Tag: Economic Woes

Yet Another Bailout

Following emergency consultations between the Federal Reserve, the US Treasury and the Democratic leaders of both houses of Congress, the Federal Reserve on Tuesday night announced a bailout of the Wall Street insurance giant American International Group (AIG).

According to reports posted by the New York Times and the Wall Street Journal, under the emergency plan the Fed will provide the failing firm with an $85 billion loan in exchange for 80 percent of its assets.

The bailout is one more demonstration of the systemic crisis confronting American and world capitalism. It is unprecedented and, in some respects, goes even further than the government takeover of Fannie Mae and Freddie Mac barely a week before. Unlike the two mortgage finance giants, AIG is not a government-sponsored institution and is not even directly regulated by the federal government.

Pressure for a rescue of AIG grew after all three major rating agencies downgraded its credit Monday night, raising the prospect that lenders would recall their loans.

It was feared that the failure of AIG, with $1 trillion in paper assets, would have a domino effect, threatening banking and corporate failures throughout the world economy. AIG is one of the largest players in the global, unregulated market (estimated at $62 trillion) in credit default swaps, i.e., private contracts under which companies like AIG guarantee the debt, including mortgage-backed bonds, held by other companies.

The newspaper warned ominously, “More major bank failures are a certainty, including some very large ones.”

Its solution? The setting up of a new Resolution Trust Corporation, of the type created during the savings and loan crisis of the 1980s, which would “provide a buyer for securities for which there is no market.” In other words, the US Treasury’s vaults should be opened up to bail out major Wall Street investors and CEOs who made billions off of a speculative housing bubble that has now burst, precipitating the greatest financial crisis since the 1930s and threatening millions of working people with the loss of their jobs and homes.

How About A Real Issue?

Lipstick?  Please people stop listening to this crap.  There is more to worry about than some damn silly lipstick comment.

In a stark indication that the crises gripping the US housing market and the financial sector are spreading throughout the economy, unemployment figures for August rose far more sharply than expected, hitting a five-year high.

The official unemployment rate rose to 6.1 percent last month, according to a report released Friday by the Bureau of Labor Statistics. In addition to the net loss of 84,000 jobs last month, the agency revised its figures for June and July, reporting the destruction of an additional 58,000 jobs, pointing to an entire summer dominated by layoffs and economic slump.

Meanwhile the so-called misery index, which adds the unemployment and inflation rates, hit 11.7 percent, the worst figure recorded since mid-1991, as high gas, food and utility prices continue to gouge workers’ paychecks even as layoffs mount.

At the same time, existing home sales fell to a 10-year low in the second quarter, while the median price of a single-family house plummeted by another 7.6 percent, the National Association of Realtors reported.

The increase in unemployment and the rising number of foreclosures are clearly trends that are feeding into one another in a vicious downward spiral. Workers having lost their jobs are finding it impossible to meet monthly mortgage payments, and the collapse of home values has wiped out credit for many, leading to falling consumption and new layoffs.

This is turning into a vicious cycle that needs to be addressed by the candidates and let the late night TV shows handle the lipstick thing.

Bernanke: One Sharp Dude

No crap, Sherlock!

Federal Reserve Chairman Ben Bernanke said Friday the financial crisis that has pounded the country — coupled with higher inflation — is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.

“Although we have seen improved functioning in some markets, the financial storm that reached gale force” around this time last year “has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment,” Bernanke said in a speech to a high-profile economics conference here.

While Bernanke welcomed the recent drops in oil and other commodities’ prices, and believes inflation will moderate this year and next, the Fed chief also warned the inflation outlook remains highly uncertain.

The economy is the top concern for voters and of keen interest to presidential contenders Sens. Barack Obama and John McCain, who are gearing up for their party’s conventions. Financial and credit problems are expected to smolder into next year. And, the unemployment rate, which jumped to a four-year high of 5.7 percent in July, is expected to keep rising.

The bulk of Bernanke’s speech dealt with the need to bolster oversight of the nation’s financial system to make it better able in the future to withstand future shocks.

To that end, Bernanke recommended that regulators work on ways to assess the health of the entire financial system, rather than the condition of individual banks, Wall Street investment firms or other financial companies — as is currently the focus.

You gotta love a guy that gets oaid to state the obvious.

The Issue Du Jour

What is that?  Dunno, but they have it everyday.

Issues come and go this election year, passing like a blur through voters’ psyches. The fleeting nature of their concerns is a vivid reminder of why handicapping a November election in August is a largely futile exercise.

Gas prices, Invasion of Georgia, Housing bubble, yada, yada–the focus changes weekly, if not daily.

The swings in voter chatter are a reminder that, so far, the election isn’t shaping up as a referendum or a mandate on any one item. Many voters, when asked what their most pressing concerns are, note that they’ve had the same worries for some time and mention a variety of subjects.

If there’s an overarching issue, it’s the economy, but even that has several angles that come and go in voters’ minds: housing, prices, energy, credit.

This plays into the hands of the candidates.  This keeps the voter off balance and confused.  That in return, adds up as votes.  The more obscure the “real” issues are, the easier it is to muck up the process with accusations and BS.  In the long run the losers are the people.

Foreclosures Up!

Bank repossessions grew significantly as a percentage of all foreclosure activity, “posting a 184 percent year-over-year increase, compared to a 53 percent year-over-year increase in default notices and an 11 percent year-over-year increase in auction notices,” according to James J. Saccacio, CEO of RealtyTrac.

When foreclosed properties fail to sell at county auctions, they are repossessed by banks pending their sale. Bank repossessions constituted only 16 percent of foreclosure activity a year ago, but they now make up some 28 percent, according to the report. While banks owned 224,000 foreclosed properties in 2006 and 445,000 in 2007, they owned 775,244 through July of this year.

Nearly one third of Americans who bought homes since 2003 have negative equity—that is, they owe more on their homes than their current value—according to Zillow.com, a property valuation company. Zillow also found that 45 percent of those who bought at the peak of the housing market in 2006 are under water.

Home values have fallen 15.8 percent in the year to May, according to the S&P Case-Schiller index, which tracks home values in 20 major cities. Moreover, nearly one quarter of home sales in the past year were at a loss to the sellers. Such circumstances raise the incentives to foreclose, driving property values lower and precipitating a downward economic spiral.

In addition to fueling a massive social crisis, the vicious cycle of falling home values and foreclosures will drag down economic growth and fuel unemployment, as the US ruling class seeks to purge the excesses out of its financial system by writing down billions of dollars in bad debt.

While throwing open the Federal Reserve Board and the US Treasury to Wall Street speculators, the government has done next to nothing to assist the millions of people having their lives uprooted. The housing bill recently passed by Congress assists at most 400,000 homeowners, representing only six percent of the 6.5 million people estimated to fall into foreclosure by 2012.

A Question: Info Ink Commentary

Who is responsible for the last couple of gas shortages and high prices?  The media and oil industry economists say it is YOU, the consumer.  Why?  Because YOU are demanding more and more product.  Now, do you agree with this?  If you do you are an idiot!

For over a decade the oil giants spent millions upon millions buying and renting scientists and researchers to debunk the whole global warming theory.  That did not work as they intended, or did it?  Butr now they are selling the consumer a bill of goods on just how hard they are working on finding solutions to our energy addiction.

The leadership of the oil companies knew years ago what was coming yet they decided to help it along by showing just how kookie those concerned with the health of the environment were.  Instead of putting mush needed money into alt research.  These guys WILL not ever find a solution that they cannot charge for.  So we are left with ethanol and other such additives.

Yes, the American people are gluttons where oil and gas are concerned, but that sin could have been eliminated in the 70’s, but the industry saw fit to just help feed the addiction.  So, who is to blame?  The people for being stupid and the oil industry for worsening our addiction.

Now, is there a solution?  Of course, but not one that the oil industry will provide.

So You Wanna Fly

This is some news that may change your mind, if not please add me to your insurance policy.

Pilots are complaining that their airline bosses, desperate to cut costs, are forcing them to fly uncomfortably low on fuel.

Safety for passengers and crews could be compromised, they say.

The situation got bad enough three years ago, even before the latest surge in fuel prices, that NASA sent a safety alert to federal aviation officials.

Since then, pilots, flight dispatchers and others have continued to sound off with their own warnings, yet the Federal Aviation Administration says there is no reason to order airlines to back off their effort to keep fuel loads to a minimum.

With fuel prices now their biggest cost, airlines are aggressively enforcing new policies designed to reduce consumption.

In March, for example, an airline pilot told NASA he landed his regional jet with less fuel than required by FAA regulations. “Looking back,” he said, “I would have liked more gas yesterday.” He also complained that his airline was “ranking” captains according to who landed with the least amount.

A month earlier, a Boeing 747 captain reported running low on fuel after meeting strong headwinds crossing the Atlantic en route to John F. Kennedy International Airport in New York. He said he wanted to stop to add fuel but continued on to Kennedy after consulting his airline’s operations manager, who told him there was adequate fuel aboard the jet.

When the plane arrived at Kennedy, the captain said it had so little fuel that had there been any delay in landing, “I would have had to declare a fuel emergency” – a term that tells air traffic controllers a plane needs immediate priority to land.

I was thinking that Amtrak is sounding more attractive now. How About you?

Yes, Irene, The Worse Is Yet To Come

Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009.

The relative price stability of the past 15 years is giving way to worsening inflation, despite the recent softening of oil prices. The Consumer Price Index for all items shows the inflation rate averaged 2.6% a year from 1992 through 2007 but has doubled since January, reaching an annual rate of 5.6% in July. By next year, the monthly figure could hit double digits, and the inflation rate for 2009 overall could triple 2007’s 2.85%.

Anyone who hasn’t been living in a cave for the past year knows that oil prices have soared and pushed up the prices of gasoline, diesel fuel, and heating oil. Largely hidden from view, however, have been steep and continuing price increases across the whole spectrum of commodities.

Oil almost doubled in price, from $78.21 in July 2007 for a barrel of benchmark crude, to $145, where it peaked before dipping below $120. But from a longer perspective, oil sold for about $30 a barrel during 2003 and much of 2004. Thus it has actually quadrupled in five years. Coal, traditionally volatile, sold for about $30 a ton during 2003, peaked briefly at $63 in 2004, and went for $45.25 at the end of July 2007. A year later it hit $139.50 before slipping back a bit. It has tripled in 12 months.

Copper, another basic commodity, went from 82¢ a pound in July 2003 to $1.14 a year later, and to $3.72 by the end of last month. That’s an increase of 350% over five years. The price of steel has climbed from under $240 a ton for hot-rolled steel coil throughout most of 2003 to $1,125 a ton last month, quadrupling in five years.

Grains have also soared in price. U.S. corn prices jumped from $3.01 a bushel in July 2007 to $5.37 one year later. Wheat doubled from $3.05 a bushel in July 2006 to $6.02 last month. A Midwestern bakery owned by one of our portfolio companies turns out 13 million pies a year. The cost of ingredients of a standard pie jumped 100%, from $1.20 a year ago to $2.40 today.

The first step in solving the problem is to recognize that we have one—and it is serious. No American housewife has any doubts about that. Our policymakers shouldn’t, either. Yes, Irene, the worse is yet to come.

Low Wage Workers Lean Towards Obama

Democrat Barack Obama holds a two-to-one lead over Republican John McCain among low-wage workers but many are uncommitted to either presidential candidate, to according to a new poll by The Washington Post, the Kaiser Family Foundation and Harvard University.

Obama’s advantage is due largely to overwhelming support from African Americans and Hispanics, but even among white voters, the Illinois senator leads McCain 47 percent to 37 percent, The Washington Post reported in Monday editions.

The poll found that one in six white workers polled remains uncommitted to either candidate, the Post reported.

Most of the respondents were pessimistic about the impact of the November 4 election. A majority of those polled, both white and minority, said that no matter who won their personal financial situation would be unlikely to change, it said.

Apparently low wage workers are the only ones that see what is what in this election process.  They are most likely correct that the only people that will benefit, no matter who wins, is the wealthy.

Is It Speculation?

After the binge comes the purge. Merrill Lynch (MER) announced after the close of trading on July 28 that it had sold $11.1 billion in collateralized debt obligations (CDOs), or nearly 60% of its exposure to mortgage-related securities, to private equity firm Lone Star Capital Management for $6.7 billion as part of its latest effort to repair its tattered balance sheet.

At the same time, Merrill reduced its exposure to troubled XL Capital (XL) and other bond insurers, who provided insurance on Merrill’s CDOs. This “purging of assets,” as Oppenheimer (OPY) analyst Meredith Whitney described the sale in a July 29 research note, places the Wall Street stalwart closer to the end of its mortgage related troubles.

NOw, The Prez and McCain have flatly stated that speculation would not be rewarded.  Does that mean, if things turn south will the company that bought the troubled loans be part of the bailout?  The buyer is gambling that things will get better–that is speculation in my book.