Archive for the ‘Politics’ Category

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Ethanol from grain – bad idea getting worse

Tuesday, February 24th, 2009

The nation is filling up with “ethanol from grain” refineries that are filing bankrupcty.

Renew Energy
Central Illinois Energy
Verasun
E3 Biofuels

Under the most optimistic assumptions, including using irrigation to grow grain, ethanonal returns only slightly more energy than the energy that was needed to make it (fertilizer, running tractors in the spring, harvesters in the fall, trucking the grain to the refinery.  Conventional gasoline/oil pipelines cannot transport ethanol, so it must either be trucked half way across the country, or shipped via rail (and few of the specialized rail cars exist).

Intensive production of corn is itself releasing more CO2 as more land is cleared to grow crops, farm runoff is expanding the “dead zone” in the Gulf of Mexico, non-renewable topsoil is being consumed and washed away, and the country’s nonrenewable underground aquifers are being depleted for irrigation.  Irrigating for 20-40 years always leads to salinity of the soil high enough that no crops will grow on the land.   This was a really bad idea, funded by ADM and with no science behind it. 

Ethanol from sugar cane or biomass may have some role in the future, as they offer substantially higher net returns on energy inputs .

If you’re still unconvinced with ethanol from grain is a bad idea, did you know that ethanol plants are large generators of Co2?

Posted in Bankruptcy Watch, Politics | No Comments »

AIG “investment” going sour

Tuesday, February 24th, 2009

Story here

Remember when the US Government stepped in to “Save” AIG?  (even though AIG is an insurance company and not a bank).  At the time, various people in the government suggested that in the long run, the taxpayers would make a profit.

Now AIG says it is going to convert the Preferred shares we (the taxpayers) bought into common shares.  They can’t afford to pay the 10% interest that the preferred stock requires.  That was the whole point – that this would make the “investment” temporary and force AIG to quickly pay off the US Treasury by buying back the preferred stock.

That’s not what AIG is proposing.  Like CitiGroup, they want to take the US Treasury from the front of the line to get paid, and put them at the end of the line – so if/when AIG declares bankruptcy the US Treasury is holding only worthless common stock.

The bizarre part of this notion is that AIG thinks converting preferred stock to common stock is -their- decision.  That’s not how preferred stock works.  The owner of the stock decides when or if they wish to exercise their conversion option, usually based on the common stock getting above the conversion price by enough to justify letting go of the guaranteed interest income stream.

They’re talking like they have a friend inside the US Treasury (Geithner comes to mind) who is agreeable to this.  It’s time to say “NO” to AIG.

What is going on here is that most people do no realize their life insurance policies and annuities have no government “insurance” protection. 

Insurance company policies are typically guaranteed by a state run Guaranty Fund.  The fund has no assets of its own – the only tool it has to stand behind insurance policies is to impose an assessment on the other insurance companies that haven’t failed (making them more likely to fail, also).   Unfunded Insurance Guaranty funds are completely unprepared to deal with the largest insurance company in the world failing.  

When people realize their insurance policies and annuities are at risk, a “run” can begin on insurance companies as people withdraw the “cash value” of their whole life policies or demand an early termination of their annuity. 

This has happened before – in 1933, regulators declared an “insurance holiday” to stop runs on the insurance companies.  Here is the story in Time Magazine from April 1933.

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Posted in Financial Collapse, Politics | No Comments »

We have a Car Czar now (or do we?)

Monday, February 23rd, 2009

Story here

Just when you think it can’t get stranger.  After Tim Geithner and President Obama declare they really don’t need a Car Czar after all (just the money), Steven Rattner appears to be assuming that role.

Steven Rattner is  the founder of Quadrangle – a private equity firm with a long history of deal making in the major leagues of finance.  That’s not totally surprising – the talk is that for a GM/Chrysler bankruptcy deal to happen, the government needs private equity money driving the process.  More importantly, they need a “kick ass and take names later” guy to make the painful decisions and tell people “the way it is going to be”.   Think of Danny DiVito’s character in “Other People’s Money”  and that pretty much sums it up.  I’m actually having a twinge of optimism now.

The “kicker” about Mr Rattner is he is the man who manages the finances of New York City Mayor Michael Bloomberg.

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Health Insurance Stocks being hit hard

Monday, February 23rd, 2009

On second review, the reason for the drop today is a sector wide drop of 10%+ in the health care insurance stocks.

Humana, Healthspring, United Health, Coventry Health Plan, Wellcare Health plan, …

Ford announced a deal with the UAW over retired health care coverage.  There is also a blurb about TARP funds being pushed into Medicaid, or maybe something is happening behind the scenes regarding universal health care….

*** Update ***
And the answer is – the Obama adminstration has found a place to cut spending – Medicare!.   Expect the media to howl about President Obama wanting to kill all the old people…   what’s that silence?…  Hello?….  Anyone there?….

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Posted in Financial Collapse, Politics | No Comments »

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.

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Posted in Financial Collapse, Politics, State of Fear, Timothy Geithner Watch | No Comments »

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”.

Posted in Bankruptcy Watch, Financial Collapse, Politics | No Comments »

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.

Posted in Bankruptcy Watch, Financial Collapse, Politics, Timothy Geithner Watch | No Comments »

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.

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Dodd says “Short Term” nationalization is necessary

Friday, February 20th, 2009

Senator Chris Dodd, head of the US Senate Banking Committee (who has not yet produced copies of his sweetheart mortgage deal with Countrywide Mortgage) says that “Short Term” Nationalization of Bank of America and CitiGroup may be necessary.  Bloomberg Story

Remember that once the government gives itself “temporary” powers, it never gives it back voluntarily.  US Treasury dictator Timothy Geithner will release details of this plan “next week”, unless of course he’s too busy saving the automobile industry.

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Posted in Bankruptcy Watch, Financial Collapse, Politics | 1 Comment »

The Obama Birth Certificate “thing”

Wednesday, February 18th, 2009

Most of the “polls” on this web site have outcomes that are not very surprising, but the one about what people believe about President Obama’s birth certificate surprised me.    While this site is mostly people of the Conservative persuasion (just look at the program popularity stats), my impression was this issue was pretty much over. 

A very large percentage of people voting in the poll believe Barack Obama was born in Kenya and something needs to be done about that. 

One thing I would like to point out – having spent a summer of my youth shuffling forms as a summer intern at a Social Security office.  Many people are misunderstanding what that green “birth certificate” presented by the Obama campaign is.  Most people now understand it is not his actual birth certificate, but rather a document issued by the State of Hawaii saying that his birth was registered there.

What is setting some people off in the wrong direction is they don’t realize this was a document printed recently.  It isn’t one he has been carrying around in his wallet for 40 years.  How do I know that?  Government forms always have a date down at the bottom that is the “revision” date of when the blank form was designed.   The office person who keeps track of forms looks at that date to decide which are obsolete forms that need to be destroyed.

In the lower left corner, it says OHSM 1.1 (Rev 11/01) LASER

This indicates this form was created by the Office of Health Status Monitoring version 1.1, that has been in use since November 2001.  So the ideas of “they didn’t have laser printers in 1961”, etc… are misguided.  This is very different than the Rathergate document which purported to be an actual document created in the 1960s on a typewriter.

One of the unpublished “suggsted answers” to the poll was “Yeah, but what about McCain?”

There are some important differences between Obama and McCain:

  • Both of McCain’s parents were US Citizens all of their lives
  • McCain was not “born in Panama”, he was born on a US Military base in the Panama Canal Zone, which was US territory at the time
  • John McCain’s did not go to live with a stepfather in another country and change his name

I’m personally more troubled that his elementary school education occured in Indonesia, and his view of the United States and knowledge of U.S. history was learned in a country that has historically not looked favorably on the United States.   His mistakes about US history and basic civics (that Presidents don’t make laws, and can’t delete items from appropriations bills) are things that could hurt the country over the next 4 years.

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Posted in Politics | No Comments »

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