Continue reading Paulson: Not Saving AIG Would Have Pushed U.S. Unemployment to 25%

Paulson: Not Saving AIG Would Have Pushed U.S. Unemployment to 25% originally appeared on BloggingStocks on Wed, 27 Jan 2010 17:00:00 EST. Please see our terms for use of feeds.

Continue reading Closing Bell: Roubini saves the day (CIT, STP, MOT, JPM)

Closing Bell: Roubini saves the day (CIT, STP, MOT, JPM) originally appeared on BloggingStocks on Thu, 16 Jul 2009 16:00:00 EST. Please see our terms for use of feeds.

An outspoken group of Bank of America (NYSE: BAC) shareholders has been calling for CEO Kenneth Lewis's head lately, with investors none too pleased by the bank's near-disastrous acquisition of Merrill Lynch. However, testimony is hitting Wall Street today that indicates Lewis was simply following government orders by keeping hefty losses at Merrill under wraps.

Lewis testified under oath before New York Attorney General Andrew Cuomo in February, asserting "it wasn't up to me" to disclose Merrill's fourth-quarter losses toward the end of 2008.

According to Lewis, Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson pressured him to stay mum about Merrill Lynch's troublesome balance sheet. The regulators reportedly urged Lewis to proceed with the merger, warning that the deal's failure would "impose a big risk" to the nation's financial system.

Continue reading Was Bank of America's CEO intimidated by the feds?

Was Bank of America's CEO intimidated by the feds? originally appeared on BloggingStocks on Thu, 23 Apr 2009 11:00:00 EST. Please see our terms for use of feeds.

Last fall, former Treasury Secretary Hank Paulson decided it would be good to buy the toxic waste off of bank balance sheets, so he persuaded the President and Congress to spend $700 billion to create the Troubled Asset Relief Program (TARP).

Once he got the money, he changed his mind and decided that buying toxic waste made no sense -- so he used it to buy big chunks of senior preferred stock in U.S. financial institutions (FIs). Why? I don't know, but it certainly was not to get lending going again.

Continue reading Add $590 billion from TARP, cut lending 23% -- What gives?

Add $590 billion from TARP, cut lending 23% -- What gives? originally appeared on BloggingStocks on Tue, 21 Apr 2009 12:40:00 EST. Please see our terms for use of feeds.

This week, Texans watched a meteorite burn up in the atmosphere leaving a few glowing pebbles in the scrub for astronomers to recover. It turns out that when 3,000 people accepted positions in the Bush administration, they thought they were hitching their career wagons to a star. Now, it looks more like their careers were attached to that flaming out meteorite instead. How so?

With the national unemployment rate at 7.6%, the unemployment rate among those Bush appointees is 75%. Or put another way, only about 25% of those 3,000 folks have found jobs. It turns out that this unemployment rate is much higher than for former Presidents Ronald Reagan, George H.W. Bush and Bill Clinton staffers -- about half of which had jobs within a month of leaving their government posts.

Continue reading Unemployment for Bush appointees is 10 times national rate

Unemployment for Bush appointees is 10 times national rate originally appeared on BloggingStocks on Sun, 22 Feb 2009 10:30:00 EST. Please see our terms for use of feeds.

In looking back over 2008, there is one piece of good news -- but it's a silver lining on a black cloud. What am I talking about? In 2008, the U.S. had the lowest inflation rate since 1954 -- 0.1%. Back in 1954, prices actually fell 0.7%. The 2008 inflation report is good news in one sense, and ominous in another.

The good news is that the price of gasoline fell so much. In December gasoline lost 17.2%, the largest monthly decline in records that go back 71 years. Overall energy prices also dropped by a record 8.3% as home heating oil and natural gas showed declines.

If only it weren't for the reason that prices were falling, this news would put a smile on my face. And the reason for the fall is that the economy can only grow if consumer spending grows. And that's not growing because consumers are making less money and they can no longer borrow to make up the difference. This means that demand is dropping for just about everything -- including gasoline.

Continue reading Ominous good news on inflation

Ominous good news on inflation originally appeared on BloggingStocks on Fri, 16 Jan 2009 17:20:00 EST. Please see our terms for use of feeds.

Is Hank Paulson using TARP to make us rich? originally appeared on BloggingStocks on Wed, 07 Jan 2009 15:40:00 EST. Please see our terms for use of feeds.

A spokesman for JPMorgan Chase (NYSE: JPM) Thomas Kelly said his firm has not disclosed what it did with the $25 billion in emergency bailout money it has received. In fact, JPMorgan Chase is declining to provide any such disclosure.

AP has reported that none of the 21 banks that received $1 billion or more from taxpayers is tracking, or at least willing to disclose how they are using the money. Let me be clear -- THIS STINKS TO THE HIGH HEAVENS!

What kind of deals did Treasury Secretary Paulson make with these favored financial institutions? The money would be very easy to track. Why wouldn't that be a part of the bargain?

Paulson obviously did not read Conservative bankers? Surely you jest!, but he should have. Of course, having former Goldman Sachs (NYSE: GS) CEO Paulson negotiate with his Wall Street buddies on behalf of the taxpayer is highly suspect. At a minimum we have the good 'ol boy network operating in full form.

The banks simply are avoiding what should be required scrutiny by pleading ignorance. I don't believe the money can't be tracked, or even traced now after the fact. What happened to the idea of more transparency? More cover up I fear!

The banks should be subject to full disclosure. The use of the funds should be subject to review. Government money should be subject to the Freedom of Information Act. Why all the secrecy?

PS: Personal emails I have been receiving and the initial comments indicate strong sentiment about this issue. I encourage those that care to forward this story to their elected officials and friends encouraging full disclosure -- as promised! Obama used the internet to help win the White House, lets use it to get someone to listen with an internet blast from all over the country!

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money.

Banks not disclosing billions -- why all the secrecy, Paulson? originally appeared on BloggingStocks on Mon, 22 Dec 2008 11:44:00 EST. Please see our terms for use of feeds.

Flying shoe-dodger, President George W. Bush, has a track record of rewarding the guilty. After the faked intelligence that gave him the ammunition he needed to invade Iraq in 2004, Bush awarded a Presidential Medal of Freedom to CIA Director George "Slam Dunk" Tenet. And to reward the banks that got us into the current financial catastrophe, Bush rammed through Congress a bill that uses $700 billion of our tax dollars to pay bonuses to the executives who run those banks.

How did he do that? As usual, he did it secretively. The law that created the bailout bill includes provisions that limit executive compensation for banks that get bailout money. Specifically, the bill requires that banks report to the IRS any compensation above $500,000 paid to their top five executives. If that reporting does not occur, the IRS can impose tax penalties. Not only that, but there is no limit to what people below the top five can get paid -- so there never was any way to keep taxpayer money from paying millions to the traders and investment bankers who often get more than the CEO.

Continue reading Bush rewards the guilty with our tax dollars

Bush rewards the guilty with our tax dollars originally appeared on BloggingStocks on Mon, 15 Dec 2008 10:01:00 EST. Please see our terms for use of feeds.

I have to hand it to Secretary of the Treasury, Hank Paulson. He is willing to go in front of the country and admit that he made a mistake. I was there two months ago. Soon after he proposed the idea that the only way to save the financial system was to spend $700 billion in reverse auctions to buy toxic waste from financial institutions, I became convinced it would not work.

Why? Because there was no way to put a solid price on those assets. If the Treasury bid more than they were worth to the bank, then the taxpayer would take a loss. If the Treasury bid less than what the bank thought the assets were worth, then the bank would need to write off that loss against its capital. Since it would not be able to raise more capital, the bank would become a zombie.

The question is what to do with that money now that Paulson has realized that he was wrong. So far he's given away $159 billion to 24 banks. But there's nothing to stop them from using the money to pay $26.6 billion in bonuses. I think a cull and capitalize plan would work better. Such a plan would create a smaller number of very profitable and well capitalized banks -- and get rid of the rest.

Continue reading Paulson admits his asset purchase plan is wrong

Paulson admits his asset purchase plan is wrong originally appeared on BloggingStocks on Wed, 12 Nov 2008 12:00:00 EST. Please see our terms for use of feeds.

Continue reading Wall Street's meltdown: In search of a villain

Wall Street's meltdown: In search of a villain originally appeared on BloggingStocks on Wed, 22 Oct 2008 17:20:00 EST. Please see our terms for use of feeds.

It appears from today's Senate Finance Committee testimony that Hank Paulson and Ben Bernanke are getting eaten alive on both sides of the aisle. Since the world has not ended since Sunday night passed without another weekly multi-billion bailout, it looks like their desperate pleas for unfettered authority to spend $700 billion of our money are not working.

I was just watching the hearings and Paulson and Bernanke are looking like they have no idea what they are talking about. They keep mentioning how 'market mechanisms' will help people want to buy toxic waste when such mechanisms failed before their proposed $700 billion plan. They want to hire people from Wall Street to run 'reverse auctions' which will ask banks to compete to sell their toxic waste -- whoever is willing to sell for the lowest price wins.

This is an idea that comes from Bernanke because he thinks auctions work, based on academic research. But the simple fact is that the banks will need to write down their assets and raise capital if they sell below book value. So they will not participate in the auction.

Continue reading Try again, Hank

Try again, Hank originally appeared on BloggingStocks on Tue, 23 Sep 2008 14:00:00 EST. Please see our terms for use of feeds.

The New York Times reports that Hank Paulson's desperate plan to use $700 billion of your tax money to buy toxic waste from banks could wipe out their capital. Either that or it could saddle taxpayers with losses that could hit unprecedented levels. To avoid this unpleasant choice, I have an idea -- I call it Tax Shield Preferred (TSP) -- that could provide capital to banks that sold their toxic waste at below market prices.

And make no mistake -- that is what Paulson's plan proposes to encourage. He wants financial institutions (FIs) that hold mortgage-backed securities (MBSs) to participate in so-called reverse auctions which will reward the FI willing to accept the lowest price with a part of that $700 billion. If an FI had booked its MBSs at 60 cents on the dollar and it sold them for that price to Paulson, then if their market value was 20 cents on the dollar, the taxpayers would take that a bath on the 40 cent difference. On the other hand, if the FI sells its MBS for 20 cents on the dollar to Paulson, then the FI takes that 40 cent loss as a reduction to its capital.

To explain the significance of this, I will have to do something a bit painful -- use some numbers. For example, if an FI holding, say, $10 billion worth of MBSs on its books and $8 billion worth of capital sells those MBSs for 20 cents on the dollar, it would need to take an $8 billion loss on the sale. Technically, this would leave the FI with no capital. And it's hard to see how that would help solve the problem. This is where TSPs come in.

Continue reading Will Paulson plan wipe out bank capital? Maybe not: Here's how

Will Paulson plan wipe out bank capital? Maybe not: Here's how originally appeared on BloggingStocks on Sun, 21 Sep 2008 21:08:00 EST. Please see our terms for use of feeds.

Hank Paulson said that "the American people can be very, very confident about their accounts in our banking system," according to AP. This means you should be very, very skeptical about the truth of that statement. And that's because there is a good chance that Washington Mutual (NYSE: WM) will fail and take the Federal Deposit Insurance Company (FDIC's) reserve fund down with it.

How so? WaMu's failure could cost $20 billion or more, and the FDIC's fund has $45.2 billion in it, according to AP. If that WaMu cost is right, no problem. Unless, as Wilbur Ross predicted, there are 1,000 bank failures before this is all over. If so the FDIC would need to raise more money to pay off all the deposits in the failed banks. But there's plenty of money available, right? Just this morning, the Treasury sold securities -- dubbed a Supplementary Financing Program -- to pay for its little $85 billion loan to buy American International Group (NYSE: AIG).

And with WaMu getting its credit rating downgraded to junk, who will want to do business with it? Will another firm want to step in and buy it before it files for bankruptcy? That would be nice because if it costs much more than $20 billion for the FDIC to rescue it, we are going to see inflation spiking as our government prints more and more money to bail out all these failed financial institutions. And that won't make Americans feel confident about their banking system at all.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG securities and has no financial interest in the other securities mentioned.

Could WaMu failure wipe out FDIC reserve fund? originally appeared on BloggingStocks on Wed, 17 Sep 2008 12:55:00 EST. Please see our terms for use of feeds.

Lehman Brothers Holdings Inc. (NYSE: LEH) is likely to file for bankruptcy today. The reason is that the Treasury and White House are smarting from criticism of their $29 billion bailout of Bear Stearns and the $200 billion to $800 billion Fannie and Freddie nationalization. Neither of these moves has stopped the serial sell off in the shares of investment banks and other firms saddled with crumbling real estate assets. So now the powers that be have decided that they'll tighten up their moral standards and refuse to bailout Lehman.

As I posted, the basic problem is that Wall Street thinks the Treasury will cave in and put money into the Lehman bailout. But despite reports of a proposal to hive off the good part of Lehman from the bad part -- financed by other Wall Street banks -- such a resolution does not appear likely. That's because Wall Street does not want to risk its slim capital shoring up Lehman's bad part -- $85 billion worth of commercial real estate and mortgage-backed securities (MBS). These banks rightly fear that they would lose their investments and sink the entire industry in the bargain. In addition, these bad bank financiers don't want to provide the backstop to enable the winner of the bidding on the good bank to surpass them by picking up Lehman's assets cheaply.

Assuming that plan does not work and that the government refuses to step in to finance the bad bank, this leaves two basic options: Lehman files for bankruptcy or other banks liquidate Lehman in an orderly fashion. Bankruptcy might be a relatively orderly process. According to FOXbusiness, "if Lehman entered into bankruptcy protection, the brokerage units would enter Chapter 7 liquidation and a court-appointed trustee would liquidate the firm's assets and give customers back their money. Generally, securities a customer holds at a brokerage firm are legally the investor's property, and aren't exposed to the claims of the firm's creditors." A bankruptcy would likely wipe out Lehman common shareholders.

Continue reading Let Lehman file for bankruptcy

Let Lehman file for bankruptcy originally appeared on BloggingStocks on Sun, 14 Sep 2008 09:56:00 EST. Please see our terms for use of feeds.

With its stock down more than 40% in pre-market, I am getting the same sickening feeling I had during that week in March when Bear Stearns' stock made its swan dive into an empty swimming pool. As I said yesterday on CNBC's Power Lunch, investors seemed disappointed that Lehman Brothers Holdings Inc. (NYSE: LEH) had not actually closed any capital raising deals.

Now Lehman -- which lost 7% yesterday -- was down over 40% in pre-market. That's because four analysts "widened loss estimates and cut price targets for Lehman," according to Reuters. And Art Hogan of Jeffries & Co. said that Lehman's best hope -- its plan to auction 55% of Neuberger Berman, may not work. "We are not even sure that the auction process for 55 percent of their asset management group is going to work because the people that win the auction need to find the money to buy it," he told Reuters.

I would not be surprised if Hank Paulson is now wondering why he ever took the job of Treasury Secretary. If Lehman stock keeps dropping 40% a day, there won't be much left by the end of the week. I have to believe that there are all sorts of people on Wall Street wondering whether they simply can't take the risk of continuing to do business with Lehman. And if that happens, Paulson will need to decide whether to let it fail, force a merger or bail it out.

Continue reading Can Lehman last the week?

Can Lehman last the week? originally appeared on BloggingStocks on Thu, 11 Sep 2008 09:00:00 EST. Please see our terms for use of feeds.

Much of the plan is consistent with what was leaked yesterday: firing the CEOs, replacing the boards, and putting the companies into conservatorship. The details that are new today have to do with the balance sheet restructuring that will take place. Bloomberg News reports the following key elements:

• Senior preferred stock. A new class of stock will be created that earns 10% dividends and gets access to the cash from these companies ahead of any other investors. Bloomberg wrote, "Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on the initial investments."
• Forced liquidation of mortgage holdings. The plan forces Fannie and Freddie to reduce their mortgage holdings dramatically over the next several years. Bloomberg reports, "As a condition for the assistance, Fannie and Freddie will have to reduce their holdings of mortgages and [mortgage-backed securities (MBS)]. The portfolios shall not exceed $850 billion as of December 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion."
• Quarterly capital injections. Depending on the net worth of Fannie and Freddie each quarter, Treasury will purchase more senior preferred. "The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks," according to Bloomberg.

Continue reading Will Fannie/Freddie bailout details spook investors?

Will Fannie/Freddie bailout details spook investors? originally appeared on BloggingStocks on Sun, 07 Sep 2008 15:13:00 EST. Please see our terms for use of feeds.

Three weeks after Barron's reported that a senior administration official -- my guess is it was Hank Paulson -- leaked details of a "rescue" plan for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- Bloomberg News reports that its implementation could be imminent. And in after-hours, shares of both companies are down 20%. If what Barron's reported -- wiping out common shareholders and slashing preferred dividends -- proves prescient, both stocks have further to tumble -- as in all the way to 0.

Bloomberg reports that Paulson met with Ben Bernanke and the CEOs of Fannie and Freddie and the head of the Federal Housing Finance Agency which oversees the two. And they have catering set for the entire weekend. I wonder what they are serving? I think PIMCO bond guru Bill Gross knows. He said, "There's probably a 95 percent chance that the moment that something will happen is Sunday or Saturday," according to Bloomberg.

Yesterday Gross called for the government to use $500 billion to bail out the real estate market. As I posted yesterday, this bailout is for the benefit of people like Gross and China's central bank which owns $340 billion worth of Fannie and Freddie mortgage-backed securities. If you happen to be among the holders of their common or preferred stock -- you are going to lose it all. As I suggested this morning, after the market lost 345 points yesterday, the government needed to announce another rescue plan by Sunday night.

Continue reading Will Fannie and Freddie shareholders be wiped out this weekend?

Will Fannie and Freddie shareholders be wiped out this weekend? originally appeared on BloggingStocks on Fri, 05 Sep 2008 21:01:00 EST. Please see our terms for use of feeds.

Since China owns $1 trillion worth of U.S. Treasury bonds and $340 billion of mortgage-backed debt, when China gets a cold, the U.S. catches pneumonia. And -- as I posted -- when we think about the $800 billion bailout bazooka for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), we should remember that our money is going to help China out of an investment jam. But since we are at China's mercy, it may be self-help.

This comes to mind in reading the New York Times, which reports that China's central bank, the People's Bank of China, has kept its capital modest as it has gobbled up assets. Now it seeks a bailout from China's finance ministry. According to the Times, "those [$1 trillion worth of U.S.] investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank's tiny, [$3.2 billion] capital base [that] has not grown during the buying spree, despite private warnings from the IMF."

This need to replenish capital puts the U.S. economy in the middle of a bureaucratic battle on the other side of globe. The People's Bank wants a stronger yuan while the finance ministry wants a weaker yuan. The Times writes that "as the yuan slips in value, China's exports gain an edge over the goods of other countries." Treasury Secretary Paulson has been on the side of the People's Bank, advocating for a stronger yuan, so his push to bail out Fannie and Freddie can be seen as using U.S. taxpayer money to help it in its battle with China's finance ministry.

Continue reading We are all Chinese now

We are all Chinese now originally appeared on BloggingStocks on Fri, 05 Sep 2008 10:15:00 EST. Please see our terms for use of feeds.

BBC News reports that another hedge fund has closed down thanks to its failure to bail out of the oil speculation trade that boosted oil to a peak of $147 in July. This is yet another piece of evidence that people like Hank Paulson, who insisted that record oil prices were due to supply and demand, were either being less than honest -- particularly since his former employer Goldman Sachs Group (NYSE: GS) was a big beneficiary of this speculation -- or ignorant of reality.

The hedge fund in question this time is Ospraie Fund, which invested in commodities like oil and gold. It "has lost 38% of its value since the start of the year." Gold is down 22% to $800 from its $1,030.80 an ounce high in March. Oil has tumbled 25% to $109 since peaking in July, according to BBC News. But 1440 Wall Street suggests that the biggest commodity culprit in Ospraie's demise was copper's tumble. The lesson here is that if a sufficient number of big money speculators get together and decide to, say, short the dollar and go long commodities, there will seem to them to have safety in numbers.

But when the government started investigating the cause of spiking oil prices, the trade got very unprofitable very fast. As I posted, the Commodities Futures Trading Commission (CFTC) recently found that 81% of oil trading volume was driven by speculation. Then we witnessed the failure of SemGroup and the indictment of Optiver Holding for manipulating energy prices -- those funds who were too slow to reverse their positions and got creamed.

Continue reading Lehman-backed hedge fund fails as oil play peters out

Lehman-backed hedge fund fails as oil play peters out originally appeared on BloggingStocks on Wed, 03 Sep 2008 09:55:00 EST. Please see our terms for use of feeds.