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Everyone wants in on the bailout gravy train, cities too

Hank Paulson may have created a monster. He has recently said that he does not want to use the TARP (Troubled Asset Relief Program) to buy dodgy assets as he originally billed the U.S. bailout measure. Instead, he wants to inject cash into consumer-oriented areas, now that the finance sector has seen major bailout cash. As a result, a lot of companies see a prime opportunity to get some desperately needed cash. But, cities are also lining up for cash too.

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Chart of the day: Fed Balance Sheet

Chart of the day: Fed Balance Sheet

This chart and the commentary both come from FT Alphaville:

A look at the Fed’s balance sheet currently will tell you it’s very much in the business of supporting liquidity/prices in assets other than Treasuries. The graph below is a month old, but the point still holds:

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Peter Schiff: they laughed at him, now he’s laughing back

I have been tied up with other activities all day today. But, I just had to send this post on Peter Schiff. My brother-in-law sent me this video a second ago of Schiff predicting doom and gloom on YouTube. And it’s actually kind of funny to look back and see what he was saying in 2006 and 2007 and how he was pilloried. His calls were uncannily right on the money.

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G-20 Summit:A look back to Bretton Woods

Here in Washington, DC, we are preparing for the G-20 summit, the largest gathering of foreign leaders in this own since the 50th anniversary of NATO in 1999. The event has been billed as a latter-day Bretton Woods, a forum to reform the global financial system and restore confidence. Therefore, it is fitting to look back at Bretton Woods to […]

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Unemployment claims over 500,000: only third time in quarter century

Unemployment claims over 500,000: only third time in quarter century

516,000. That’s the number of people who filed for employment claims this past week. This is the highest number we have seen since September 2001, just after 9/11. The last time we saw claims over 500,000 before that was July 1992. Going back twenty-five years to 1983, we have seen jobless claims above 500,000 only three times. Granted, the pool of workers in the United States is much larger today. Nevertheless, this number suggests a deep, deep recession is coming.

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Paulson is handing out free money like candy to a baby

Paulson is handing out free money like candy to a baby

Hank Paulson knows he has two months left until he leaves Washington. Therefore, he must feel he needs to pass out as much free cash to his friends in banking and finance before he leaves town. Or, at least so it seems.

The latest story I saw on this turn of events concerns Citigroup and its bid to take over my local bank, Chevy Chase Bank. This bank, whose headquarters is literally half a mile from my house is a profitable institution with $14 billion in assets. How can Citigroup, which has over $60 billion in writedowns, is losing money hand over fist, and received a massive cash injection from the federal government just weeks ago take over a smaller, more profitable institution? Doesn’t this create a moral hazard? I heard Peter Morici, a well-known International Business Professor at the University of Maryland, on the radio this morning asking the same questions.

The US banking system is certainly in need of recapitalization. But I must confess this looks a lot like crony capitalism. Let me do a brief recap of how we got here and add in some of the ways US Government money and the $700 billion TARP (Troubled Asset Relief Program) have been used to date.

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News round-up: 13 Nov 2008

I have been doing these round-ups rather sporadically now, but the news flow is still considerable. In fact, the news flow is so much that I have off-loaded my links onto a feed which you can access here. The main story I am following is the sheer lunacy of bailout schemes in the US. This morning I heard Stephen Roach […]

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Should GE be a AAA company?

The latest news in bailouts involves GE Capital. Apparently, the company has gone begging to the FDIC for a bailout. In fact, the FDIC has offered to back $139 billion in GE Capital debt. I have serious reservations about this move by Sheila Bair. In fact, I am outraged.

First, as I understand it, the FDIC has much less than $139 billion in capital on hand. And they have hundreds of banks to watch that are busy going broke. So, how is it possible that they can guarantee GE Capital’s debt? The answer is they cannot. American taxpayers are what is behind this move just as they were with Fannie and Freddie – not that we will get stuck with the bill as GE is not going under, but the FDIC certainly can’t pay.

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Writedown News: 12 November 2008

The big news this week is that writedowns have moved near trillion dollar territory. As all of the banks report earnings and come clean about losses, the figures are staggering. The largest writedowns came from the GSEs with Fannie Mae losing a staggering $29 billion. AIG was close behind. See my post, “Financial sector losses near $1 trillion” for more […]

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Dean Baker: The High Priests of the Bubble Economy

Deregulation and laissez-faire orthodoxy bears much of the blame for the current economic mess we are experiencing. Dean Baker notes with chagrin that Barack Obama, who will take office as U.S. President shortly, has put some of the progenitors of deregulatory laissez-faire policy at the helm of his economic team (hat tip Marshall). Below is a snippet of his post […]

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Iceland: a cautionary tale for small nations

Jon Danielsson has a very thorough piece up on the VoxEU site which details the catastrophic collapse of Iceland and its banking system. This is a cautionary tale on two fronts. First, Iceland was a small country with a very large banking system. This has meant the country is simply not big enough to bail out its banking system. Other […]

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Law firm confirms the disaster at Lehman

Many will suffer at the hands of Lehman Brothers. That is the verdict by white-shoe law firm Wachtell, Lipton, Rosen & Katz – a firm I had the pleasure of working with during my previous life in finance. They are very good. Apparently, the bankruptcy laws will not be a protection for creditors as clent assets were comingled with Lehman’s […]

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