Why are we concerned about saving GMAC? Is this car and home lender really "too big to let fail?" Regulators are considering whether to give taxpayer money to prop up GMAC.
GM owns 49% of GMAC. Privately held Cerberus Capital Management owns the rest. Cerberus also owns Chrysler. Maybe the car makers would be better off without the distraction of running banking operations.
The great fear is that loans to prospective car buyers would dry up without GMAC, and that would kill any hopes of a revival for the U.S. car industry.
Hogwash. There are many credit unions, small banks and large banks that would provide such loans. The U.S. government already provided hundreds of billions of dollars to lenders such as Citigroup and Bank of America for making loans.
Monday, December 29, 2008
Lehman Brothers Post Mortum
The WSJ this morning reported that Lehman Brothers Holdings Inc's emergency bankruptcy filing in Sept (after the U.S. government declined to bail it out)- wiped out as much as $75 billion of potential value for creditors.
A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions.
Lehman unsecured creditors have asserted they are owed $200 billion. How much of that is collected remains to be seen.
The Lehman meltdown touched of a stock market panic and credit crisis and was quickly followed by a government rescue of American International Group Inc, once the world's largest insurer - to the tune of $152 billion - 10X the bailout of the auto industry - with little to no oversight.
Reportedly - that bailout is benefiting European Banks.
A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions.
Lehman unsecured creditors have asserted they are owed $200 billion. How much of that is collected remains to be seen.
The Lehman meltdown touched of a stock market panic and credit crisis and was quickly followed by a government rescue of American International Group Inc, once the world's largest insurer - to the tune of $152 billion - 10X the bailout of the auto industry - with little to no oversight.
Reportedly - that bailout is benefiting European Banks.
Thursday, December 11, 2008
Let's Call it What it Is... a Depression
Let's call it what it is Now - some are in denial - calling this just a "recession" and that we have not met the "criteria" of depression - and that we will get out of this mess soon - just like past recessions.
Sorry - but this is NOT like past recessions for many reasons. The stock market snapped back smartly from the 7000's to almost 9000 recently - as people were "afraid to miss the bottom."
Unfortunately for them - I believe that we will be headed down again - when people see more dominoes fall.
Sorry - but this is NOT like past recessions for many reasons. The stock market snapped back smartly from the 7000's to almost 9000 recently - as people were "afraid to miss the bottom."
Unfortunately for them - I believe that we will be headed down again - when people see more dominoes fall.
Friday, December 5, 2008
Great Depression Unemployment Didn't Hit 25 Percent Overnight
Great Depression Unemployment Didn't Hit 25 Percent Overnight
unemployment stats are calculated differently now. If we calculated unemployment the same way we did in the Depression, our unemployment rate would be much higher.
Second, unemployment during the Depression didn't get to 25% overnight. It got there over three years, during which most people never dreamed it would get anywhere near that high. When unemployment started its run to 25% then, it was lower than it was last year.
In 1929, unemployment was below 5%. By the end of 1930, as the New York Times reveals, it had risen to just below 10%. The following year it hit 16%. In 1932, it was 24%. And in 1933, it peaked at 25%. It then took 19 years to get back to the pre-crash low.
As today's depressing jobs report showed, unemployment is now rising rapidly. Not as rapidly as in 1930, but rapidly.
Investors Drew Out More From Mutual Funds
Investors Drew Out More From Mutual Funds Money flowed out of mutual funds last week, erasing a spike in deposits from the week before, as market volatility continued to undermine investors' confidence.
TrimTabs Investment Research said Thursday that about $12.1 billion was withdrawn from stock-based mutual funds in the week ended Dec. 3. The week before, investors had put $10.4 billion into these funds.
The bulk of the exodus happened on Monday, with modest inflows occurring on the remaining days, according to Vincent Deluard, a TrimTrabs analyst. Investors pulled out $16 billion on Monday as the Dow Jones Industrial Average dropped 680 points or 7.7%.
On Monday, The National Bureau of Economic Research made official what most Americans already believed about the state of the economy - that the U.S. has been in a recession since December 2007.
"Mutual fund money is performance following," Deluard said. Investors tend to pump money into mutual funds when the market advances, "when the market goes down they take their money out," he said.
The flight from bond funds was the "most striking feature" of this week's report, Deluard said.
"People normally sell equities in a bear market and buy bonds because they are supposed to be safe and that was the case up until September," he said.
But now investors are cashing out of both stock and bond funds, reflecting the market's "extreme risk aversion,"
There had actually been an inflow of $6.8 billion last week.
Comment -- The stock market traditionally falls throughout December after the Thanksgiving Holiday - perhaps due to tax loss selling.
TrimTabs Investment Research said Thursday that about $12.1 billion was withdrawn from stock-based mutual funds in the week ended Dec. 3. The week before, investors had put $10.4 billion into these funds.
The bulk of the exodus happened on Monday, with modest inflows occurring on the remaining days, according to Vincent Deluard, a TrimTrabs analyst. Investors pulled out $16 billion on Monday as the Dow Jones Industrial Average dropped 680 points or 7.7%.
On Monday, The National Bureau of Economic Research made official what most Americans already believed about the state of the economy - that the U.S. has been in a recession since December 2007.
"Mutual fund money is performance following," Deluard said. Investors tend to pump money into mutual funds when the market advances, "when the market goes down they take their money out," he said.
The flight from bond funds was the "most striking feature" of this week's report, Deluard said.
"People normally sell equities in a bear market and buy bonds because they are supposed to be safe and that was the case up until September," he said.
But now investors are cashing out of both stock and bond funds, reflecting the market's "extreme risk aversion,"
There had actually been an inflow of $6.8 billion last week.
Comment -- The stock market traditionally falls throughout December after the Thanksgiving Holiday - perhaps due to tax loss selling.
Thursday, December 4, 2008
Foreclosure Forecast and Bernanke Finally "Gets It" -- 2 Years Too Late
Lenders appear to be on track to initiate 2.25 million foreclosures this year, up from an average annual pace of less than 1 million during the pre-crisis period, he said.
To provide additional relief, Bernanke outlined a number of what he called "promising options" to reduce preventable foreclosures.
Under one plan, Bernanke called on Congress to ease the terms of a government program called "Hope for Homeowners," which lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.
Bernanke suggested Congress lower lender's upfront insurance premium as well as reducing the interest rate borrowers pay, which presently is quite high, roughly 8 percent. To bring down this interest rate, Treasury could buy Ginnie Mae securities, which fund the mortgage program, or Congress could decide to subsidize the rate.
Another option would ease the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make monthly mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.
Under the so-called IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years.
Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.
Bernanke suggested this threshold could be lowered to perhaps 31 percent of income, with the government sharing some of the cost.
Yet another option would have the government purchase delinquent or at-risk mortgages in bulk and then refinance them into the "Hope for Homeowners" or another government program that insures home mortgages.
Other options include a broader push for lenders to forgive a portion of the home loan for certain borrowers, and other permanent modifications over the longer term so that people don't fall back into distress again.
The housing crisis has driven up foreclosures and forced financial companies to take massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.
All the fallout has plunged the country into a painful recession.
*****Bernanke stressed the importance of curbing the foreclosure mess because it is so inter-linked with the economy's health.*****
"Weakness in the housing market has proved a serious drag on overall economic activity," he said.
(Comment - Gee Ben - no kidding. Why didn't you have the rate drop program put into place back in early 2006 - when you should have? You finally "get it" - 2 years later...)
Paulson and his colleagues within the Bush administration have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.
Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by FDIC chief Sheila Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.
To provide additional relief, Bernanke outlined a number of what he called "promising options" to reduce preventable foreclosures.
Under one plan, Bernanke called on Congress to ease the terms of a government program called "Hope for Homeowners," which lets distressed homeowners refinance into more affordable, federally insured mortgages if the lender writes down the amount owed on the mortgage and pays an upfront insurance premium.
Bernanke suggested Congress lower lender's upfront insurance premium as well as reducing the interest rate borrowers pay, which presently is quite high, roughly 8 percent. To bring down this interest rate, Treasury could buy Ginnie Mae securities, which fund the mortgage program, or Congress could decide to subsidize the rate.
Another option would ease the terms of a loan-modification plan put forward by the Federal Deposit Insurance Corp. that seeks to make monthly mortgage payments more affordable. The FDIC put this plan into effect at IndyMac Bank, a large savings and loan that failed earlier this year, and has used it to modify mortgages at other financial institutions.
Under the so-called IndyMac plan, struggling home borrowers pay interest rates of about 3 percent for five years.
Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.
Bernanke suggested this threshold could be lowered to perhaps 31 percent of income, with the government sharing some of the cost.
Yet another option would have the government purchase delinquent or at-risk mortgages in bulk and then refinance them into the "Hope for Homeowners" or another government program that insures home mortgages.
Other options include a broader push for lenders to forgive a portion of the home loan for certain borrowers, and other permanent modifications over the longer term so that people don't fall back into distress again.
The housing crisis has driven up foreclosures and forced financial companies to take massive losses on soured mortgage investments. The housing debacle touched off the worst financial crisis since the 1930s that Bernanke and Treasury Secretary Henry Paulson have been desperately trying to bring under control.
All the fallout has plunged the country into a painful recession.
*****Bernanke stressed the importance of curbing the foreclosure mess because it is so inter-linked with the economy's health.*****
"Weakness in the housing market has proved a serious drag on overall economic activity," he said.
(Comment - Gee Ben - no kidding. Why didn't you have the rate drop program put into place back in early 2006 - when you should have? You finally "get it" - 2 years later...)
Paulson and his colleagues within the Bush administration have come under fire by Democrats and some Republicans for not doing enough to help Americans at risk of losing their homes.
Paulson has been opposed to tapping the bailout pool to fund a mortgage-relief program championed by FDIC chief Sheila Bair. The $24 billion FDIC plan would use some of the rescue money to help back refinanced mortgages that would lower monthly payments.
Wednesday, December 3, 2008
Kimball Hill Homes announced today that it was going out of business.
Kimball Hill Homes announced today that it was going out of business.
Kimball Hill Homes, the Rolling Meadows Illinois based home builder that has operated under Chapter 11 bankruptcy protection since April, said late Tuesday that it would wind down its operations after failing to find a buyer.
The 400-employee company, which has been a prominent player in the west and northwest suburban Chicago housing market, has a significant presence in California and four other states. Kimball pulled out of the troubled Florida market earlier this year. A year ago, it had 1,100 employeesIt will refund the earnest money to buyers with whom it has written contracts but has not started construction.
Some 700 homes are in various stages of completion around the country. Locally - 150.
On a side note - Bally's Fitness declared BK today
Kimball Hill Homes, the Rolling Meadows Illinois based home builder that has operated under Chapter 11 bankruptcy protection since April, said late Tuesday that it would wind down its operations after failing to find a buyer.
The 400-employee company, which has been a prominent player in the west and northwest suburban Chicago housing market, has a significant presence in California and four other states. Kimball pulled out of the troubled Florida market earlier this year. A year ago, it had 1,100 employeesIt will refund the earnest money to buyers with whom it has written contracts but has not started construction.
Some 700 homes are in various stages of completion around the country. Locally - 150.
On a side note - Bally's Fitness declared BK today
Monday, December 1, 2008
Citi Spends Bailout Money on an Acquisition!
(Sidenote - As I predicted - the stock market is down today. It ran up too many days (in a head fake) -- from 7500 to 8800. I think it is due to go back down to 7500 again (for a bounce off of that again) - and could go lower next year.._
Treasury Secretary Henry Paulson gave Citi $45 billion in taxpayer money to keep it afloat and get it to pump some money into the emaciated U.S. lending system and what does Citi do?
Buy a Spanish highway operator.
Yes, you heard right. A Citigroup infrastructure fund agreed to take over Spain's Itinere from Sacyr Vallehermoso in a deal valued at about $10 billion, which includes about $6.3 billion in debt that Citi will take on.
Just what Citi needs: more debt.
Of course, Citi officials will tell us this is good debt, unlike the $306 billion in risky assets U.S. regulators agreed to backstop last week as part of a $20 billion taxpayer-funded cash injection to shore up Citi. That's on top of the $25 billion in federal bailout money Citi received earlier this year.
I'll bet Paulson just can't wait to hand over another $10 billion to Citi when the bank complains that the global recession is eating into the tolls it thought it would be collecting in Spain.
Treasury Secretary Henry Paulson gave Citi $45 billion in taxpayer money to keep it afloat and get it to pump some money into the emaciated U.S. lending system and what does Citi do?
Buy a Spanish highway operator.
Yes, you heard right. A Citigroup infrastructure fund agreed to take over Spain's Itinere from Sacyr Vallehermoso in a deal valued at about $10 billion, which includes about $6.3 billion in debt that Citi will take on.
Just what Citi needs: more debt.
Of course, Citi officials will tell us this is good debt, unlike the $306 billion in risky assets U.S. regulators agreed to backstop last week as part of a $20 billion taxpayer-funded cash injection to shore up Citi. That's on top of the $25 billion in federal bailout money Citi received earlier this year.
I'll bet Paulson just can't wait to hand over another $10 billion to Citi when the bank complains that the global recession is eating into the tolls it thought it would be collecting in Spain.
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