Archive for the ‘Financial Collapse’ Category

Bank Bailout – Geithner still doesn’t get it

Monday, February 23rd, 2009

Or maybe even worse – maybe Geithner does get it and his purpose is to destroy the US Economy.

The US Treasury (and related agencies) have released the official statement about the talks with CitiGroup on Sunday.  The plan is little more than a vague plan to “pump more money” into the banking system. 

The only substantive change is to convert the preferred stock ownership (which had a guaranteed interest rate) into common stock ownership.  This moves the US Treasury to the end of the line if the bank fails.  You may remember Senator Dodd had said that in the long run, the first batch of TARP money would end up making a profit for the US Government.  That is now even less likely.

The stock market immediately headed down.  How many times does this have to happen before the people around Geithner realize he is the problem, not the solution?

Total carnage for today – US Stocks lost almost 4% today.  Time grows short for the leadership of this country to get a clue.

Ritz Camera files for Chapter 11

Monday, February 23rd, 2009

Story here

Probably the best known retailer of Cameras and related goods files Chapter 11.  Part of the reason is digital photography has changed the market for high end cameras.   They also decided to get into the retail Boating supplies business, which was outside their “core competence” and that decision has not worked out well.

Bankruptcy Watch – GM/Chrysler

Monday, February 23rd, 2009

AFP (the French news service) is reporting that the US Treasury is talking to potential banks (CitiGroup?) that might provide what is called “Debtor in Posession” financing – it is the funds used to keep a company “alive” while it goes through the bankrupcty process.    The DIP stands first in line to gets its money back when/if the company comes out of Chapter 11.  Obama administration officials are quoted as saying “everything is on the table now”.

Bankruptcy Watch – Philadelphia Newspapers, LLC

Monday, February 23rd, 2009

The publisher the The Philadelphia Inquirer and the Philadelphia Daily News has filed Chapter 11

Story

Bankruptcy Watch – SFCG

Monday, February 23rd, 2009

Bloomberg Story

SFCG is a large lender in Japan, and as of last July owed CitiGroup about a billion dollars

Why bank nationalization must happen

Monday, February 23rd, 2009

We can argue about how we got here, or where we need to be in the future, but some sort of federal government control of banks is going to happen.

Here is why – the premise of our banking system since 1933 has been that there are banks that are “too big to fail“.  These banks are the last defense against total economic collapse. 

The FDIC by itself – does not have enough money to stop the failure of one major “too big to fail” bank.  The premise of the FDIC is that there will always be another bigger bank that can swallow a failed bank, and with some FDIC funds thrown in, the larger bank will take over the accounts and keep doing business as normal.  The only way to rescue a “too big to fail” bank is for the US Treasury to come up with the money.

Here’s the problem.  Corporations keep their working capital in these banks.   They feel safe doing that because everyone has agreed that these banks are Too Big to Fail, and the US Treasury will dive in front of the bus before it would let them fail.

Those corporate funds in Too Big to Fail banks are NOT insured by the FDIC.  Imagine for a moment if the FDIC seized a bank where Wal*mart has its working cash parked.  Wal*Mart is just a theoretical example – but one to worry about because it is so big and considered one of the healthier retailers at the moment.  As of their last SEC filing, Wal*mart had $5.9 billion sitting in “cash” (somewhere).   Wal*Mart’s sales are about $1 Billion per day.  They owe $44 Billion to their suppliers, commercial paper borrowing and unpaid bills (like wages earned, but not paid until pay day).

When you buy something at Wal*mart, that cash (or credit/debit card transaction) is going immediately to a bank somewhere.  A portion of it is set aside to pay the people working there on payday – the rest is going off to pay a supplier who has been waiting 2 or 3 months to get paid or to pay back the commercial paper used to buy the inventory sitting on their shelves.

Imagine if the FDIC seizes the bank and tells Wal*Mart – “sorry, your funds weren’t insured.  File a claim with the FDIC (or bankruptcy court) and you may get some of your money back in a year or so”.   Paychecks could bounce, payments to suppliers will stop, pushing many of those companies into their own cash flow problems and probable bankruptcy.  Nothing would set off a general panic of the population faster than a closed major retailer or seeing empty shelves.

Here is some more background material on Wal*Mart.

Bankruptcy Watch – Journal Register

Sunday, February 22nd, 2009

Story Here

The Journal Register  newspaper company produces the New Haven (CT) Register, Oakland (MI) Press,  and 18 other daily newspapers, and 159 non-daily publications.   One of the reasons newspapers are in trouble is the decline in ad revenue from car companies.  Perhaps they thought that warning the public about the dangers of driving cars causing climate change would not affect them.

This is a prepackaged bankruptcy, with JP Morgan/Chase bundling the creditors interests – so chances are good the bankruptcy will not last long.

Bankruptcy Watch – Qimonda North America

Sunday, February 22nd, 2009

Story Here

Qimonda is a large manufacturer of DRAM chips, the memory chips used in most computers.  The world has an oversupply of DRAM chips as the economy slows.

How to fix the economy in a week

Saturday, February 21st, 2009

Back at the beginning of this problem, the first thing Hank Paulson proposed (probably at the request of Tim Geithner) was to bump up the FDIC coverage limit to $250,000 per account.  George Bush and John McCain quickly jumped on board.  This was exactly the WRONG thing to do and was a horrible mistake.

The result was an immediate outflow of money from the stock market which led to its immediate freefall – and then to make things worse they started adding in FDIC insurance to non-bank accounts like mutual fund money market accounts.   This is like writing insurance policies after the hurricane has already destroyed New Orleans, and with the same outcome.

They believed we are all cowards, and maybe the new Attorney General has a point.

My proposed solution:

“90 days from today, your FDIC coverage will drop to $20,000 per person (not per account) and that is a lifetime limit.  Once your money has been “saved” by the FDIC, that amount is deducted from your remaining $20k.   Amounts in CDs with a maturity of 1 year or more remain at $100,000 per PERSON coverage.”

Right now, huge piles of money are sitting in short term deposits.  Because they could vanish at any minute, banks can’t do anything useful with the money.

This would force people to do one of the following:

  • move the money into tangible assets – real estate, gold, cars, inventories
  • put their money back into the stock market – which would likely go up 20% the first week, and group psychology would do the rest
  • move the money into longer term CDs – which would give the banks a comfort zone that they could start buying commercial paper, fund construction loans, etc… and “unlock” the credit market
  • Pay off debt
  • People will question how their bank is investing money, not chase the highest yields from the weakest banks
  • Reduce demand for short term Treasury notes, allowing interest rates to return to a more normal range

This entire mess happened because we encouraged most of the money in the economy to surge into the one place where it does no good – short term safe havens.  We need people betting on the future, not fearing it.

Bankruptcy watch – John Laing Homes

Friday, February 20th, 2009

Story here

Last I heard, there are currently 19,000,000 empty homes in the United States.  I think we can stop building new homes for a while, unless we expect 100 million Mexicans to flood over the border some time soon.

Two curious things about this story – the AP “slugged” the story as Bangalore, so apparently the AP has “outsourced” editing stories about the United States to cheap labor in India.  Perhaps the more interesting thing is that this company making homes in the United States is owned by Dubai.