Memo to Banks: Let's Un-settle

For spawning the global financial crisis, the big Wall Street banks have gotten off easy.  So far.  No criminal cases have been brought against high-level executives, who continue to collect their annual seven-figure bonuses.  And civil complaints against their firms have seldom resulted in admissions of wrongdoing.  Federal prosecutors have been content to cut deals with the banks, extracting vigorish of pennies on the dollar.  For the banks, it is like buying immunity.  They settle, then resume business.

That may be about to change.  Let's review the news flow:

The New York State Supreme Court is currently overseeing a settlement reached in 2011 in which Bank of America agreed to shell out $8.5 billion to settle claims regarding the securitizing and servicing of sketchy home loans.  Now three Federal Home Loan Banks have filed new documents alleging further abuses in loan-modification practices.  In particular, BofA is believed to have imposed losses on investors in first mortgages while improperly protecting second liens held by the bank on the very same properties.  The Court is free to evaluate these new claims and may decide that $8.5 billion in restitution is not enough.  (story)

A U.S. District Court in New York has ordered Flagstar Bancorp Inc. to pay $90.1 million to Assured Guaranty Ltd., a bond insurer, in a contract dispute over loans underlying $900 million in mortgage-backed securities (MBS).  In the grand scheme of things, $90.1 million sounds like a small number.  But it represents 40% of Flagstar's net income for 2012.  More importantly, it is almost 78% of the amount sought by Assured.  The biggest banks face similar litigation over representations and warranties and are not reserving anything close to 78% for received and potential putback claims.  If 78% becomes the new rule of thumb, watch out.  (story)

Congress will investigate a settlement reached last month by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve that ended the Independent Foreclosure Review process for eleven of fourteen mortgage servicers.  To get out from under IFR, the eleven banks (including all the biggies) agreed to pay $9.3 billion to indemnify and forgive eligible borrowers.  Congress may decide that $9.3 billion is insufficent.  (story)

The U.S. Department of Justice has filed civil fraud charges against Standard & Poor's, the nation's largest credit-ratings agency.   The DOJ's lawsuit alleges that investors, among them federally insured financial institutions, lost at least $5 billion on collateralized debt obligations (CDO) "for which S&P issued inflated ratings that misrepresented the securities' true credit risks."  The DOJ had offered to settle for $1 billion plus an admission of guilt.  Fearing that such an admission would open the floodgates for other complaints, S&P declined to settle.  State prosecutors and the Securities and Exchange Commission (SEC) are also circling.  The banks that sold the CDOs are hoping to avoid joint and several liability for the rigged ratings.  (story)

UBS reported a Q4 loss of $2 billion thanks to legal costs. (story)

Barclays has set aside another $1.6 billion for legal costs.  (story)

RBS has just been fined $612 million for rigging interest rates, less than UBS but more than Barclays for the same offense.  The DOJ extracted a guilty plea on this one.  (story)

Who's next?  Among the European banks, Deutsche Bank.  In the U.S., Citigroup and JP Morgan Chase are under investigation.  (story)

The hits will keep on coming.

My Kingdom for a Hearse!

Royal remains.

[story here]

Don't miss the sequel:

Tuesday Tune-up

Creedence Clearwater Revival, "Bad Moon Rising"

Tu Casa Es Mi Casa

The bill that introduced a New Normal.

One hundred years ago yesterday (as ZeroHedge reminds us), the 16th Amendment to the U.S. Constitution was formally ratified, legalizing a tax on personal income.  Ever since, this taxing authority has served as collateral (and stimulant) for the federal government's borrowing.  Also in 1913, Congress created the Federal Reserve System as a lender of last resort.  Coincidence?

Put one and one together and decide for yourself.

Quote for the Week, February 3-9, 2013

Investors either have not figured out that they are long seriously overpriced promises [i.e. government and corporate debt] or think that they will all have the luck and perspicacity to reject such instruments before they plunge in price.
--Paul Singer, Elliott Management

The Graying of the American Workforce

Wall Street Journal:

"Americans Rip Up Retirement Plans"

And from ZeroHedge:

"But perhaps an even more disturbing trend is the conversion of America into a gerontocratic worker society, where the bulk of jobs are handed out to those 55 and over, which puts all young workers, not to mention college graduates, at a major disadvantage relative to far more experienced older workers, who are willing to work for less as they scramble to compensate for retirement shortfalls, and which prevents the natural rotation of the US labor force from older to younger."

Black Saturday

Earlier this month:  a crowd waits outside an Apple store in Shanghai.

Definition of scary:  being wedged tightly in a crowd of impatient shoppers as Wal-Mart opens the door on Black Friday (or is it Black Thursday now?), especially if there is a single pallet of heavily discounted smart phones waiting inside.  You have no choice but to go with the flow, whether you want a phone or not.  Best to suit up in body armor in case some of the amazing racers start brandishing  firearms.  Best not to stumble to the floor and get trampled underfoot.  No, best to stay home.

Then there is beyond scary.  On the morning of May 30, 1896, a half-million people were gathered on the Khodynka Field on the outskirts of Moscow not to buy anything, but to accept a royal handout.  Khodynka, a military training ground, had been prepared for a festival celebrating the coronation of Nicholas II as the new Russian czar.  The common folk would be showered with gifts:  a commemorative mug (below), scarves, edibles (pryaniki, saiki, sausage), and beer.

The very first iThing.

Peasants had been arriving from the hinterlands for days to join in.  The night before they had been sleeping on the ground, drinking and singing around bonfires, or crowding about pavilions and tents, amused by bands, circus performers, gypsy entertainers, trained bears, the whole nine yards.  [cf. Harrison Salisbury, Black Night, White Snow]  By midnight, tens of thousands had begun to line up for the free stuff.  The mad rush began soon after dawn, apparently triggered by a rumor that there would not be enough free stuff to go around.

When demand exceeds supply, watch out.

1,389 dead.

Tuesday Tune-up

The Corrs, "Everybody Hurts"

Quote for the Week, January 27-February 2, 2013

Things was better when everybody live on the land.  Sure, there was tough times.  But everybody pulled along of everybody else to get through, and the feelin' you got from doing that was worth a few tough times.
--Joe Thrasher, Inuit, to Farley Mowat, author of High Latitudes

Banksters Skate, Exhibit A

From CBS News:

The smoking gun at Lehman Brothers.

Banksters Skate, Ch. 4

From PBS Frontline:

"The Untouchables"

Chapter Four:  The DOJ Dodge
[14:45]

Chapter One

Chapter Two

Chapter Three

Banksters Skate, Ch. 3

From PBS Frontline:

"The Untouchables"

Chapter Three:  Disgust on Capitol Hill
[20:56]

Chapter One

Chapter Two

Chapter Four

Banksters Skate (Ch. 2)

From PBS Frontline:

"The Untouchables"

Chapter Two:  Due(-doo) Diligence
[9:16]

Chapter One

Chapter Three

Chapter Four

Banksters Skate (Ch. 1)

From PBS Frontline:

"The Untouchables"

Chapter One:  Find 'Em, Fund 'Em

[8:44]

Chapter Two

Chapter Three

Chapter Four

Tuesday Tune-up

The Joy Formidable, "Wolf's Law"

Quote for the Week, January 20-26, 2013

Permanent war makes for permanent temporary measures.
--George Friedman

Dumpster Diving

Rooting for bank profits...

Garbage.  That's what MarketWatch called yesterday's earnings reports from Bank of America and Citigroup, serial underachievers in the financial sector.  I especially like this line:  "to suggest that these types of quarters are year-end, 'kitchen sink' quarters is an insult to sinks, kitchens, quarters, and, mostly, investors."  The complaint here is that these so-called disclosures are designed to obfuscate.  Accounting gimmickry and P.R. spin make it hard to understand how well (slash poorly) these businesses are doing.

Take Bank of America (please!), which reported a profit of $732 million for the fourth quarter of 2012. Got that?  The headline number was in the black.  Now let's start digging.  That "profit" was thanks entirely to a release from loan-loss reserves of $900 million (go here, click on Q4 Supplemental Information, then scroll down to page 44).  But why raid reserves when you are holding over $19 billion in non-performing home loans (page 42)?  Because if you don't, you're gonna show a quarterly loss, so hey, whaddya gonna do?

So back out the $900 million, but don't stop there.  We have a tax benefit of $2.636 billion in there (page 4).  Take that out, and now you have some serious red ink.   Note (also on page 4) that it would have been worse had income not included $792 million in trading account profits.  This proprietary trading is exactly what the Volker Rule is designed to limit.  Focusing just on traditional banking activity, we find that Bank of America does a poor job of it.  ZeroHedge paints this picture:

[click to enlarge]

BofA's bottom line was crushed this quarter by a provision for credit losses of $2.2 billion stemming from the company's recent settlement with Fannie Mae.  Even though the settlement disposes of over $12 billion in GSE claims, private-label and monoline claims increased by $1.56 billion in Q4 to almost $15 billion.  So what the company describes as "one-time" charges are more like over-and-over charges, as the New York Times explains here.

Busted

JPM CEO takes 50% pay cut.

2012 compensation:  only $11.5 million.

Poor baby.

This morning JP Morgan Chase & Co.'s Board of Directors announced that its Chairman and CEO, Jamie Dimon, would get a bonus of only $10 million for his performance in 2012.  Dimon is being held accountable for over $6 billion in losses incurred by the firm's chief investment office when it bet heavily on risky derivatives (internal report here).  The announcement comes two days after sanctions imposed on the bank by the Office of the Comptroller of the Currency and the Federal Reserve for deficiencies in its risk-management practices.  As other U.S. and British regulators are investigating the infamous "London Whale" trade, further enforcement actions may be coming.  The OCC also issued a cease-and-desist order for failure to comply with the Bank Secrecy Act.  Indeed, some suggest that Dimon deserves jail time for money-laundering.

Meanwhile, JP Morgan Chase just reported a record profit for the fourth quarter.  Adding to net income was the release of almost $900 million in loan-loss reserves.  Curiously, as page 22 of the earnings presentation (PDF) shows, the company has drawn off $5.673 billion from loan-loss reserves in the past year (boosting profits) even as the total value of non-performing loans has increased by $727 million over the same period.  So Jamie's latest bet is this:  a mending economy will cure some of these bad loans.

Page 15 shows the same shrinking interest margins observed last week with Wells Fargo (see chart below).  The company bemoans lower yields on loans, lower yields on investment securities, and "limited reinvestment opportunities," which may explain why the CIO was reaching for reward last year.  The Fed's zero interest-rate policy (ZIRP) makes it hard for an honest banker to earn a living.  Really, who can live on a measly eleven-point-five mill these days?

[click to enlarge]

Nightrider

Wells Fargo delivers for now, but visibility is poor.

When times are good, banks make out like bandits.  Every time money changes hands, the banks get a cut.  Call it wealth by a thousand cuts.  But that was then, and this is now.  Even as the Fed seeks to expand the the supply of money in the U.S. by trillions of dollars, the velocity of money has slowed.  The spending power of consumers is diminished by declining incomes; some of it is trapped in upside-down home mortgages.  The investing power of cash-flush corporations is being held in reserve, thanks to regulatory uncertainty and crumbling consumer demand.  Fewer transactions all around.  Fewer cuts.

What can an honest, self-respecting bank do to grow profits in this environment?  Wells Fargo has a short-term answer:  take share from competitors.  On Friday Wells kicked off the quarterly earnings parade for the biggest banks by announcing record net income on revenues that grew 7% year-over-year.  Not bad.  The company sported a hefty $125 billion in new mortgage originations.  75 percent of that activity involved refinancings.  Industry-wide, that's a robbing-Peter-to-pay-Paul scenario.  When most of the other mega-banks report later this week, we'll find out who Peter is.  (Bank of America, anyone?)

If you look at Wells Fargo's earnings summary (PDF), you will find worrisome signs that the company may not be able to sustain the momentum.  Net Interest Margin (NIM--see page 11) has declined from 3.91% in the first half of 2012 to 3.56% in Q4.  Lower margins mean smaller cuts.  Page 14 reveals billions in "environmentally-elevated costs," a cute euphemism for liabilities stemming from bad loans.  Page 15 shows that the $125 billion in new mortgages was actually down 10% from the prior quarter.  Finally, repurchase demands from Fannie Mae and Freddie Mac (page 20) for risky loans made between 2006 and 2008 remain stuck at roughly $2 billion, even as repurchase demands pile up for newer-vintage originations.  Wells was forced to add $841 million to its repurchase reserves in the second half of 2012.  Mop-up duty continues, with no end in sight.

ZeroHedge has a useful graphic (below) capturing the company's dilemma:  deposits (a cost center) are rising faster than loans (a profit center), a sure recipe for shrinking margins.  And if the loans go bad (can't happen, no way!), then profits will shrink as well.

[click to enlarge]

Tuesday Tune-up

Itzhak Perlman, Vivaldi's "Spring"

Click here.

Quote for the Week, January 13-19, 2013

If I'll miss anything about my career, it will be to listen to what people say you can't do, then to go and do it.
--Ray Lewis, linebacker, Baltimore Ravens

Peak Food

[11:29]

David McWilliams scribbles a Malthusian manifesto.

"If all the world's seven billion people consumed as much as the average American, it would take the resources of over five Planet Earths to sustainably support all of us."

McWilliams also takes to task the world's central banks for flooding the globe with fiat money, thereby making food "a commodity to be gambled on."

Screamliner

Grounded--not once, but twice.

The new Boeing 787 has identity issues.  On Monday, it thought it was a Chevy Volt and caught fire while parked at the gate at Boston's Logan International Airport.  The next day, while taxiing for take-off at the same airport, it decided to be the Exxon Valdez instead, spilling jet fuel on the tarmac.  The flight was immediately aborted, as Massport officials were concerned that the plane might morph into a duckboat next if it tried to clear the runway.  Boeing insists that the so-called Dreamliner is flightworthy, which it might be.  In your dreams.  Or on a tight leash, with a pre-plotted string of diversion airports along the flight path.

Not only was the aircraft grounded, but so was Boeing's stock:

Boeing's share price (5-day chart).

So far it has been a tough week for Boeing's CEO, James McNerney (below), and it's only Wednesday.  If this keeps up, Nerns will do in Chicago what his Yale classmate, Howard Dean (then a candidate for U.S. President), did in Iowa nine years ago:

Scream.

Who knows?  Maybe the Dreamliner will inspire a new idiom:  Yeah right, I'll believe that when 787s fly.

[update, 01-16-13--]

Scream on.  The FAA has just grounded all U.S.-registered Boeing 787 Dreamliners, issuing "an emergency airworthiness directive (AD) to address a potential battery fire risk."  The directive follows an aborted flight in Japan earlier today.  Deployment of emergency chutes (below) is never a good sign.

Tuesday Tune-up

The Proclaimers, "I'm Gonna Be (500 Miles)"

Breaking: BofA Settles with Fannie Mae

Small investor speed-dials his broker: "Dump my BAC!"

Within the past hour has come the announcement that Bank of America has reached a settlement of $11.6 billion with Fannie Mae for a bouquet of abusive practices in the home-mortgage industry.  More than half of that sum will go toward buying back residential mortgages sold to the government-sponsored enterprise (GSE) between 2000 and 2008.  BofA will refund the original purchase prices (which exceed current fair value) plus accrued interest.  There will be additional cash payments to Fannie totaling nearly $5 billion in compensatory fees.  The bank expects a hit of $2.7 billion to pre-tax earnings for Q4.

This would actually be good news for the company if this were the end of it.  But there is more exposure for Bank of America, one of 14 lenders now negotiating with the Office of the Comptroller of the Currency for a settlement of claims arising from foreclosure abuses and botched loan modifications (an announcement on the so-called "robo-signing" scandal is expected any day, with an expected price tag of $10 billion split among all parties).  Even with Fannie out of the way, BofA must confront a long line of ticked-off mortgage insurers.  As of September 30, 2012, the company had $16.3 billion reserved for future pay-outs.  ZeroHedge suggests that that will not be enough, as outstanding claims are in the tens of billions of dollars:

"[W]hile the additional [representations and warranties] provision may be $2.5 billion for just one Fannie, look for the final number to be far greater when all other exposures are settled, which include private labels, Freddie, second-lien monolines as well as whole loans."

[update, 11 a.m.--]

Just in.  Federal regulators have settled with ten banks for $8.5 billion over the above-mentioned foreclosure abuses.  The jury is still out on four other banks.  Bank of America is one of the ten to settle.  (Federal Reserve announcement here.)  Yves Smith at NakedCapitalism.com calls the settlement another "ritualized sellout."

Go here for a report on Bank of America's shrinking business model.

Bait and Switch 101

Matt Taibbi's latest:

"Secret and Lies of the Bailout"

Rolling Stone

[excerpt:]

"[T]he government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. Clearly, a government that's already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don't have to make good on all the promises they've made. They're building an economy based not on real accounting and real numbers, but on belief."

Complete article here.

Mr. King Goes to Washington

Thumbnail of Maine's new Senator
with NBC's Tom Brokaw

Quote for the Week, January 6-12, 2013

Religion is no longer able to guarantee the governments that the people will remain peaceful; the Rothschild system of loans can perform the task much better.
--Heinrich Heine

What's My Line?

Used car salesman or a mega-bank CEO?
(And, um, which finger is that?)

The Atlantic is out with a cover story about the lack of transparency at Wall Street biggest banks.  When the system finally crashes, don't say that you were not warned.

[excerpt:]

"[A]s trust diminishes, the likelihood of another crisis grows larger.  The next big storm might blow the weakened house down.  Elite investors—those who move markets and control the flow of money—will flee, out of worry that the roof will collapse.  The less they trust the banks, the faster and more decisively they will beat that path—disinvesting, freezing bank credit, and weakening the structure even more.  In this way, fear becomes reality, and troubles that might once have been weathered become existential."

"What's Inside America's Banks?"

Want more?  This Bloomberg piece reports that JP Morgan Chase (the bank headed by the dude pictured above) may be sanctioned for blowing off regulators by withholding information regarding one of its illustrious clients, Bernie Madoff.  Yes, that Bernie Madoff (dude pictured below).

Or how about this one detailing how the banks defeat and defuse regulatory reviews of their own shady lending practices?

Tuesday Tune-up

Rachel Platten, "1,000 Ships"

Quote for the Week, December 30, 2012-January 5, 2013

Higher taxes on investments will turn your portfolio into a conduit between the [Fed's] printing press and those who do not have these financial assets.  Consider yourself lucky:  earlier societies resolved such imbalances through non-financial instruments such as the guillotine.
--Howard Simons

Tuesday Tune-up

Alison Kraus & John Waite, "Lay Down Beside Me"

Quote for the Week, December 23-29, 2012

We need a different narrative...away from a story of growth for its own sake and towards a future shaped by design, not disaster, where we value prosperity first and growth second, if at all.

--Chris Martenson, interviewed recently by OilPrice.com

Uncle Sam Cuts, Runs from GM

Taking the government out of Government Motors.

The U.S. Treasury has announced this morning that it will sell 200 million shares of its stake in General Motors back to the company for $27.50 a share, or $5.5 billion.  Sounds like a lot of money.  Trouble is, the cost basis was roughly $53 a share, which was a lot MORE money.  My calculator shows a loss of $5.1 billion, how about yours?

That still leaves Uncle Sam with 300 million shares to be sold on the open market over the next 12-15 months into the teeth of a recession.  Now he needs $72 a share on the remainder to break even.  Not likely.  More likely (for reasons mentioned previously) is an average share price of less than, maybe even far less than, today's $27-fifty.  Last year Treasury booked a $1.3 billion loss when it sold its "investment" in Chrysler.  Once the GM stake is fully liquidated, the total loss to the government for its capital injection into the auto industry in 2009 is expected to hit $24.3 billion.  The Obama Administration has avoided use of the word "bailout," but that is exactly what the intervention has turned out to be.

Credit Treasury for at least cutting its loss....


[update, 12-20-12--]

...and doing it before today's announcement that GM is recalling 145,628 pick-up trucks to install a secondary hood latch.  Quality control? 

Tuesday Tune-up

Mark Knopfler & Emmylou Harris, "Why Worry"

Who's the Target Now?

If you are not a gun aficionado, maybe you did not know the difference between a Bushmaster and a bush leaguer.  Until last Friday, that is.  Now you know.  A .223-caliber Bushmaster semi-automatic rifle (a civilian version of the military M-16) was used by a single attacker to mow down 20 first-graders and 6 faculty at Sandy Hook Elementary School in Newtown, CT.  It took less than ten minutes for the gunman to discharge 100 rounds.

This attack came ten years after the infamous D.C. snipers randomly targeted 13 victims at long range, killing ten (Washington Post retrospective here).  The weapon of their choice:  a Bushmaster .223.  Relatives of the victims eventually sued the manufacturer, Bushmaster Firearms International, LLC, as well as a gun shop, Bull's Eye Shooter Supply.  The gun used in the Beltway shootings was actually stolen from Bull's Eye, but that did not relieve the dealer of responsibility.  Plaintiffs argued that Bull's Eye was negligent in failing to control its inventory and furthermore that Bushmaster was negligent not for making the gun, but for distributing it to a dealer with a long history of stolen inventory.  Bull's Eye settled for $2 million in September 2004.  Bushmaster chipped in another 500 grand.

At the time Bushmaster was headquartered in Windham, Maine.  The company was manufacturing guns both there and at a second facility in Nevada and was doing about $65 million in annual sales.  The Windham plant had 95 employees.  In April 2006 Bushmaster was sold to Freedom Group, Inc., a gunmaker roll-up itself owned by Cerberus Capital Management.

River Valley citizens will recognize that last name.  Cerberus is the private equity firm that bought Rumford's coated-paper mill and several other sister mills from MeadWestvaco in 2005.  The new papermaking entity, NewPage, funded the acquisition with high-coupon debt.   Even after mill closures and workforce reductions, NewPage was forced to seek bankruptcy protection from creditors in 2011.  That was the same year that the Bushmaster plant in Windham was shuttered, eliminating the remaining 73 jobs there.  Anyone see a pattern here?

But I digress.  We were talking about GUNS and AMMO!  Question is, will Bushmaster be on the hook for damages from the Sandy Hook slaughter?  There might be some clever lawyers out there who think yes.  In its latest financial disclosure, Freedom Group included the following advisory to investors:

"As a manufacturer of firearms, we were previously named as a defendant in certain lawsuits brought by municipalities or organizations challenging manufacturers‘ distribution practices and alleging that the defendants have also failed to include a variety of safety devices in their firearms. Our insurance primarily excludes coverage regarding such claims. In the event that additional such lawsuits were filed, or if certain legal theories advanced by plaintiffs were to be generally accepted by the courts, our financial condition and results of operations could be adversely affected."

There is also regulatory risk, should lawmakers decide to tighten restrictions on the sale and distribution of certain kinds of firearms.  And if that is not enough risk, how about this:  13% of Freedom's sales are made through Wal-Mart.  There is no long-term contract governing this merchant relationship.  If Wal-Mart determines that continuing to push guns might invite a public-relations nightmare, the retailing giant could cut off Freedom just.  Like.  That.

Freedom is ill prepared for the blowback.  It has reserved less than $20 million for product-liability litigation and is saddled with over $650 million in debt, which about matches the company's total sales for the first nine months of 2012.  Perhaps to throw off the lawyers, Freedom has just changed its name to Remington Outdoor Company, Inc.  But it can't hide.  If Congress does not address the gun market soon, the courts will.

Click here to buy.

[update, 12-18-12--]

Under pressure, Cerberus is dumping its stake in Freedom Group.  Story here.

Dick's Sporting Goods has suspended sales of all rifles at its 500+ stores nationwide (company website here).  Wal-Mart pulled a Bushmaster model from its web store yesterday.

A spokesman for MetLife says that the N.Y.-based insurer has "no material exposure to gun manufacturers," which means that the firm's investors can stop sweating bullets.

The Massachusetts state pension fund is considering scrubbing its portfolio of gun manufacturers.

ZeroHedge passes along this chart from Smith & Wesson's latest pitch to investors:

[click here to enlarge]

People talk about gun control...
for the other guy.

And here's what Smith & Wesson's share price has done recently:

Off 30% in eight trading sessions!

[update, 01-24-13--]

Two major banks are urged to pull their credit lines to gun manufacturers as pension funds divest.  Story here.

Quote for the Week, December 16-22, 2012

Philosophy is a battle against the bewitchment of our intelligence by means of language.

--Ludwig Wittgenstein

Obama Trembles, HSBC Skates

There are more where this came from.

Democracy Now! interviews Rolling Stone's Matt Taibbi following the latest wrist-slap from the U.S. Department of Justice, whose advice to banksters is simple:  Do the crime, forget the time.

[12 minutes]

How do the mega-banks get away with serial malfeasance?  And why is the bad behavior not caught internally?  The Office of the Comptroller of the Currency recently evaluated corporate governance at the 19 largest U.S. banks.  Average grade:  D-.  Yves Smith at NakedCapitalism comments here.

Tuesday Tune-up

Dave Brubeck Quartet, "Take Five"

Dave Brubeck
(1920-2012)

Quote for the Week, December 9-15, 2012

Confidence is going after Moby Dick in a rowboat and taking the tartar sauce with you.
--Zig Ziglar

Nice Work, If You Can Get It

ZeroHedge calls it "age outsourcing":

[click here to enlarge]

The headline number from the Bureau of Labor Statistics this morning was 146,000 nonfarm payrolls added in the U.S. during November.  At least that is what the "seasonally adjusted" Establishment Survey says.  The companion Household Survey tells a different story:  130,000 non-ag jobs lost (Table A-8).  Which to believe?

Play with the numbers all you want, but the unspun facts are these.  First, the job mix is shifting to more part-time work without benefits; looking at the "not seasonally adjusted" data in the Household Survey, Lee Adler at the Wall Street Examiner found that over 500,000 full-time jobs were lost in November.  Second, new hires are mostly older folks whose retirement savings have shriveled faster than their skin (see chart above).  The number of jobs going to those between the ages of 25 and 54 (inclusive) has declined to roughly 94 million, a level first reached by that cohort in 1997.  That means zero employment growth for prime-time earners despite an overall increase in the total U.S. population of nearly 15 percent in the past 15 years.

In the last five years, the U.S. economy has lost 4.4 million jobs.  During the same period, the number of sidelined workers collecting Social Security Disability Insurance (SSDI) has increased by 1.7 million.  The number of food-stamp recipients has increased by over 20 million.  [More from ZeroHedge.]

General Mothballs

[click here to enlarge]

Usually, in the business world, graphs that work higher from lower-left to upper-right are Good.  Not so with this one.  Those are not car sales being counted, but unsold GM cars sitting unloved on dealer lots.  That's Bad.  The chart shows that dealer inventory increased by 49,000 during the month of November.  That compares to 139,520 sold to retail customers (company figures here).  Even with triple-zero sales incentives, GM could not sell three vehicles out of every four made.  As the Wall Street Journal reports, the company will be idling plants in December to allow sales to catch up.

The U.S. government still owns 26% of General Motors.  Sales figures like these will not allow Uncle Sam to exit the stock profitably (yesterday's closing price of $25 a share is less than half what he needs to break even).

MainePERS owned 186,408 shares of GM as of September 30.

The Way Life Was

...and where the 47-percenters are actually the majority.

Check out the Forbes Bottom Ten (+ One),

the so-called 'Death Spiral' states, marked by

a rising tax burden,

deteriorating state finances, and

an exodus of employers.

A single word of advice to investors holding municipal bonds issued by any of these states:

SELL.

Hunker in a Bunker

"We are the healthiest horse in the glue factory."

Surveying the fiscal stalemate in D.C., former U.S. Senator Alan Simpson (WY) has stern advice for his fellow Americans.

FixTheDebt.org

Tuesday Tune-up

Tom Rush, "Urge For Going"

[recorded just yesterday in the Boston.com MediaLab]

Worse Than W

Ralph Nader grades the President harshly:

[2 minutes]

"[Obama] is more aggressive, more illegal, worldwide...You know, like he is the prosecutor, judge, jury, executioner, and cover-upper, because it's all secret."

For more on how all Americans are becoming Persons of Interest, listen to National Security Agency whistleblower William Binney:

[12:29]

"The change is, it's getting worse [under the Obama Administration].  They're doing more...They're collecting a lot more now [e.g. private e-mails], and they need more storage for it."

Quote for the Week, December 2-8, 2012

The politicians may be able to say compromise, possibly even spell it, but have forgotten how to do it.
--Peter Tchir, on the 'fiscal cliff' negotiations in D.C.

More Gloom, Doom and Kaboom

"All of the ingredients are there to have this vicious cocktail fall apart."

[8 minutes]

Kyle Bass at the UVA Investing Conference,
November 15-16, 2012

Things That Go Bump in the Night

Can't get enough:

[N.E. Patriots at N.Y. Jets, 11-25-12]