Monthly Archives: March 2009

You are being asked to sign a blank check

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From the New York Times…..

Turning to domestic affairs, Mr. Obama indicated that the end was not in sight when it came to the economic crisis and suggested that he expected it could take another $750 billion to address the problem of weak and failing financial institutions beyond the $700 billion already approved. Maintaining support for the additional costs of bailouts is quite likely to be among Mr. Obama’s biggest challenges, given the anger that many Americans feel toward Wall Street executives who they believe are being unduly rewarded with bailout money.

Is this on top of the extra 500 billion that the FDIC wants? Its not clear to me how much more money Obama plans on throwing at this problem in total. The real answer seems to be as much as it takes. But what if it is beyond the resources that are available to save everything and everyone? How long before people start thinking about triage?

Loan originators taking advantage of the FHA

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From the Washington Post…..

This decade’s housing boom rendered the agency irrelevant. Americans raced to aggressive lenders, seduced by easy credit and loans with no upfront costs. But the subprime mortgage market has crashed and borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or stellar credit. The agency’s historic role in backing mortgages is more crucial now than at any time since its founding.

With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.

From the end of the article…..

“Even if the market eventually gets these guys, they shouldn’t have to wait for the market to do it,” said Brian Chappelle, a former FHA official who is now a banking industry consultant. “The most frequent question I get asked by the groups I talk to is: ‘Is FHA going to implode?’ . . . They haven’t seen HUD do anything significant in the past two years to tighten up its lending.”

The entire article ought to put a lie to idea that more regulation would prevent another housing mess like the one we are in. Two years on in hosing crisis that was caused by bad underwriting and a government agency is still being taken to the cleaners by loan originators. You would have thought that if government regulators where any good they would have caught a clue by now.

Things You Don't Want To Know

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From the Wall Street Journal…..

The legislation, introduced late Thursday by Senate Banking Committee Chairman Christopher Dodd, would temporarily allow the FDIC to borrow $500 billion to replenish the fund it uses to guarantee bank deposits, if the Federal Reserve and Treasury Department concur. Those funds would be distinct from the contentious $700 billion financial-sector bailout, which lawmakers are loathe to expand.

It would also be distinct from the stimulus plan. But who really cares? What difference one way or another will another half trillion dollars make? It is only equal to the cost of another war in Iraq.

From The San Fransisco Chronicle…….

In a 2006 ruling, Henderson said the $1.1 billion medical care system was causing the unnecessary death of one inmate per week. He said the state was incapable of repairing the system and appointed a manager to run it under his supervision.

Gov. Arnold Schwarzenegger called for a return to state control last month. He also has appealed Henderson’s order that the state pay the first $250 million of the manager’s $8 billion plan to rebuild prison hospitals.

The courts can appoint managers who are superior to the elected authorities? I can see giving people standing to sue or forcing pay outs to those deemed to have died “unnecessarily.” But it seems to me that under this reasoning the Supreme Court could decided that the Federal government was not allowing people to exercise all their constitutional rights and so they were going to appoint a new president.

From Life on the Line…..

I will make it semi-official on the recorded line. I tell my dispatcher that I will be more than happy to try to get airborne (that is what I get paid for…), but in my opinion, we should think about canceling the flight. He puts me on hold for a few minutes…

“We want you to try.”

I would really hate to be on a plane were the pilot said that “we should think about canceling” and was told “we want you to try.” But I imagine that it happens a lot.

Anything for a cigarette

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From Strategy Page…..

Since navigation was often uncertain when Zeppelins were flying above clouds, some were equipped with an observation basket that could be lowered through the cloud layers. In that way one or two men in the basket would have a good view of the earth’s surface. From this position, they could keep the ship informed by telephone of the landmarks below, helping it navigate to and from its target.

Of course this was particularly hazardous, as the men were without parachutes in a flimsy basket dangling at the end of a 750 meter tether, in freezing cold. Yet there never seems to have been a shortage of volunteers for this duty. In part this was due to the very high morale of the airshipmen. But volunteers also gained a privilege denied to everyone else on the ship; the little basket dangling at the end of nearly a half-mile of cable was the only place on the airship where a man was allowed to have a cigarette.

This ought to be illegal

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From Bloomberg…..

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years — more than half of them since 1997 — public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent — 70 percent less than what the fund was paying for the loan.

The public gets nothing from pension bonds — other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.

Read the whole article for all the disgusting details. For example, by law most states have to guarantee pay back of those pension bonds.

Even Toyota…..

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From the Times….

The loan-financing arm of Toyota, Japan’s biggest industrial giant, is understood to have approached a state-backed fund for as much as $2 billion in emergency loans.

A request for Government funding from the Japanese giant is expected to trigger a deluge of other demands for capital by other of the country’s struggling industrial companies.

When the article says $2 billion dollars it means dollars not the equivalent value of yen. What this means is that Japan is going to have to sell some T-bonds if it is going to honor this request.

Given the scale of the T-bond market, this is small potatoes. Still, it does demonstrate the mechanism by which T-bond yields could spike even if Japan or China do not decided to deliberately dump dollars as a matter of policy.

Always remember that it could be worse

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From Fox News…

The rock, estimated to be no more than 200 feet wide, zoomed past our planet at an altitude of 40,000 miles at 1:44 p.m. universal time — or 8:44 EST.

Dubbed 2009 DD45, it was discovered only on Friday by Australian astronomers.

Forty thousand miles may sound like a lot, but it’s only about one-seventh of the way to the moon, and less than twice as far out as many telecommunications satellites.

Had 2009 DD45 hit the Earth, it would have exploded on or near the surface with the force of a large nuclear blast — not very reassuring when you consider humanity had only about three days’ notice.

If that had hit in the wrong place, it could have made the falling stock market seem like a minor problem.

America's problem in a nutshell

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From the New York Times…

Criminal correction spending is outpacing budget growth in education, transportation and public assistance, based on state and federal data. Only Medicaid spending grew faster than state corrections spending, which quadrupled in the past two decades, according to the report Monday by the Pew Center on the States, the first breakdown of spending in confinement and supervision in the past seven years.

In that one paragraph you have the problem of demographic aging and cultural break down.