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Thursday, October 30, 2008

Bank Bailouts, Bonuses, and Bilking

One way in which the current recession/depression/meltdown (take your pick) will differ from previous economic collapses is the granularity of information now available. The world is awash with more data than ever before, generating a plethora of ways to scare yourself silly. — Mark Gilbert, Bloomberg
Items of Interest:

William Greider / The Nation:
Henry Paulson's Bailout Swindle Revealed -- The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return....

Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders? ...
Mike Schuster / Minyanville:
Wall Street Nears the Bonus Round -- As if taxpayers didn't have enough to gripe about, Wall Street bonus season is fast approaching and it appears executives will still be compensated after a government bailout and dismal 2008.

Although how much -- and how it will compare to last year's windfall -- has yet to be finalized, most financial analysts agree that paychecks will indeed be a little heftier during the holiday season.

But wait! There's more! According to a survey conducted by eFinancialCareers.com, of the 1300 financial services professionals polled, 36% expect a higher bonus than last year. Experts concede that the compensation wouldn't be nearly so high had the $700 billion rescue package been shot down.

So much for not rewarding poor performance...
David Weidner / MarketWatch:
Executive Pay and the Fools On Capitol Hill
Steve Miller Band - Take The Money And Run:
This is a story about Billy Joe and Bobbie Sue
Two young lovers with nothing better to do
Than sit around the house, get high, and watch the tube
And here is what happened when they decided to cut loose

They headed down to, oh, old El Paso
That's where they ran into a great big hassle
Billy Joe shot a man while robbing his castle
Bobbie Sue took the money and run

Go on take the money and run
Go on take the money and run
Go on take the money and run
Go on take the money and run...
CEO Cashes Out as Bank Seeks U.S. Loan -- The top executive at a midsize bank holding company is retiring with a more than $12 million payday, even as the company is applying for a government investment that could restrict such windfalls.

The South Financial Group on Tuesday said Chairman, President and CEO Mack Whittle had left his post, effective Monday. Whittle had earlier said he would leave by the end of the year, and during a conference call to discuss the company financial results last week he made no indication the timing had changed.

The unexpectedly sudden departure comes just days after the bank announced it plans to apply for a federal investment through the Troubled Asset Relief Program, or TARP, which contains provisions that void existing compensation agreements in order to prevent "golden parachutes." ...
Donn Vickrey, a forensic analyst, is skeptical of A.I.G.’s past reports. You don’t just suddenly lose $120 billion overnightMary Williams Walsh / New York Times:
A Question for A.I.G.: Where Did the Cash Go? — The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October...

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey a forensic accountant...
Tristero / Hullabaloo: Maybe The Dog Ate It All
Mary Kane / The Washington Independent: Banks and Bad Behavior
Binyamin Appelbaum / Washington Post:
Banks to Continue Paying Dividends — Bailout Money Is for Lending, Critics Say — U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years...
Fubar / Needlenose: Heckuva job Hank
BJ Bjornson / Newshoggers.com: Well, that's a relief!

U.S. Bureau of Economic Analysis:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2008 (ADVANCE) — Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of .3 percent in the third quarter of 2008, (that is, from the second quarter …
Washington Post:
Economy Shrinks in Third Quarter; Markets Start Off Strong
Kevin Drum / Mother Jones: Economy Watch
Mark Gilbert / Bloomberg:
The Shipping News Suggests World Economy Is Toast -- In the third quarter of 2007, Volvo AB booked 41,970 European orders for new trucks. Guess how many prospective purchases Volvo, the world's second-biggest maker of heavy rigs, received in the third quarter of this year?

Here's a clue. Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.

The pathogen that has fatally infected swathes of the banking industry is now contaminating non-financial companies...
Elizabeth Chuck / MSNBC:
Feds probe Countrywide's ‘V.I.P.’ program — The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators...
NY Times:
Government Said to Be Discussing Plan to Aid Homeowners -- Senior Bush administration officials are completing a plan that could help up to three million homeowners struggling to pay their mortgages to stay in their homes, three people briefed on the proposal said Wednesday.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.
Fed expands playbook to boost ailing economy -- The severity of the shock facing the U.S. economy has not been lost on Federal Reserve policy-makers, who seem committed to pulling out all stops to brighten a distressingly bleak outlook.

The downbeat note struck in Wednesday's Federal Open Market Committee statement was a dramatic departure from just six weeks ago, when the Fed judged that growth and inflation risks were roughly equal.

Facing the worst potential economic downturn in decades, the Fed lowered its benchmark interest rates by half a percentage point and seems likely to lower benchmark lending rates yet again in December.

As its rate-cutting ammunition shrinks though, the Fed will be forced into a "quantitative easing" regime that many analysts say they have already quietly launched...
Simon Owens / MediaShift:
Econ Bloggers Gain Clout in Financial Crisis - Late last month Dean Starkman, a writer for the Columbia Journalism Review, penned a scathing piece titled "Ouryay Eatbay Just Ewblay Upyay." The essay is addressed to members of the mainstream business press and proclaims dramatically in the opening paragraphs that their beat "just blew up." Starkman wags his finger at economic reporters, chastising the business beat as a group for failing to warn us of the coming crisis before the rug was pulled out from under our feet.

"From a journalistic standpoint, what we are experiencing today is the equivalent of the city hall reporter arriving for work one day to find the mayor and city council being led out in handcuffs," he wrote. "If the business press were, say, a nuclear industry reporter, this is having most of the reactors on your beat melting down to China. What to tell the boss?"..
Businomics Blog
Economist's View
Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong
Paul L. Kasriel / Northern Trust Company:
Tough Economic Times Ahead and They Are Priced In [pdf] -- Make no mistake about it; there are tough economic times ahead. The credit markets seem to have priced in, if not the worst case, then at least a very realistic case...

Household balance sheets are in their worst shape in the post-World War II era... So, household balance sheets are highly leveraged and very illiquid. This is a very negative combination for consumer spending at a time when the value of their assets is falling and the unemployment rate is rising rapidly...
Homeowner Confidence Survey -- Homeowner Confidence Survey: The perception-reality gap persists. Despite the turbulent quarter, half of U.S homeowners do not think their home’s value has decreased. In reality, nearly three-quarters of homes lost value in the past 12 months.

For more information about the survey, check out the press release and blog post...
Diana Olick / CNBC Realty Check:
Wake Up America—Home Prices ARE Falling -- Am I not doing my job? Or is nobody listening? How is it possible, in the midst of the worst credit crisis in history, which is predicated on one of the biggest housing crashes in history, that nearly half of all Americans still don’t get that home prices are falling?

A new survey from Zillow.com finds that a full 49 percent of those surveyed think their home has either retained its value or even gained value in the past year. According to Zillow, 74 percent of all U.S. homes have lost value in the last year...

Realtime Economics / WSJ:
Many Homeowners Think They’re Immune to Price Declines

Calculated Risk

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naked capitalism - Yves Smith

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