Category Archives: Uncategorized

Fed Disclosure of Member Bank Borrowings

Posted on by


[Skip to the end]

(email exchange)

>   
>   On Tue, May 12, 2009 at 10:35 AM, wrote:
>   
>   We are talking trillions of dollars from our pocket…
>   

The Fed is lending to its member banks. That is the same as the banks taking in deposits insured by the FDIC. Banks specific loans are only seen by regulators as a matter of public purpose.

Do you want every loan by every bank revealed? If so, lobby congress, as the majority in congress doesn’t want that.

Your beef is with congress, not the Fed.

Also, loans to member banks are not ‘dollars from our pocket’ unless they aren’t repayable, and the regulators monitor banks for capital compliance and they’ve done an ok job so far in that regard. Relatively few FDIC losses given the magnitude of the slowdown.

>   
>   Where is accountability for keeping the dead alive?
>   

Funding banks is not keeping the dead alive. All banks are always publicly funded via FDIC insured deposits. So happens the Fed is offering funds cheaper and for longer term than the FDIC, so it’s getting the business.


[top]

Share

China’s Reserve Strategy

Posted on by


[Skip to the end]

(email exchange)

>   
>   On Tue, May 12, 2009 at 11:22 AM, J A Kregel wrote:
>   
>   And you can add to this the undeclared policy (confirmed to me last week) that
>   Chinese reserve diversification to hedge dollar exposure will be primarily in
>   stockpiling natural resources, not currency diversification
>   


[top]

Share

It’s not just Chrysler

Posted on by


[Skip to the end]

Thanks!

Another example of politicians using the TARP card to influence the bankruptcy process. Banks may think twice before they provide their next DIP. If nothing else, the cost of this financing will increase. Which I believe is counter to what said politicians would like to see happening.

Hartmarx- A Harbinger of Things to Come

by Rodney Johnson

May 9 (HS Dent) — Hartmarx, the clothier who’s recent fame is making suits warn by President Obama, filed for bankruptcy protection in late January. Wells Fargo supplied Debtor in Possession Financing (DIP) while the company reorganized. Three bidders have emerged: two of the bidders are interested in keeping the operation going, the third would liquidate the company. When employees got wind of the third bid, they rallied against Wells Fargo, assailing the bank and calling congressmen, as reported by Progress Illinois:

This news of a potential liquidiation caused workers, union leaders, and members of Congress to spring into action to aid the company, which employs 3,000 people nationwide, including 1,000 in Illinois. Rep. Phil Hare, who spent 13 years as a Hartmarx employee, described himself as “livid” at the bank, which accepted $25 billion in federal bailout funds. He went on to enlist the help of Rep. Barney Frank (D-MA) and Sen. Chuck Schumer (D-NY). Rep. Jan Schakowsky, whose great-aunt found a job with Hartmarx after emigrating from Russia, called Wells Fargo CEO John Strumpf and urged him to keep the company running. Illinois Treasurer Alexi Giannoulias, meanwhile, sent a letter to Strumpf threatening to sever the state’s business with the bank if Hartmarx was ultimately liquidated.

This is not isolated. This is not about Chrysler, GM, and tens of thousands of workers and the ability of the United State to mass produce heavy vehicles as a point of national security and safety. This is a company that makes clothing, who through the power of employees, not owners, is bringing pressure on a bank through political paths because of TARP funding. A year ago this would have been seen as a bizarre episode. Today it is an indication of where we are headed, as the recently silenced critics of the Chrysler deal know all too well.


[top]

Share

South Africa’s Unemployment Rate Increases to 23.5%

Posted on by


[Skip to the end]

Good place for the federal government to fund minimum wage jobs for anyone willing and able to work and turn the nation into a model of prosperity overnight.

South Africa’s Unemployment Rate Increases to 23.5%

by Nasreen Seria and Mike Cohen

May 5 (Bloomberg) — South Africa’s unemployment rate, the highest of 62 countries tracked by Bloomberg, rose in the first quarter as the economy probably entered a recession for the first time in 17 years.

The jobless rate increased to 23.5 percent from 21.9 percent in the previous three months, Statistics South Africa said in a report released in Pretoria today. The number of people out of work rose to 4.18 million from 3.87 million.

“Manufacturing and mining are under strain, and we can expect these numbers to worsen,” said Fanie Joubert, an economist at Efficient Group in Pretoria. “We’re unlikely to see a recovery until the fourth quarter.”

The ruling African National Congress, which won a fourth consecutive five-year mandate in April 22 elections, has pledged to make “decent work opportunities” the focus of its economic policy. The government is aiming to cut the unemployment rate to 14 percent by 2014.


[top]

Share

Latest on Obama and Chrysler

Posted on by


[Skip to the end]

Not to bore you with this, but it’s a no win situation in that if the secured creditors lose, the entire credit structure becomes uncertain, and if the secured creditors win, the deal breaks down and Obama, an all star law graduate, loses credibility and political power as the deal falls apart and Chrysler folds unless there is additional public funding.

And with GM next, there’s no telling what might happen to both the automakers and the entire supply chain and distribution network.

Chrysler Non-TARP Lenders Object to Auction Plan

by Christopher Scinta and Tiffany Kary

May 4 (Bloomberg) — A group of Chrysler LLC’s secured lenders is seeking to block the bankrupt company’s plan to sell its business at auction this month, arguing that the U.S. government is violating federal law to preserve the automaker.

The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization.

Secured lenders that agreed to the Fiat deal, including JPMorgan Chase & Co.,Citigroup Inc. and Goldman Sachs Group Inc., had conflicts of interest because they had also accepted TARP funds, the group said.

The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan. The group also said the short period of time given to evaluate the sale was improper and the hearing on bid procedures that began today should be delayed. The judge delayed the hearing until 2:30 p.m. tomorrow, ordering the members of the lender group to reveal their identities.

‘Improperly Attempts’

The sale “improperly attempts to extinguish their property rights without their comment,” attorneys for the objecting lenders wrote in court papers.

“The sale motion should be denied because it seeks approval of a sale that cannot be approved under the bankruptcy code,” they argued. “The court should not permit a patently illegal sales process to go forward.”

Chrysler’s planned alliance with Turin, Italy-based Fiat, would create the world’s sixth-largest carmaker. Chrysler, based in Auburn Hills, Michigan, wasn’t able to pursue the merger outside bankruptcy because of opposition by the objecting lenders.

Under bankruptcy law, offers for bankrupt companies or their assets are generally subject to the possibility of higher bids at a court-supervised auction.

The Fiat offer, to be made from an as-yet unnamed entity formed by the Italian automaker, Chrysler employees and other parties, will be the lead bid in an auction, which is typically required for assets sold in bankruptcy. Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to approve bidding rules for an auction that would require creditor objections to the sale be submitted by May 11, followed by a May 15 deadline for competing bids. The bankrupt company seeks a May 21 hearing to approve the winning bid, according to the court filing.

Listed Assets

Chrysler, in its April 30 filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth-largest bankruptcy in U.S. history, according to data compiled by Bloomberg News.

Chrysler’s proposed sale favors junior creditors over senior creditors and would improperly channel the proceeds to specific creditor groups, the objecting lender group said in the court filing.
In court today, Thomas Lauria, a lawyer for the secured lender group, said some of its members have received death threats. In response to the judge’s demand that the members of his group be revealed, Lauria said the identities of more lenders would be revealed “promptly.”


[top]

Share

Redefining full employment

Posted on by


[Skip to the end]

Not good.

As suspected way back on this website:

‘Great Recession’ Will Redefine Full Employment as Jobs Vanish

by Matthew Benjamin and Rich Miller

May 4 (Bloomberg) — Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring — in what former Federal Reserve Chairman Paul Volckercalls “the Great Recession” — is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”


[top]

Share

Follow up to the radio interview

Posted on by


[Skip to the end]

Thanks!

This supplements the tape previously emailed.

White House Claims Head of White&Case Restructuring Group Lied

by Tyler Durden

May 3 (ZeroHedge) — In a story becoming more bizarre by the minute, ABCNews has now picked up on the Perella Weinberg scent with some new twists. According to ABC, White House deputy press secretary Bill Burton claims that the allegations by Tom Lauria, global head of the Financial Restructuring and Insolvency at White & Case are “completely untrue”. As Zero Hedge already disclosed, Perella Weinberg was previously a client of White & Case, however, the firm run by former head of M&A at Morgan Stanley Joe Perella (where incidentally Steve Rattner was head of the Communications group until 1989), decided to fire the law firm after developments unknown, and in a radio show, Tom Lauria had this to say about the White House’s alleged strongarming tactics:

“One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg.”

The White House has now stepped in and claims that this story is patently false:

“The charge is completely untrue,” said White House deputy press secretary Bill Burton, “and there’s obviously no evidence to suggest that this happened in any way.”

What is more strange is that now Perella Weinberg itself is claiming Lauria’s story misrepresented the facts:

“A Perella Weinberg Partners spokesperson told ABC News on Sunday that “The firm denies Mr. Lauria’s account of events.” The spokesperson would not elaborate.”

What is strangest is that Lauria would stake his career and reputation on the line by stating on the record the facts previously disclosed. As such his downside is much bigger than that of Mr. Burton or of the PW’s spokesperson, as they effectively side with the Obama’s side of the story.

Granted there could be even more to this story than meets the eye, thanks to some keen observations by our friends at Finem Respice.

Ultimately, this will be a very interesting development, because without factual backing, Tom Lauria’s career is now on the line, as he has taken on not just the administration but his very own, former client. The bottom line here is that someone is lying, and if any further facts emerge to substantiate White & Case’s position, it could prove to be a massive PR blow to both the White House and the FDIC’s advisor, Perella Weinberg.

The full statement by Perella Weinberg is presented below:

Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler’s bankruptcy filing. In considering the President’s words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.

We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors’ money. This was our assessment of investment risk and reward, nothing else.



While we did and still do believe that the lenders would be justified in pressing their objections under conventional bankruptcy law principles, we believe a settlement would now be in the best interests of all parties in the context of avoiding a drawn out contested bankruptcy litigation proceeding, and we encourage our colleagues in the loan syndicate to pursue this immediately.”


[top]

Share

Chrysler related comments

Posted on by


[Skip to the end]

The point remains that the job of the executive branch is to enforce the laws as enacted by Congress.

This is not a time of war, Chrysler is not a national security or strategic issue, nor is the US automobile industry.

In fact, Chrysler was already largely a foreign entity, and even GM is now probably larger overseas than in the US, and the national origin of its shareholders are of no consequence.

This has turned into a simple, unwarranted, unnecessary, and counterproductive show of force between the President and a few lesser Wall St. players.

In the absence of supporting law, the administration, driven by anger, instead used all its bully powers to avoid a Chrysler bankruptcy (for reasons not yet fully disclosed) and, in this instance, lost that (minor?) battle.

The separation of power between executive, legislative, and judicial branches and the rule of law bent but did not yet break.

This is what happens with a President who doesn’t understand the monetary system, and doesn’t understand the US has unlimited ‘financial resources’ to sustain full employment and social equity with or without Chrysler or any other private employer.

Instead, the President sees an inevitable rise in unemployment and the risk of systemic failure should the automobile industry ‘rescue’ fail.

Just as:

  • The errant belief that we need China and others to be able to deficit spend is driving foreign policy ‘concessions.’
  • The errant belief that we can’t ‘go it alone’ with fiscal policy is squandering a golden opportunity to enhance our standard of living.
  • The errant belief that we are economically better off with a balanced federal budget is risking the sustainability of our domestic economy.
  • The errant belief that bank lending is a prerequisite to economic well being is shifting wealth upward away from lower income working people.
  • The errant belief that ‘monetary policy’ can support GDP delays and limits fiscal response.
  • The errant belief that exports are more desirable than domestic consumption depresses our standard of living.
  • The failure to understand the difference between the purchase of financial assets and the purchase of real goods and services continues to prolong our massive output gap and the unrecoverable real losses of high unemployment.
  • All of this can be traced to a world wide failure to recognize the fundamental difference between the gold based monetary systems of the past and today’s non convertible currency regimes.

The Lenders Obama Decided to Blame

by Zachary Kouwe

May 1 (NYT)


[top]

Share