auto bailout lesson - a czar in every industry and a check from Congress

So you want shock and awe? How about the fact that Congress is about to give the major automakers $15 billion more in bailout money. Yeah, what I thought. A yawn.

It's not a surprise to anyone that the auto industry is getting the bailout money. A loan from us to them as Congress likes to put it. And it will be paid back as soon as February. Or so Congress wants to polispeak the spin.

But the real facts are simple. Congress is pulling out any stops on spending money. They are giving money away to basically every big business that walks up to them. I expect that airlines should be next.

So far we have given more than a trillion dollars in this year alone. Forget about the combination of nations that it would take to equal the amount that has been spent. The thing is that none of this is helpful, though Congress keeps saying they think this will do it.

Our money has been poured hand over fist to the financial industry, and we got fewer loans being made, more ownership and intervention from the Government, and a promise that in some far off day we will get paid back. Of course you have not heard a single word on how we will get paid anything back, or what will that money be used for since it won't be in our pockets. But the taxes to pay for it until we do one-day get repaid will come out of our pockets.

And we gave $25 billion to the automakers about a month ago. So the current $15 billion might make it to the end of the month. Then they will ask for more, blaming Congress for being stingy and not helping enough for them to get to do what they need to. But don't fear Congress will appoint a Governmental agent to watch over the auto industry.

I expect that will be someone like Treasury Secretary Paulson, or Fed chairman Bernanke, or maybe like Congressman Barney Frank. And you know all of them were right on the job, wide awake, making sure things couldn't get any worse. Oh damn, we are seriously in the crapper aren't we?

The worst part of this is the fact that a Government agent overseeing private industry, with the ability to mandate changes in their business practices that is solely motivated by politics, is a far cry from capitalism. It is yet another desperate attempt to avoid the pain needed to innovate and become more efficient. Which means it is ultimately a failure of massive proportions that will be passed down the line a bit for someone else to deal with. Hopefully not the politicians in office currently.

For all the bluster, and there were loads of it especially from the financial oversight genius Barney Frank, the fact is this is the worst case scenario and we all knew it was going to happen. From the moment that Congress sat to listen to the auto makers we knew it. The only questions were how much and when. Now we know.

The fact that our politicians lack courage is bad. The fact that they are protecting their political supporters (the UAW as one example) above helping the nation is worse. But the fact that our elected officials have no clue what is going on is the most troubling of all.

So there goes another $15 billion. Compared to the $500 billion+ stimulus plan for 2009, or what has already been spent in 2008 it's not a big deal. Until the snowball of what Congress is doing moves just a bit closer, faster, larger. And then they won't be able to print the money fast enough.

Citigroup - what was known and when?

This year Christmas has come before December, especially if you are a money center bank, a brokerage house, insurance company, or car manufacturer. For regular people though the holiday may not arrive at all. Such is the way things happen when the Government gets involved.

The news is out now that Citigroup will receive another $20 billion, with guarantees for $306 billion in assets, before the holiday season ends. In fact they should have the money, your money, in hand before the holiday season officially starts this Friday. Santa it seems has a 401k.

The good part of this is that Citi should not fail. Thus money will be stable in over 100 countries around the world, for the time being. Another bonus that New York City officials must love is that Citi will not be sold off in parts, and thus tens of thousands of additional jobs should be secure. And there is a better than 50% chance that many of the major bonuses that help the Big Apple float will be paid out (contractual obligations don’t end when the company gets a Government bailout). And in all honesty that is a good thing for the U.S. economy too, as long as they spend the money and not hoard it in fear of future layoffs.

The bad thing is that none of the officials tasked with resolving the financial crisis the nation is in foresaw this event. Chriss Dodd and Barney Frank didn’t see it coming, not because they were asleep at the wheel like when they promised Fannie Mae and Freddie Mac would be ok, because they were too busy blaming anyone but themselves for missing the problem. Treasury Secretary Paulson missed it. Fed Chairman Ben Bernanke missed it too.

Not one of these men, each tasked with identifying this continuing problem, envisioned this problem. They have dozens of staffers and hundreds working behind the scenes crunching numbers. Yet they all missed the chance of this happening. And the public is left to assume that it was so sudden they couldn’t have known.

Not true.

“I believe that the move to junk rating of ACA, the probable $6 - 12 billion loss at JP Morgan [significantly higher than expected], eventual losses from Citigroup - which reinsures itself, oil breaking $100 a barrel, and the multiple overseas investments will all hit the market in mid-January 2008. Thus I think a move to 11,000 is more than probable.”

I said that in December of 2007. That’s without being a stockbroker for years, without financial racords, conversations with CEO’s, discussion of the Fed, data from international sources, or Congressional committees. Just me reading the news and analyzing the public information.

I in fact went on to say

“Will those experiencing deflation outweigh the inflation fears? And if more people lose their homes how much of our financial institutions are we willing to sell to avoid the harshest realities of a crash?”

I knew Citigroup was in trouble a year ago. I knew there would be a major crisis from the mortgage industry, and that a bear market would hit the stock market. And I defined it several times, months in advance, in detail. The main thing I have been wrong on is the severity and speed at which all these things happened.

My point about this is simple. If I can figure out how bad things were, and most likely will continue to get, then what the hell were all these people whose only job is to figure this out doing!?

If they can’t get off they political posteriors, open their Government entrenched eyes, and understand the degree of a problem that is apparent to a guy on a computer in Binghamton – without even a stock ticker – they why are we giving them control of $700 billion and more? How can we expect that a single dollar of that money will be put to a use that is effective?

Case in point. Citigroup is in big trouble. They insure themselves internally. They are failing. So what is the value of the $306 billion in assets today, what was it yesterday? Are we guaranteeing a value that was intially set for these assets, the current market value of these assets, or are we getting to pick up the debt and bad loans of Citigroup mixed in with actual assets? The difference is very important. And I doubt if Barney Frank and Chris Dodd are even aware that this question should be asked.

I asked how much are we willing to sell to avoid a problem a year ago. Today I am looking forweard and I have to ask a different question. How much of the American capitalist system the nation functions on are we willing to lose to avoid the pain of this crisis? And if we are willing to comnpromise the basis of our economy, how do we prevent losing the freedoms a solcialist nation cannot tolerate?

Nancy Pelosi wants 2nd try at stimulus plan failure

Just one month ago Nancy Pelosi was advocating a mortgage bailout bill that would give nearly $1 trillion to Treasury Secretary Paulson and use any potential profit or repayment for pro-Democratic groups including federally indicted ACORN instead of the public. Also in that initial bill was a quiet attempt to add $50 billion dollars as a stimulus plan for normally pro-Democratic segments of the nation.

Nancy Pelosi was shot down in her first attempt, but she did not give up. Though ACORN is now recognized as a bad choice for more federal funding, especially as a substitute fro repaying the public bailout of financials, Pelosi is still trying for her stimulus plan. And you have to give her credit, she has increased the amount she wants to spend to $150 billion now (or more if she can get it). And she is now getting support from Fed Chairman Bernanke and the White House it seems.



Long-time readers will be familiar with the fact that I thought the first stimulus plan was a waste of money. It was a complete failure in every objective it was hoped it would deal with. It did not stimulate anything, it did not bring stability to the housing markets, it did not prevent the failure of several banks and brokerages, and it did not alleviate the credit crunch.



Another stimulus plan will have the same effect. Nothing. Any funds being used to give to the public will be used to pay down bills and debt, again. Even moreso now with such uncertainty.

And we need to get this into perspective. Nancy Pelosi has presided over the worst Congress ever. It was her Congress that failed to see the crisis from the start. It was her Congress that as late as July denied any problems, in the words of Barney Frank. It was Paulson and Bernanke that have been playing catch-up. It is the current fiscal plans that are causing real inflation to grow, and business to slow – which is the only reason oil prices have dropped. And they want to make it worse by doubling down.

Pelosi is confident that she will get another stimulus plan, if Obama is elected. She plans to wait til then to really push for this useless plan.

“But we can get something signed — please, God — when Barack Obama wins the election.”

That is just blatant polispeak. But what it also means is this. An Obama Administration will bring in $832 billion in new spending, we are spending $700 billion on the bailout, we have spent over $200 billion on prior bailouts, and we will be spending another $150 billion or more on another stimulus plan while businesses will be saddled with 10% higher taxes, and investments will be shutdown with another 15% in capital gains taxes.

Given these facts, I cannot see how anyone will not have their taxes increased. And I don’t mean the 3% increase that Obama and Democrats have voted for and tried to pass in March of 2008. If anyone thinks that business will not slowdown further, and jobs will be lost while inflation grows under these economic plans, they have never done well in basic math – in my opinion.

Nancy Pelosi is decidedly a partisan and underhanded politician. She promotes wind energy without disclosing her substantial stock investment in wind energy companies. She has refused and block discussion on domestic drilling. She has wasted the taxpayers money on trying to point blame on Republicans, admittedly where no laws have been broken. She has had a Congress that has accomplished the least ever, while maintaining a majority in both Houses. And now she wants to make things worse.

I hope people in California wake up and vote her out of office. But the fact is she will hold power long enough to cause damage that will last years. And considering that she has enabled a Congress to willfully damage the nation via inaction and inattentiveness, I can only have nightmares about the damage she will be able to inflict on the nation with a Democratic, left-wing, President as banks and healthcare is socialized.

Mortgage crisis bailout - Buffett in, but should we join him?

Warren Buffett has made a significant symbolic action in our economy. He has invested $5 billion into Goldman Sachs, the bank. Not the investment bank but the commercial bank that it has now become. The difference may sound small but it’s huge.

In doing this he has signaled his long-term belief that the American economy will weather this storm. Which few doubted. But this one act is hardly enough to resolve all the issues between now and his normal 5 – 7 year investment window.

Now I realize confidence needed to enter the markets. And the doubt of the bailout plan did not help anything. This is a great stabilizing factor. But the bailout plan is not a smart bet, and will not benefit the nation near-term.

The reality is that the Government wants to give Ben Bernanke $700 billion dollars to accept the bad debt of the financial markets. This is the same individual that failed to identify or resolve the problems in the financial markets that I saw back in January at least. And he is planning to accept every problem every size bank can shovel into this deal.

Have no doubt that every bank is working out how they can get their debt passed onto the taxpayers. These are individuals that were smart enough to create the derivatives that regulators are not smart enough to see as a problem for over 5 years. And suddenly we think that more regulation will prevent bad decisions and prevent being unable to understand what is happening in the markets.

The Government should not be in the business of owning banks. The Government is not smart enough, efficient enough, nor reactive enough. The Government is not able to take on debt at a realistic valuation since it does not understand the value, and thus every dollar spent on the bailout will be a waste. And the Government has never been able to intervene in the financial markets to the benefit the nation or investors.

I would bet that Warren Buffett was asked by the Government to step into the market. He is too strong a figurehead to be ignored, and thus symbolically stabilizes the markets. And the fact that Goldman had to become a less powerful commercial bank, and thus seek out deposits to shore up its bad books and loan reserves, to get the investment by Buffett is telling indeed.

The fact is that nothing will prevent the markets from going lower in the short-term. They need to. And if there is to be any real confidence we need to see other investors step up and make similar styled investments. I want to see the Blackstone Group, and Apollo Investments to make similar steps. Bill Gates too. But that is not happening yet.

The Government has been given time, to sort out what it will do. My advice would be to let the markets sort out the problem created in the markets and bad decisions. Because all a bailout does is tell the markets that the Government will step in every time they make an overly greedy decision. And if you think I am wrong, go back and look at what the auto industry is asking Congress right now.

But perhaps one of the worst things a bailout will signal is opening the floodgates on mortgages. If we bailout bad bets by financials, why not bailout the home owners that made bad decisions? And if we can help those home owners, how the hell can we not say that people like myself that made a smart decision on their loans deserve help too. Why should my taxes go to help pay a mortgage that is not my own? Especially since all those home owners had to do is read their documents and do the math.

The Government is not responsible for correcting the bad decisions those it governs makes. But in making the bailout a fact that is exactly what it is doing. And that is more than a small step towards a socialist government and away from a Democracy.

In the Star Wars movies there is a scene where it is said that

“This is how Democracy dies. With thunderous applause.”

But I believe that that is not the only way we can lose it. It can die with a funnel of money draining from the people. Not as dramatic or poetic, but perhaps far more effective and deceptive.

Potential factors to push crude oil over $100 a barrel

Crude oil prices have been on a seesaw of volatility, most notably since hitting $100 a barrel in January of this year. Since that time there have been recession fears in America, massive rate cuts by the Federal Reserve, horrendous losses by most financials due to the mortgage sub-prime loans, and drops in the stock markets to near bear levels. That says nothing of the current growing battle between Venezuela and Exxon.

Overall the pressure has been on the downside of pricing, as many of the indicators express a likelihood of reduced demand as industries slow down. Yet not all the pressure is one sided. And the economic outlook is seen as not as bleak as once thought.

"The market has been struggling with whether we are recession-bound or not," John Kilduff, senior vice president for energy at brokerage MF Global in New York said. "That's an indicator [Japan’s economy] that whether or not we are, there's some life out there in the rest of the world and energy demand could hold up."

It’s this factor that has added to the price of crude oil recently, topping $95 a barrel on February 14th. But I think there is an aspect that has yet to be factored into the market. That factor has nothing to do with Federal Reserve Chairman Ben Bernanke’s thoughts the U.S. economy will rebound at the end of the year. It has little to do with the lack of effort of states like Michigan to create a renewable portfolio standard. It has everything to do with Venezuela.

It’s a given that the 90,000 barrels of low quality crude exported by Venezuela to the U.S. is a fraction of what the nation used. The threatened cut of sales to the United States is more likely to have a negative effect on Venezuela than effect America or impact crude prices significantly. But it’s the ally of Venezuela, or more accurately the ally of Hugo Chavez that matters. That ally would be Iran.

Iran is a major oil exporter, and no friend of America. In recent months there have been several conversations of mutual support between Iran and Venezuela, and condemnation of the U.S. It is this mutual anti-American sentiment that could drive up prices beyond an OPEC reduction in supply might create.

If the current court actions continue to favor Exxon over Petroleos de Venezuela, and negotiations fail with ConocoPhillips causing them to follow in Exxon’s direction it could start a landslide against that nation. In the face of that kind of pressure, and the refusal to sell oil to America, Iran may join with Venezuela in a stance against America. This combination of political action and national leadership prejudices is an unknown that I have yet to see any analyst or blogger mention. It’s probable that the reason for that is the unlikely nature of it coming to pass. But unlikely is not improbable.

Beyond this scenario the more likely thing to expect is that OPEC will be cutting production levels during the March 5th meeting. Without a dramatic downturn in the U.S. and world economies, in that order of importance, a return to $100 a barrel will likely happen again for a brief period before the summer and then drop back into the mid -90’s. But I believe a surge will occur along with a resurgence of the American economy in the 3rd and 4th quarters. I will say that by the end of 2008 oil breaking $110 is likely.

Now let’s see if this comes to pass.