Archive for the ‘Timothy Geithner Watch’ Category

Timmy throws a tantrum

Tuesday, August 4th, 2009

CBS Report

Several reports yesterday that Timmy Geithner is headed for a rubber room. He doesn’t understand why the people charged with enforcing securities law and financial regulation can’t just make up the law as they go along the way he does.

I met Mary Shapiro while working at NASDAQ. I don’t think you’ll find a more level-headed honest competent person who understands the Securities business. Many of the things Geithner has already done would land a lesser man in jail for market manipulation and insider trading – not to mention being a tax cheat. He’s getting on very thin ice.

The world is finally waking up to the Goldman Sachs connections to the events of the past year (and the past century) and Mr Geithner is making himself the point man for the coming showdown.

Bankruptcy Watch – Stant

Tuesday, July 28th, 2009

http://www.bloomberg.com/apps/news?pid=20601103&sid=aoEbT.uKdxvM

Stant makes fuel systems for GM and Chrsyler, and their bankrupties have forced this 111 year old company into bankruptcy.   They were surely one of those  creditors that Tim Geithner pushed out of the way to give GM to the UAW. 

It’s hard to make cars without a gas tank and fuel pump and radiators.   I guess that 30 something year old “kid” that made these decisions about how to “fix” the car business didn’t know that.

So one more company Tim Geither will have to “save” to keep GM in business.  It won’t be the last.

Geithner’s new helper

Thursday, July 23rd, 2009

Six months after President Obama was sworn in, Tim Geithner is finally getting around to officially appointing his helpers (subject to Senate approval).  

The Wall Street Journal reported today that Jeffrey Goldstein will be nominated to be undersecretary for domestic (as opposed to international) finance.

So who is Mr. Goldstein and what does it say about future policy?   He currently works for a private equity firm, but before that, he worked at the World Bank as CFO.

The World Bank isn’t a “bank” at all. It makes “loans” to third world countries that it knows have no chance of ever paying the money back, kind of like a global Freddie Mac and Fannie Mae.

Some of its current areas of interest are: Gender Equality, ending Poverty in Africa, Ending Poverty in South Area, Global Climate Change. They work on the conflicts mostly by flying around the world holding conferences, forming study groups and passing resolutions.

Where does the World Bank get the funding to carrying on this critically important projects? Well, one source is the U.S. Agency for International Development, which is part of Hillary Clinton’s US State Department. The World Bank and the International Monetary Fund are sister organizations created as a result of the Bretton Woods conference in 1944 to deal with global finance and reconstruction of post-war Europe as World War Two was winding down.

Sounds like he’ll fit right in.

GM may still go under

Wednesday, July 22nd, 2009

GM was rushed through bankruptcy, but there is another part of their problems that wasn’t solved, and could still drag them down, or possibly require us to throw more good money after bad.

Back in the 1990s, GM split out its part making operations into a separate company called Delphi (kind of a nicer name than AC Delco). Delphi has been languishing in bankruptcy for upward of 5 years, with many of the core component businesses being sold off to competitors, but Delphi still makes many of the critical parts and components for GM – the kind of stuff where you have to be directly involved in the engineering of the car long before it even hits the prototype stage.

Delphi’s bondholders voted and refused the latest reorganization plan. More than likely their game plan is… GM is now owned by Tim Geithner and he can’t let Delphi fail and take GM with it, so either GM will have to buy us back (with what money?) or Geithner will have to show up with a bucket full of money to bail us out, too.

Hence the principle that Geithner still doesn’t understand:
“When you reward failure, you get more of it”… if people believe you will “rescue” them, they not only will avoid solving their own problems, but start engaging in more and more reckless behavior knowing that Mommy & Daddy will be there to “backstop” them.

The suggestion has been made to use the same “We gotta do it yesterday” fast track bankruptcy procedure on Delphi – but since their bankruptcy is five years old, it seems hard to make a case that this is now an emergency. I don’t know if there is a precedent for declaring an emergency because “if this company fails, it would cause another company to fail”.  Then again, following the law doesn’t seem to be in fashion for the past few months.

The news today is that the Feds have taken over responsibility for the Delphi employees pensions. The federal agency that handles this sets caps on overly generous pensions, especially for those who retired way before 65…. so it will hit early retirees hard (or high income retirees), in order to keep the pension fund solvent and pay a reasonable pension for the rest (and not totally turn it into a government bailout).  If you make the pension guaranty corporation’s terms too good, then companies will just stop funding their pension plans, knowing the Tim Geithner will jump in and rescue the people on pensions 5 years from now.

Beware of being rescued

Wednesday, July 15th, 2009

I can’t tell you the name of the movie, where or when I saw it, but it’s one of those ideas that sticks with you….

Attractive woman is walking down the street by herself in the middle of the day, and a young kid runs by and steals her purse….  kid runs down the street, where a handsome looking man (having seen what just happened) grabs the kid and the purse – the kid gets away, and the “Hero” goes over to the woman and gives her the purse back, and the shaken women immediately embraces her hero, and they quickly go off somewhere and have sex.

What she doesn’t know is that she was conned.  The child was actually working for the “hero”.   The entire thing was scripted and prearranged to terrorize the woman and have the woman run into the arms of the man and do whatever he wanted to her.   

I don’t remember the rest of the movie – whether she ends up being killed or sold into prostitution or some other fate – but I hope the point is clear.  When Tim Geithner shows up to “rescue” you, he’s not your friend.  I think people are beginning to catch on to that.

Keep CIT in your prayers.

“New GM” recalls workers – to build luxury SUVs

Tuesday, July 14th, 2009

Well, not technically SUVs.   The new term is “Crossover” vehicles.   It’s a luxury vehicle with all the bells and whistles, but with a hatchback and room to carry lots of stuff.

The Detroit News reports that the factory in the Lansing Michigan area will recall 900 people to restart the second shift. If you haven’t heard of the Builck Enclave, here is their website. The price starts at $35,000. Standard features include:

  • 4975 pound curb weight
  • 4 Wheel Drive, 18″ wheels
  • Seating for 7
  • 288 horsepower V6 engine
  • Bose Stereo with XM Radio
  • Mileage – 16 City, 22 Highway
  • Remote keyless entry
  • Onstar

Optional features include:

  • Rear parking assist

You people just haven’t got the message yet!

On a slightly related note, the LA Times reports that US Government owned Bank of America has announced it will finances purchases of the Tesla Electric car, a $109,000+ sports car.

Bankruptcy Watch – CIT

Saturday, July 11th, 2009

This is CIT, not CitiGroup.   THIS IS HUGE.

CIT is a commercial lender.  They loan money to businesses.   They had tried to get FDIC coverage on their obligations, but the FDIC has said no way.  FDIC coverage is for retail banks  (which is what Paulson/Geithner/FDIC should have said to American Express and GE Capital).   They had also been involved with mortgage investments, which they have already exited.

According to Reuters, CIT has retained a bankruptcy firm and is writing up the paperwork to file bankruptcy.   Commercial lending (funding of shopping centers, office buildings, factories, leases of airplanes and rail cars, factoring of receivables) tends to take a bit longer to go into default than consumer lending.

This might be the first indirect fallout of the GM and Chrysler bankruptcies.  By setting the precedent that Tim Geithner can brute force companies through bankruptcy, forcing the government and non-secured creditors to the head of the line and leaving the bondholders with all the worthless junk, that is going to kill the ability of companies to raise money by selling secured bonds by companies that have any hint of financial problems.    There is no free lunch.   The “quick fix” has unintended consequences.

CIT will announce its earnings on July 23rd.  That seems the logical date to also announce their restructuring.  The company lost about $1 a share in the first quarter of 2009.   A year ago their stock sold for about $60 a share, it is now approaching $1 a share, which is the kiss of death for a publicly traded stock.

In addition to what a bankruptcy will do to people holding stock and bonds, clients who rely on them for working capital (like selling receivables to get the cash sooner) will have to find another commercial bank.   If the clients themselves are on shaky ground, they will have trouble finding access to loans on their existing terms, and they could ultimately cascade into this dark deep hole being dug by Tim Geithner.

Tim Geithner and Mr Paulson created a “temporary” commercial lending facility run by the U.S. Treasury and funded by the Federal Reserve that is “cherry picking” the least risky and most profitable commercial lending clients, which will ultimately bury all of the commercial banks if it doesn’t go away (There is no such thing as a temporary government program).  

If you’re in business, you can’t compete against the government and survive, because the government owns all the weapons.   That’s why the notion that the US government and Health Insurance companies competing will never work.  Either it is extremely naive or it is deliberate strategy for complete government control after capitalism “fails”.

“Too Big to Fail”

Sunday, June 21st, 2009

The concept of “too big to fail” banks is not new.    The concept was that there are a handful of banks in New York that would have catastrophic consequences if they fail, because so they hold so much money and are so integrated into the complete banking system could fail.   As a result, they have been quasi-nationalized banks all along.

For example, CitiGroup is a large operator in what is called Treasury and Cash management services for huge corporations.   Large companies like Wal*Mart have an extremely high velocity of money – when you buy something with a credit/debit card, by the time you’re at the door, the money is already gone from your account and on its way to pay suppliers ot pay for more inventory in the pipeline.  When currency is deposited by the store in a local bank, it is “swept” into a central cash management system at least once a day.   (Stores like to do cash advances because that converts the currency into immediate cash liquidity instead of having to wait for the armored truck to show up). 

If CitiGroup’s operations stopped – even if the customers didn’t ulutimately lose any money, the day to to day operations of their business has become completely integrated with CitiGroup’s cash management system.    By the time they could switch to some other equally large bank offering similar services, the entire inventory and cash flow and payroll processing could be disrupted.   

The Federal Government has encouraged this type of concentrated banking in a few hands by declaring that certain banks are “too big to fail”, and hence this is no risk to having all your corporate eggs in their basket.  Keep in mind that FDIC coverage is capped at $250k even for corporations – so FDIC protection is very limited for corporations.

Single points of failure are a really bad thing.  If you are concerned about survivability, when you become aware of single point of failure, you get rid of them – or if it can’t be gotten written of you take steps to minimize the damage from a failure.   The obvious solution is contained in the name.  If the problem is that a bank is “too big to fail”, you take steps to make the bank smaller and/or keep its hands out of the things likely to cause a failure.  Rather than promoting more and more consolidation into fewer and fewer huge global banks, a thoughtful “intelligent” policy at the U.S. Treasury would strive to dismantle the “too big to fail” banks, or at least break out the functions that are critical to national economic security from the portions of the big banks that might trigger a failure.   Bringing back something like Glass Stegall would be a large step in the direction, although it might be a bit like unscrambling an egg at this point.

The Geithner Effect

Thursday, June 18th, 2009

People tried to warn Geithner and President Obama.  You put restrictions on the earnings of the “best and brightest” in the Financial Services business, or pass 90% taxes for making too much money, the only effect is the people will move to Dubai, beyond your ability to tax or regulate them.

WSJ is reporting today that Mohammed Shroogi, the head of Citigroup’s “Islamic Banking” unit is quitting.  He’s worked for Citi for 30 years and works in the Middle East.  Citigroup is not an “American” bank, it’s a global financial services company.  Mr. Shroogi has been hired by Investcorp, which is located in Bahrain.   He won’t be the last.

Lincoln Financial in trouble…

Monday, June 15th, 2009

If you have a life insurance policy or an annuity with Lincoln Financial (or formerly Jefferson Pilot Insurance), you need to be paying attention and asking some questions of your state’s Insurance Commissioner.

Lincoln announced today that it is raising capital, including taking TARP funds.  Lincoln is publicly traded and the stock dropped like a rock last September.   The only plausible explanation for raising capital is they are facing questions about the solvency of their insurance funds.

Lincoln also happens to own 15 radio stations, but that’s secondary to the news today.  They are a tiny portion of the assets of the company – last year, the wrote down the value of their Radio licenses by about $200 million.

Poking around in their 10-Q from March, the large majority of their assets are invested in Corporate bonds (think GM or Chrysler, perhaps).  They also have significant investments in residential and commerical mortgages (the really safe stuff that you can never lose money on because real estate always goes up).  Very little of their money is in government bonds.

In January 2009, Lincoln “purchased” a tiny Savings and Loan so that the company could qualify as a Savings and Loan and be eligible to particpate in TARP.

Lincoln’s stock symbol is LNC – the stock has dropped 7.2% today.