Archive for February 23rd, 2009

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.

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?….

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.

February 23 2009 – holding Europe together

Monday, February 23rd, 2009

European leaders are trying to figure out how to keep a unified strategy to fend off collapse, and not have each country pursuing their own interests. [good luck on that!]  Reading Material

The NY Times (and IHT which they own) and the Wall Street Journal say the US Treasury met on Sunday with CitiGroup to discuss converting the preferred stock the US Treasury holds into common stock.  This would take “debt” off the balance sheet, but squeeze out the existing common stock holders.  No cash is generated to CitiGroup by doing this.  It only changes the financial ratios to make them look less insolvent – and removes the obligation on the preferred stock to get paid “interest” first in line.   This is rearranging the deck chairs on the Titanic.  It doesn’t change the ultimate outcome.

The US Treasury is also talking to banks (CitiGroup?) about coming up with $40 billion in Debtor in Possession funding for a GM/Chrysler Bankruptcy.  According the accounts “Everything is on the table”.   I hope the UAW is ready to embrace “change”.

NY Times Forbes Reuters

Once the US Treasury can tell banks who to lend to and for what reason (or no reason), the lessons we didn’t learn from Fannie Mae and Freddie Mac will explode.   Expect CitiGroup to be forced to loan money now to a full range of businesses which have no chance of ever making a profit – to advance a political agenda and harvest a new crop of political party donations for the party in power or pay back favors to special interest groups (like the UAW).


Trading in Hong Kong [China] is up sharply (3%+).  Japan is down slightly, as one of the major Japanese lenders filed for bankruptcy protection, and signs that Japan may not be quite as strong as people had thought.

Markets in Europe are open, up about 1-2%

Pre-market trading in futures suggest the US Stock market will open about the same as Europe – up 1 to 2%

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.