Wednesday, April 29, 2009
Monday, April 20, 2009
Payback?
Geithner May Not Let Banks Pay Back TARP
In an interview, Mr. Geithner laid out some broad principles, including the need to consider the overall health of the financial system and the flow of credit in judging whether banks can repay their government investment. Among large banks, Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. have both said they want to repay the government.
"We want to make sure that the financial system is not just stable, but also not inducing a deeper contraction in economic activity. We want to have enough capital that it's going to be able to support a recovery," Mr. Geithner said.
In a sense, this is just the logical conclusion of the logic of systemic risk. The bailout wasn't meant to rescue any individual firm but to avoid systemic failure. Once you are following that line of policy, there's no reason the interest of one firm's managers, creditors or shareholders should be allowed to re-introduce systemic risk by exiting the TARP system. If it sounds perverse that it is now government policy to prevent the market from figuring out which financial institutions are the weakest and to force the strong hands to drag along--or, perhaps, be dragged down by--the weak hands, well you haven't internalized the logic of the bailout yet. "We all drown together" as someone once said.
*****
Response to this article:
Systemic integrity has nothing to do with it. Geithner and the Obama administration won't let the banks pay back the money for the same reason they gave them money in the first place. They want control. That's all this has ever been about. Make no mistake, firms that took TARP money are now discovering that they have made a deal with the devil. A deal whose terms can change at any time.
Better to die free man than to live as slaves of the federal government.
Pay Rule Led Chrysler to Spurn Loan, Agency Says
Firm Claims It Didn't Need The Government Infusion
By David Cho, Peter Whoriskey and Amit R. Paley
Washington Post Staff Writers
Tuesday, April 21, 2009
Top officials at Chrysler Financial turned away a government loan because executives didn't want to abide by new federal limits on pay, according to new findings by a federal watchdog agency.
The government had offered a $750 million loan earlier this month as part of its efforts to prop up the ailing auto industry, including Chrysler, which is racing to avoid bankruptcy. Chrysler Financial is a major lender to Chrysler dealerships and customers.
In forgoing the loan, Chrysler Financial opted to use more expensive financing from private banks, adding to the burden on the already fragile automaker and its financing company.
Chrysler Financial officials denied in a statement that the company's executives had refused to accept new limits on their pay, adding that the firm turned down the loan because it no longer needed it. But their account conflicts with a report set to be released today by the Treasury's special inspector general for the federal bailout, saying the executives' refusal led Treasury to withdraw the loan offer.
"It was certainly a deal-breaker from Treasury's perspective," said Neil M. Barofsky, the special inspector general, who spoke to the bailout program's chief compliance officer about the situation last week.
The incident is the latest controversy to illustrate the hazards confronting the Obama administration as it sets out to assist private firms.
The uproar over the federal financial rescue, much of it focused on executive pay at bailed-out firms, has made companies skittish about taking government aid. Several big banks, such as J.P. Morgan Chase and Goldman Sachs, have said the bailout money now carries a stigma and have taken steps to pay it back. A program to aid small-business lenders has been stymied by the firms' reluctance to accept pay limits and other requirements of bailout loans.
Government officials have said that unless financial firms have enough resources to lend liberally to consumers, the economy cannot be revived.
The Treasury Department previously lent Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. But since that first loan was announced on Jan. 16, the Obama administration and Congress have toughened the rules.
During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company an additional $750 million.
It did not take long for most of the agreement to fall in place. But on April 7, the Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, according to the special inspector general's report.
Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved compensation limits, and the Treasury is working on clarifying what the firms must do to comply with the rules.
In other words, the executives were asked to sign the waivers without knowing what specific limits the Treasury might set.
Within a week, Chrysler Financial responded that "it was unable to obtain waivers from all 25 executives," the report said. By last week, the report added, "the request for additional funding was denied."
Chrysler Financial denied that its executives balked at new pay limits and said the firm had met all the restrictions of its first loan from the government's Troubled Assets Relief Program, or TARP.
"Executives have not been presented with any new demands with regard to executive compensation," the company said in a statement. "As a TARP recipient we remain in full compliance with current executive compensation requirements."
A senior industry official with knowledge of the matter said Chrysler Financial passed up the new government loan because, with auto sales down in April, there has been even less need for financing. The official said that if sales pick up, Chrysler Financial may seek additional government aid, even if it means agreeing to executive-compensation limits.
"If Chrysler Financial needs the cash to support Chrysler, they [the executives] are not going to put the auto company at risk," said the senior industry official, who spoke on condition of anonymity because the negotiations were private. "These guys aren't going to blow up the car company for their personal reasons. . . . They've done everything they can to support the automotive company."
Chrysler Financial recently announced publicly that it no longer needs additional federal loans. Instead, the company said, it will rely on other sources of financing.
"Chrysler Financial has determined that it has adequate private capital funding to cover the short-term needs of our dealers and customers and as such no additional TARP funding is necessary at this time," the company said in a statement.
But by forgoing the government loan, the company had to tap loans from a group of private banks, including J.P. Morgan and Citigroup, that charged more for the money than the government would have, sources said. That line of financing had been arranged in August, when the company was struggling to stay afloat, according to an industry official.
Chrysler and Chrysler Financial are separate companies. But both are owned largely by Cerberus, a private-equity firm. The German automaker Daimler owns a 20 percent stake in each.
Treasury officials declined to comment on the matter but released a statement that said the department's auto task force would "monitor closely the financing situations for both GM and Chrysler."
"This is an issue that Chrysler and its stakeholders will need to address as part of this process and any potential deal," the statement said.
Sunday, April 12, 2009
Review and Comment on the News (Illustrated)
For the week of April 6-April 12, 2009. Here is my review and comment on a few of the newsworthy events of the past week. Prepare to have your mind blown to pieces by the sweet embrace of truth.
PIRATES!
While most people tend to think of pirates as romantic figures of the pre colonial era, they in fact have continued on pillaging and plundering up through modern times. In fact, pirates have recently enjoyed a dramatic resurgence in popularity due to scarce law enforcement along the coasts of poorer nations, and throught the propagandist efforts of the Disney Corporation.
This entire subplot made no sense. I feel like I'm taking crazy pills here!
Anyway, we've now discovered that pirates are not our friends, and they are, in fact, very bad. Once again, we've been misled by the liberal, elitist media, which would have you belive that pirates looked like this:
When they really look like this:
Way to really go after those facts, big media! The Pirates are now apparently back on their ship, holding the captain of the American vessel as a hostage. To the captain's credit, he staged a nearly successful escape from his captors. He was caught swimming away and dragged back, but darnit, at least the dude fought off a bunch of scummy pirates first. The news outlets have not released the name of this incredibly bada** captain, put according to our artists he looks something like this:
Here at simsisms we would like to express our confidence that the captain will escape the somali pirates and discover what lies in the shadow of the statue. He's that good. As for the pirates, they are not exactly well trained, fast running out of food and water, and they have run out of fuel for their ship. By the way, they're also surrounded by a pissed of american navy. We don't really give these guys much of a chance. In fact, we've put our best scientists to work coming up with what it would take to get the Pirates out of this jam:
Sorry guys, I'm guessing you don't have one of these aboard the ship. Rest in Peace.
Michelle Obama grows disgusting food
Pop Quiz time boys and girls. This quiz is one question long, and here it is. Who do you trust to tell you if food is safe to eat:
or
b) Hippies
Now hold on, before you make your choice, I want you to consider some things. Remember that science gave us this guy:
Whereas hippies gave us this guy:
Hold on, there's more. Greatest accomplishment of science?
That's right, they put a man on the freaking moon. Greatest accomplishment of Hippies?
So, once again, who's judgement would you trust more, Scientists or hippies? If you picked the first choice, you are not Michelle Obama.
So, this week, Michelle Obama announced her plans to plant a garden of organic food to meet the vegetable needs of the White House. Look, she even took kids on a tour through the garden.
Don't lie. That's pretty freaking cute and cuddly. No wonder Opera loves her.
We see nothing wrong with planting a garden, we just object to the brainwashing pro-organic speech that she gave afterwords. I hate to keep harping on this but I can't understand why an obviously educated and intelligent person would put stock in the whole organic food nonsense that science tells us is bunk. The same people who will beat you over the head with "science"whenever Darwin or Global Warming are mentioned seem to casually disregard actual science when it comes to things like so called "organic food." Again, we wouldn't have a problem with this if it didn't help further the radical agenda of a militant group of extremists who are content to let whole nations starve rather than take science's word that really, seriously, the food is safe. Make up your mind people, either you believe science or you don't.
Issue #3
Obama bows to the Saudis
Now that we've appropriately taken the president to task for being a liar, let's turn this around and ask his opponents, "WHAT IS THE BIG DEAL?" I mean, of all the possible criticisms to lob at the guy, you choose THIS? Let's take a quick look at other things that the President has screwed up that you should be harping on instead-
Iran is still developing nuclear weapons- Legitimate Gripe.
Banks posted record profits with our money- Legitimate Gripe
Campaigning on a platform of ending the war in Iraq and then adding more troops and admitting that Bush was right and that we can't leave until Iraq is stable- Legitimate Gripe.
What's this photoshop I keep hearing about? I know not of what you speak.
Maybe I'm wrong. Maybe the right-wingers have a point on this. The President is the leader of the free world. It is a disgrace to have him bow down to anyone. It betrays the republic and it shames us all. In fact, I'll agree with the critics on this. Any president who would bow down to someone is unworthy to hold the office and should resign in disgrace.
That's it for now, see ya next week, kiddos!
Sunday, April 05, 2009
Time for another illustrated review and comment on the news. Prepare yourself, as I take all that you know about your world, and comment snarkishly upon it. Prepare...to go over the edge.
1. The Economy
a) In order to convince banks to loan to less credit worthy people, the government pressured banks to engage in subprime lending.
b) The federal reserve kept interest rates inexplicably low for decades.
c) Years of prosperity left investors world wide with trillions of dollars to invest and seeking a safe investment.
d) People realized that U.S. real estate almost never decreased in value over the long term, and even if a borrower didn't pay back a loan, there was still a brick and mortar secured asset which meant any money you loaned was insanely safe.
e) Financial types bought the rights to people's mortgages, bundled them all together, and sold pieces of the mortages to different investors. As the homeowner made the interest payments, the investor got a return on his investment.
f) Investors were so happy with their investments that they demanded more mortgages to invest in.
g) Loan companies lowered the standards to qualify for loans so that pretty much anyone could get a home loan, regardless of whether they had assets or even a job. Many of these loans had an adjustable rate, with a very low rate for the first months of the loan that then went way up later.
h) Financial types realized these loans were shaky, so they sold pieces of risky loans together with not-so-risky loans so that the investments looked good to the unsuspecting buyer.
i) everyone was buying so much real estate that demand went up, which drove prices way up.
j) prices for homes went up, which meant the value of everyone's home went way up. This meant a lot of people had more equity in their homes.
k) Unsavory lenders and greedy homeowners took out loans against all the equity they had in their house. People were convinced to go invest that money in the stock market, or the less savvy went and bought boats, play stations, cars, and gold plated bathroom tissue to flaunt their newly acquired wealth.
l) Realizing that Social Security was basically a giant government mandated ponzi scheme, baby boomers started pouring money into 401(k)'s and IRA's, which were linked to the stock market.
m) the stock market, fueled by these investment dollars soared, many people were happy, and investors kept looking for more places to put their money
n) around Valentines Day of 2007, Investment groups started noticing that people were defaulting on mortgage payments shortly after moving into their houses. Some weren't even able to make their first mortgage payments. Savvy investment types started closely looking at what they had been buying for their investor clients. After they went home to change their now soiled pants, the investment types called the financial types and politely told them that they would not be buying any more loans.
0) Financial types realized they were deeply screwed.
p) People started defaulting on loans and filing for bankruptcy in record numbers. Banks that held these mortgages realized they were deeply screwed. Not having any money left to lend, banks started declining money to anyone. About this time, I bought an Altima.
q) While consumers were losing their houses, the government was content to sit on its golden toilet seat and watch the whole thing unfold on the 96" plasma TV the government had mounted to its bathroom wall, whilst wiping its rear end with $100 bills and smoking cigars made out of illegal immigrant tax contributions.
r) Suddenly, companies started missing debt payments, resulting in the payout of massive credit swaps. Credit swaps are complicated and difficult to explain, but the basic thrust is that its similar to a life insurance policy that you can take out on someone else's debts (when they default, you get paid), sell to another person, and is not regulated in any way by the government. In fact regulation was expressly rejected by congress on a 96-0 vote (how's that for bipartisanship). At it's height, there was about 30x more liabilities than assets represented by credit swaps. Credit swaps were purchased from many sources, but one of the largest was money contributed to money market accounts, supposedly one of the safest type of accounts you could have because they never returned a loss.
s) The biggest money market holder posted a loss, which meant rich people were losing money. banks were now unwilling to lend money to pretty much anyone, and our debt glutted economy began to screech to a halt. Since rich, campaign contributing people were losing money, the government decided that it was appalled and went into panic mode.
t) The government decided to give a ton of money to banks so that they would lend the money out and credit would start moving again. The banks took their money, and promptly didn't lend it to anyone.
u) AIG, the largest holder of credit swaps, announced that it was about to go under, and threatened to hurt lots of rich campaign contributors if it went, so the government gave it a ton of money. AIG promptly gave its executives large bonuses and congratulated them for having sucha good year.
v) the auto industry announced that it was going under, and that if it went out of business the UAW would no longer be able to donate to DNC re-election campaigns, so the government gave them a ton of money. A number of people, myself included, called shenanigans at this point, said that we should force the automakers into Bankruptcy and said that they would just need more money later if we didn't.
w) Barack Obama is elected president, promises bi-partisanship, a solution to people losing their houses, lower taxes, and to restore the confidence of the market.
x) Barack Obama takes office, tells republicans to go screw themselves, does nothing to save a single home foreclosure, raises taxes, and destroys confidence in the market until it drops below 7000.
y) Barack Obama appoints a tax dodging nincompoop as treasury secretary, prints trillions of dollars for banks, fills out the lamest NCAA bracket in history, and continues to ignore homewoners.
z) Obama administration is shocked, SHOCKED, when the auto makers return and say they need more money. Considers forcing them into bankruptcy, $30 billion dollars after everyone else said that they should.
This review was not fact checked in any way and contains glaring inaccuracies. Sorry, it was all taken off the top of my head. Which brings us to where we are today. On the brink of what may very well be a depression. Obviously nothing on the scale of the Great Depression, but still, pretty stinking bad. What's more, we've been here for over two years and the prevailing wisdom among both parties in the government is that we can somehow spend our way out of this. Here's a pictoral representation of what continued undisciplined spending will bring.
More Unemployment
Inflation
Possible death of the dollar
2. Continued Foreclosure Crisis.
For those wondering, yes, I do read www.BlackCommentator.com regularly. But back to the issue. We're two years into this mess, and how many homes have we saved? Zero. We need to accept that until the housing market is stabilized, we're not going to start a recovery. The housing market is not going to stabilize until we get these recently built homes into the hands of people who can afford them. This is why I support, and you should support, the current bill that will allow bankruptcy judges to modify the mortgages on debacle-era homes, and if necessary reduce the principal on loans so that the owners can afford to keep their homes.
Will this lead to an increase in bankruptcy filings? Maybe. But, until we get the housing market stabilized there is no real economic recovery in sight. Until the houses are in the hands of people who can afford to own them, there will be no stability. We can either make them affordable to the people who currently own them in a relatively short period of time, or we can drag this out for years, as new wave of people finally run out of the means to pay for their overpriced house. I for one prefer that we get this over with quickly, stabilize the market, and move on.
I know a lot of people think that this is ridiculously unfair to the lenders. Why should they have to absorb a loss just because some schmo bought a home he couldn't afford. Well, ignoring the fact that the lenders have already been given a trillion dollars they don't deserve, let's talk about investing. A loan is an investment. Like any other investment a loan carries risk. You are NEVER guaranteed a return on an investment; housing is no different. These loans were made with the understanding that they were risky investments and this time the imprudent investors are going to get taken to the cleaners.
Besides, the lenders are already going to be hit with those losses. Right now its a matter of whether they are going to take the loss when they go through an expensive foreclosure process, take possession of the home and then sell the home for a loss on the open market and write off the loss. A mortgage cramdown (where a judge rewrites a loan) means that the bank takes the loss it was probably going to take anyway, but it avoids the foreclosure process and the debtor gets to keep the home. Banks can actually come out BETTER in this scenario because they will be getting the appraisal value for the house, whereas most houses being sold on the market today are actually going for below market value. Banks also get to save on the cost of the foreclosure. This is one of the reasons why many of the big banks have now embraced the idea of mortgage cramdowns.
It's not about fair anymore, it's about what works.
3. AIG
Speaking of things that don't work, let's talk about AIG. Believe it or not, I don't have any problem with AIG executives getting a massive bonus. I have a problem with us having given AIG any money in the first place. It's a failed company that ran around and staked it's future on risky ventures. It took a risk and should have to pay. As for the bonuses, I find it wholly disingenuous for the government to bend over backwards to allow these executives to get their bonuses, and then act shocked when the whole thing comes to light. I find it even more unethical to pass an ex post facto law (which the constitution prohibits, if memory serves) to tax those bonuses as a way of congress covering its own screw up. I don't care if the supreme court backs this law, it is wholly unamerican to single out a group for punishment that did nothing illegal.
On the subject of bonuses, let's talk about congress for a minute. Congress gave itself a payraise this past term, and gave out bonuses to its staff. As far as I am concerned, the failed workers of a failed government are far less deserving of a reward than the failed workers of a failed company. AIG lost billions, Congress has cost us TRILLIONS. So much money that our children's children will be saddled with the debt. If anyone should be giving back salary and bonuses, it is this congress.
4. Auto Bailout
Months ago, when the American Automakers showed up with designer hat in hand to ask for a bailout, pretty much anyone with half a brain (Mitt Romney), and even some people with less than half a brain (me) said we should tell them to pound sand and head over to the Bankruptcy court. We were told that was not an option, the economy wold hopelessly dies, etc. etc. Now, we're hearing reports that the automakers might be forced into bankruptcy. Nice going, government. Couldn't you have reached this conclusion BEFORE we gave them 30 billion dollars?
5. Gay Marriage in Iowa
Not content to accept the overwhelming will of the people, God, or even the dictionary Iowa has decided to allow gays to marry. As a student of the law (by student, I mean one who plays spider solitaire continuously while an angry lesbian lawyer rambles on) I am continually amazed at judges who substitute their own will for the will of the people and 6000 years of accepted moral history. Even societies which tolerated homosexual relationships did not afford them the status of a marriage. Period. But this is the internet, let's not judge positions based on rational argument and thought. Let's judge them by the people associated with each idea. First, let's look at the leading advocates of gay marriage:
And yes, God is anti-gay marriage. Remember Sodom and Gommorah? Here's a rough picture of what they look like now.
As far as both teams go, I hope it is a good close game, and that the players enjoy this once in a lifetime experience. Go live it up afterwards, too. The nation understands that athletes train hard and are intensely dedicated. If you guys need to blow off some steam, don't worry, no one will look down on you. This country treats its star athletes like kings.
