Category Archives: Obamanomics

Bank Reforms: A second Edition

Paul Volcker has new risk limits

After the treasury induced reforms that were more a laundry list of all measures, with existing internal controls at banks pushed into the open, in the next round against criminal misuse of the monetary and fiscal basis, Obama leaned towards Paul Volcker to introduce risk based limits for the Treasuries at commercial and investment banks. Goldman Sachs has already brought leverage down to 4.42 times net worth during the upheavl of 2009.

In an interview with ABC on Wednesday Mr Obama characterised the move by saying that the administration was about to get into a “big fight with the banks.”

“We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behaviour of financial players all around the world,” he said.

“People are angry and they’re frustrated. From their perspective, the only thing that happens is that we bail out the banks… We’re about to get in a big fight with the banks.”

An administration official on Wednesday said the plan – in discussion for the last couple of months – was born out of a need to “cut down on excessive risk taking”.

The announcement is likely to stop short of the return to a forced separation between riskier investment banking and the utility functions of retail and commercial banking that was enshrined in the Glass-Steagall Act.

Goldman Sachs – which runs a large proprietary trading business and which reported stronger than expected fourth-quarter profits on Thursday – will be watching the details closely, but the measures are more likely to threaten institutions whose operations are large and span commercial and retail operations as well as trading for their own benefit.

MARKETWATCH.COM: Breathing Fire

“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama at the White House.

“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary,” Obama added.

The proposal aims to deter commercial banks from becoming so large that they put the broader economy at risk and distort normal competitive forces

Greenberg goes for the next swish

Who brought the house down?

Hank Greenberg in an apparent bid to recover AIG’s golden goose from the two year hiatus in economic activity, remembering his last coherent version of 2007 here:

Greenberg blamed new standards for credit-default swaps — pushed by Goldman or Deutsche Bank AG, he said — and subprime, housing-backed derivatives sold and then shorted by Goldman as contributing to AIG’s collapse

This is excerpted from a short note on Bloomberg here

Also, in case you are wondering, no we do not plan this effort to grow into something as bg as the Business Week BX..pretty cool stuff, eh!

Blankfein not stepping in yet, means Greenberg has another couple of hits at it..and his best chance is if he gets a closed door session behind the curtains..write in

Meanwhile Blankfein got a vote down from the Financial Crisis Inquiry Commission

Lloyd Blankfein, the head of Goldman Sachs Group Inc., failed to own up to his firm’s role in selling mortgage securities that helped trigger the global credit crisis, said the chairman of the panel investigating the financial meltdown.

“Mr. Blankfein himself never admitted that there was any responsibility of Goldman Sachs to make sure the products themselves were good products,” Philip Angelides, chairman of the Financial Crisis Inquiry Commission, told reporters after a hearing in Washington today. “That’s very troublesome.”

Blankfein had just explained things too simply for those who expected a sobbing recalcitrant kneltdown humbug in every witness to the state, where they sat happily with the same Greenberg, prompting him to spend $44m on a weekend layover with his team among other things

Where the Infrastructure Dollar went?

2009 was the year of the stimulus for the US. Though the Capitol talked mostly only about stimulus in terms of funds for highways and on setting up of recovery.gov, We started taking notice by June that indeed it was hard to track and hard to estimate..a lot of state and some police projects were awarded at the level of county and job savings ascribed to each to get to recovery.gov. Not entirely accurate but definitely a notch or two better than any other spending program i know. The rest of the jobs program will be best utilised probably by the same jobs..new roads, highways that needed even just guard rails, railway infrastructure.

In February, Obama made whistle-stop tours and exhorted the people to see how much they needed these highways and bridges, and how these were unfinished business:

Mr. Obama is proposing what he says is the largest increase in infrastructure spending since President Dwight Eisenhower created the Interstate Highway System in the 1950s.

“We will invest more than $100 billion and create nearly 400,000 jobs rebuilding our roads, our railways, our dangerously deficient dams, bridges and levees,” he said.

The president said funding infrastructure projects will also help create jobs in other areas of the economy. He specifically mentioned the Caterpillar company, which makes much of the heavy equipment used in road projects. Caterpillar recently announced more than 20,000 layoffs.

“And today, the Chairman and CEO of Caterpillar said that if the American Recovery and Reinvestment Plan passes, his company would be able to rehire some of those employees,” he said.

via VOA

By July, we were comparing dollars at each city:

Track These At Recovery.Gov In Time | NY Times

The NY Times story here was obviously received well because of the graphics and the comparative data, much of which may need to be reworked now. A look at recovery.gov shows 40-45% of the funds being drawn by county programs such as the 11921 awards in California, mostly grants and around 10% ($1.3 billion ) in contracts, going to police stations buying LCD Flat screen TVs and Crowd Control System upgrades, waste water collection systems, increase health center services and presumably the roads, bridges and the highways.

Out of the $158.7 billion awarded ( 58%) 13% has been received and more can probably be done now in receiving those funds and working out what is wrong with the process.

Nonetheless, many in the developing world and even Europe could also use the recovery.gov example to start cleaning the Augean stables of public works. Well begun is half done. But with only 12000 jobs related in Arizona and jobs being reported in fictional districts, well..someone needs to figure out what is wrong and fix it. Similarly Texas has only reported 20000 jobs created and the country as a whole is already reporting 600000 jobs created by the stimulus..obviously not going to match with the rising unemployment numbers..and i haven’t heard from any of these folk on twitter..strange?

In California, almost 45% has been allocated by the Department of Education ( 8 out of 18 billion )  and more than 15% to the Department of Transportation – Have people really seen these half a million jobs making a difference? Have these funds to school districts saved the schools or the teachers? There however the reports are still missing, probably dwarfed by the enormity of the task involved

An example of the agency wise allocation is in the included screen grab for Alabama on the right. It is a great time for people at these agencies to get back with the results. America needs it before going on another joyride with public funds. If you go by these statistics the journos at Reuters have done a pretty ‘funny’ piece with the stats

The second stimulus program may just be going the wrong way without a detailed success/failure report on the first one.

The new Jobs program

The “Jobs for Main street” , Whitehouse’s own repartee to the Wall street cats, is equally unrepentant getting another $40 billion for Department or Transportation, to teach us the ‘new deal’ all over again. The ARRA year has gone by and we are still thinking about another set of roads that will be up in ‘120 days’. I thought the overwhelming majority passed it because it was creating jobs? Especially now with the shadow inventory showing, it is time to tread a little cautiously and on sure footing not ‘sidings and tarpools’ The ARRA bill already has 7886 transportation projects underway.

An example of others who could have got the money is below from The Huffington Post

Demand for high-speed rail funding has well exceeded the expectations that existed when the recovery bill was signed last year. Currently, there are close to $60 billion in project applications from more than 30 states competing for the first $8 billion in federal high-speed rail funding, which will go out in a few months. Domestic and foreign investors and private industry have taken notice of the government’s initiative and the sector has exploded over the last few months, providing hope for new employment that can offset the massive losses in the automotive industry. All eyes are on Congress to see if they will follow through on the initial down payment in their next major transportation spending bill.

Jobs are being lost every month even two years after the recession began. While the number has stopped growing very fast, the number of jobs lost is growing every month without fail. These businesses cannot just wait for banks to start lending, and pretty soon we are going to be out of money to print.  We were losing more than 600,000 jobs every month just a few weeks back. This recovery will take much longer than in the Asia and Latam markets. The unemployment rate is still above 10% even after November showed up a huge improvement to just 11000 lost jobs ( just Kentucky lost 5000 out of this!) 15.4 million are still looking for work hopelessly stuck with a lasting unemployment with even the limited foreign worker visas going unrequited in this situation. The long term unemployed, looking for work for more than 6 months are a good 38.3% of the unemployed, another record for America.

More foreclosures

Thousands Of New York Area Home Owners Attend Mortgage Modification Event

Even as dismal numbers from the loan modification program caused an extension of the program till October 2010 ( see Geithner extends TARP) the latest shadow inventory nos ( detailing foreclosures shocked the nation with 1.7 million available for sale from foreclosures. St Louis got an award for 800 modifications to save homes from foreclosure! There seems to be no comparison between the two figures, and more is required than depending on just road construction to make new jobs

Probably some of the economists at Obama and Biden’s offices are already at work untangling the confusion of the stimulus and getting ready to tell us what has worked. I think it’s time.

Citi fizzles out in end 2009 bid

Repayment week came a cropper as Citibank found a lukewarm market waiting for its sale to raise the $20 billion to repay. It seems Vikram Pandit’s team failed to do the required homework before declaring its ambitious calendar and lacked the skills to judge the market conditions right for its sale. All the meetings Vikram Pandit had been having with the Treasury came a cropper on a day that mysteriously coincided with Obama’s call to the bankers.

The market does nt ignore such folly. All insider trading and information based decisioning apart, the market first and foremost reads market information and that information now puts Citi and AIG in the same league. Both will now be assessed with a lack of direction and difficulty in reading its stakeholders because of a simple public fracas. I mince no words when I say that they could now be treated worse than an Accenture cuddling Tiger woods a week after the man destroyed his marriage.

This is a setback for the entire recovery mechanism and a symptom of the misreading that afflicts the Geithers, Benmoshes and the Pandits

Even a Hongkong market could raise over $50 billion but you came out with an offer no one wanted for Citi. Sounds like, Citi is no better than one of the 133 banks that have failed in the US this year. This cannot be compared to the Mortgage meltdown or made a part of it. It needs a new chapter by itself. We all suffer for such fools though the gimmer of hope is that now no one cares when an AIG or Citi breaks the buck and the markets go on with better picks. It’s a shop like any other..In fact in pstate Des Moines in Iowa, the schools and the lake planes are all fine. The Ski resorts are doing big business too. And Dubai is back. Azerbaijan has a sovereign wealth fund. What about the new oil and mineral deposits south of Brazil and in the dense African safari..

We shld start saving right about now..

Well these here are the expenses we needed done..

Jobs bill approved

The U.S. House approved a $154 billion economic-aid package and a $290 billion increase in the legal limit on government borrowing as the chamber wrapped up its legislative business for the year.

via Bloomberg

The house voted these measures in with a narrow vote and the senate is expected to oppose the jobs bill
Once the senate is done, that makes the complete $1.1 T including the defense spending below and starts the jobs giveaway..i hope recovery.gov can track this one.

Isn’t a $1.1 trillion too much?

Wow, it might add up to a little more

This $1.1 trillion bill is not using the leftover funds from TARP at all. And sorry to sound like a tired donkey on the wrong crop, but keeping stakeholders happy with extra cash is going to come back to someone discussing your Rassmussen reports.

In the Fat Cat Bankers interview,

In the interview, which was conducted last week for CBS’s “60 Minutes,” Mr. Obama was asked about Wall Street banks that had recently recovered enough to repay government loans, but once again planned to give large bonuses to employees. News of the bonuses has has only fueled continuing anger over the bank bailouts.

“They don’t get it,” Mr. Obama said. “They’re still puzzled why is it that people are mad at the banks. Well, let’s see. You guys are drawing down ten million, twenty million dollar bonuses after America went through the worst economic year that it’s gone through in decades, and you guys caused the problem.”

Lawrence H. Summers, the White House chief economic adviser, said on ABC’s “This Week” Sunday that bankers “need to recognize that they’ve got obligations to the country after all that’s been done for them, and there is a lot more they can do.”

There is a reason why this comes here. Obama meets the bankers tonight to discuss their ‘special responsibility’ that presumably ties in with his own fiscally prudent self. And he is signing of $1100 billion at the year end himself. With an extra $650 billion for

The bankers will probably tell him his funds are safe now that BofA and Citi are well on their way, In fact BofA is now out of the purview of Federal supervision, leaving only 6 like Citi and AIG in their grasp. The Financial regulatory bill has more than 12 months to go in the Senate, notwithstanding the approval by the House.

These are the pork projects for the FBI and the CIA over 3000 of them

This still leaves the $650 billion defense bill that includes action to raise the $12.1 trillion ceiling of US debt and proposals to save the job market. This includes the savings from TARP funds as of today. In the five bills included in the sign off piece, FBI gets $7.9 billion, a $680 million increase over 2009; the Veterans Health Administration budget goes from $41 billion to $45.1 billion; and the National Institutes of Health receives $31 billion, a $692 million increase.

All but three Democrats voted for the bill, while all but three Republicans opposed it. And as any other year end appropriation, this will be fodder for the GOP that indulged itself with a much bigger ticket every other year. More importantly, Obama needs to steer the debt and the fiscal deficiti back on track and make jobs from the petty cash he has left including this $1.1 T ( that’s just another trillion) all funded from Chinese purchase of treasuries. Hoo boy, bad end to the year!, but probably in the normal course of affairs. It is probably more a ‘Fat Cat Armed Forces’ vs the ‘Fat Cat Intelligence’ and others waiting for the annual dole. Economics and the Economy never sung the same notes, let alone the same song.

Actually, the bill has quite a few saving graces and is more than justfied. My fellow bloggers should be able to see the woods and the trees both without shaking up the snow flurries. Here are the details from Reuters:

Following are details on some items in the legislation:

* Includes $1.11 billion, a 14 percent boost, to allow the Securities and Exchange Commission to hire 420 workers to oversee investments and financial markets. The agency has faced questions about its effectiveness after it failed to catch a $65 billion scheme perpetrated by Bernard Madoff.
* Provides $824 million for the Small Business Administration, a 26 percent increase, to support new lending to small businesses. Further efforts to encourage small-business growth could pass Congress in the coming weeks as part of an effort to bring down U.S. unemployment, which stands at 10 percent nationally.
* Requires General Motors Co and Chrysler to submit to binding arbitration to determine whether auto dealerships they have tried to close should be reopened.
* Includes a 50 percent increase to fight fraud in entitlement programs such as Social Security and Medicare. Lawmakers say this could save $48 billion over the next 10 years.
* Provides $2.5 billion for high-speed rail intercity rail projects, on top of $8 billion signed into law earlier this year as part of the economic stimulus bill.
* Includes nearly $1.5 billion for new nonmilitary aid to Pakistan, proposed by Obama as one tool to combat extremism there.
* Has no money for an infrastructure bank requested by the Obama administration to finance large-scale transportation projects. Lawmakers said the $5 billion project was too complex to handle through a spending bill.
* Reduces economic, governance and security aid to Iraq by 30 percent; keeps levels to Pakistan and Afghanistan roughly the same.
* Prevents the government from doing business with U.S. companies that have moved headquarters overseas to reduce their tax bills.
* Prevents the Export-Import Bank from providing loans to oil companies that do business with Iran.

[Tag Onomics, 2008, 2009, Banks, Reform, Banking, Crisis, Meltdown, TARP, Healthcare, Health]

America liked Clunkers’ speed,

Caulkers are Green?

If you hated Obama administrations climate Change plan, America’s denizens could soon put you in a minority. Because Obama has found a way to spend the extra cash he saved from TARP ( see O’nomics:wow-it-might-add-up-advantage-zyaada/)  I have been unable to catch this anywhere else except our Time Warner scoop-a-thon CNN Money yet, but it is a valid program after the unprecedented success of Cash for Clunkers that kept erstwhile and current homeowners busy in August, September and October

President Obama proposed a new program Tuesday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy.

The administration didn’t provide immediate details, but said it would work with Congress on crafting legislation. Steve Nadel, director at the American Council for an Energy-Efficient Economy, who’s helping write the bill, said a homeowner could receive up to $12,000 in rebates.

The proposal is part of the President’s larger spending plan, which also includes money for small businesses, renewable energy manufacturing, and infrastructure.

We know energy efficiency “creates jobs, saves money for families, and reduces the pollution that threatens our environment,” Obama said. “With additional resources, in areas like advanced manufacturing of wind turbines and solar panels, for instance, we can help turn good ideas into good private-sector jobs.”

The program contains two parts: money for homeowners for efficiency projects, and money for companies in the renewable energy and efficiency space.

The plan will likely create a new program where private contractors conduct home energy audits, buy the necessary gear and install it, according to a staffer on the Senate Energy Committee and Nadel at the American Council for an Energy-Efficient Economy.

Big-ticket items like air conditioners, heating systems, washing machines, refrigerators, windows and insulation would likely be covered, Nadel said.

Consumers might be eligible for a 50% rebate on both the price of the equipment and the installation, up to $12,000, said Nadel. So far, there is no income restriction on who is eligible. That would mean a household could spend as much as $24,000 on upgrades and get half back.

via Cash for Caulkers could mean $12K per home – Dec. 8, 2009.

On the cash you get from warrants | O’nomics

On Thursday, the Treasury Department will auction off the stock warrants it received from the bank as part of its $25 billion Troubled Asset Relief Program loan.The warrants could be worth as much as $1.5 billion to taxpayers, according to one estimate — though the results of an auction held last week suggest the feds may not get quite that much.JPMorgan JPM, Fortune 500 repaid its TARP loan in June, but the New York-based firm declined to repurchase the warrants, which the government received for free as part of the deal. Warrants give the holder the right to buy stock at a certain price within a certain period.Under the terms of TARP, banks have the right to repurchase the 10-year warrants they gave the government, with the proceeds going to taxpayers as profits. A number of big banks including Goldman Sachs GS, Fortune 500 and Morgan Stanley MS, Fortune 500 made large payments to the government this past summer to buy back their warrants.A bank that declines to repurchase its warrants, for whatever reason, triggers an auction at which the government sells the warrants to private sector bidders.Treasury held its first warrant auction last week, reaping $147 million via the sale of warrants to buy shares in credit card lender Capital One COF, Fortune 500. Thats a nice chunk of change, though it was less than one researcher was expecting.

via Treasury cashing in on JPMorgan stake – Dec. 8, 2009.

Things are looking up too! Bernanke is. | O’nomics

Watch our related post on how we have the snowmobile working to clear the c’congested’ road out to work..(TARP)

Well, all we needed to get on the road was pleasant musical carols singing we have cut down the debt..people almost rose to the occassion, refusing to pull out credit cards, but consumer credit overall is up with spending on cars and other personal loans..mortgages haven’t really taken off yet only the superbargain homes being bought up at less than $100k from foreclosures..Out here in the emerging markets, you can’t get easy credit for more than one home per family too and that might still be something to do for Bernanke ( if he makes it!)

October consumer credit outstanding fell at a 1.69 percent annual rate to $2.48 trillion. September’s figures were revised to show a $8.77 billion drop, previously reported as a $14.8 billion fall.

Analysts polled by Reuters had forecast consumer credit dropping by $9.5 billion in October. Consumer credit has now declined for nine straight months.

Confronted with the worst labor market in 26 years, consumers have been reluctant to spend, raising doubts that the fragile economic recovery might falter once the stimulus from government spending runs out.

“Households are still in the process of deleveraging. They are increasing spending, but its coming out of the savings they have accumulated during the recession,” said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.

“They are not acquiring new debt. We need to have consumers ramp up their spending if this economy is to continue to grow through 2010.”

Nonrevolving credit, which includes closed-end loans for big-ticket items such as cars, boats, college education and holidays, rose $3.44 billion, or at a 2.59 percent annual rate, to $1.59 trillion.

via U.S. consumer credit decline slows in Oct | Reuters.

Is this the new sponsoring club for American retail? | Reuters & Bronson Point

Two hedge fund veterans who worked at SAC Capital Advisors, LP and Pequot Capital Management, long considered among the industry's most successful, are launching their own firm next month, people familiar with the matter said on Monday.

Larry Foley, who had been a senior portfolio manager at SAC from 1994 to 2008, and Paul Farrell, a member of Pequot's executive committee and co-portfolio manager of its Scout Fund Group, plan to open Bronson Point Partners on January 1, 2010.

Foley and Farrell’s pedigree will likely prompt many hedge fund industry investors to give the pair a close look. But how much money the men will actually manage to raise remains unclear at a time when investors are becoming ever pickier about where they commit their capital.

To woo potential clients, Bronson Point’s principals said they have committed at least $25 million of their own money and promise a “disciplined approach to fund-raising, organic growth and risk management.” They will concentrate on U.S. stocks, running a so-called long/short equity strategy.

Investors traditionally want to see fund managers invest part of their own fortunes, with plans to expand the fund in a measured way.

To get into Bronson Point, investors need to put down $1 million, an average figure for most small hedge funds. It will charge a 2 percent annual management fee plus an incentive fee of 17 percent to 20 percent, depending on how long investors agree to leave their money with the new firm.

Bronson Point in its brochure promises to use an “opportunistic approach combining fundamental research and active portfolio management.” The team, which also includes ex-SAC trader Jonathan Marcus, said retailer Bed Bath & Beyond (BBBY.O) and regional sporting goods store Hibbett Sports (HIBB.O) are among the fund's core holdings.

Read our analysis here The American Lifestyle Economy needs something drastic | Our Seeking Alpha zyaada | The investment blog

via Ex-SAC, Pequot managers to launch hedge fund firm | Reuters.

California woes in plain view | L A Times

zyakaira notes: This crisis ain’t over yet by a mile, Going back on 66, Chicago may be next as California and Vegas have already given in..sad to see Hollywood , valley and more just sink without a trace

Reporting from Sacramento – Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.

The new figure — the nonpartisan analyst’s first projection for the coming budget — threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California’s recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.

“Economic recovery will not take away the very severe budget problems for this year, next year and the year after,” said Steve Levy, director of the Center for Continuing Study of the California Economy.

In fact, after two years of precipitous revenue declines, the new report projects relatively stable tax collections for the state, said those who were briefed. But that won’t stop the deficit from climbing to nearly $21 billion.

Gov. Arnold Schwarzenegger, who will present his next proposed budget to Californians in January as he begins his last year in office, started sounding the alarm last week.

“I think that there will be across-the-board cuts again,” he said at a San Jose news conference.

The task in 2010 could be even harder than it was this year, when record deficits and cash shortfalls drove California to issue IOUs for only the second time since the Great Depression. Lawmakers have already cut billions from education, healthcare and social services while temporarily hiking income, sales and vehicle taxes.

“I can’t think of any good solutions,” said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the lower house budget committee.

The current budget year accounts for $6.3 billion of the deficit, the nonpartisan analyst projects. Prisons spending will outstrip what has been budgeted by more than $1 billion, and K-12 schools were underpaid by $1 billion under the complex formula that governs education funding, the report says.

Another $14.4 billion of the deficit is for the fiscal year that begins next summer, say those briefed on the report. The governor’s next budget will have to account for both years.

via California faces a projected deficit of $21 billion — latimes.com.