From Felix Salmon…..

Actually, it turns out that the Fed was happy to let GMAC become a bank regardless of whether or not the tender offer succeeded. In the game of chicken, neither the bondholders nor Cerberus needed to blink, since the Fed simply climbed down from its previous stance. Bloomberg reports today:

The Federal Reserve last week approved GMAC’s application to become a bank holding company. GMAC said yesterday that the Fed’s approval didn’t hinge on the debt swap.

Yep, a 180-degree about-face from its stance a couple of weeks ago. Back then, it was crucial that the debt swap go through in order to get Fed approval; now, it really doesn’t matter either way.

It’s actually worse than that, though. The Fed clearly spent a large amount of time approving GMAC’s application to become a bank holding company: the order announcing the fact is 15 pages long, and densely-argued. But it looks very much as though the Fed delayed making the announcement until the bond exchange was all but over: it essentially conspired with GMAC to keep the decision secret so that GMAC could continue to threaten bondholders with the Fed’s earlier statement and thereby get them to tender into the exchange.

This is bad enough all by itself. But the long term effects are even worse. After this, no bond holder is ever going to voluntarily take a hair cut for fear of looking like the sucker.

Naked Capitalism and Calculated Risk have more.

From Naked Capitalism…..

As I am sure readers know all too well, that sort of thing is quietly prevalent in investment banks (well, except for being so indiscreet as to have your implements on view), as coke-snorting traders and institutional salesmen were sufficiently common in the 1980s so as to become a staple of fiction and magazine articles. Even in the seemingly innocent early 1980s, a member of Goldman’s corporate finance department was known to use uppers and downers on what was presumed to be a daily basis. He made partner. A attorney buddy realized how naive he was when on a deal, with all too great frequency, the room where negotiations were being held would empty itself. It took him a couple of days to figure out everyone else wasn’t making urgent phone calls, but repairing to bathrooms, and not to have sex with each other, either. I’ve also been told of very high level IT guys (the kind who built and ran mission critical systems, and made seven figures in the peak years) having meth habits. (Based on my very very limited anecdotal sample, meth does appear to live up to its billing and leads to much more rapid personal train wrecks than other stimulants).

And this is the world from which our current Treasury Sectary comes from.

The Daily Beast……

Here’s the really bad news: the full impact of the financial crisis in New York has yet to be felt.

The dirty secret of Empire State budgeting is that New York City depends disproportionately on Wall Street for its budget and New York State depends on New York City.

In the last four months, the financial landscape has changed dramatically. Investment banks that have been the engine of the city’s tax revenue for decades have disappeared entirely or morphed into restricted new entities. According to E.J. McMahon, my colleague at the Manhattan Institute, between 1980 and 2007 the securities industry’s share of wages in the state rocketed from 3 percent to 18 percent, with the average Wall Street salary and bonus rising to $379,000. Wall Street revenues made up 20 percent of the state’s budget. So the 40,000 local jobs lost in the financial sector are only the beginning. We’re not facing a cyclical downturn; we’re facing a fundamental alteration of the facts of financial life in New York. And the 20 percent unemployment in some upstate counties will not help ease the squeeze.

This author puts most of the blame on the Public Unions. And to be sure, they deserve their share of the blame. But a large part of New York’s problems are demographic. New York has a rapidly aging population upstate. Few young people stick around. This problem was always going to kill the state regardless of public pensions. They just make the problem worse.

From the Wall Street Journal….

But considering individual sectors, “This will go down as the one of the worst holiday sales seasons on record,” said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP. “Retailers went from ‘Ho-ho’ to ‘Uh-oh’ to ‘Oh-no.'”

The holiday retail-sales decline was much worse than the already-dire picture painted by industry forecasts, which had predicted sales ranging from a 1% drop to a more optimistic increase of 2.2%.

From Marginal Revolution…..

GMAC is now a bank, even though they haven’t reached requested levels of capitalization.

From Felix Salmon…..

To me, the most interesting part of the Fed’s decision to allow GMAC to become a bank is the fact that it will be broken up to the point at which its owners will effectively have no control over it any more. The Fed seems to have concluded that GMAC has a strong management team in place, and that its current woes are more a function of its shareholders than they are of GMAC’s own internal mismanagement.

The total disregard for anything that resembles rules is going to cause big problems down the road.

From Bloomberg….

Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

From later on in the article….

Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.

“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”

This plan has no chance of happening. At least not officially. But it does reveal the extent to which Japan feels that its economic future depends on the US.

From the Wall Street Journal….

“We are seeing more stress in churches than we have in modern history,” says Mark G. Holbrook, president and chief executive of the Evangelical Christian Credit Union of Brea, Calif., which specializes in lending to churches. The credit union has moved to foreclose on seven of its 2,000 member churches this year, and Mr. Holbrook says he expects to take similar action against two more next year. Before now, it had foreclosed on only two churches in its 45-year history.

Church Mortgage & Loan Corp. of Maitland, Fla., another church lender, foreclosed on 10 church properties in the past couple of years. Unable to sell any of them, the company didn’t have the funds to pay more than 400 bondholders the estimated $18 million it owes, says company lawyer Elizabeth Green. Church Mortgage filed for Chapter 11 bankruptcy protection in March.

Strongtower Financial of Fresno, Calif., says two of its 300 evangelical church borrowers are in default, compared with only one in the previous 15 years.

One of the most disgusting things about the modern Christian scene is the amount of money that gets spent on church buildings. Even the ones that don’t go into debt to build still spend the majority of their budget on upkeep and expansion.

One of the reasons that this country is messed up is that we have this cultural notion that that the Government should take care of the poor and that churches should build infrastructure.