Bailout Bonanza

With the Dow reaching 10,000 again and Wall Street executives about to reap 2007-like bonuses, it must be gratifying for middle-class Americans to know that the government bailouts are having their intended effects:

It may come as a surprise that one of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilize the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.

Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.

So even as big banks fight efforts in Congress to subject their industry to greater regulation — and to impose some restrictions on executive pay — Wall Street has Washington to thank in part for its latest bonanza.

“All of this is facilitated by the Federal Reserve and the government, who really want financial institutions to get back to lending,” said Gary Richardson, a research fellow at the National Bureau of Economic Research. “But we have just shown them that they can have the most frightening things happen to them, and we will throw trillions of dollars to protect them. I have big concerns about that.”

I have no misconceptions about this being a ”Democrat-only” problem.  The bailouts began with President Bush over a year ago, and have continued through the current administration.  There’s plenty of blame and anger to go around. 

The American people should be INCENSED about this.  The bailouts of our financial system have done nothing but foster the most advantageous environment for the bankers and executives to run rampant with just as much abandon as they did during pre-crisis levels.   Supposedly, the administration’s efforts are meant to stop the “risk-taking” that supposedly caused this crisis in the first place.  More lies.

And with a $800 billion stimulus that is doing nothing but transferring resources to Obama’s political supporters and has been helpless in stopping unemployment from reaching 10%, with government forcing through a massive and ruinous new entitlement program called “healthcare reform” which will add even more of a burden on the middle class, with cap-and-trade in the works, which will knee-cap whatever is left of the manufacturing industry in this country (and their employees)—-all of what is intended to “help” the average American—-amounts to a huge middle finger and kick in the groin.

I have no issues with anybody making a profit.  But not on the backs of the American taxpayer, who is expected to just grin and bear it.  This is an outrage.

Cash For Clunkers Fail

Despite Joe Biden’s proclamation over the summer that the cash-for-clunkers program was an “unqualified success”, the reality is that the program was an all-around failure. 

No, really.

After two frenzied months during the government’s cash-for-clunkers program, new-vehicle sales in the United States fell in September back to the levels seen earlier this year, automakers said Thursday.

Sales were down 20 percent at Honda, 13 percent at Toyota and 7 percent at Nissan.

“Floor traffic was lousy all month,” Mark LaNeve, G.M.’s vice president for United States sales, said. “Every brand, every region of the country. It was a real post-clunker hangover. It was disappointing. I expected the month to be a bit stronger, but it just wasn’t.”

I’ve never had any misconceptions about the complete insanity of the program.  The federal government using taxpayer dollars to subsidize Americans so that they can purchase automobiles, while foreclosures continue to rise and the overall economic situation is tenuous at best, is a recipe for failure.  

But, there’s more:

The clunkers program also cleared out inventories at many dealerships, leading G.M., Ford, and other automakers to increase production at some plants and call back thousands of laid-off workers to their assembly lines. Without a large selection for customers to choose from, many dealerships had more difficulty making sales in September than they would have otherwise. 

So not only did the program do nothing to help the auto industry, it actually made it worse.  Great job, everyone.

Government in ARMs

The Obama administration’s “plan” to stem the foreclosure crisis by subsidizing defaulting homeowners with billions of taxpayer dollars, is having the opposite effect:

Lenders are ramping up efforts to avoid home foreclosures, but a report by bank regulators says more than half of borrowers who get help fall behind again.

More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday.

[...]

About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year.

[...]

The report covers 34 million loans, representing more than 60 percent of primary home mortgages. Consistent with other reports, it showed borrowers are continuing to fall behind as job losses mount. More than 11 percent of borrowers covered by the report had missed at least one payment as of June 30, up from 10 percent in April.

Who would’ve thought? 

I’m expecting Joe Biden to trot right out and declare that the mortgage modification plan is definitely working. 

It wasn’t even a year ago that some idiot was pointing to the evidence from the banking regulators, that these modifications would never work, and the data showed that they didn’t work.   They failed under the Bush administration, and they’re failing again.

It amazes me how Reuters can report on a OCC/OTS report last year providing factual evidence of the failure of government intervention in the mortgage industry, and it gets limited coverage in the media.  A similar report is issued this week, and….nothing. 

Under the Obama administration, the federal government continues down the road it knows best—the road of wasteful spending and social engineering through taxpayer subsidies.  Sure, $50 billion seems like pennies in a world of trillion dollar deficits, but it’s dangerous to grow ambivalent to billions upon billions being thrown around in the name of “helping the middle class”, which is what drives the Obama Democrats. 

One more thing.  Another ominous sign in the OCC’s report:

It also highlighted mounting problems with an especially troubling category of loans – “pick-a-payment” or option ARM loans, which allowed borrowers to defer some of their interest payments and add them to the principal. At the end of June, 10 percent of these loans were in foreclosure, more than triple the rate for all mortgages in the survey.

Along with the drop in commercial real estate prices, the approaching tsunami of ARMs defaults should exacerbate the current crisis.  Unfortunately, we’ll probably be seeing a government ARMs bailout soon.

Citigroup and the pay czar

Andrew J. Hall is a trader who’s contractually obligated to receive $100 million in salary and bonusfrom Citigroup on an exceptionally profitable year.  Kudos to Mr. Hall.

The problem is, Citigroup is currently a mega-bank that is virtually supported by taxpayer money, a victim of government bailouts and hubris—to the tune of $45 billion.

An even worse, the Obama administration employs a “pay czar” to determine which salaries are “fair” and which are considered “excessive”.   These guidelines are ambiguous at best—good luck in getting any straight answer on that question from the not-so-transparent occupant of the White House.

The issue that has some wringing their hands, is what to make of the contract that under normal circumstances, would give Mr. Hall the salary he is legal entitled to—no questions asked.

Liberals will scream to high heaven that with all the bailout money Citigroup has received, payment of a nine-figure pay package in the midst of a recession would be akin to treason and get their knickers in a bunch. 

Now, I have no misconceptions about Citigroup’s deep political (of the Democratic party sort) connections and how the preferential treatment they’ve received would not have happened without said connections, nor do I believe that any of these financial firms or automakers deserved or necessitated a bailout. 

Government having an ownership interest in any private entity only opens the door to numerous other problems and uncomfortable situations (when does the government give up its stake?), like the one it faces now with Mr. Hall’s pay.   Where does it all end?  That the United States government has a “pay czar” at all should be disturbing to most Americans.  Conservatives raised these issues during the bailout hysteria late last year.  Turns out they were right.

Our road to serfdom

I happened to see this in USA Today and it should be raising everyone’s eyebrows.   The states are increasingly dependent on federal money for their financial viability:

Federal aid is top revenue for states

In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments.

The shift shows how deeply the recession is cutting. Federal stimulus money aimed at reviving the economy and a sharp drop in tax collections have altered, at least temporarily, the traditional balance of how states, cities, counties and schools pay for their operations.

The sales tax had been the No. 1 source of state and local revenue since the mid-1970s, according to the Bureau of Economic Analysis. Before that, property taxes were the primary source. That changed in the first three months of 2009.

Forget for a minute that this is financially unsustainable and a recipie for disaster.  One of the assumptions of the liberal ideology is that there is a bottomless pit of money just waiting to be shoveled to various federal bureaucracies.  So it was no surprise that liberals were telling everyone, running around like lunatics to note that part of the reason that the stimulus was “necessary” was because the shortfalls in state budgets were preventing payouts for unemployment, paying teachers, etc., the usual fare for liberal hysteria. 

The line we heard from the Democratic Party our government as they fast-tracked the with it’s “economic stimulus”, was that some of the funds would be used to help governors plug the holes in their state budgets, if necessary, to meet these alleged necessities.  Sounds good?  This is Obama, we were told—Obama is a new politician, ushering in a new era of responsibility in Washington and good intentions from our beloved masters in DC.  What could be so bad about that?  Plenty:

The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.

Schwarzenegger’s office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials.

The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state’s contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10.

The SEIU said in a statement that it had asked the Obama administration for the ruling.

We should thank our lucky stars that not only three two Republicans in both chambers of Congress voted for the stimulus bill, because now voters get to see exactly which party is responsible for this egregious federal power grab.  It’s no secret that the state of California is a fiscal cess-pool, with ruinous spending sending the state to the verge of bankruptcy.  The receipt of stimulus funds to the states was touted in the press as a graceful, understanding and supportive act on behalf of the federal government to help with the economic crisis.  But now the state of California is finding itself forced into more fiscal irresponsibility—literally at the demand of the executive branch.  Leader Obama is making budget decisions for one of the largest states in the nation at the behest and to the benefit of his politcal enablers. 

The highlighted portion of the excerpt is deeply troubling.  The SEIU/ACORN, is one of Obama’s biggest politcal supporters and apparently has the ability to go over the head of California’s state government, directly to the Community-Organizer-In-Chief, to whine about its demands.  This is exactly what conservatives and the Tea Partiers were talking about—-the unfettered growth and reach of the federal government, picking winners and losers, all to the benefit of a select few.  This is the road to collapse for the republic.   

At what point do we start referring to the 50 states as fiefdoms, rather than the autonomous bodies of government, where the governors and state legislatures are responsible for their own budgets, carefully minding revenues and expenditures?   Because that’s what California has become—genuflecting before King Obama and thanking him for financially supporting their tract of land, but only when the serfs do the King’s bidding.  Which fiefdom will be next?

(UPDATE) 

Apparently, California state officials are not too happy about the president’s political donors and their interference:

The officials say they are particularly troubled that the Service Employees International Union, which lobbied the federal government to step in, was included in a conference call in which state and federal officials reviewed the wage cut and the terms of the stimulus package

[...]

California Secretary of Health and Human Services Kim Belshe said she could not recall another instance in which the federal government invited a significant stakeholder group into such government-to-government negotiations.

“The involvement of a stakeholder in this kind of state-federal deliberative process is unusual at best,” she said. “This was really atypical and outside any norm I am familiar with.”

In addition to several state and federal officials, participants in the April 15 conference call included an SEIU associate general counsel in Washington, a lobbyist for SEIU in California and a representative from SEIU’s policy staff in California, according to a list provided by the Schwarzenegger administration.

[...]

The California officials on the call, who requested anonymity for fear of antagonizing the Obama administration, said they needed the savings to help balance the state budget.

This is what genuflecting to Obama and the checkbook controlled by the Pelosi/Reid politburo will get you—a figurative kick in the groin. 

What’s so disturbing is the precedent of fear and thuggery being set by this Administration.  We saw it in the Chrysler debacle and we’re seeing it now with the parcelling out of the stimulus funds.   Why should government officials in any state, where one of their primary functions is fiscal responsibility–balancing the budget and such, fear the federal government for doing their job? 

 I’m not a fanof Schwarzenegger’s liberal brand of Republicanism—it’s precisely that brand of governance that has turned California into a Euro-socialist state on its own.  But this blatant attempt and political cronyism from the federal government is inexcusable and should raise the ire of every tax-paying American citizen.  The power of the Constitution’s 10th Amendment is being usurped by a partisan left-wing government, including the President, who apparently has no desire to understand the tenets of fiscal responsibility, nor to govern with those tenets.  The tone has been set, a little over 100 days into the reign of Obama, that paying off his political benefactors takes precedence over governing the republic as set forth in the Constitution.

(Via)

(UPDATE II)

Sister Toldjah is outraged at the lack of outrage.

US Department of Loan Sharking

Via Hot Air, this interesting piece about a TARP-infested bank, paying back it’s TARP money, but not without some payback:

TCF Financial Corporation announced Wednesday that it had completed the repurchase of its TARP preferred stock from the U.S. Treasury. It paid a redemption price of $361.2 million plus accrued dividends of $3.4 million.

TCF Chairman and CEO William A. Cooper said the bank had maintained a strong capital position over the last year through its own operations, and it didn’t need to rely on the public capital infusion to continue its traditional lending pace. Cooper said TCF is the largest bank to pay back TARP funds to the U.S. Treasury.

TCF’s executives had complained that Treasury and the U.S. Congress had subverted the TARP program by changing its rules after banks had joined. Those rules added controls over compensation and dividends programs, and Cooper said those changes contributed to a stigma of weakness and reliance on public support – a stigma that didn’t reflect his bank’s condition.

As part of the agreement for withdrawing from the program, TCF also agreed to reduce its first-quarter dividend from 25 cents to 5 cents.

It’s interesting.  For equity holders who invest for dividend growth, 2008 was a bad year, to be kind, as companies try to conserve cash by slashing dividends.  The first quarter of 2009 alone was worse than all of 2008.  According to Barron’s, dividends were cut by $40.6 billion in 2008—the first quarter saw a $42 billion cut.  That’s nearly $85 billion in income slashed from the economy–not to mention the opportunity cost of wealth not realized from dividend re-investments.  These are part of the risks that investors—those considered wealthy, those with 401(k) plans, public retirement funds, etc— take when investing. 

The TCF story raises eyebrows for an altogether different reason.  The investor class, the driver of our economy, is under attack by a partisan government insistent on waging a vindictive war on risk-takers and capital.  Here is the government, nudging the banks into accepting public funds for the “benefit” of bolstering the banking system.  No strings attached, the only stipulation was that they “start lending”.  But then the strings start to appear.  The government begins moving the goalposts mid-game.  All this by an administration that preaches “transparency” and “accountability”.  This is more than just a ransom.  This is Chicago-style governance.  How is this any different from a federally-funded loan sharking operation?  It isn’t.  This is what conservatives mean when they say that capitalism and the free-markets are under attack.

Stay Classy Libs…

Like I alluded to in last night’s post about the Tea Parties, one sign that the protests were effective is that it’s driving the liberal blogosphere and the mainstream media up a wall.  You can search the blogs and the news sites for the derangement, the absolute degeneracy of these supposed patriots and free-speech huggers.  As is always the case with liberals, they resort to profanity and downright idiocy.  But, that’s just what liberals are all about.  That’s how you know the opposition is making a dent in their tender egos.  Michelle Malkin has a good sampling here.

JP Morgan’s Lessons Learned

Looks like Jamie Dimon isn’t too fond of the Treausry sponsored PPIP plan which is intended to help banks get rid of their toxic assets.  Seems like he’s not too fond of encroaching statism either:

April 16 (Bloomberg)– JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”

Dimon, calling money received through the Troubled Asset Relief Program “a scarlet letter” and “the TARP baby,” said on a conference call today that the New York-based bank is awaiting guidance from the U.S. Treasury Department. “We could pay it back tomorrow,” he said.

[...]

Dimon said the bank, which bought about $34 billion in mortgage-backed and asset-backed securities in the quarter, doesn’t expect to participate as either a buyer or seller in the Treasury’s Public-Private Investment Program, known as PPIP. “We learned our lesson” about borrowing from the government, said Dimon, who expects PPIP to benefit the financial system as a whole. 

What is Jamie Dimon seeing that the Treasury does not?  The potential for disaster:  

This risk to the banks is particularly acute when dealing with whole loans that the banks currently say they have no plans to sell. These loans are often carried at 100 cents on the dollar, because loans classified as held to maturity don’t have to be marked to market. Even subsidized buyers won’t likely be willing to pay anywhere near 100 cents on the dollar for these loans. So, here, the writedowns could potentially be huge.

And then there’s another problem:

If the banks go through the exercise of putting assets up for sale only to have the bids come in at, say, 40 cents instead of the 60 cents on the books, the banks’ accountants and/or federal regulators might notice. So even if the banks recoil in horror and refuse to sell at 40 cents, someone somewhere might insist that assets now carried at 60 cents be written down to 40 cents (after all, they won’t have the “temporary illiquidity discount” excuse anymore, will they?). This will blow another huge hole in the banks’ balance sheets.

JP Morgan is arguably one of the stronger banks right now, if not the strongest, in terms of capitalization and stability.  When the government needed to find a suitor for what was left of Bear Stearns, it went to JPM.  The notion that one of the biggest banks in the country essentially thumbed its nose at government rescue plans and the stifling restrictions that came after the fact with it probably won’t sit well with the Treasury or the Administration, which are dealing with an already tepid response to PPIP.  Far as I know, Black Rock and PIMCO are signed on, but from the other side, not too many banks are as eager to sell at prices that would give the banks significant capital haircuts. 

Dimon is smarter than that, knowing he could keep the assets on his books and sell them when they’re ready to sell them.  As opposed to engaging in a futile bidding for the assets via the PPIP, by bidders that could bid on assets with virtually no risk and no skin in the game, but stand to profit significnatly.  Dimon is no fool.  He’ll take the invisible hand of the free market before the wretched claw of government anyday.  And JPM shareholders will be better off for it.

Tea and Biscuits

The Tea Party protests have come and gone.  From what I’ve seen on the blogs and on television, the protests have made their point—people are mad at what’s going on in Washington.  Some interesting observations I’ve seen.  First,  Marc Ambinder writes over at the Atlantic (via Memeorandum):

The right looks more ridiculous than the left at this point, if only because conservatives don’t have much muscle memory when it comes to protesting en masse. But the tea parties really are something. Their origins — organic, programmatic, accidental or otherwise — don’t matter much anymore. If — and we’ll have to see the numbers at the end of the day — 100,000 Americans show up to protest their taxes, the onus to dismiss them as a nascent political force shifts to the Democrats. There’s no evidence that official Republican strategists connected with the Republican National Committee, John Boehner’s office or the NRSC had the insight to conceive of these events, much less to try and bigfoot the organizers.

Radley Balko notes the similaritybetween the Tea Partiers and the Iraq War protesters:

I tend to agree with them, but they make it very difficult to take them seriously. And like the anti-war folks, they’re letting their cause get hijacked by a variety of other causes, too, including anti-immigration and anti-gay protesters, and, now, many of the mainstream GOP hacks that had no problem growing the federal government back when they were in power.

And via OTB, Brian Knapp notes why such protests don’t work in 2009:

Where large mainstream media networks once held a monopoly on what people learned of and became aware to, individuals have a much easier time sharing ideas and commenting quickly and quite effectively now with the advent of blogs, tweeting, text messaging, social networking sites and email.

As Ambinder alludes to, the jury’s still out on whether the number of people who participated is enough to make these protests relevant, which is to say if they can affect change in Washington and spciefically, to the Republican Party platform.  I’m not holding my breath.  I’ve read that protest organizers have refused to showcase establishment Republicans (even though Paul Ryan appears to have squeezed his way in somehow, which is a disgrace).  And like Ambinder says, I think it’s ridiculous to see things like this from John Boehner who, about six months ago, was asking conservatives to check their principles at the door so they could vote for TARP—when George W. Bush was still president.

Balko brings up a good point, as the Tea Parties became a platform seccession talk in Texas, for example.  The anti-tax, limited government message gets somewhat diluted, and kind of kills the potency of the whole exercise.  And, to Brian Knapp’s point, does anyone really take any protests seriously anymore? 

More importantly, the Tea Party is over.  Tomorrow is April 16th.  What happens to the movement now?  Is this grass-roots effort over now that the protests are over?  Does the organizing continue, or were today’s protests just and aberration?  Time will tell.

The bottom line is I think the protests made their point.  If only because the lefty blogosphere, who were happily ignoring the upcoming protests a few weeks ago, seemed to have undertaken some concerned pearl-clutching  the past few days.  As if you can’t protest in this country unless you’re either pro-abortion, gay, black, unemployed or a coke-head….or all of the above.  Seems to me, that liberals can protest about fictitious war crimes and constantly whine about Bush and Cheney going to jail for reasons only they can think of on non-existent charges, or for a woman’s right to infanticide, I guess those are all “legitimate” reasons to protest. And why not?  It tidily fits into their tedious narrative.  And they’re getting down right bitchy about it all, to the point where they’re projecting their insecurities and abnormal tendencies onto others in a fit of anger, is all they have.  And that suits me just fine.  The only complaint they have is the “well, nobody complained about George Bush so why protest now” argument—which doesn’t hold much water.  Not speaking up five years ago shouldn’t preclude anyone from speaking up now.  And supposedly, the “people” despised George Bush despite re-electing him with a significant margin in 2004—-and this was AFTER the Abu Gharib revelations and after the Iraq war began, and all the supposed deregulation, and on and on and on.  So so much for that. 

All in all, who knows how the Tea Parties will affect our politics.  Unfortunately for me, with all this talk of tea the past few weeks…lots of tea…all I could think of was this:

“I have had tea…lots of tea…and biscuits”

Stressing Out, Pt. 2

Continuing the theme from yesterday’s post on the stress-tests, I see this on Bloomberg this morning:

Fed Said to Order Banks to Stay Mum on ‘Stress Test’ Results

April 10 (Bloomberg)– The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Banks should stay silent because a focus on the tests would be “a harmful distraction” from earnings, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable in Washington.

“It is premature for banks to talk about the stress tests,” Talbott said yesterday. “They aren’t finalized yet and there is no framework to evaluate the results.”

Good grief.  A “distraction” from earnings?  I could be way off base here, but it seems to me that the inability to remain a viable bank during an economic downturn would be something shareholders would want to know about during a conference call with investors.  These calls are not used merely to report earnings, but to bring investors up to speed with any new developments on the status of your company, financial or otherwise. 

There is a fiduciary responsibility on the part of management to relay to shareholders their company’s financial status.  The US government is now telling management to forget about these obligations and continue to play this game of chicken, for the sake of some the next Treasury/Obama photo-op, where the President can assure the public that government is doing the “right thing.”  And the lemmings will applaud.  It’s insanity.  Supposedly, we are in the age of transparency and accountability.  There’s nothing transparent going on here.  Just another kick in the head to the investor class.