We Are Getting Scammed

I used my own version of the TARP this weekend. On Saturday I raked leaves for over 5 hours onto a TARP and dragged the pile into the woods. I repeated this process many times. Where is my leaf removal bailout anyway?

Mars Phoenix Lander Goes Quiet
After what can only be described as a wildly successful mission, the Mars Phoenix Lander has gone silent. The coming Martian winter has cut down the Sun light level to a point at which the lander can no longer function. There were too many observations to list, but this was an exciting thing.

Sadly, in a coming era of cutbacks and bailouts I do not imagine space programs to live much longer. What a shame. We can keep GM open against all reasonable business sense, we can pass stimulus checks out until we are blue in the face but we cannot fund space exploration or develop cutting edge technology. Whatever. You can see a bunch of Phoenix content here:
http://phoenix.lpl.arizona.edu/

AIG Making Fools of the Treasury and FED (Not Like That's Hard)
I have to say that the news already out on Monday has my vomit meter pegged at redline. This week should be a good one!

So AIG, the troubled giant insurer, asked for and received a new bailout deal. I will not bore you with the details, the new money amounts and the benefits to AIG are plain criminal. What I would point your attention to is instead the open and blatant way that AIG management is pushing the Treasury/FED around. For a broken down on the verge of bankruptcy firm, these guys sure are comfortable in their position.

From the site Clusterstock:
AIG: We're Already Planning To Screw The Taxpayers More
Joe Weisenthal | Nov 10, 08 5:33 PM
"This morning AIG (AIG) confirmed it had secured a sweetened bailout deal from the government, scrapping the original, high-interest bridge loan. But AIG isn't done! It's already scheming to come up with a more shareholder-friendly plan. We were incredulous when we heard that on this morning's conference call, but a check of the transcript confirms that that's a goal.
The setup is that John Levin of Levin Capital asked if there were any way to restructure the new deal, so as to give AIG more upside if the securities they're transferring to the government improve markedly in value. The response:

Edward M. Liddy - Chairman and Chief Executive Officer
Yes, John right now, the deal is... what the deal is, not fixed in concrete forever (emphasis added). As you can see the movement we made from the first transaction to the second one, is a rather quantum improvement. We'll continue to do everything we can to put AIG in the best possible position. What these two arrangements do is they stop the cash out flows for the most part.
John Levin - Levin Capital
I agree with you and congratulate you on that. (!)

There you have it. For all to hear, CEO Edward Liddy and investor John Levin are already high fiving each other on how they might stick it to taxpayers even more, wresting more cash for shareholders. As long as equity holders are left hanging around, it's inevitable that they'll keep trying. More reason they should have been wiped out long ago."

If you have the time, a read of the conference call reveals even more brutal schemes by AIG management to make sure the government has zero upside potential if they get turned around, but still carry all of the risks if AIG goes down. Sick stuff.

We Are Getting Scammed
Folks, we the taxpayers are getting scammed. The end of the financial universe that was feared has made government reactive and panicky. Our congress had no idea what they are doing and are relying on a FED/Treasury that has no idea what they are doing. We are told one thing, only for that to change sometimes within the same day. We are told some dollar amount is needed for this company or that company, and then that dollar amount is doubled or tripled up in the space of one month. We were told transparency and taxpayer protection were going to be featured structures of the bailouts, yet one has to sue just to get basic information on where all this money is going. We were told only "systemic risk" candidates were to be considered but then we find out that "systemic risk" can mean just about anything.

Some headlines to get the general feel of the day:
Bloomberg: Fed Defies Transparency Aim in Refusal to Disclose
Bloomberg: Fannie Says $100 Billion Pledge From Treasury May Not Be Enough
washington post: A Quiet Windfall For U.S. Banks; With Attention on Bailout Debate, Treasury Made Change to Tax Policy
Bloomberg: GM Plunges as Deutsche Says It May Become Worthless (Bailout Still Will Happen)

Fannie Mae will now need MORE cash. Remember when the government was going to make a profit on this thing? HAHAHA. AIG needs more cash and gets better concessions from the government to boot. HAHAHA. FED will not disclose any action it does because, wait for it..., to tell the markets who is getting what might cause, wait for it..., a "systemic risk"!!! Awesome job boys, that is a classic. The FED and Treasury having learned their lesson about going through the US Congress rewrite a tax law to give banks doing mergers almost unlimited tax relief. I mean, why debate and vote when you can just do?

The FED and the Treasury are out of control. They must be stopped, immediately. The newly elected president Obama needs to come out today and tell these jokers to cut it out. Better still he should make it clear that the game is up come January when he is sworn in.

There has been a mad rush by politicians to be seen as "doing something" for the economy. What they have done is enabled a mass looting of the treasury by Bernanke and Paulson and they have given up any ability to influence the situation. Now is the time to do one thing: NOTHING. No more money for AIG. No more money for GM and the like. No more stimulus checks. NO MORE. Just stop. Start the new year with a broad based economic panel that can think through the next 5 minutes.

Obama has a chance here to win over the libertarians like myself. If Obama can change the behavior of the Treasury and FED, if he can have guys like Paul Volcker in on the action, if he can revoke the silly TARP powers then I will fight for the guy. His message was one of "hope". Well, here's hoping he can do what is needed at this juncture.

We have been told a bunch of things by the FED/Treasury and so far none of them have been true. We are being ripped off and nobody seems motivated to do anything about it. The only silver lining I can see is that it seems clear the FED/Treasury will bankrupt the US, and the ensuing revolution will surely be most unkind to the architechs of the collapse. Makes me sick to think it, but it seems to me as of late a secession movement may be in order. Leave New York and Washington DC to themselves and start all over again. Everyone can choose sides. Is there really any other way to cleanse the corruption and poor leadership? Probably not.

Have a good night.

Must Read Mr. Practical Article

After a couple of very nice days, it is going to rain for 2 days straight. I hope this Spring and summer is not a parallel of all the snow from last winter. One can hope.

Fannie Mae Pulls Things From their Fanny
Imagine you are truly "too big to fail". Imagine you have your hand in a business so deeply, anything and everything will be done to bail you out. If you had that kind of safety net, you may behave and communicate in ways that no other entity could ever do. That is the only way a company can have around 45 Billion in hard capital backing, get this 2.27 Trillion in mortgage obligations. That is too funny. In the face of this, regulators have approved FNM to hold even LESS, yes less, cash in reserve for losses right at a time when FNM is being asked to buy up the latest crap mortgages out there. I am really sure this is all going to end well, really.

Along this line of thought, Minyan Kevin Depew's "5 Things You Need to Know" was dedicated to FNM yesterday, and it was a must read:
http://www.minyanville.com/articles/index.php?a=17042
In the article Kevin used FNM's own charts to show how without a clue the management is. What I loike the best is that even after so called "historical models" have been shown to not work at all when lending standards do not conform to historical stringency, FNM is still using viciously flawed models to estimate losses. In their chart for home price growth (or contraction) in the US chart, their is a ton of fine print at the bottom which harbors a real whopper; Fannie Mae deems sales of foreclosures as non important to their price assumptions! Seriously, enlarge the graph and read the fine print! FNM even states that foreclosure sales cause prices to drop even more than they estimate, but exclude them anyway! I give up. You could not make up a better story. Why this graph and FNM metric is not a huge story amazes me.

So FNM has 45 Billion backing 2.27 Trillion, they are using estimates that are obviously screwed, and they are backed by the US taxpayer. WONDERFUL. I agree the worst is behind us, it is behind us getting ready to slam us from behind and not in a fun way!

Must Read Mr. Practical Article
Sorry to rip things off again! I read a piece form the Minyanville writer Mr. Practical today that captures everything that I think and feel about the current fiasco PERFECTLY. Link is here:
http://www.minyanville.com/articles/S-tax-nationalization-interest-stabilization-citizen/index/a/17062

I am not sure what the rules are for these kinds of things, but I want to make sure this gets seen as much as possible, so here it is:

Fed Chooses Wall Street Over Main Street
"It took from 1914 until November 2007 for the Federal Reserve to accumulate $800 billion worth of Treasury debt. It has taken from December 17 to the end of April for the Fed to divest itself of $260 billion of this portfolio, a decrease of one-third. In its place, it has placed AAA-rated mortgages. At the current swap rate, the Federal Reserve System will be out of Treasury debt in December of 2008. But by adding car loans to the list of eligible paper, the Fed will most likely greatly accelerate this.” - Economist Gary North

To the average person this is gibberish. Perhaps this is why the Fed is able to do what it's doing: slowly nationalize the banking system. The stabilization that everyone is giddy about has its cost. The private market, with the encouragement of the Federal Reserve, has manufactured vast debt that cannot be repaid. Banks used up their capital long ago, so the Fed has to take those bad loans away from them and give them capital back.

Stabilization is not a working banking system. When you hear all the CEOs of Wall-Street say the crisis is nearing an end, it has no implication for a working banking system that will create more credit.

The Fed adds a new twist everyday. Now it's going to pay interest on reserves banks must keep at the Fed. This will allow the Fed to expand its balance sheet even more and buy even more bad loans from banks. Again, this isn't a positive: It illustrates just how bad things are.
By the way, it's the U.S. taxpayer that will be picking up a good portion of this interest they will now pay to banks.

Chairman Ben Bernanke has been given high marks for saving the system. But just what are we saving? The average person does not understand that what they are really saving is the bankers and Wall Street at the expense of the middle-class standard of living. A devalued dollar of 50% hurts the middle class much more than a 50% decline in the stock market. Why not let a failed system fail, thus re-distributing savings and income back to the middle class? Of course, everyone will suffer but in the long run that will happen anyway and saving the system will disproportionally hurt the middle class more.

The system is broken. Every action by the Fed says so. Those that anticipate a shallow recession still do not understand this. The credit crunch has barely begun affecting the real economy. We're in the very early stages of this process and the government wants to boil the proverbial toad (the middle class) as slowly as possible.
Risk is very high.

Nuff said! Perfect encapsulation of where we are.

California City Fails to get Bailout
Vallejo California has announced that the city council has voted to pursue filing for bankruptcy protection due to insolvency. Citing enormous pay for police and fire fighters, as well as escalating pension obligations the city will run out of cash by the end of June.

I think this is a pretty big deal. Huge even. What does this mean for the muni bond markets? Probably not good things. What does this mean for similar California, Florida, Arizona, and Las Vegas cities faced with the same kind of issues? Probably not encouraging things.

Almost right on cue when Hanky Paulson said the worst of the credit crunch was over, this big city default news was out. Funny if it was not so sad. This story bears serious following.

Have a good night.