This post is by Jim Fitch of Some Assembly Required.
Examination of public debate in the US
reveals little but childishness.
The New Sub-Prime: FirstFed, 4th largest LA based bank, reports that 40% of its mortgages are at least 30 day delinquent, after ARM mortgages reset. These are mainly ‘payment option mortgages’ and the debtors are opting not to pay. Don’t worry, Bernanke and Paulson will soon explain that the problem is confined to the middle class market and won’t affect the real economy.
Fiscal Innovation: Morgan Stanley is pioneering a new form of home-equity lines of credit, which involves determining the amount of equity a homeowner has accumulated and not letting them borrow against it.
Joker Jack of Diamonds Turns out Saddam’s Intelligence Chief, Tahir Jalil Habbush, was working for the US all along. Before the war he told the US there were no WMD. The US paid him $5 million and put him in the ‘Knows Too Much’ protection program.
Down And Out: Market analysts breathlessly reported that the Fed didn’t raise interest rates. Unemployment is climbing past 5.5%, mortgage rates are climbing towards 7% and folks were worried about an increase in Fed Funds rates? Hello? Anybody home?
Speechless: The Treasury Department hired Morgan Stanley to advise it on Fannie and Freddie’s capitalization and ways to support their financial operations. Really. You can’t make this stuff up.
Batting Order: Twenty-nine states have entered the budget shortfall contest. Currently leading the pack are: CA with a 21% budget shortfall, followed by AZ at 18%, NV 13%, RI 12%, FL 11% and NY 9% It is expected that there will eventually be 50 entrants in the contest, many having constitutional prohibitions against unballanced budgets.
Belt & Suspenders: The Fed is not worried about inflation; the rest of us better be.
More Math: If a train leaves Detroit with $10 million in GM debt, how much will the total cost be for a five year credit-default swap? (a) $7.2 million – $4.7 up front and half a million a year for five years – or (b) Less than $5 million – because the CDS will pay off before the half-million annual fee kicks in.
Some Assembly Required reflects my somewhat cynical view of the world on a daily basis. Think of it as having coffee with a curmudgeon. Come visit.
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Re: GM CDS costs. Actually, it’s neither. GM’s CDS costs no longer have anything to do with their true bankruptcy risk.
The impending bankruptcy of all three domestic automakers is nearly a foregone conclusion as their model of leasing expensive SUVs comes under a triple assault (they can’t offer attractive leasing due to their rapidly increasing borrowing costs, consumers can’t afford expensive cars any more, and of course, no one wants an SUV; could a perfect storm be any more perfect?). Thus, the true cost of insuring $10mil in GM debt for 1 year would be about $9.5mil (with the discount based on net-present value, not based on any chance of GM surviving).
The current pricing of GM’s CDSes is therefore purely based on the chance for a government bailout of the Big Three (now the little three based on market value…). After all, Michigan is a swing state in this year’s election. And right on schedule, Obama is proposing $4 billion to start.
Rather than providing $40bil in loans that these incompetents are asking for, it would be cheaper for the government to just buy out GM and Ford (total market cap combined: $17bil), or to provide $40bil in cheap loans for better managed foreign car companies (e.g. the Japanese) to set up factories here. Thanks to stagnant wages, rising unemployment, and Bernanke’s debasement of our currency, we can now aspire to become the world’s sweatshop once again.
This is a HUGE area of interest to me:
http://www.businessweek.com/print/magazine/content/08_33/b4096000769608.htm
Now Wall Street Wants Your Pension, Too
JPMorganChase, Citi, Cerberus, and Morgan Stanley are among the firms lobbying Washington to let them take over and run corporate pension funds.
I have done my DD and I now The Pension Protection Act was written by SIFMA and it allows The Department Of Labor massive opportunities for collusion with selling off pension fund assets to hedge funds …. this is so serious and it needs to be discussed!!!!! I have tried contacting several newspapers and no one gives a crap, but if you think subprime was fun, wait until “all of your” your pensions become ping pong balls for synthetic derivatives!!!
VERY serious stuff here!!! Deadly serious! This pension topic was why I started looking for blogs like this, so I do hope people will start to wake up and watch this very carefully!!!!!!!!!!!!!!!
No need to be upset. The companies listed are all on the TBTF list, except perhaps Cerberus (last seen visiting the doggy dentist). We are already committed to bailing them out, so it makes perfect sense to let them takeover pension plans too. Don’t the potential economies of scale and synergies to be obtained from cost savings just make you drool. So much more of our pension funds will be put to work productively. Now, if only someone had some plans that included the future presence of people. Oh well, can’t have everything. Just as long as the pensions are backed up by the taxes of non-existent tax payers everything will continue to appear to be just fine!
OT?
ECB chief Trichet wasn’t afraid to engineer a decline in the Euro-zone stock markets, in order to stamp out inflation psychology. “Through the wealth effect, asset prices have an influence on demand, and therefore on future consumer prices. So asset prices are taken into account by central banks,” he explained on July 17th. Furthermore, Trichet rejects the Fed’s practice of ignoring food and energy prices. “We do not consider core inflation as a good predictor of future inflation,” he said.
However, Trichet was asked on July 18th, if the worst of the global banking crisis was over, “We are experiencing a very significant market correction with episodes of turbulence, high volatility and hectic market behavior. It is an ongoing process. The risks to growth are on the downside, including the very significant financial market correction, the possible further increases in oil and commodity prices, and the possible unwinding of global financial imbalances,” he warned.
SAM – much better post. Hilarious actually! We are so screwed…