From Bloomberg…..

Fannie Mae’s initial attempts to restore delinquent homeowners to on-time payments with unsecured second loans failed 41 percent of the time.

The program to loan more money to bankrupt people has only been running for 5 months and it already has a 41% failure rate. Who could have guessed?

Einstein once said that the stupidity of humans was one of the only things that he was sure was infinite. I am not generally willing to ascribe the infinite to mortals, but sometimes I am tempted to agree with him. (h/t CR)

From the Wall Street Journal…..

In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives’ supplemental benefits and compensation.

The practice has drawn scant notice. A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.

Someone called this graph the Hockey Stick Of Doom. Wish I could remember who so that I could properly credit them.

From Market Movers…..

In the world of eye-popping earnings, GM has managed to beat even Exxon Mobil. Exxon made a profit of $11.7 billion in the second quarter; GM has manged to come out with a $15.5 billion loss, or $27.33 a share.

Did you here about the great quarter we just had? GDP grew by 1.9%. Not to bad considering banks are failing and everyone is running around like the wold is ending.

There is only one problem. The number is only believable if you think that inflation was less then the headline consumer price index.From Credit Writedowns…..

What you see above is the GDP deflator series. This is how the US government gets from nominal GDP to the GDP number we all hear on TV. What’s interesting about these numbers is the GDP deflator uses its own inflation gauge , which is entirely different than the CPI.

Look at the highlighted numbers for Q3 2007 and the last quarter. How is it that inflation was 1.5% in Q3 2007 and 1.1% in Q2 2008? Are they smoking something? Uh, fellas, inflation has been rising, not falling to 1.1%. Hmmm.

Nominal GDP only grew 3.0% in Q2, so Q2’s real GDP number of 1.9% is so obviously false that I expect it to be revised down significantly next year.

If you go to his site, you can see the numbers for yourself. (h/t Market Movers)

From The San Fransisco Chronicle….

Cutting the pay of about 200,000 state workers to the federal minimum wage of $6.55 an hour would save California as much as $1.2 billion a month, the governor’s office said. Such workers would get regular pay plus back pay once a new budget is approved.

The layoffs of nearly 22,000 temporary, seasonal and student workers would save the state as much as $28.5 million a month, the governor’s office added. It is not clear whether workers laid off would be rehired when a new budget is enacted.

Slashing state worker pay will likely face a legal challenge from state Controller John Chiang, who has the responsibility to disburse pay checks, saying he will not go along with the governor.

From the Detroit Free Press….

Backers of a program that would lend up to $25 billion to automakers and auto parts suppliers said today they had garnered 71 U.S. House members to support their search for $3.75 billion in funding over the next couple of months.

There only looking for $3.75 billion because that is all they think it will cost the government to borrow $25 billion and loan it to the auto makers. Apparently they expect it to be repaid. But read this from Reuters…..

General Motors Corp will need to raise as much as $15 billion in cash to shore up liquidity and bankruptcy is “not impossible” if the U.S. auto market continues to slump, Merrill Lynch said.

And that is just GM. The other car manufactures are in even worse shape. Very little chance of seeing the money repaid. And in related news….

The White House predicted on Monday that the Bush administration would bequeath a record deficit of $482 billion to the next president — a sobering turnabout in the nation’s fiscal condition from 2001 when President Bush took office and inherited three consecutive years of budget surpluses.

And this is including all the “extra” money from social security.

Given the scale of the federal budget, 25 billion is pocket change. But we are running out of pocket change.

From Naked Capitalism…..

We will return to discuss the implications of how big the debt level is, but the graph itself should serve to focus the mind. The March 31 level was 350% of GDP. The previous peak occurred in 1933, during the Great Depression, at just under 270% of GDP. Note that the peak was reached due to the start of the rapid fall in GDP taking hold faster than debts were written off, a dynamic not in operation now. So the comparable level to our situation is in fact lower than the 270% peak.

An additional bit of cheery news comes from reader Bjomar: Japan’s total debt to GDP in 1990 was roughly 250% (it took some triangulating among this, this, and this source, his interpolation of corporate debt at 100-140% of GDP, household at 65%, and government at 60%). And unlike us, Japan had a very high saving rate, so its net debt would have been less alarming.

Look at the Graph.

Chrysler and Boscov’s are on the ropes.

A quick glance at this map shows that states in flyover country generally manage their money better than sophisticated states. The better its reputation for high culture, the more likely it is running a big deficit. (h/t Naked Capitalism)