation of put-it-on-my-credit-card spendthrifts.


And On a More Humorous Note:

Film, Porn Shoots Welcomed by Los Angeles Homeowners Squeezed by Recess: Jayshree Gupta reclined on an English-style sofa in her Beverly Hills penthouse as crews buzzed around taping protective paper over the hardwood floors and wheeling in crates of camera gear.

She was hosting a television-commercial shoot. It meant allowing dozens of strangers and 400-pound klieg lights into her home for a full day, and it was worth every minute, Gupta said.

“I am doing it because I need money to maintain my lifestyle,” she said, perched near a portrait of herself painted by her friend Barbara Carrera, the Bond girl in 1983’s “Never Say Never Again.” “A lot of my money is either gone or tied up. Right now I am hurting.”

Gupta, a clothing and jewelry designer, is among an increasing number of recession-pinched Los Angeles homeowners turning to Hollywood for help, offering their houses as sets for feature films, commercials and even adult movies.

“We are getting a lot of calls,” said Joseph Darrell, whose Los Angeles-based Joe Darrell Location Service represents Gupta. “They say, ‘Can you help me to bring a production to my home, because I have trouble making my payments.’”

The daily fee paid for the sort of work done at Gupta’s 3,000-square-foot condo in the city’s signature 90210 ZIP code is usually $2,000 to $3,000, Darrell said. That would cover about half of her monthly household bills, including maid service.

“I am praying, praying, for more productions to come in,” Gupta said. “I thought it was a brilliant idea to help myself.”

My Comment: My, we are just a bit full of ourself, aren`t we?

Famous homes have starred in movies, including 1997’s “L.A. Confidential,” which showcases Richard Neutra’s 1929 Lovell House near the Griffith Observatory. Hollywood has also thrown unknown homes into the limelight, including one in Studio City used for exterior shots of the residence on the 1970s sitcom “The Brady Bunch.”

Another upside: Income from residential filming for fewer than 15 days a year isn’t subject to federal taxes, according to the Internal Revenue Service.

My Comment: Cool ... so up to 14 days of NastyPorn filming are tax-free.

Jerry Mendoza says he’s willing to go to an extreme he wouldn’t have before the real estate slump. It hit Southern California hard, with the median home price in a six-county region falling a record 34 percent in November to $285,000, according to research company MDA DataQuick.

His four-bedroom house in suburban Burbank, which Mendoza built in 2006, didn’t sell for the $1.3 million he asked, and when renters left in November he began leasing it for filming. The most he received for a day was $1,300, he said. So he posted an Internet notice that the property, which has an eight-person hot tub, was available to the adult-film industry, which he had heard pays as much as $5,000 a day.

A few months ago, “I probably would’ve said, ‘You want to do what in here?’” he said. “That’s reserved for me and the missus.”

My Comment: You and the missus film home pornos? Well, if you need the money that badly, I guess they must not be selling too well.

[Fusion_power]

Today was payday... Except that it wasn't for any employee of Nortel in the USA.

Long story short, the money for payroll was transferred to Bank of America several days ago. Payroll information was sent indicating amounts to disburse. Unfortunately, someone seems to have forgotten to PAY BofA for the work involved and BofA refused to handle the payroll. End result, nobody who works for Nortel in the USA received a paycheck. This was very much an unintended consequence of the bankruptcy filing. It resulted in apologies from several managers and the CEO. Please note that the exact reason payroll was not handled has not been stated, however, from some internal emails, this appears to be what happened.

On a positive note, employee morale is still very high. We have a vested interest in seeing this company survive.

DarJones