I see the risks but not the motivation, it's screwed up enough that everyone wants to keep arms length. Unfortunately I also see complete reliance on macroeconomic theory even when it's 180 degrees from what the fundamentals are telling us. If I'm right there are 2 keys (yes, there's a lot more to watch and be done, but they leave room for interpretation and even error). First, the toxic paper can only be solved by resolving mortgages en masse, principle writedowns and conversion to fixed rate are the only way to find the floor n a reasonable timeframe. Second, they need to start resisting the temptation to stimulate by lowering mortgage rates, right now the natural rate should be around 6%, bringing it to 4.5% temporarily adds about 15% to valuation and 3% temporarily adds about 40%.

Better regulation is vital and nobody will be happy with whatever solution is found for paying for the mess, we're stuck with that. Now even some talking heads are saying what I've been saying, but economists are taught to trust grand theories and governments tend to follow them.

"Layoffs spike, housing tumbles; outlook worsens - Worse-than-expected reports on jobless claims, housing further dim outlook, challenge Obama"

By JEANNINE AVERSA, Associated Press

Last updated: 5:45 p.m., Thursday, January 22, 2009

WASHINGTON -- The number of newly laid-off Americans filing jobless claims and the pace of home construction both posted worse-than-expected results in government data released Thursday, lending urgency to the economic recovery plan President Barack Obama and Congress are scrambling to advance.

The latest batch of economic news cemented fears that the recession, already in its second year, will drag on through much of 2009.

The reports "paint a bleak economic landscape ahead," said Stuart Hoffman, chief economist at PNC Financial Services Group.

And the furious pace of layoffs continued Thursday, with Microsoft Corp. saying it will slash up to 5,000 jobs over the next 18 months.

Chemical maker Huntsman Corp. will ax 1,175 jobs this year and will get rid of an additional 490 contractors.

Those -- as well as other employers -- have seen customer demand wane and are cutting costs to survive the fallout.

"The corporate sector is rolling over, and we probably have not yet seen many job losses stemming from the sudden collapse in international trade," warned Ian Shepherdson, chief U.S. economist at High Frequency Economics.

"The labor market remains a disaster area."

Wall Street ended a volatile trading day sharply lower following the worse-than-expected economic data, concerns about the nation's banks and disappointing results from Microsoft.

The Dow Jones industrial average fell 105.30, or 1.28 percent, to 8,122.80.

On Capitol Hill, House Democrats rolled up their sleeves to nail down pieces of Obama's $825 billion stimulus package -- a blend of tax cuts and increased government spending that includes boosting unemployment benefits-- with the goal of a floor vote next week.

And the Senate Finance Committee cleared Obama's nomination of Timothy Geithner to be Treasury secretary -- despite what the nominee called "careless" and "avoidable" tax mistakes.

The full Senate still must clear Geithner, president of the Federal Reserve Bank of New York, before he can take office.

Already Geithner is helping shape the Obama administration's new plan to bust through the debilitating credit and financial crises that are aggravating the recession.

The package -- likely to be unveiled in a few weeks-- may include a program to mop up bad mortgages and other toxic assets so banks would be in a better position to lend money more freely.

On the layoffs front, first-time applications for unemployment benefits jumped last week by 62,000 to 589,000, the Labor Department reported.

That was much more than the 540,000 tally economists expected.

It left claims matching a 26-year high reached four weeks ago, although the work force has grown by about half since then.

Part of the rise was blamed on a backlog of claims that piled up in recent weeks as several states experienced computer crashes from a crush of filings, a government analyst said.

The number of unemployed people continuing to draw jobless benefits soared by 97,000 to 4.6 million.

That figure, too, was above analysts' expectations, and was up considerably from a year ago, when 2.7 million people were receiving such aid.

The pickup shows that those out of work are having trouble finding a new job.

Some economists believe the number of people continuing to draw unemployment benefits could rise to 5.5 million -- possibly more -- this year even if a new stimulus package is enacted.

On top of the 4.6 million covered by the regular unemployment insurance program, another 2 million Americans requested benefits under an emergency extension authorized by Congress last year.

But the 2 million figure is not seasonally adjusted and is volatile.

Obama's stimulus package -- which is running into Republican resistance -- includes plans to extend and boost unemployment benefits, give states $87 billion to deal with Medicaid shortfalls and help unemployed people retain health care.

Tax credits for workers, tax cuts for businesses and money for public works projects, such as road and bridge construction, also are being put forward.

Meanwhile, the miserable state of the U.S. housing market was in full view Thursday, and the outlook remains dim.

The Commerce Department reported that new-home construction plunged 15.5 percent in December to an annual rate of 550,000 units, an all-time low, capping the worst year for builders on records dating back to 1959.

Last month's performance was weaker than economists expected, and shattered the previous record low set in November.

"The extent of the decline was breathtaking," said Joel Naroff, president of Naroff Economic Advisors.

"Home builders were simply sitting around watching the grass grow, and conditions are not likely to change soon."

For all of last year, the number of housing units that builders broke ground on totaled just over 904,000, also a record low.

That marked a huge 33.3 percent drop from the 1.355 million housing units started in 2007.

The previous low was set in 1991.

The report also showed that applications for building permits -- considered a reliable sign of future activity -- sank to a rate of 549,000 in December, a 10.7 percent drop from the previous month.

Rising defaults, tighter lending standards and fear about the housing market's future have sidelined buyers, an absence felt acutely by homebuilders such as D.R. Horton Inc., Pulte Homes Inc. and Centex Corp.

The collapse of the once high-flying housing market has been devastating to the United States' economic health.

Its spreading fallout has contributed to big pullbacks by consumers and businesses alike, plunging the economy into a painful recession now in its second year.

The Obama administration wants to ramp up efforts to stem skyrocketing home foreclosures, which have dumped even more properties on an already crippled market.

The Federal Reserve has taken a number of extraordinary steps with the hope of providing some relief.

It is buying certain types of mortgage securities and has slashed a key interest rate to a record low of between zero and 0.25 percent.

To help brace the economy, the Fed is expected to hold rates at that level at its meeting next week and probably for the rest of this year.

In other housing-related news, rates on 30-year mortgages climbed above 5 percent this week, ending a five-week streak at record low levels.

Average rates on 30-year fixed mortgages rose to 5.12 percent this week, from 4.96 percent last week, which was the lowest since Freddie Mac started its survey in April 1971, the mortgage giant reported.

Builders and economists are skeptical about the prospects of a housing turnaround.

Unemployment last month hit a 16-year high of 7.2 percent and is expected to march upward this year -- a situation that can put stresses on existing home owners and make it less likely new buyers will stream into the market.

Against this backdrop, Patrick Newport, economist at IHS Global Insight, summed up the outlook:

"More pain ahead."

Hey ....

WOW!

Me, too, IH ....

How about that, now will you ....

And so ...

"Obama pitches his plan to reverse economic slide"

By PHILIP ELLIOTT, Associated Press Writer

24 JANUARY 2009

WASHINGTON – President Barack Obama on Saturday laid out more pieces of an economic plan he says would add 3,000 miles of electrical lines, increase security at 90 ports and double the United States' renewable energy capacity within three years.

It was the latest appeal from the new president for a massive spending bill designed to inject almost a trillion dollars into a flailing U.S. economy and to fulfill campaign pledges.

As members of Congress consider an $825 billion plan and Obama woos them, his White House released a radio and Internet address directed at voters who want answers.

"Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four."

"And we could lose a generation of potential, as more young Americans are forced to forgo college dreams or the chance to train for the jobs of the future," Obama said in a five-minute address that the White House released early Saturday.

"In short, if we do not act boldly and swiftly, a bad situation could become dramatically worse."

Along with the speech, Obama's economic team released a report designed to outline tangible benefits of the plan and shore up support.

Aides said they wanted people to understand exactly what they could expect — more schools, lower electricity bills — if their members of Congress supported the proposed legislation.

The United States lost 2.6 million jobs last year, the most in any single year since World War II.

Manufacturing is at a 28-year low and even Obama's economists say unemployment could top 10 percent before the recession ends.

One in 10 homeowners are at risk of foreclosure and the dollar continues its slide in value.

That harsh reality has dominated Obama's first days in office and prompted a Saturday meeting of his economic team at the White House during their first weekend in power.

A day earlier, he invited Democratic and Republican leaders to the White House to hear their ideas on the economy, yet Obama didn't share the plan's specifics while they visited.

Many of the goals in the speech and report were familiar from Obama's two-year campaign, like shifting to electronic medical records and investing in preventive health care.

Other parts added specifics.

Obama's recovery package aims to:

• Double within three years the amount of energy that could be produced from renewable resources, an ambitious goal given the 30 years it took to reach current levels.

Advisers say that could power 6 million households.

• Upgrade 10,000 schools and improve learning for about 5 million students.

• Save $2 billion a year by making federal buildings energy efficient.

• Triple the number of undergraduate and graduate fellowships in science.

The plan would spend at least 75 percent of the total cost — or more than $600 billion — within the first 18 months, providing a massive infusion of cash to the struggling economy, either through bricks-and-shovels projects favored by Democrats or tax cuts that Republicans have pushed.

Either could produce progress the administration could point to if it needs to justify a second economic package.

The broad plan puts heavy emphasis on infrastructure that crumbled as state budgets contracted.

Governors have lobbied Obama to help them patch holes in their budgets, drained by sinking tax revenues and increased need for public assistance like Medicaid and children's health insurance.

Obama's plan would increase the federal portion of those programs so no state would have to cut any of the 20 million children whose eligibility is now at risk.

Obama's plan would also provide health care coverage for 8.5 million Americans who lose their insurance when they either lose or shift jobs.

"It's a plan that will save or create 3 to 4 million jobs over the next few years" and recognizes "there are millions of Americans trying to find work even as, all around the country, there's so much work to be done," he said.

But he cautioned again against expecting instant results:

"No one policy or program will solve the challenges we face right now, nor will this crisis recede in a short period of time."

___

On the Net:

Obama video: http://www.whitehouse.gov.

"McCain wants a stimulus rewrite"

Erika Lovley

25 JANUARY 2009

Sen. John McCain (R-Ariz.) told "Fox News Sunday" this morning that he would not support the stimulus package as the House Democrats have written it because it includes too much wasteful spending.

The stimulus currently includes $275 billion in tax cuts and doesn't include Republican input or a spending timeline, McCain said.

"There should be an end point to all of this spending, say two years..."

"The plan was written by the Democratic majority in the House primarily."

"So yeah, I think there has to be major rewrites, if we want to stimulate the economy," McCain said.

"I am opposed to most of provisions in the bill."

"As it stands now, I would not support it."

McCain wouldn't say whether he would filibuster it.

"We need serious negotiations," he said.

"We're losing sight of what the stimulus is all about and that is job creation."

Sen. Charles Schumer (D-N.Y.), however, disagreed with McCain, saying he expects a number of Republicans to support the $825 billion stimulus package.

"I think you'll find large number of Republicans behind this," Schumer said.

"I regret Sen. McCain said he won't be voting for it."

"Obama plans fast action on financial regulation: report"

Sat Jan 24, 7:45 pm ET

NEW YORK (Reuters) – The Obama administration plans to tighten the nation's financial regulatory system, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, the New York Times reported in Sunday editions.

The broad changes include increased oversight of the complex financial instruments that helped spawn the current economic crisis, the newspaper said on its website Saturday night.

The newspaper based its story on interviews with officials as well as confirmation hearings for senior administration appointees, and a recent report by an international committee led by Paul Volcker, one of President Obama's chief economic advisers.

These officials want rules that would eliminate conflicts of interest at credit rating agencies that gave top investment grades to the ultimately shaky financial instruments that have been one source of market turmoil.

The officials pointed out that under the present system, the agencies are paid by companies to help them structure financial instruments -- which the agencies then grade.

"Until we deal with the compensation model, we're not going to deal with the conflict of interest and people are not going to have confidence that the ratings are worth relying on, worth the paper they're printed on," the newspaper quoted the newly confirmed Securities and Exchange Commission head Mary Schapiro as saying.

Treasury secretary Timothy Geithner made similar written and verbal comments before Senate Finance Committee, it said.

The officials said the Obama administration has embraced one of the themes of the Volcker report as a guiding principle -- that major companies and financial instruments that are mostly unsupervised must be brought back under a larger regulatory umbrella.

While some actions will be require legislation, others should be achievable through regulations adopted by federal agencies, the Times said.

FEDERAL STANDARDS FOR BROKERS

The administration plans to propose new federal standards for mortgage brokers who issued often unsuitable loans, but have been mostly regulated by the states.

They are also considering having the SEC become more involved in supervising the underwriting standards of mortgage-backed securities, it added.

Other goals include requiring that derivatives like credit default swaps -- insurance against loan defaults which were central to the financial collapse -- be traded through a central clearinghouse and possibly on one or more exchanges.

Additionally, the plan may include a broader role for the Federal Reserve in protecting the economy from companies whose troubles pose systemwide risks, as the report issued this month under Volcker proposed.

Officials have also begun studying ways to control executive compensation, the Times said.

Another component will provide the strategy for how the government will go about shoring up the flagging banking industry, the newspaper said.

Senior aides vow to move quickly on the new financial regulatory plan, it said.

(Reporting by Christopher Michaud, New York bureau, editing by Philip Barbara)

http://www.gmo.com/websitecontent/JGLetter_4Q08.pdf

Obama and the Teflon Men

By Jeremy Grantham

I am naturally a contrarian and a nitpicker, so I found
myself becoming a Republican in the Clinton era and a
real pinko in the Bush era. But after exulting in Obama’s
election, I couldn't even reach his inauguration before
finding fault! As an environmentalist, I am delighted that
he has surrounded himself with the very top talent. I, for
one, find Hillary Clinton an exciting choice to head the
State Department. But in the critical financial arena, he
appears to have brought in Rubinesque retreads, “yes
men,” or both, none of whom appeared to have seen the
most obvious developing bubbles in the history of finance.

One can only admire Bob Rubin’s ability to retain
influence and have his protégés in powerful positions.

Rubin is the guy who was last seen exhorting Citibank to
take more leverage and keep swinging. No, come to think
of it, he was last seen paying a visit to Hank Paulson,
his relatively recent underling at Goldman Sachs. He
pleaded with his old chum, with brilliant success, for an
unprecedented bailout. He was part of the establishment
that failed to express early, loud concerns over slipping
financial standards, and in fact helped to create an
environment where prudence was a career risk and CEOs
felt obliged to keep dancing.

His man Summers has proven he has some bite. Because
he has written often for the Financial Times we at least
know his public stance on matters financial. Well, let’s
put it this way: he runs no risk of being on any of the
many lists of people who gave clear warnings of potential
fi nancial disaster. And dozens did. Summers was
emphatically not a whistleblower. He did not rail against
falling financial standards. What he did, with his allies
Greenspan and Rubin, was beat back a heroic attempt in
late 1998 by Brooksley Born, then boss of the CFTC in
Chicago, to supervise OTC derivatives. They held her
off, presumably in the Greenspanian spirit of “the less
regulation, the better.”

Obama appointed Gary Gensler to lead the CFTC. Gensler
has a good reputation, but was hired into Treasury by …
you’ve guessed it … Robert Rubin.

And as for Tim Geithner! The FOMC minutes are available,
so at least we know what he added to Greenspan’s and
Bernanke’s meetings. Over the Greenspan years, there
were a few cautionary words from other members – a
very, very few from a rather spineless group – and
we know from the records how they were greeted. A
typically precise response from Greenspan was: “So, this
seems like a good time to break for coffee,” or words to
that effect. And we can study Geithner’s objections to the
Fed’s long journey down the primrose path, but our study
period will not be a long one, for he questioned nothing!

He was, if anything, a cheerleader, and wrote in support
of the new era of “Great Moderation.” He, however, was
not picked by Rubin. No, he was picked by Summers, who
was picked by Rubin. These guys are very, very loyal!

Mary Schapiro, appointed to head the SEC, has been
greeted with great enthusiasm by the financial industry
precisely because she has been a great supporter of the
industry’s financial well-being during her career, which
has included positions at the SEC and the CFTC. She is
seen as one who poses no threat by way of introducing
nasty, inconvenient new regulations. Where is Brooksley
Born when we need her? (In the interest of space, this
anti-Schapiro section is brief. To help out, on January 15,
there was a detailed criticism of her for being a softy in
The Wall Street Journal, of all newspapers. Bush would
have been proud to hire her!)

What a missed opportunity this all is. Obama was given
a mandate that could have included some serious bottom
kicking. We could have quickly taken quite a few steps
down the long road leading to a credible financial system
deserving of respect. The time to do that was now. Many
readers will object that these are all bright – even very
bright – people. And so they are. But our financial ship
is not doing a passable imitation of sinking because of a
lack of intelligence. What was lacking was the backbone
to publicly resist the establishment's greedy joyride of
risk-taking and sloppy standards. Even more important,
perhaps, was the breadth of vision that was missing. There
was plenty of intelligence, just not too much wisdom. So it
would be very encouraging if there were someone included
in Obama's appointments who had actually blown the
whistle on the spiraling Ponzi scheme that our leveraged
financial system had become (which is why the Madoff
fiasco is such a fitting capstone to our troubles). If only
there were someone with real toughness who could do
unpopular things. Someone, say, like Volcker. Oh, wait a
minute. Didn't he get a job? Or was that only a game to get
obstreperous characters like me on board with the program?

Unfortunately, I have a sneaking misgiving that Volcker
was indeed window dressing for the Presidential campaign.
Dollars to donuts he has not been pestered around the clock
for advice so far. And I'll tell you one thing. You don't have
to know him well to know that he'll resign within a year if
they don't get serious. Since he is the only person on the
team proven to have the right credentials – a preference for
high standards of financial integrity and the backbone to
push through unpopular but necessary actions – it would
be a real shame to lose him entirely.

----------------------

But...I "have to understand" these guys need $825 Billion more...
because they are now sure how to deal with the mess they missed.

http://market-ticker.org/

TARP Part Deux? Do It Right Or Don't Do It

Posted by Karl Denninger
...
The Washington Post has an interesting article on the mess, in which they say:
The situation is urgent. Home prices are plummeting and are projected by some financial analysts to lose a third of their peak value before the market recovers. Foreclosures have skyrocketed, with an estimated 8 million families expected to lose their homes over the next four years. Meanwhile, the jobless rate jumped to a 16-year high of 7.2 percent in December and is forecast to climb higher. Auto and credit card loans are also increasingly defaulting, raising the pressure on the banking system.

"Conditions are eroding far more rapidly than anyone anticipated," said Mark Zandi of Moody's Economy.com, one of three economists who addressed Senate Democrats on Thursday. "The job market is now consistently losing 500,000-plus jobs per month, something you couldn't have envisioned eight to 12 weeks ago. Losses in the banking system over the last week or two have been much larger than people had been expecting. We're coming to the realization that these things are self-reinforcing and the problems aren't developing in a linear way. They're getting worse very rapidly."

The escalating crisis has pushed the days-old Obama administration to a critical point: Obama must quickly choose a course of action, and he must choose correctly because the options are so expensive that he is unlikely to get a second chance, lawmakers and economists said.

Let's dissect this piece-by-piece.

"Home prices will lose a third of their peak value" - uh, more than that. Closer to half guys. This is not bad, it in fact is good. The key is affordability, not price. In a nation where there has been little wage appreciation (nor can there be when we outsource the "making" part of our economy to China, India and Vietnam) you cannot have asset-price appreciation in things people need for very long. More on this below (the math, that is); the focus on price is not only idiotic, it's backwards. Notice that all the programs put in place to "stop home price depreciation" in fact have done nothing but toss money down a rathole? That's because the issue is in fact affordability, and until homes are 2.5-3x incomes (median in both cases) the spiral will not stop - no matter what you do. That appreciation occurred due to making credit available at a below-market price for the risk taken on, and that cannot be sustained. Math never lies but politicians and hucksters of all stripes nearly always do.

"Conditions are eroding far more rapidly than anyone anticipated". Uh, no they're not. I anticipated this quite clearly, as did a lot of other people. Mark Zandi needs to be fired for uttering that crap, along with everyone else in the media or industry who has the audacity to say anything other than "we blew it and we accept responsibility for doing so, because the math was clear and we intentionally ignored it."

"He must choose correctly" - yep. Obama gets exactly one shot at this, and if he gets it wrong there is a risk not only of economic depression (a near-certainty at this point) but political and economic failure of The United States Federal Government.

Now let's look at another statement:

"A healthy banking system is critical to the broader economy because consumers and businesses count on credit to pay bills, create jobs and fuel other economic activity. Without lending, the economy would grind to a halt."

Unwittingly, The Washington Post just pointed out the root of the issue and why listening to the malfeasors and fools in DC and on Wall Street will not only fail, it will destroy our nation.You can't use credit to pay bills in a sustainable fashion. That is, pulling forward demand is destructive to the economy and paying principal and interest ("Bills") with the issuance of yet more credit is suicidal.
...
...in every recession prior to the 2000-03 one consumer credit took a dive. Why is this important? Because those "dives" clear out the bad debt in the system, allowing it to "reset" to a (mostly) sustainable state.

The exponential function guarantees that this has to take place or you will (not might) have a detonation of the monetary system and government involved. This is not open to question or debate - it is a statement of mathematical fact.

The problem we face today and have since the summer of 2007 when the bubble burst is that Washington DC, heavily-influenced by the bribery of campaign contributions and lobbying from those on Wall Street and elsewhere in the very system that led to the creation of this excess credit have done their level best to convince a bunch of Representatives, Senators, and the White House that the math can be cheated, because to admit the truth of the mathematics means that those very people are the ones who will suffer most.

See, unlike past recessions this time the overcapacity and over-expansion didn't happen in "Main Street" - most of it happened on Wall Street among the bankers, and what they "overmanufacturered" was the false "economic expansion" brought about not by mining, manufacturing or growing (the only three true growth drivers) but instead by pushing paper - an act that doesn't grow anything and in fact siphons off economic growth to feed itself.

...
This is the gist of all of it guys and dolls, as I laid out more than a year ago - repeatedly. Absolutely none of this was an accident, it was an inherent and necessary part of the systematic and organized fraud that Wall Street and Washington DC perpetrated upon the public and now they want us to pay for it.
Well guess what - one way or another, you're going to.

But let's do this the right way, so that the Wall Street fraudsters don't get a disproportionate benefit.

There are many who are calling for an RTC-style structure to the solution. That's good - provided we actually follow it.

The RTC closed and liquidated the failed S&Ls. If the Banks of Wall Street (and elsewhere) are going to have their bad debt taken up by the taxpayer then we must first seize and liquidate those institutions just as done during the S&L crisis.

Yes, this means the stockholders get zero. It means the bondholders get recovery value, such as it is (and if it is) and the only people who are truly protected are depositors.
Schumer is speaking the truth when he says this could cost $2.5-3 trillion dollars, and we might not be able to finance it. But if we're going to make the attempt we must do it in a fashion that in fact models the RTC - that is, those institutions must be seized.

See, the banks will not agree to sell "assets" at their free market price. If they were willing to do so the problem would already be solved as they would have been sold by now and we'd be done. No, the banks are holding out for a "higher than market" price - that is, the government eating the loss. But there is no "government", really - who eats that is you and I.
So we know in advance that the banks will not cooperate in a free market model. Therefore we must send in the examiners, mark everything to a market price, and determine who is below regulatory capital levels on that basis.

We then have two models we can follow, and frankly, while I prefer one of them as it preserves the firms and their public ownership, I'm willing to take #2 if that's what government deems appropriate:

We "cram down" the capital structure as I have described before by however many levels are necessary to restore the bank to double regulatory capital minimums. Why double? Because the losses aren't over - we're probably about halfway there with home price depreciation and other assets have yet to reach bottom as well.

We seize the institution, wiping out the shareholders and severely haircutting the bonds. The bad assets are placed in an RTC-like structure with the government acquiring them at the current market price, that money being used to pay whatever haircut-level the bonds are worth. Good assets are sold and again used to retire the debt at its "haircut" level. The firm ceases to exist entirely, and the government then "runs down" the RTC-style portfolio.

#1 involves no public money of any sort.
#2 does involve public money, but the amount would be reasonable. While the initial outlay will be huge, the fact remains that these bonds are not worth zero, and yet if acquired at market prices (in some cases 10 to 20 cents) there really isn't much further they can fall (can't go below zero!) Since a good number of them will be worth somewhere near market price today in time, running them down in this fashion "works" in that while it requires a capital outlay the losses will not constitute the entire amount put in. If we do #2 we may put up a capital outlay of a trillion dollars or more, but the ultimate losses are likely to be in the few hundred billion dollar range - bad, but manageable.

I prefer #1 for a whole host of reasons, not the least of which is that it does not detonate the institutions themselves, and it leaves the bondholders with ownership - and the ability to fire management and replace them with people who will do the right thing going forward.

#2 will work, but it detonates the companies and throws far more people out of work than #1.

What we must not do, on the other hand, is "buy out" the assets at above-market prices from the banks. That not only leaves the incompetent management in place but at the same time it guarantees horrific losses for the taxpayer and dramatically increases the risk that foreigners, who we absolutely rely on to buy our government debt, will see this as yet another instance of Ponzi Finance and tell us to bite it, precipitating a full-on currency and political crisis.

American Policymakers have operated for decades on the premise that there is no other "safe haven" and thus they can spend with impunity. This is a premise that we would be wise not to consider solid at this point in time, as we have demonstrated over the last year and a half that our government and nation in general not only have no idea what we're doing but that we will shield fraudsters, liars and thieves from failure through the application of unlimited public funds - a political and economic policy that is incongruent with being the world's reserve currency and "safe haven" play.

----------------------------------

For those that wring hands about our reputation in the world concerning military tribunals
and rendition...you won't have to worry any more if the dollar disolves...we'll be third world.

The market is up this morning! Sell, sell, sell...(except for infrastructure-related)
because here are the reports coming out this week:

Monday

Existing Home Sales - Full Report, Charts/Analysis
Leading Indicators - Full Report, Charts/Analysis

Tuesday

Conference Board Consumer Confidence - Full Report, Charts/Analysis

Wednesday

FOMC Meeting Announcement - Full Report

Thursday

Initial Jobless Claims - Full Report, Charts/Analysis
Durable Goods Orders - Full Report, Charts/Analysis
New Home Sales - Full Report, Charts/Analysis

Friday

Gross Domestic Product - Full Report, Charts/Analysis, Estimates
University of Michigan Consumer Sentiment - Full Report

http://www.commentarymagazine.com/blogs/in...php/rubin/52092

Enough Happy Talk

Jennifer Rubin - 01.26.2009 - 8:11 AM

The notion of a bipartisan, pro-growth stimulus plan that could pay for some much needed infrastructure was appealing to many Americans. Even Republicans skeptical of the entire Keynesian premise were willing to go along with the deal if they could get some private sector help and some needed spending on national defense. But what has emerged from the clutches of Nancy Pelosi is a grab-bag of liberal special interest group goodies, welfare disguised as “tax relief” and precious little of long term value to the country.

Charles Krauthammer aptly termed it “one of the worst bills in galactic history.” He pans not just the content but the process:
I thought he once said we are not red states or blue states. We are the United States of America. We are not Republican or Democrat. Look, he won as the man who reaches across. But here is an example in which he says ‘I won, you lost. It’s my way.’ He listens, but unless he gives something, it’s all a sham.

It is no wonder that Republicans including John McCain and Minority Leader John Boehner are making clear they want no part of it. On Fox New Sunday, McCain declared:
There should be an end point to all of this spending. Say two years. . . The plan was written by the Democratic majority in the House primarily. So yeah, I think there has to be major rewrites, if we want to stimulate the economy.

He was clear that he “would not support it,” but was cagey on whether to filibuster it: “We need serious negotiations. We’re losing sight of what the stimulus is all about and that is job creation.” (If McCain blocked the spend-a-thon he might finally earn the affection of the conservative base.)

So what happened? President Obama entirely ceded control of the process to Pelosi, who proceeded to fill the bill with junk and exclude Republicans from the process. The Wall Street Journal concludes:
The spending portion of the stimulus, in short, isn’t really about the economy. It’s about promoting long-time Democratic policy goals, such as subsidizing health care for the middle class and promoting alternative energy. The “stimulus” is merely the mother of all political excuses to pack as much of this spending agenda as possible into a single bill when Mr. Obama is at his political zenith.

Apart from the inevitable waste, the Democrats are taking a big political gamble here. Congress and Mr. Obama are promoting this stimulus as the key to economic revival. Americans who know nothing about multipliers or neo-Keynesians expect it to work. The Federal Reserve is pushing trillions of dollars of monetary stimulus into the economy, and perhaps that along with a better bank rescue strategy will make the difference. But if spring and then summer arrive, and the economy is still in recession, Americans are going to start asking what they bought for that $355 billion.
And on a political level, the Democrats have given Republicans every reason to oppose the bill and no reason to support it. As a result the “bipartisan” stimulus will be the Democrats’ bill.
Could the bill be revised to cut out the junk and corral Republican votes? The longer this goes on and the more TV appearances Democrats make extolling the virtues of their spend-a-thon, the more difficult it becomes to reverse course. Perhaps this was what President Obama had in mind all along. Maybe all the talk about focused spending and bipartisanship was just fluffy rhetoric for the easily impressed media pundits. Or maybe this is a sign that President Obama lacks the tenacity and skill to go toe-to-toe with his own party.

The result is the same: a horrid bill and a failure to breach the partisan divide. A smartly designed bill which could garner bipartisan support seems increasingly out of reach. It would have been nice to suspend disbelief for at least a week, but either by intention or neglect we now see that Washington may in fact be the place where good ideas go to die.

----------------

Apparently, all a rhetoric mirage...hundreds of millions for contraception, pushing for green energy economics, infrastructure is federal building rennovation.

"Treasurys dip as auction demand disappoints market - Treasurys dip as auction demand disappoints, economic readings are stronger than expected"

Associated Press

Last updated: 6:06 p.m., Monday, January 26, 2009

NEW YORK -- Longer-term Treasurys dropped for a sixth straight session on Monday, pushing the 30-year bond yield to a nearly two-month high, as investors worried that the market's appetite for government debt won't keep up with supply.

An auction of $8 billion in 20-year Treasury Inflation-Protected Securities, or TIPS, was met with weaker-than-anticipated demand.

There were nearly twice as many bids as securities available, but the rate the Treasury ended up paying was higher than initially offered -- indicating that the Treasury had to sweeten the deal a bit for investors.

Later this week, the Treasury plans to auction a record $40 billion in two-year notes and $30 billion in five-year notes.

Demand for shorter-term Treasurys has been holding up better than that for longer-term Treasurys, but if it tapers off as some investors predict, the days of cheap financing for the government's bailout are over.

Goldman Sachs analysts estimated last week that the government will need to raise $2.5 trillion this year.

Better-than-expected economic data also weighed on Treasurys.

Existing home sales rose 6.5 percent in December, as the median home sales price plunged 15.3 percent to $175,400 from $207,000 a year ago.

The decline is the largest year-over-year drop in records going back to 1968.

Meanwhile, the New York-based Conference Board's Index of Leading Economic Indicators, its monthly forecast of economic activity, increased 0.3 percent in December; economists had predicted a decline.

In late trading, the 30-year Treasury bond fell 1 7/32 to 120 24/32, and its yield rose to 3.38 percent from 3.32 percent late Friday.

It traded as high as 3.41 percent, its highest level since Dec. 1.

The benchmark 10-year Treasury note fell 8/32 to 109 15/32, and its yield rose to 2.65 percent from 2.62 percent.

The two-year note fell 1/32 to 100 2/32, and its yield rose to 0.84 percent from 0.82 percent.

The three-month Treasury bill -- in demand because it is viewed as one of the safest short-term investments -- yielded 0.13 percent, up from 0.09 percent Friday.

The discount rate was 0.14 percent.

The cost of lending between banks rose for the fourth straight session on Monday, a sign of uneasiness in the credit markets about the health of financial institutions.

The London Interbank Offered Rate, or Libor, on three-month loans in dollars rose to 1.18 percent from 1.17 percent.

Earlier this month, the rate hit its lowest level since June 2003.

DAVID WEIDNER'S WRITING ON THE WALL

A banking dream team

Commentary: Some bankers got it right. So, why are they being ignored?

By David Weidner, MarketWatch

Last update: 12:01 a.m. EST Jan. 27, 2009

NEW YORK (MarketWatch) - If you believe our leaders, we can't find anyone to reform the financial system other than tax evaders and undistinguished and overpaid career regulators.

When Robert Rubin explains away the financial crisis by saying "nobody was prepared for this" we have to just shrug and accept it.

How else could we end up getting such yawn-inducing candidates as Tim Geithner for Treasury, Mary Schapiro for the Securities and Exchange Commission, Dick Parsons as chairman of Citigroup Inc. and Neel Kashkari holding the keys to the bailout vault?

Neither the old or new administration has inspired much confidence with its picks for top jobs. They are flawed candidates, each with a history that requires the public to grit its teeth, hold its nose and hope for the best.

Who should they have picked? Read on...

Full Story

HERE IS PART OF WHAT WE RAE BEING MADE TO BAIL OUT ...

"NY financier arrested in purported $400 million scam"

By Grant McCool

Tue Jan 27, 2:38 am ET

NEW YORK (Reuters) – Authorities on Monday arrested the chief executive of a private New York financing firm on suspicion of running a purported Ponzi scheme that attracted $400 million in investments, U.S. law enforcement officials said.

Nicholas Cosmo, head of Agape World Inc on New York's Long Island, was said to provide commercial bridge loans, but was instead operating a traditional Ponzi scheme in which early investors are paid with the money of new clients, officials said.

"Nicholas Cosmo took the advice of an attorney and complied with an arrest warrant," said Al Weissmann, spokesman for the U.S. Postal Inspection Service, which is investigating Agape World and Cosmo along with the FBI.

Another law enforcement official, said agents had visited Cosmo's office on Monday expecting to arrest him, but he was not there.

He complied with the warrant on Monday night and was expected to appear in magistrate's court on Tuesday in Central Islip on Long Island, FBI and USPIS officials said.

The amount of money, while large, pales compared with the purported $50 billion fraud masterminded by investment manager Bernard Madoff.

Law enforcement officials said they expect to uncover more Ponzi schemes following the sharp decline of the U.S. financial industry.

Agape World Inc, a private firm with its office in Hauppauge, New York was not registered with the U.S. Securities and Exchange Commission.

"Some of the early investors made money but as this scheme started to crumble, the later investors did not see a penny," a law enforcement official said of the firm.

Cosmo was convicted of a federal charge of felony fraud and swindle in 1999 and sentenced to 21 months in prison.

He was released in August 2000, according to the U.S. Bureau of Prisons.

According to the firm's website www.agapeworldinc.net/ it has made commercial bridge loans, construction loans, acquisition loans and financing for properties nationwide with capital obtained from private sources since 1999.

Projects in New York, California, Texas and South Carolina are among those listed as recipients of its loans in the past two years.

INVESTORS RAISED CONCERNS

Investors had been raising concerns about Agape long before the financial crisis unearthed the recent rash of Ponzi schemes, seeking advice and intelligence on Internet investment chat boards such as www.scamvictimsunited.com and www.fatwallet.com .

"Has anyone invested with Agape World Inc?"

"They provide bridge loans and offer investors 13-14% returns?"

"When my brother was telling me about it, it sounded kinda fishy and risky," reads a March 2, 2008 website posting.

"The pictures on their website would make you believe that they funded the San Francisco Bay Bridge, the Taipei 101 Tower, and the Tower of Babylon, and the Baghdad Railroad," reads another post.

Others defended Agape.

"I have been an investor with Agape World Inc for 2 years."

"I have always received my interest payments on time," reads an October 14, 2008 comment.

"Only twice in a 9 year history of the company has an interest payment been extended ,,, Nicholas Cosmo does have a past and he has paid for it," writes another ten days later.

Former Nasdaq stock market chairman Madoff was arrested December 11 and charged with securities fraud after authorities said he confessed to running "a giant Ponzi scheme" over many years.

Since then, authorities have announced charges in investigations of at least three other alleged Ponzi schemes -- in California, Georgia and Florida -- with amounts ranging from $25 million to hundreds of millions of dollars.

Arthur Nadel, head of Florida-based Scoop Management, was reported missing by his family in early January.

He left behind a suicide note.

It expressed guilt for losing his clients' money and said someone might try to kill him.

The U.S. Securities and Exchange Commission charged the money manager with fraud last Wednesday in a complaint, saying the six hedge funds Nadel oversaw, which he valued at more than $300 million, actually contain less than $1 million.

It obtained an emergency court order freezing Nadel's assets and appointed a receiver.

(Reporting by Grant McCool; Editing by Bernard Orr)

(Additional reporting by Christopher Kaufman)

"Northeast posts 10 pct December home sales drop - Northeast home sales and prices tumble in December as economic pain spreads"

By J.W. ELPHINSTONE, Associated Press

Last updated: 4:25 p.m., Monday, January 26, 2009

NEW YORK -- Existing home sales in the Northeast region dropped almost 10 percent in December from last year, while the median sales price in the region fell nearly 8 percent to $268,200 the National Association of Realtors said Monday.

Sales in the Northeast were weaker than the national numbers, but the region's price decline was less severe.

Sales nationwide -- without adjusting for seasonal factors -- edged up 1.1 percent in December from a year ago, while the median price fell 15 percent to $216,000.

Sales in five major Northeast cities posted double-digit declines, according to the Associated Press-Re/Max Monthly Housing Report, also released Monday.

Median prices in six Northeast metro areas lost more than 10 percent of their values from a year before.

The report analyzed sales transactions in nine Northeast metropolitan statistical areas filed by all real estate agents, regardless of company affiliation.

The fallout from the financial collapse has yet to fully hit the suburban housing markets surrounding New York City said James Diffley, group managing director of IHS Global Insight's regional services group.

"How much will Wall Street retrench and what impact will it have on housing prices?"

"It could be significant," Diffley said.

Bonuses this year are forecast to be cut by half from last year, a loss between $15 billion to $20 billion, Diffley said.

Layoffs are another big question mark, but so far have been more muted than expected, he said.

Diffley expects the higher-end homes to suffer the most from the unraveling of the financial services industry, but so far, the pain isn't as acute as it could be, according to real estate agent Sandra Lipmann at Prudential Centennial Realty in Westchester County, N.Y.

"There have been a number of open houses for very nice homes over $1 million and $2 million and in only one instance, the listing agent confided that these people have to sell," Lipmann said.

Still, December sales weren't rosy.

Sales in the suburban counties surrounding New York City -- Suffolk, Nassau and Westchester counties -- dropped nearly 16 percent, while the median home price fell more than 8 percent to $390,000, according to the AP-Re/Max report.

But Lipmann said buyer traffic has started to pick up since the New Year and thinks the new administration in the White House may encourage more confidence in the market.

In neighboring Passaic, N.J., where many Manhattan workers reside, December activity was even duller.

Sales fell 9 percent, while prices dropped nearly 21 percent from a year ago to $313,500.

Inventory there is still growing, which will likely put more downward pressure on prices.

The supply of new homes increased nearly 10 percent in December.

Surprisingly, Pittsburgh posted a more than 10 percent drop in its median price and a 23-percent decline in sales in December, the largest drop of the Northeast cities tracked by AP/Re-Max.

The city's prices had been holding up the best of the nine Northeast metros in recent months.

Winter storms with heavy snow kept some home shoppers indoors last month, said Sheryl Morgan a local agent with Keller Williams, but January is looking better.

"I'm working with a lot of new buyers now."

"I had two new listings sold in the last two weeks," Morgan said.

Philadelphia, meanwhile, saw median home prices fall nearly 7 percent year-over-year, while sales tumbled 19 percent.

What's more troubling, its inventory shot up more than 24 percent from December 2007.

Further North, the New England states are reeling from the national recession, said Michael Lynch,a regional economist at IHS Global Insight.

Lynch tracks the region's largest economy, Massachusetts, as a harbinger for the rest of the states.

For most of 2008, Massachusetts "hung on" while the rest of the nation's economy faltered, Lynch noted, but now it's starting to stumble.

The state's unemployment rate is deteriorating and its debt load is ballooning.

Those troubles don't help its capital's housing market.

Boston home sales fell nearly 7 percent in December from the year before, according to the AP-Re/Max report.

And the median price fell almost 11 percent to $303,625.

But the worst price performer of the New England states and in the Northeast was Providence, R.I.

While it had the smallest decline in sales volume at just under 2 percent in December, the city booked the largest drop in home values.

The median home price there plunged almost a quarter to $190,000 as foreclosures and short sales made up about one in four sales, said Ron Phipps of Phipps Realty in Warwick, R.I.

He's more optimistic about January's numbers though, citing a pickup in buyer activity.

"We've had a lot of helicopter buyers, but in the last week they're starting to land," Phipps said.

"They're actually making offers and that's very encouraging."

However, he said the state's joblessness makes a housing recovery very difficult.

The unemployment rate in Rhode Island climbed to 10 percent, just behind national leader Michigan, at the end of the year.

HERE'S MORE OF WHAT WE LOWER CLASSES IN AMERICA ARE BAILING OUT ...

WHICH IS THE UPPER CLASSES, OF COURSE ....

WHY ON EARTH WOULD WE BOTHER TO HAVE ROYALTY IN THIS COUNTRY IF WE ARE GOING TO KEEP THEM AS PAUPERS?

IT JUST IS NOT RIGHT THAT THEY SHOULD NOT BE MUCH MORE THAN US ...

AND WE SO MUCH LESS THAN THEM .....

And so ...

"Thain says he hid nothing from Bank of America - Merrill's ex-CEO Thain says he hid nothing from Bank of America, will repay office decor costs"

By IEVA M. AUGSTUMS, Associated Press

Last updated: 5:35 p.m., Monday, January 26, 2009

CHARLOTTE, N.C. -- Former Merrill Lynch & Co. Chief Executive John Thain defended the acquisition of the brokerage by Bank of America Corp., saying the bank knew of the company's losses and bonuses before the purchase closed.

Thain also said he plans to reimburse Bank of America for a $1.2 million renovation of his office a year ago, saying in an interview with CNBC Monday that "it is clear to me in today's world that it was a mistake."

"I apologize for spending that money ... on those things," Thain said in the interview.

He made similar comments in a memo to employees released Monday by media outlets.

When asked why he made the renovations in the first place, Thain said during the CNBC interview that former Merrill Lynch CEO Stan O'Neal's office "was very different than the general decor of Merrill's offices."

"It really would have been very difficult for me to use it in the form that it was in ... "

"It needed to be renovated no matter what."

"I should have simply paid for it myself," Thain added.

Spokespeople at Bank of America and Merrill Lynch declined to comment on the office renovation reimbursement.

Regarding the bonuses, Bank of America spokesman Scott Silvestri said:

"John Thain and the Merrill Lynch compensation committee made the decision on the amount and timing of year-end compensation at Merrill Lynch."

"We had no legal right to challenge it."

But in the undated memo, which was posted on the Web sites of CNBC and The Wall Street Journal, Thain said the size of the 2008 discretionary bonus pool, the mix of cash and stock, and the timing of the payments "were all determined together with Bank of America."

He also said the pool was 41 percent lower than in 2007.

He defended the reported $4 billion bonus pool in his interview with CNBC, saying that "if you don't pay your best people, you will destroy your franchise."

"Those best people can get jobs other places, they will leave," Thain said, adding that on "Wall Street, people's salaries tend to be relatively small.

"And their bonuses are the vast majority of their compensation for the year."

In his memo, Thain said Merrill's large fourth-quarter losses were "incurred almost entirely on legacy positions and due to market movements."

He said the brokerage was completely transparent with Bank of America about the losses during the acquisition process.

Thain resigned under pressure from Bank of America last week after reports he rushed out billions of dollars in bonuses to Merrill Lynch employees in his final days as CEO there, while the brokerage was suffering huge losses and just before Bank of America took it over.

Thain, 53, is a former head of the New York Stock Exchange and a former chief operating officer of Goldman Sachs.

He had been named head of a wealth management division of the combined businesses of Merrill and Bank of America.

The bonuses were paid before Bank of America's acquisition of Merrill became final on Jan. 1 and while Bank of America was privately telling the government that Merrill was losing so much money that the deal might fall through unless it could get more federal bailout money.

The Wall Street Journal has reported that Thain initially asked for a $10 million bonus for 2008 before deciding, as many other bank CEOs did last year, to forego a bonus.

Thain said during the CNBC interview that "the only thing I ever asked my board was that I receive no bonus," but did say that "I did have discussions with my board .... on compensation philosophy and ... levels of bonus."

Shares of Bank of America fell 24 cents, or 3.9 percent, to $6.

In after-hours trading, shares edged up 7 cents to $6.07.

AND THE FINANCIAL SCREWING OF THE AMERICAN PEOPLE JUST KEEPS ON COMING AND COMING .....

And so ...

"Fannie Mae could need $16B from government - Fannie Mae says it may need up to $16 billion in government assistance"

By ALAN ZIBEL, Associated Press

Last updated: 5:55 p.m., Monday, January 26, 2009

WASHINGTON -- Mortgage finance company Fannie Mae said Monday that it likely needs up to $16 billion from the government as conditions in the U.S. housing market continue to deteriorate.

Fannie Mae's disclosure that it expects an injection of $11 billion to $16 billion in taxpayer aid comes after sibling company Freddie Mac disclosed last week that it's likely to require as much as $35 billion in federal support on top of the $13.8 billion it received last year.

Fannie, which has yet to receive any government aid, said in a Securities and Exchange Commission filing that the actual amount needed "may differ materially from this estimate" because its fourth-quarter financial statements are still being prepared.

Washington-based Fannie and McLean, Va.-based Freddie were seized by federal regulators last fall after facing mounting losses on loans they backed during the housing boom.

An agreement with the Treasury Department allows the government to invest up to $100 billion in each company, though some analysts have speculated that the companies may need more than that.

Any assistance for Fannie or Freddie would be formally requested by the companies' federal regulator, the Federal Housing Finance Agency.

A spokeswoman for the agency declined to comment Monday.

Fannie posted a $29 billion loss in the third quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax credits that have become worthless.

Fannie's net worth -- the value of its assets minus the value of its liabilities -- fell to $9.4 billion at the end of September from $44.1 billion at the end of 2007.

If that number turns negative, the company would be forced to obtain funding from the Treasury Department.

Analysts also expect that legislation allowing bankruptcy judges to reduce the interest rate or principal balance of home loans will reduce the value of mortgage securities held by Fannie and Freddie.

Such legislation likely will lead to an additional $20 billion in taxpayer aid for both companies, Credit Suisse analyst Moshe Orenbuch wrote in a report Monday.

Most Democrats in Congress, along with President Barack Obama, support the bill while groups representing the lending industry have ramped up their lobbying machines to stop it.

And so, call in the FED:

http://uk.reuters.com/article/marketsNewsU...744985320090127

Fed buys $1.7 bln in agencies, program 25 pct done

Tue Jan 27, 2009 4:35pm GMT

NEW YORK, Jan 27 (Reuters) - The Federal Reserve bought $1.7 billion of Fannie Mae , Freddie Mac and Federal Home Loan Bank notes on Tuesday, for a total of nearly $25 billion since the purchase program began in December.

The Fed has said it would buy up to $100 billion of these securities, as well as up to $500 billion of mortgage bonds issued by Fannie, Freddie and Ginnie Mae to help cut mortgage rates and revive U.S. housing.

With this purchase, the ninth since the program kicked off on Dec. 5, the Fed is a quarter of the way toward its agency note purchase goal.

The Fed has also said it stands ready to increase the amount of purchases if necessary.

Dealers submitted $3.395 billion for consideration in the latest Fed purchase, the New York Fed said on its website.

The Fed bought agency debt securities maturing from February 2011 through December 2012 in an outright coupon purchase, the bank said. (Reporting by Chris Reese and Lynn Adler; editing by Gary Crosse)

-----------------

http://en.wikipedia.org/wiki/Federal_Reserve_System

1913-Present: Federal Reserve System

Creation of a third central bank

Main article: History of the Federal Reserve System

The main motivation for the third central banking system came from the Panic of 1907, which renewed demands for banking and currency reform. During the last quarter of the 19th century and the beginning of the 20th century the United States economy went through a series of financial panics. According to proponents of the Federal Reserve System and many economists, the previous national banking system had two main weaknesses: an "inelastic" currency; and a lack of liquidity.

The following year Congress enacted the Aldrich-Vreeland Act which provided for an emergency currency and established the National Monetary Commission to study banking and currency reform.

The American public believed that the Federal Reserve System would bring about financial stability, so that a panic like the one in 1907 could never happen again; but just 16 years later in 1929, the stock market crashed again, and the United States entered the worst depression in its history, the Great Depression. Critics of the Federal Reserve System including Milton Friedman and Murray Rothbardstate that the Federal Reserve System helped to cause the Great Depression.

...
In July 1979, Paul Volcker was nominated, by President Carter, as Chairman of the Federal Reserve Board amid roaring inflation. He tightened the money supply, and by 1986 inflation had fallen sharply.In October 1979 the Federal Reserve announced a policy of "targeting" money aggregates and bank reserves in its struggle with double-digit inflation.

In January 1987, with retail inflation at only 1%, the Federal Reserve announced it was no longer going to use money-supply aggregates, such as M2, as guidelines for controlling inflation, even though this method had been in use from 1979, apparently with great success. Before 1980, interest rates were used as guidelines; inflation was severe. The Fed complained that the aggregates were confusing. Volcker was chairman until August 1987, whereupon Alan Greenspan assumed the mantle, seven months after monetary aggregate policy had changed.
-----------------

The Emergency Economic Stabilization Act of 2008, commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the global financial crisis of 2008 authorizing the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, and make capital injections into banks. The bailed-out banks are mostly U.S. or foreign banks, though the Federal Reserve extended help to American Express, whose bank-holding application it recently approved.

Supporters of the bailout plan argued that the market intervention called for by the plan was vital to prevent further erosion of confidence in the U.S. credit markets and that failure to act could lead to an economic depression. Opponents objected to the massive cost of the sudden plan, pointing to polls that showed little support among the public for bailing out Wall Street investment banks, and claimed that better alternatives were not considered and that the Senate only tried to force the passage of the unpopular but sweetened version of the bailout through the opposing House and was successful in this attempt. Opponents of the rescue plan also argue that since the problems of the American economy were created by excess credit and debt, a massive infusion of credit and debt into the economy only excaberates the problems with the economy: the bailout infuses credit and debt into the economy but, because the government is creating the money out of thin air, immediately creates more credit and debt.

-----------------

Of course some of the bailout money went to bailout AIG:

-----------------

http://www.bloomberg.com/apps/news?pid=206...&refer=news

AIG Said to Pay $450 Million to Retain Derivatives Employees
Email | Print | A A A

By Hugh Son

Jan. 27 (Bloomberg) -- American International Group Inc., the insurer that nearly collapsed because of losses on credit- default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. The New York- based insurer took a federal bailout in September to avoid bankruptcy and is selling units to repay the government. AIG disclosed the existence of the unit’s retention program in regulatory filings, including a quarterly report in August.

------------------------

If y'all don't realize this throwing billions of bucks at these failed institutions is nuts...
well we are gonna get what we deserve. Next you'll have the FED buying US Treasuries...
printing money to make the government liquid...which of course will not...stay tuned...

-----------------------

http://www.reuters.com/article/ousiv/idUSTRE50P62Q20090127

Fed begins 2-day meeting, eyes alternative tools

Reuters - 28 minutes ago
By Mark Felsenthal WASHINGTON (Reuters) - The Federal Reserve began a two-day policy meeting on Tuesday at which officials will explore ways to revive the economy now that their traditional interest-rate cutting repertoire has been exhausted.
...
The Fed has flooded markets with dollars, more than doubling the size of its balance sheet to more than $2 trillion, and its statement on Wednesday may shed more light on how it plans to support broken down credit markets.

"We expect the Fed announcement to be long on understanding and short on solutions this time around," said Chris Low, chief economist at FTN Financial. "The only sure thing in the Fed announcement is that there will be surprises."

In December, the Fed said it was considering buying long-dated U.S. government bonds to push down borrowing costs, and investors will eye the central bank's statement closely for clues on whether it might move forward with that plan.

-----------------------------

Wonder why Madoff ain't in jail? We are going to have to build a Ponzi Prison if this keeps up.

AND AS REALITY CONTINUES TO PILE ON ....

"Dollar lower as consumer confidence hits new low - Dollar falls against the euro, pound as consumer confidence hits new low, home prices plunge"

Associated Press

Last updated: 11:55 a.m., Tuesday, January 27, 2009

NEW YORK -- The dollar fell against the euro and the pound in early trading Tuesday on news that home prices have dropped by the sharpest annual rate on record and consumer confidence has fallen to a new low, as shoppers worry about their jobs and watch their retirement funds dwindle.

The 16-nation euro drifted higher to $1.3198 from $1.3137 it bought in late trading Monday.

The British pound rose to $1.4081 from $1.3938, while the dollar inched up to 89.13 Japanese yen from 89.02 yen late Monday.

The Standard & Poor's/Case-Shiller 20-city housing index released Tuesday tumbled by a record 18.2 percent from November 2007, the largest decline since its inception in 2000.

Meanwhile, the Conference Board said its Consumer Confidence Index edged down to 37.7 from a revised 38.6 in December, lower than the 39 economists surveyed by Thomson Reuters had expected.

In recent months the index has hit its lowest troughs since it began in 1967, and is hovering at less than half its level of January 2007, when it was 87.3.

Also Tuesday, the Ifo survey of business sentiment in Germany, Europe's largest economy, showed that business confidence improved slightly in January after seven months of declines.

Profit reports from U.S. Steel and American Express as well as chip-maker Texas Instruments Inc. and movie-rental company Netflix Inc. did give the markets some support in early trading, but the drop in consumer confidence forced stocks to give up early advances.

In other early trading, the dollar fell to 1.1381 Swiss francs from 1.1404 francs late Monday, but rose to 1.2277 Canadian dollars from 1.2253.

"FDIC proposes rate caps for troubled banks - FDIC proposes new interest rate caps for struggling banks, would be pegged to national average"

By ALAN ZIBEL, Associated Press

Last updated: 12:25 p.m., Tuesday, January 27, 2009

WASHINGTON -- Struggling banks would be banned from hiking interest rates above a national average under new government regulations proposed Tuesday that aim to halt such risky behavior.

The Federal Deposit Insurance Corp. wants to change the way it calculates limits on deposit interest rates for banks that are having financial problems.

Banks that are trying to stay afloat often raise their interest rates far above national levels in an attempt to attract new money.

The FDIC's current limits on interest rates for institutions it defines as less than "well capitalized" are calculated using yields paid on government-issued Treasury bonds.

But the extraordinarily low Treasury rates of the past year have made such limits meaningless.

The new rate would be calculated by the FDIC using an average of rates paid by banks nationwide.

The regulations would not affect healthy banks.

Last fall, 154 out of the more than 8,300 banks nationally were classified as less than "well capitalized" according to the FDIC, which does not disclose the names of troubled institutions.

"We're moving toward a rule that is both more workable and reflective of the market rates that are being charged," Martin Gruenberg, the FDIC's vice chairman, said at a board meeting Tuesday.

The FDIC's regulations on interest rates are designed to prevent troubled banks from evading an existing ban that prevents teetering institutions from accepting high-rate "brokered deposits" sold by securities firms to customers outside of a bank's local area.

IndyMac Bank, which failed last summer, relied heavily on those brokered deposits that can carry higher interest rates but also can be riskier than traditional deposit accounts because they may not fall within the federal insurance limit of $250,000 per account.

The FDIC also finalized a new rule for how deposit accounts are processed if there is a bank failure.

This month alone, three banks have failed following 25 failures last year that were far more than in the previous five years combined.

Only three banks failed in 2007.

It's expected that many more banks won't survive this year's continued economic tumult.

"Nation's economic mood darkens as more jobs vanish - Consumer confidence hits record low as Americans worry about withering job and housing markets"

By ANNE D'INNOCENZIO, Associated Press

Last updated: 5:55 p.m., Tuesday, January 27, 2009

NEW YORK -- This is one recession Americans aren't going to spend their way out of.

The Conference Board said Tuesday its Consumer Confidence Index edged down to 37.7 this month, a record low, from a revised 38.6 in December.

It stood at about 87 just a year ago.

Americans are battered by headlines about massive job cuts, including thousands at Home Depot, Corning, General Motors and Caterpillar in just the past two days, and are still watching the values of their homes and retirement funds dwindle.

"Virtually, there is no confidence out there," said Bernard Baumohl, chief global economist at The Economic Outlook Group LLC.

"Household anxiety has reached a point that we can count them out to get us out of the recession."

Economists believe Americans will remain in a financial funk until they start seeing fundamental improvements in the economy, including a turnaround in the housing and job markets.

And two other reports Tuesday suggested that's unlikely to come soon.

The Labor Department announced that state unemployment rates shot up nationwide in December, with Indiana and South Carolina racking up the largest monthly increases.

South Carolina's jobless rate bolted to 9.5 percent, more than 2 percentage points above the national rate.

And the Standard & Poor's/Case-Shiller 20-city housing index dropped by a record 18.2 percent in November from the same month a year earlier -- the sharpest annual rate since the index's inception in 2000.

The gloomy news initially sent the Dow Jones industrial average lower, but by mid-afternoon it took heart from some positive earnings reports, finishing up about 58 points at 8,174.

President Barack Obama and Congress are scrambling to enact a $825 billion package of increased federal spending, including money for big public works projects and for states, as well as tax cuts to revive the economy.

That could encourage Americans to spend more, but Baumohl believes the relief would be only temporary unless financial institutions become healthy enough to revive lending.

Tighter credit has been a challenge for shoppers and businesses alike.

Federal Reserve policymakers are gathering this week to examine what other tools they can use to help ease a recession that started in December 2007.

They are all but certain to leave the benchmark interest rate at its current record low.

But without the help of consumer spending, which accounts for more than two-thirds of economic activity, the economy faces a slow recovery.

In past recessions, consumers had helped the economy dig itself out of its funk.

Americans "are feeling extremely bad about jobs -- both current and expected," said Lynn Franco, director of The Conference Board Consumer Research Center.

The Conference Board survey showed fewer people expect to get raises over the next few months, or for jobs to be plentiful.

Nationally, the unemployment rate, which stands at a 16-year high of 7.2 percent, could hit 10 percent or more later this year or early next year, according to some analysts' estimates.

Michigan and Rhode Island already had unemployment rates in double digits last month.

And the pink slips keep coming.

Corning Inc. said Tuesday it is cutting 3,500 jobs, or 13 percent of its payroll, as demand slumps for the glass used in flat-screen televisions and computers.

A day earlier, tens of thousands of layoffs were announced by Pfizer, GM, Caterpillar, Texas Instruments and Home Depot.

The consumer confidence survey, which sampled 5,000 U.S. households through Jan. 21, showed Americans remain pessimistic.

Nearly 48 percent now say business conditions are "bad," while less than 7 percent say conditions are "good."

Shoppers' splurges on everything from sweaters to pillows in recent years have kept factories humming in China and have fueled store expansions and hiring in the United States.

Now the most severe spending pullback in decades is sending a number of stores into liquidation, with Circuit City and discount clothing chain Goody's Family Clothing among the biggest names.

The merchants that manage to survive are slashing inventories and closing stores, sending pain to all corners of the economy.

Stores limped through the weakest holiday period in four decades by one measure, and retail sales appear to be only deteriorating in January.

The National Retail Federation, the world's largest retail trade group, predicts that retail sales will fall 0.5 percent this year, well below the meager 1.4 percent gain last year.

------

AP Real Estate Reporter J.W. Elphinstone in New York and AP Economics reporter Jeannine Aversa in Washington contributed to this report.

THERE IS NO CONFIDENCE OUT THERE BECAUSE WE ARE SADDLED WITH A PACK OF IDIOTS AT THE TOP LIKE BEN BERNANKE AND TIMMY GEITHNER, WHO IS NOW THE U.S. TREASURY SECRETARY, GOD HELP THE NATION ....

And so ...

"Fed expected to keep rates at record lows - Fed to examine all tools to battle stubborn recession; expected to keep rates at record lows"

By JEANNINE AVERSA, Associated Press

Last updated: 2:35 p.m., Tuesday, January 27, 2009

WASHINGTON -- Federal Reserve policymakers are gathering to examine what other tools they can use to help ease a recession that has left millions of Americans out of work.

Fed Chairman Ben Bernanke and his colleague opened a two-day meeting Tuesday afternoon, where they also will take fresh stock of economic and financial conditions.

They are all but certain to leave a key interest rate at a record low to try to brace the sinking economy.

"The economy is facing a lot of headwinds and 2009 is not off to a good start."

"The Fed and President Obama have their work cut out for them," said Rebecca Braeu, economist at John Hancock Financial Services.

At its previous meeting in December, the Fed took the unprecedented action of slashing its key rate from 1 percent to a new, targeted range of between zero and 0.25 percent.

Economists predict the Fed will leave rates at that range through the rest of this year.

Less clear is whether the Fed will unveil new actions to deal with a stubborn trio of crises -- housing, credit and financial -- that haven't eased in a significant way despite radical steps by the central bank and a $700 billion financial bailout program run by the Treasury Department.

Options by the Fed include expanding a program aimed at bolstering the availability of consumer loans.

Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses.

To do that, the Fed will buy securities backed by those different types of consumer debt.

The Fed also hopes that action will lower rates on those loans.

The program could be expanded in size or scope to provide financing for other types of securities, such as those backed by commercial mortgages.

The Fed also could expand another program -- started at the beginning of this year, under which it is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to help bolster the crippled housing market.

Mortgage rates have fallen in the wake of the program's announcement late last year.

Another option is for the Fed to buy long-term Treasury securities.

The central bank has rolled out numerous programs since the credit and financial crises erupted in the summer of 2007.

It is buying up mounds of companies' short-term debt called commercial paper.

It also is making cash loans to banks and has taken steps to bolster the mutual fund industry, investment firms and others.

William Dudley, who was promoted Tuesday to president of the Federal Reserve Bank of New York, is participating in the two-day Fed meeting.

Unlike other regional Fed presidents, Dudley, 56, is a full-time voting member of the FOMC.

At the same time, President Barack Obama and Congress are racing to enact a $825 billion package of increased government spending and tax cuts to revive the economy, which has been in a recession since December 2007.

On Monday alone, tens of thousands of new layoffs were ordered by companies including Pfizer Inc., Caterpillar Inc. and Home Depot Inc.

The economy lost 2.6 million jobs last year, the most since 1945.

Economists predict another 2 million or more jobs will vanish this year.

Or more.

"...Roubini Sees ‘Nowhere to Hide’ From Global Slowdown (Update2)

By Betty Liu and Eric Martin

Jan. 27 (Bloomberg) -- Global stock market declines are increasingly correlated and emerging economies will follow developed nations into a “severe recession,” according to New York University Professor Nouriel Roubini.

Roubini said economic growth in China will slow to less than 5 percent and the U.S. will lose 6 million jobs. The American economy will expand 1 percent at most in 2010 as private spending falls and unemployment climbs to at least 9 percent, he added.

“There is nowhere to hide,” Roubini, an economics professor at NYU’s Stern School of Business who predicted the financial crisis, said from Zurich in an interview with Bloomberg Television. “We have for the first time in decades a global synchronized recession. Markets have become perfectly correlated and economies are also becoming perfectly correlated. This is not your kind of traditional minor recession...”

http://www.bloomberg.com/apps/news?pid=new...id=ao5mihirSB1Y

DOW futures are up about 144 this a.m. and folks are
a little excited about the House vote on the Stimulus.

That can move some folks from the "safer" Treasury
paper (bills, bonds) toward stocks in hopes of bigger gains.
That might weaken Treasuries the day before they want to
sell $30 Billion, and that's why I think the FED will wade in
to buy some. That still seems a shell game to me, BWTF do I know...

http://www.bloomberg.com/apps/news?pid=206...amp;refer=bonds

Treasuries Fall as Obama’s Plans Fuel Demand for Corporate Debt

By Anchalee Worrachage and Wes Goodman

Jan. 28 (Bloomberg) -- Ten-year Treasuries fell on speculation President Barack Obama’s plans to revive the economy will spark demand for higher-yielding company debt.

Five-year notes were little changed before the Treasury sells $30 billion of the securities tomorrow. Treasuries lost investors 1.6 percent this month, eroding a 14 percent gain from 2008 that was the most in 13 years, while corporate debt returned 1.8 percent, Merrill Lynch & Co. indexes show. Company bonds offer “terrific value,” said Fritz Meyer, senior market strategist in Houston at Invesco Aim Advisors Inc.

“Risk appetite appears to be improving, and corporate bonds are looking attractive at these levels,” said David Schnautz, an interest-rate strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “The economic environment remains fragile. But with all the spending plans and stimulus packages the government is working on, there’s some speculation that situation may stabilize soon.” ...
-----------------------------------------------

Meanwhile the macros are not impressed...

-----------------------------------------------
http://www.bloomberg.com/apps/news?pid=206...&refer=home

Gloom Deepens Among Executives, Economists at Davos

By Matthew Benjamin and Simon Kennedy

Jan. 28 (Bloomberg) -- Gloom is deepening among business leaders and economists, casting a pall over this year’s World Economic Forum in Davos, Switzerland.

“We cannot underestimate the challenges the global economy faces,” Stephen Roach, Morgan Stanley Asia’s chairman, said today, predicting the world economy may contract in 2009 for the first time since World War II.

Concerns over the economic outlook are virulent as executives from JPMorgan Chase & Co.’s Jamie Dimon to Stephen Green of HSBC Holdings Plc join more than 2,500 counterparts, academics and policy makers in the ski resort for five days of soul-searching and deal-making.

Just one in five of 1,124 chief executives in 50 nations said they were very confident about prospects for revenue growth in 2009, down from half last year, and more than a quarter said they were pessimistic, a survey by PricewaterhouseCoopers LLP showed. The sentiment was the worst since the accounting and consulting firm began tracking the CEO outlook in 2003.
The world economy is hurtling deeper into recession as banks add to more than a $1 trillion in writedowns and governments tighten their grip over the financial system.

‘Pretty Grim’

“The outlook is pretty grim,” said Howard Davies, director of the London School of Economics and a former Bank of England policy maker who is in Davos. “Things are not good and business surveys are coming out showing they’re getting even worse.”

What began as a financial meltdown 17 months ago has morphed into an economic calamity unseen since the Great Depression.

In the past year, Lehman Brothers Holdings Inc. and Bear Stearns Cos. have collapsed and officials around the world have committed trillions to prevent more from toppling. The Standard & Poor’s 500 Index is still falling after its worst year since 1937 as the U.S., Japan and Europe sink into their first simultaneous recession since World War II.

World Bank Chief Economist Justin Lin said today the world was in a “protracted recession” and that injecting capital into banks won’t revive it. “We need to have coordinated fiscal stimulus that’s large enough,” he said.

‘Delusional’

Roach said that it was “delusional” to expect the U.S. fiscal stimulus plan crafted by President Barack Obama to “jump start” the economy.
He also criticized Obama’s Treasury secretary, Timothy Geithner, for calling on China to let its currency strengthen.
“I’ve never seen an economy in recession voluntarily raise their currency,” Roach said. “It’s economic suicide, it’s horrible advice.”
...

Anyone for a larger stimulus? Two trillion, three? Forget about it...

Excellent article, jeffmoskin ...

SYNCHRONIZED RECESSION ....

A bigger version of what happened when the transcontinental railroad was completed in America before the last turn-of-the-centruy .....

And for essentially the same exact reasons, as this following article demonstrates ....

And so ...

"Rising unemployment spares no state in December - Unemployment rate hits double digits in Michigan, Rhode Island; every state saw rise in Dec."

By JEANNINE AVERSA, Associated Press

Last updated: 6:35 p.m., Tuesday, January 27, 2009

WASHINGTON -- Rising unemployment spared no state last month, and 2009 is shaping up as another miserable year for workers from coast to coast.

Jobless rates for December hit double digits in Michigan and Rhode Island, while South Carolina and Indiana notched the biggest gains from the previous month, the Labor Department said Tuesday.

A common thread among these states has been manufacturing industry layoffs tied to consumers' shrinking appetite for cars, furniture and other goods.

With tens of thousands of layoffs announced this week by well-known employers such as Pfizer Inc., Caterpillar Inc. and Home Depot Inc., the unemployment picture is bound to get worse in every region of the country, economists say.

"We won't see a light at the end of the tunnel until 2010," said Anthony Sabino, a professor of law and business at St. John's University.

The number of newly laid off Americans filing claims for state unemployment benefits has soared to 589,000, while people continuing to draw claims climbed to 4.6 million, the government said last week.

There's been such a crush that resources in New York, California and other states have run dry, forcing them to tap the federal government for money to keep paying unemployment benefits.

Aside from manufacturing, jobs in construction, financial services and retailing are vanishing -- casualties of the housing, credit and financial crises.

Clobbered by problems at Detroit's auto companies, Michigan's unemployment rate soared to 10.6 percent in December.

Rhode Island's jobless rate hit 10 percent, the highest on records dating back to 1976.

Those states -- along with eight others and the District of Columbia -- registered unemployment rates higher than the nationwide average of 7.2 percent, a 16-year high.

South Carolina and Indiana posted the biggest bumps in their monthly unemployment rates.

Each state logged a 1.1 percentage point rise in unemployment from November to December.

In South Carolina, the unemployment rate bolted to 9.5 percent as laid-off textile, clothing and other factory workers found it difficult to find new jobs.

"The money I was making, I'd be hard-pressed to find a job paying that," said Gregory Smalls, a 49-year-old Columbia, S.C., resident who lost his more than $50,000-a-year job as a truck body shop manager when his department merged with a dealership's service department.

Indiana's jobless rate soared to 8.2 percent in December as workers were hit by layoffs in manufacturing -- including at engine maker Cummins Inc. -- as well as in construction and retail.

Many Indiana counties with high jobless rates are in the northern part of the state, which has been battered by layoffs in the recreational vehicle industry.

Hundreds of workers have lost their jobs at RV makers such as Monaco Coach Corp., Keystone RV Co. and Pilgrim International.

Gayle Glaser, who owns the Shortstop Inn restaurant in Wakarusa, Ind., said those job losses have hurt her business, too.

"We just don't have the traffic here from the plants," she said.

"All my customers coming in -- they're all laid off."

States that have been spared the worst of the recession's pain tend to benefit from energy and agriculture production, while also having relatively minimal exposure to the housing and manufacturing busts.

Wyoming posted the lowest unemployment rate, 3.4 percent in December.

It was followed closely by North Dakota at 3.5 percent and South Dakota at 3.9 percent.

In 2008, the country lost 2.6 million jobs, and in 2009 at least 2 million more jobs are forecast to disappear.

Minneapolis-based retailer Target Corp. said Tuesday that it will cut an undisclosed number of workers at its headquarters.

Elsewhere, specialty glass company Corning Inc. said it would cut 3,500 jobs, or 13 percent of its work force, as demand slumped for glass used in flat-screen televisions and computers.

And chemical company Ashland Inc. said it would eliminate 1,300 jobs, freeze wages and adopt a two-week furlough program.

Roughly 40,000 layoffs were announced on Monday by a string of companies, including Pfizer, Caterpillar and Home Depot.

To stimulate job growth and the broader economy, President Barack Obama and Congress are racing to enact a $825 billion package of tax cuts and increased federal spending, including money for big public works projects.

The U.S. has been mired in a recession since December 2007.

It is on track to be the longest downturn since World War II.

--------

Associated Press Writers Page Ivey in Columbia, S.C., and Deanna Martin in Indianapolis contributed to this report.

Enough to not be one of the STUPIDS who lost everything to some slick-talking SCAM ARTIST with a HEDGE FUND who was going to get you returns of 10% per year ...

And I am on record as saying the STIMULUS should be $700 MILLION TRILLION ....

Now, there is a number that would capture my attention, alright ....

This one or two trillion is penny-ante crap ...

If you give every American a million dollars right now, everybody will be real rich, and there will be NO poverty and PEACE will reign in the land, and milk and honey will flow ....

Let's go for it .....

THE $700 MILLION TRILLION STIMULUS PACKAGE IS REALLY WHAT AMERICA NEEDS IN ITS DIRE HOUR OF NEED ....

America now reminds me of some clapped-out riverboat gambler out in the gutter of the casino, begging passers-by for just one more grubsteak, and he knows he can hit it rich this time ....

Or the next time ....

Or the time after that ....

IF HE ONLY HAD SOME MORE MONEY TO GAMBLE WITH ...

And so ...

The consensus I've seen is around 3 millions jobs lost this year, my guess is we'll have a pretty good handle on the actual number around August based on a reasonably strong downdraft around April or May from the collapse of the optimism bubble caused by bailouts and a new POTUS.

The mirage effect! I agree.
I found a site with the CBO review of HR 1 (House stimulus )
if you have time to read. I like the $3 Billion for the COPS
program, but have no idea why it would be in a stimulus
package, rather than a normal budget bill...anyway:

CBO Stimulus Report

I actually found the below Wall Street Journal column encouraging.

Sure, there are discouraging parts (many) to it, but the clarity it
seems to reflect is what's encouraging. If we see through the
mirage to the hard treck ahead we can try to pace ourselves and get there.


http://online.wsj.com/article/SB1233115211...5.html?mod=MKTW

January 26, 2009 48 P.M. ET

As Economy Falters, Doubts on Obama Plan Mount
Amid Cascading Layoffs, Plunging Confidence,
Analysts Worry If Mix of Tax Cuts and Spending Will Be Enough

By JON HILSENRATH and JONATHAN WEISMAN

President Barack Obama's $825 billion stimulus package is hatching against a drumbeat of dour economic news, from plunging consumer confidence to a stream of layoff announcements, some at firms that stand to benefit from the plan.

The developments are raising new doubts about whether the plan will be enough, or come in time, to moderate an increasingly severe downturn. They also underscore the administration's challenge: how to warn people that the plan might not be a cure-all without painting an overly pessimistic picture.

Economists have been ratcheting down their already weak growth forecasts even as a large stimulus plan has become more likely. A weekly survey by Macroeconomic Advisers LLC, a research firm, shows forecasters think the economy is contracting at a 4.3% annual rate in the current quarter, much worse than the 1.5% contraction predicted two months ago.

Corning Inc., a New York producer of fiber-optic cable, flat-screen television supplies and other products, said Tuesday that it would lay off 3,500 workers, or 13% of its work force, despite major provisions in the stimulus plan that could help the company.

For Corning, the plan could include $6 billion to $9 billion of new federal spending to wire community colleges, libraries and rural governments with high-speed Internet equipment. In addition to supplying fiber-optic equipment, Corning supplies products that could benefit from efforts to retrofit diesel truck engines.

Corning's chief executive, Wendell Weeks, will meet with Mr. Obama Wednesday along with a number of other chief executives to offer his support for the stimulus plan. Still, the company has been hit so hard by the downturn that it is moving ahead with layoffs to meet its cash-flow targets.

Daniel Collins, a Corning spokesman, said that while the stimulus is likely to help, it isn't clear when, or how much. "You can't bank on hope," he said.

Corning's announcement came a day after Caterpillar Inc., maker of earth movers that could be needed for infrastructure projects proposed by Mr. Obama, said it would lay off 20,000 workers in all. Several other companies added to the tide with tens of thousands in work-force cuts.

Ken Simonson, chief economist for Associated General Contractors of America, said that for suppliers like Caterpillar, inventory is another problem. Construction companies "have a lot of equipment parked at the fence," he said. Even when stimulus funds start flowing, they will be dusting off the earth movers they already own or buying and leasing equipment from other contractors with idle equipment.

All else being equal, Mr. Simonson estimated that the plan as currently formulated could create 1.8 million construction jobs in its first year. But the sector has shed 899,000 jobs from its peak in September 2006.

"There's going to be such shrinkage in private construction projects -- offices, hotels, retail, manufacturing -- and also declines in state and local funded projects that I'm guessing the stimulus will just slow the decline," he said.

Goldman Sachs economists say $1.2 trillion in fiscal stimulus is needed over two years to offset the sharp private-sector contraction.

Many economists say the risks for the remainder of the year are on the downside. The consensus calls for the economy to contract more in the second quarter and then to begin growing slowly by the middle of the year.

White House aides are quick to damp expectations of a quick turnaround. The Caterpillar and Corning cuts are "consistent with the view that the cavalry isn't coming that fast, and when it comes, it won't be the difference between life and death," one administration official said.

The Congressional Budget Office estimates that $169 billion of the $825 billion in stimulus will hit the economy before the end of September and that the bulk of it will show up in 2010 and 2011.

The estimates point to one of the challenges of formulating an effective plan. Tax cuts can be implemented quickly, but many economists think they wouldn't stimulate much new spending because consumers and businesses are so keen on saving. Government spending would generate economic activity more quickly, but it is hard to ramp up right away.

The one thing that is certain to flow from the stimulus is a large increase in the federal debt. Large government budget deficits are showing signs of starting to nudge interest rates on government debt higher, from very low levels.

If that persists, it could eventually damp some of the stimulus-plan's benefits. Higher government rates raise the cost of borrowing not only for the Treasury, but also for many private-sector borrowers, since corporate bonds and mortgage bonds are often benchmarked to Treasury yields.

Bond markets have been hit by a flood of new supply of Treasury debt in the past few weeks, a factor that some traders say has pushed up rates. The yield on a 10-year note hit 2.519% Tuesday, up from a little over 2.00% at the end of 2008.

A report this week by Decision Economics Inc., a New York economic-forecasting firm, says deficits in 2009 and 2010 will reach between 10% and 12% of gross domestic product, respectively, roughly double the previous peacetime records set in the Reagan years. It added that federal debt will soar from about 70% of GDP to more than 90% of GDP.

Allan Sinai, chief economist at Decision Economics, says the rise in debt eventually will lead to slower economic growth and diminished standards of living in the U.S. He nevertheless supports the Obama stimulus plan.

It isn't at all clear what programs risk cuts in the general budget to offset costs of including them in the stimulus, the impact on many details is clear as mud.

It looked to me like it included $3B for law enforcement and the judicial system and $1B for the COPS program, but I wasn't even clear on whether the $1B was part of the $3B or not, much less whether it was single or multi year.

The $3B for R&D isn't even enough for healthy single year expenditures (by a very wide margin) and will almost certainly take over a year to ramp up and multiple years to be completed, penny wise, pound foolish. It looks like electrical grid spending and non-highway DOT spending are too light to make a major difference, but there's plenty of time for them to be revisited for a more thoughtful approach. I think the $90B estimate of revenue shortfall from the loss carryback provision is low, but it's probably the most vital portion of the bill (with the possible exception of temporarily increasing assistance to the unemployed) and I believe it should also be extended to individuals.

If I was an unwed working mother with 3 children at home I'd be thrilled with the bill, can I qualify by having been screwed by tax bills a lot of times?

You're right I muddied my line items. I just emailed a long-time analyst with USDOJ COPS to
try to start fishing out some details...but it may be awhile before he knows.
Meanwhile, it looks like there is some profiling going on by The Loyal Opposition:

http://www.foxnews.com/politics/first100da...posal-stimulus/

House Republicans Push Counter-Proposal on Stimulus
An economic stimulus bill pushed by Republicans in the House would shift focus entirely from spending to tax relief.

Far from rolling over, House Republican leaders are trying to win concessions from President Obama over the massive economic stimulus package and have proffered a bill of their own to put on the negotiating table.

The counter-package would shift focus entirely from spending to tax relief. Though a full House vote on the Democratic package is expected in a matter of hours and President Obama said he's confident it will pass, GOP lawmakers are hoping their substitute proposal at least influences the final product.

In a brief session with reporters Wednesday, Republicans panned the $825 billion proposal under consideration as a "non-stimulus" bill chock full of gift-wrapped spending items.

"People are recognizing very quickly that's it's not one, stimulative, and two, it's full of all sorts of things that are sort of favorite political projects of the Democrat majority," said Rep. Tom Price, R-Ga., chairman of the Republican Study Committee.

"If government spending was going to get us out of this mess, we'd have been out a long time ago, because that's all we've been doing," said Rep. Jim Jordan, R-Ohio. "This is not going to work. That's why we've got a bill we think will work."

Their bill, called the Economic Recovery and Middle-Class Tax Relief Act of 2009, promises a host of tax-cutting measures. It includes a 5 percent "across the board" income tax cut; an increase in the child tax credit from $1,000 to $5,000; a freeze on capital gains and dividends tax rates at 15 percent; and a number of other measures targeted toward businesses.

The Republicans authoring the alternative bill did not have an estimate for the cost of their counter-proposal, but Price said so far the bill has 65 co-sponsors.

Republicans said they're not just trying to make a political point, but put forward a proposal that reflects the wishes of their constituents.

"Bipartisan does not mean that either side should be giving up what their principles are," said Rep. Scott Garrett, R-N.J.

The Democratic bill due for a House vote Wednesday includes about $550 billion in spending and about $275 billion in tax cuts. Republicans won a few concessions, as Democrats deleted $20 million meant to re-sod the National Mall in D.C., and stripped about $200 million for contraceptive services.

But that's not enough say Republicans, who said they felt Obama had reached out to them in meetings a day earlier on Capitol Hill and were hopeful the new president would at least incorporate some of their ideas. Obama said Tuesday that lawmakers should put politics aside and pass a stimulus for the sake of the American economy.

Oops...my Blue Dog is shinin' thru...down boy.

There is yet another BAIL-OUT behind this STIMULUS that is already being hatched by the democrats and OBAMA-ITES ....

This is just the beginning of the endless government give-aways ....

WHAT, PRAY TELL, IS A "MORE NORMAL LENDING PATTERN" FOR A BANK IN AMERICA?

LOANING MONEY FOOLISHLY TO DEADBEATS AS WAS THE CASE YESTERDAY, WHEN THESE BANKS GOT US INTO THIS MESS BY FOOLISHLY LOANING MONEY TO PEOPLE WHO WOULDN'T OR COULDN'T PAY IT BACK?

IS THAT HOW THE OBAMA GOVERNMENT PLANS TO "RESCUE" US, BY GIVING GOVERNMENT MONEY TO THE BANKS TO LOAN OUT TO MORE DEADBEATS?

DEMAND-SIDE OBAMA-NOMICS!

GIVE IN TO THOSE WHO ARE DEMANDING MONEY FROM THE GOVERNMENT TREASURY ...

"I DON'T CARE IF THEY CAN'T PAY IT BACK!"

"JUST GIVE THEM ALL OF WHAT THEY ARE DEMANDING!"

SOUNDS LIKE WHAT THE DOCTOR ORDERED FOR WILLY SUTTON AND JESSE JAMES ...

And so ...

"Bailout: Treasury distributes $386M to 23 banks - Treasury distributes $386 million to 23 banks, first bailout program awards under Obama"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:35 p.m., Tuesday, January 27, 2009

WASHINGTON -- The Treasury Department said Tuesday it has distributed another $386 million to 23 banks, the first awards from the federal bailout fund since President Barack Obama took office.

The department said the latest capital infusions went to banks in 16 states, bringing the total number of institutions that have been helped to 317.

The new distributions were made Friday and mark the first money from the $700 billion bailout fund distributed since Obama became president last week.

Under the law that established the fund, the administration has to publicly disclose its funding actions within two business days after the money is disbursed.

The latest capital infusions ranged from $111 million for 1st Source Corp. in South Bend, Ind., to $1.04 million for Calvert Financial Corp. in Ashland, Mo.

With the new awards, a total of $194.2 billion has been provided in the program that is purchasing bank stock as a way to bolster banks' capital reserves and get them to resume more normal lending patterns.

The money has gone to 317 institutions in 43 states and Puerto Rico.

Separately, the Federal Reserve -- as required by a 2008 law that set up the $700 billion bailout fund -- adopted a policy Tuesday aimed at preventing home foreclosures.

The goal is to avoid foreclosures on residential mortgages that are held, owned or controlled by any Federal Reserve bank.

The Fed said it will apply the policy to residential mortgage assets that serve as collateral for emergency loans provided by the Fed as well as to special entities it set up to hold certain assets of Bear Stearns and insurer American International Group.

Also on Tuesday, Treasury Secretary Timothy Geithner announced on his first full day in office that the administration was implementing new rules to limit special-interest influences on the bailout program.

The new rules will restrict the contact that government officials can have with lobbyists for the financial institutions seeking awards.

They also will require reports in which the officials operating the rescue fund will have to provide Congress with a detailed description of how their review process was conducted.

The Bush administration committed the first $350 billion of the rescue fund in ways that left many lawmakers fuming about a lack of accountability and transparency in the program.

While lawmakers failed in an effort to block release of the second $350 billion, the Obama administration said it would institute a number of reforms.

------------

AP Economics Writer Jeannine Aversa contributed to this report.

According to this article, when ex-U.S. Treasury Secretary Henry "HANK" Paulson became a BUSHITE, he was possesed of some $700 MILLION ....

Now, one can wonder where he got all of that money in the first place ....

But more importantly, what did this "financial mess" do to Hank's financial holdings?

And how much BAIL-OUT MONEY therefore flowed right back in to Hank's pocket to make him whole again, at our expense, of course ...

I thought there was only $350 Billion left. Did they print some more?

Don't even try to read the financial (on-line) publications' blogs these days unless you have a strong stomach.
There are plenty there blaming globalization for the crashing of the US and global financials.

Here are some news tidbits from Marketwatch:

***
Detroit mayoral candidate Stanley Christmas Speaking about the declining homicide rate in Detroit said,
" I don't mean to be sarcastic, but there just isn't anyone left to kill." Chicago Tribune

***
JOB LOSSES ANNOUNCED TODAY:

Kodak - 4,500
Cessna - 2,600
Astra Zeneca - 6,000+
Oshkosh - 1,500
Ford - 1,200
Boeing - 4,500
State of Vermont - 600

***

I think I'm gonna invest in Hemlock Stock.

To hell with stocks ...

CODSWALLOP, IH ...

Or more precisely, CODSWALLOP futures on the mercantile exchange ...

I've been keeping my eye on activity in that market, and lately, there have been some HUGE orders being placed from down in Washington .....

WHOLE TRAIN LOADS of the stuff .....

They say Nancy Pelosi is trying to corner the market on it the way the Hunt brothers tried to capture the silver market ....

So I'm getting in on the bottom while the getting in is good ....

And the stuff is dirt cheap now, but it won't be for long ....

Not with the law of supply and demand governing things economical as it does ....

And so ....

AND HERE COMES THE NEXT BAIL-OUT RIGHT ON THE HEELS OF THIS PRESENT BAIL-OUT OBAMA WANTS US TO HAVE TO PAY FOR SO HE CAN PAY BACK SOME POLITICAL DEBTS HE INCURRED ON THE WAY UP ...

THE GREAT GIVE-AWAY HAS BEGUN ....

And so ...

"Billions more needed for financial rescue - Next financial rescue, including asset purchases, could cost hundreds of billions more"

By DANIEL WAGNER, Associated Press

Last updated: 5:25 p.m., Wednesday, January 28, 2009

WASHINGTON -- The Obama administration is developing proposals to help rescue the banking system that could cost taxpayers hundreds of billions of dollars beyond the $700 billion bailout Congress already has approved.

Details are still being worked out.

But the administration will likely propose spending hundreds of billions more to address the foreclosure crisis, buy some distressed bank assets and guarantee losses on others, according to people with knowledge of the discussions who spoke on condition of anonymity.

Looming above the proposals is a plan to set up a federal bank -- dubbed a "bad bank" -- that would buy troubled assets clogging banks' balance sheets.

This would free the institutions to lend money and would entice wary investors back into the market, proponents say.

But the government will have to commit to far more money than policymakers had expected even a few weeks ago.

"I think we're talking hundreds of billions of dollars," said Brian Gardner, an analyst with the research firm Keefe, Bruyette & Woods.

"I don't think there's anyone who doubts the administration will be going back to the Hill for more than the $350 billion" recently released from this fall's $700 billion bailout package.

The International Monetary Fund wrote in a report Wednesday that losses from banks in the U.S. and Europe have hit $1.1 trillion and could hit $2.2 trillion.

At that rate, they will require "at least half a trillion dollars" to remain solvent," the report says.

Congressional Democrats have been seeking advice from economist Mark Zandi, who is pushing a three-point plan for banks that includes more capital infusions, guarantees against losses on bad assets and a "bad bank" to buy distressed assets.

"They should use all three of those tools aggressively," said Zandi, of Moody's Economy.com.

"If they are able to establish a marketplace for those assets, the benefits could be readily apparent."

The "bad bank" plan's highest-profile advocate is Sheila Bair, chairman of the Federal Deposit Insurance Corp.

By purchasing bad assets that banks can't sell now, the government would set prices for them.

This could cost the banks dearly in write-downs.

But it also could give investors clarity about the strength of the financial institutions.

That, in turn, could encourage those on the sidelines to begin investing again.

"Buyers are going to say, 'Wait a minute, these are valuable assets; we just don't know how to price them,'" said Travis Larson, a spokesman for the Securities Industry and Financial Markets Association.

"Now, many of these toxic assets aren't toxic any more, because in fact, the market value has gone up as buyers re-enter the market."

Bank stocks surged Wednesday on investor expectations about the proposed plan to purchase assets.

Wells Fargo & Co. soared 31 percent, Citigroup Inc. 19 percent and Bank of America 13 percent.

"It's pretty great news for pretty much all banks, especially the big ones," said David Stepherson, portfolio manager at Hardesty Capital Management.

Administration officials said they expect Treasury Secretary Timothy Geithner to unveil his plans for a new financial industry rescue next week.

Scott Talbott, a lobbyist with the Financial Services Roundtable, called the asset purchase plan a crucial part of the new bailout.

But he said, "There's no one-size-fits-all solution to the economy."

"Each financial institution is in a different situation."

He said the plan will require more money than has been allocated under the initial bailout, especially given the administration's intention to spend $50 billion to $100 billion of the remaining $350 billion to address the foreclosure crisis.

But Talbott warned that the "bad bank" plan poses big obstacles.

It would be hard to set prices fairly for assets that have stopped changing hands.

And the plan would require an accounting rule change to prevent a ripple effect in which all similar assets would be priced down to the government's below-market offers.

"If they pay too much, the taxpayers are at risk," he said.

"If they pay too little, banks will be reluctant to sell."

And if the government doesn't suspend a rule requiring all assets to be priced according to recent trades of similar assets, Talbott said, accounting losses "would undo all the effects and push the economy deeper into recession."

The problem of pricing distressed assets led former Treasury Secretary Henry Paulson to abandon his original plan to buy troubled bank assets.

Paulson decided instead to inject money directly into the banks in exchange for ownership stakes.

At his confirmation hearing last week, Geithner identified three possible methods for pricing bad assets: using computer models, asking bank supervisors to suggest values and comparing the assets to securities that are still in some demand.

None would be easy, experts said.

But with a mounting sense of urgency about banks' troubles, another costly rescue attempt is unavoidable.

------

Associated Press Writer Jim Kuhnhenn and Business Writers Christopher Rugaber in Washington and Stephen Bernard in New York contributed to this report.

"Fed ready to provide fresh aid to revive economy - Fed ready to provide fresh help to stem economy's slide; rates will stay at record lows"

By JEANNINE AVERSA, Associated Press

Last updated: 5:56 p.m., Wednesday, January 28, 2009

WASHINGTON -- The Federal Reserve signaled Wednesday that it stands ready to use new unconventional tools, or expand existing ones, to spur lending and consumer spending that could help lift the economy out of a painful recession.

The Fed also agreed to keep the targeted range for the federal funds rate between zero and 0.25 percent for "some time" to help brace the economy.

Economists predict the Fed will keep the funds rate, the interest banks charge each other on overnight loans, at that record low level through the rest of this year.

With its key lending rate to banks already near zero, the Fed pledged anew to use "all available tools" to revive the economy.

Specifically, the Fed said it is "prepared" to buy longer-term Treasury securities if the circumstances warrant such action.

At its previous meeting in December, the Fed said it was merely evaluating that option.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the sole dissenter on this point.

He wanted the Fed to move forward on buying the securities.

Doing so would help drive down mortgage rates and provide help to the stricken housing market, economists said.

For example, many 30-year fixed-rate mortgages and other home loans, are pegged to the 10-year Treasury note.

If the Fed were to buy that security, it would push down rates on mortgages connected to it.

The same logic would apply to other Treasury securities.

"So many consumer rates are pegged to Treasury rates -- homes, cars," said Joel Naroff, president of Naroff Economic Advisors.

"If the economy is to recover, consumers need to borrow and need to borrow at reasonable rates."

"The Fed made clear that it is prepared to make that happen."

The Fed also said it "stands ready" to expand another program aimed at providing relief to the crippled mortgage market.

Under that program, the Fed is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

It also has agreed to buy up to $100 billion of Fannie and Freddie debt.

Mortgage rates have fallen since the program's announcement late last year.

The Fed said it could buy more of these securities or extend the length of the program.

The Fed on Tuesday took steps to curb home foreclosures as required by a 2008 law.

The relief would apply to mortgage assets the Fed is holding because of last year's bailouts of Bear Stearns and insurer American International Group.

Distressed borrowers could see the amount they owe on their home loan lowered or their interest rate reduced, among the options for help.

But borrowers have no way of knowing whether their mortgages are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.

The central bank also will be launching a program aimed at bolstering the availability of consumer loans.

Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses.

To do that, the Fed will buy securities backed by those different types of consumer debt.

The Fed also hopes that action will lower rates on those loans.

The Fed said Wednesday that it will assess whether the program should be expanded in size or scope.

Fed officials previously have mentioned the possibility of expanding the program to provide financing for other types of securities, such as those backed by commercial mortgages.

Stuart Hoffman, chief economist at PNC Financial Services Group, took away this message from the Fed's overall statement:

"We're going to throw all we have -- including the kitchen sink -- into supporting financial markets."

Wall Street rose Wednesday on news that the government may take additional steps to assist the nation's ailing banks.

The Dow Jones Industrial average rose nearly 201 points, or about 2.5 percent, to 8,375.45.

Even as the Fed wants to use all tools available to battle the crisis, it is mindful that there are dangers: the potential to put ever-more taxpayers' dollars at risk; sow the seeds of inflation in the future; and encourage "moral hazard," where companies feel more comfortable making high-stakes gambles because the government will rescue them.

Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that -- taken together-- haven't been seen since the 1930s.

Despite the Fed's aggressive rate-cutting campaign, a string of radical Fed programs and a $700 billion financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal.

"Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight," the Fed said.

On the economy, the Fed struck a somber note, saying it had "weakened further" since its Dec. 16 meeting.

"Industrial production, housing starts and employment have continued to decline steeply as consumers and businesses have cut back spending," the Fed said.

"Furthermore, global demands appears to be slowing significantly."

Looking ahead, the Fed anticipates "a gradual recovery in economic activity will begin later this year," but cautioned that "the downside risks to that outlook are significant."

Warning that the nation is at a "perilous moment," President Barack Obama made a fresh plea to Congress Wednesday to enact a $825 billion package of increased government spending and tax cuts to stimulate the economy.

The recession, now in its second year, could turn out to be the longest since World War II.

The nation's unemployment rate bolted to a 16-year high of 7.2 percent in December and could hit 10 percent or higher at the end of this year or early next year.

A staggering 2.6 million jobs were lost last year, the most since 1945, though the labor force has grown significantly since then.

Another 2 million or more jobs will vanish this year, economists predict.

This week alone, tens of thousands of new layoffs were announced by companies including Boeing Co., Pfizer Inc., Caterpillar Inc., Home Depot Inc., Target Corp., Corning Inc. and Ashland Inc.

Meanwhile, consumer prices have been falling.

At first that seems like a blessing for shoppers, but it if spreads to wages and already stricken prices for homes, stocks and other things for a long time, it could wreak more havoc on the economy.

The country's last serious bout of "deflation" was in the 1930s.

Holding rates at record lows would help fend off any deflation risks.

Against that backdrop, the Fed raised the specter of deflation -- but didn't use the word.

The Fed saw a risk that "inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."

With jobs disappearing, home values tanking, foreclosures soaring and nest eggs shriveling, consumers have sharply cut spending.

That, along with the housing collapse, has played a big role in causing the economy's backslide.

Many economists predict data will show the economy contracted at a pace of 5.4 percent in the final three months of last year when the government releases the gross domestic product report Friday.

If they are correct, that would mark the worst performance since a drop of 6.4 percent in the first quarter of 1982, when the country was suffering through a severe recession.

The economy is still contracting now -- at a pace of around 4 percent, according to some projections.

LOOK!

JUST GIVE OBAMA ALL THIS MONEY WITH NO QUESTIONS ASKED ....

AND IN EXCHANGE, HE PROMISES TO CLEAN UP HOW WASHINGTON WORKS ....

BUT GIVE HIM THE MONEY FIRST ...

AND THEN, HE SAYS HE WILL REFORM THE SYSTEM ...

OBAMA WILL GLADLY PAY US TUESDAY FOR A HAMBURGER TODAY ...

And so ...

"Administration says big reforms coming to bailout - Administration increases transparency in $700 billion bailout program, promises bigger reforms"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:45 p.m., Wednesday, January 28, 2009

WASHINGTON -- The Obama administration on Wednesday pledged to increase transparency in the government's controversial $700 billion financial rescue program and said that bigger changes were in the works.

But Treasury Secretary Timothy Geithner said the administration did not believe that nationalizing the banking system was the solution to the worst financial crisis since the 1930s.

"We have a financial system that is run by private shareholders (and) managed by private institutions and we would like to do our best to preserve that system," he said in response to a reporter's question.

Geithner said the administration plans to post all contracts with banks getting financial support on the Treasury Department's Web site within five to 10 days of reaching the agreement.

The department, which is managing the bailout program, also will work quickly to post previous contracts online as well, he added.

Geithner also told reporters that the administration is planning an even bigger overhaul of the bailout program which he said would be announced "relatively soon."

The administration is considering a range of options for how to change the program, Geithner said.

Previously, he has said that creation of a bad bank to buy up toxic assets now weighing down the banking system was one of the options on the table.

Geithner made his comments at the beginning of a meeting of officials who have the job of overseeing the operation of the bailout, including Elizabeth Warren, the head of a congressional oversight panel that was created in the legislation Congress passed in October that established the program.

The rescue effort has come under heavy attack for how it was operated during the Bush administration.

Critics say the decisions were veiled in too much secrecy and the former administration did not impose enough restrictions to make sure banks used the billions of dollars they were receiving to increase lending.

Geithner promised making full contracts available online was just the first of many the new administration will implement to improve the performance and accountability of the program.

"In the coming weeks, we will unveil a series of reforms to help stabilize the nation's financial system and get credit flowing again to families and businesses," Geithner said.

In his first full day in office on Tuesday, Geithner said the new administration was tightening the rules governing how companies are selected to receive bailout support.

The new rules are designed to crack down on lobbyist influence over the program and make sure political clout is not a factor in awarding rescue money.

The new rules on lobbying came in the wake of reports filed with the government showing some big banks stepped up their lobbying efforts late last year even after they received billions of dollars from the bailout program.

In addition to possibly creating a bad bank to purchase toxic assets, the Obama administration also is considering other changes to the program.

It has pledged to use between $50 billion and $100 billion of the second $350 billion to bolster efforts to combat a rising tide of mortgage foreclosures.

The administration also is exploring using the bailout fund to guarantee assets still being held by banks much like was done in expanded support programs provided to Citigroup Inc. and Bank of America Corp.

The Bush administration handled the first $350 billion of the rescue program under the direction of former Treasury Secretary Henry Paulson.

His operation of the program drew heavy criticism from lawmakers and the oversight panel for not being transparent and for failing to attach enough conditions to ensure that banks receiving support used the money to increase lending to consumers and businesses.

Along with the new lobbying rules, the administration of President Barack Obama has pledged to better track lending patterns by financial institutions to ensure that they are using the government assistance to increase lending.

The new administration also has sought to limit executive compensation at institutions receiving government support and prevent shareholders at those companies from benefiting at taxpayers' expense.

Some experts have estimated that creation of a program to buy up toxic assets could cost far more than the $350 billion still left from Congress' initial $700 billion program.

The administration so far has not said whether it will ask for money beyond the $700 billion.

------

On the Net:

Treasury Department: http://www.treasury.gov

"Fed moves to help distressed homeowners - Federal Reserve moves ahead on plan to provide foreclosure relief"

By JEANNINE AVERSA and ALAN ZIBEL, Associated Press

Last updated: 4:35 p.m., Wednesday, January 28, 2009

WASHINGTON -- The Federal Reserve is taking steps to keep some distressed borrowers in their homes, but it may not make much of a dent in the nation's housing crisis.

The new relief plan would apply to the billions of dollars of mortgage assets the Fed is holding on its books because of last year's bailouts of Bear Stearns and insurer American International Group.

Borrowers have no way of knowing whether their mortgages are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.

However, the amount of mortgage securities in question, valued at up to $74 billion, pales in comparison to the $1.75 trillion in outstanding risky loans, according to trade publication Inside Mortgage Finance.

"It's a small step forward," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a consumer group in Washington.

"If the goal is to stem the foreclosure crisis, this won't do it."

The plan, however, shows that government officials realize they need to buy up mortgages directly, rather than simply urging the mortgage industry to voluntarily assist borrowers, said Guy Cecala, publisher of Inside Mortgage Finance.

"For the government to have any impact on foreclosures and loan workouts, they need to control a lot more," Cecala said.

"The best way to do it is to acquire all these bad assets -- or even questionable assets -- and do it themselves."

Meanwhile, the Fed on Wednesday signaled that it will keep a key interest rate at a record low for quite "some time," and is prepared to buy longer-term Treasury securities.

Such a move could help drive down mortgage rates and aid the stricken housing market.

The Fed also said that it stands ready to expand another program aimed at providing relief to the crippled mortgage market.

The central bank is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.

It also has agreed to buy up to $100 billion of Fannie and Freddie debt.

Mortgage rates have fallen in the wake of the program's announcement late last year.

The Fed said it could buy more of these securities or extend the length of the program.

The Fed action comes as President Barack Obama's administration has pledged to devote between $50 billion and $100 billion of the second $350 billion in bailout money toward helping people avoid losing their homes.

Under the Fed's new foreclosure prevention effort, homeowners may get a reduced interest rate, longer loan term or a lower total mortgage amount.

Similar steps are being taken by the Federal Deposit Insurance Corp., which took over failed IndyMac bank last summer, and by mortgage finance companies Fannie Mae and Freddie Mac.

In recent years, mortgages were pooled by the thousands into complex securities held by investors worldwide.

Many of those investors have been reluctant to agree to drastic loan modifications.

In general, a borrower must be at least 60 days delinquent to qualify for help, although the Fed has leeway to make some exceptions.

A 2008 law that set up the $700 billion bailout fund instructed the Fed to take such foreclosure relief action.

"The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank," Fed Chairman Ben Bernanke wrote in a letter Tuesday to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, welcomed the Fed's program and called it "an important advance."

The Fed's Bear Stearns' portfolio is valued at $27 billion, although the central bank doesn't say how much of that is in home mortgages.

The Fed's AIG assets include one portfolio valued at nearly $20 billion of residential mortgage-backed securities and a second portfolio valued at nearly $27 billion of collateralized debt obligations, which are complex financial instruments that combine various slices of debt.

More than 2.3 million homeowners faced foreclosure proceedings last year, a whopping 81 percent increase from 2007.

And more than 860,000 properties nationwide were actually repossessed by lenders last year, more than double the 2007 level, according to RealtyTrac, a California-based foreclosure listing firm.

Nevada, Florida, Arizona and California had the highest foreclosure rates last year.

Housing, credit and financial crises -- the worst since the 1930s-- have plunged the country into a recession, now in its second year.

So far, a slew of government programs have failed to fix the problems.

OBAMA IS DECLARING ECONOMIC WAR ON CHINA ....

"'Buy American' stimulus plan riles trade partners"

by Veronica Smith

29 JANUARY 2009

WASHINGTON (AFP) – A new "Buy American" push in President Barack Obama's economic stimulus plan is sparking protests about protectionism from US trading partners.

Passage of the 819 billion dollar economic stimulus package Wednesday by the US House of Representatives raised hackles in Europe and Canada, the United States's biggest trading partner.

Obama has pushed for swift passage of the American Recovery and Reinvestment Act as vital to prevent the collapse of the US economy, reeling from the global financial crisis that has thwarted governments' unprecedented actions to ease the turmoil.

The legislation's package of tax cuts and spending has moved to the Senate, where lawmakers are working on their own version of the plan.

The bulk of the bill's spending is aimed at bringing aging infrastructure into the 21st century to preserve and improve the country's long-term competitiveness in the global economy, creating millions of jobs in the process.

The sweep of projects is broad, from roads, rail, bridges, airports and dams to military construction and housing, among others.

The House-approved plan's "Buy American" provision generally prohibits the purchase of foreign iron and steel for any infrastructure project in the bill.

The European Union's trade commissioner, Catherine Ashton, pre-emptively voiced concern about the US measure.

"We are looking into the situation."

"... Before we have the final text ... it would be premature to take a stance on it," Ashton's spokesman, Peter Power, said in Brussels.

"However, the one thing we can be absolutely certain about, is if a bill is passed which prohibits the sale or purchase of European goods on American territory, that is something we will not stand idly by and ignore," he said.

Canada's government said it is concerned about US protectionism in the economic stimulus and its diplomats were lobbying US makers against the "Buy American" drive.

"We're always concerned when there are protectionist pressures in the United States," Industry Minister Tony Clement told public broadcaster CBC.

"At the same time the United States has treaty obligations," he said, citing US membership in the World Trade Organization and the North American Free Trade Agreement (NAFTA).

"And we expect the United States to live up to its treaty obligations of open and fair trade."

About 40 percent of Canadian steel is sold in the United States and Canada imports steel from its southern neighbor.

Clement said Canadian diplomats have been lobbying US lawmakers "to try to persuade them to take that clause out or soften it or at least not make it any tougher in the days ahead."

Prime Minister Stephen Harper also plans to bring up the controversial clause in talks with Obama when he visits Ottawa on February 19, he said.

The "Buy American" provision bars spending on any infrastructure project "unless all of the iron and steel used in the project is produced in the United States."

There would be exceptions if the head of the federal department or agency determines that applying the provision "would be inconsistent with the public interest."

Other exceptions would be made if there was an insufficient quantity of US iron and steel of satisfactory quality available and if inclusion of US iron and steel would raise the overall project's cost by more than 25 percent.

Italian Trade Minister Adolfo Urso warned Monday as the US legislation was being developed:

"A dangerous new steel war is looming and we need to counter it with strong and decisive actions."

A European familiar with an EU trade commissioner dinner held the same day said that "one or two delegations signaled that the US recovery package contains seeds of a new steel dispute."

Obama, who criticized international trade agreements, including NAFTA, in his presidential campaign, has wasted no time in taking a tough stance on the trade front since taking office on January 20.

The next day, the Obama administration branded China a currency manipulator, setting the stage for a trade war with the Asian giant which has overtaken Japan as America's biggest foreign creditor.

Currently I see two major new flanking actions
taking place by those pushing the Senate "Stimulus" Sale:

1) a campaign style push for the "stimulus"
(aka mirage) package, and

2)an effort to figure how they can
spin the "bad bank" shizen to make us eat it and enjoy it.

The new campaign (I don't think Obama can stop, it's his only
strong suit) is reaching backward...back to his internet worshipers,
back to those swaying throngs at his rallies to try to whip them into
a frenzy of support for the "stimulus" package (as is) in the Senate.

It seems for all the rhetoric about transparency and the value of
education (which is healthly taken care of in the "stimulus")...emotion
by the Obama Legion is always the fall-back for political power.
Watch this coming week for a campaign-style parade of talking
heads, experts, Hollywood types, and party hacks comparing the
$825 Billion bill to the Magna Carta; The Constitution; The Bible
and perhaps The Koran. One thing for sure...it's a lot harder to
govern than to campaign...maybe that's why he's going back...

On the "bad bank" idea, the pincer movement in this coming week's
crisis politics, it will be clouded in apocalyptic images. But,
I found a realtively simple lesson on the idea on the editorial
pages of Bloomberg's on-line magazine. Here it is:

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Bob Rubin Wants Your Kids to Pay for Banking Mess: David Reilly

Commentary by David Reilly

Jan. 30 (Bloomberg) -- Here we go again. As proposals for a bad bank that would buy lousy assets from U.S. banks
gather speed, an old stumbling block is re-emerging -- how to price the holdings the government would buy.

This is rekindling the debate over mark-to-market accounting and its role in the financial crisis, as banks try to find
something to blame other than their own ineptitude while shifting losses onto taxpayers’ backs.

The talk about accounting also obscures a bigger issue: Who should shoulder losses from the housing and credit bubbles, us or our kids?

Using market prices makes it more likely that we, and the banks, will have to face immediate pain.
Ignoring market prices means we pass the tab to future generations.

Not surprisingly, plenty of people -- now-retiring baby boomers, bank shareholders and executives --
prefer that someone else feels the pain.

For that to happen, these pay-later folks need to insist losses aren’t as big or as bad as mark-to-market
makes them out to be. The problem is, markets disagree. So executives such as Robert Rubin attack
the practice of using market prices.

Rubin, the former Treasury secretary and Citigroup Inc. director, laid blame for much of the crisis
on mark-to-market accounting rules. During a talk at a public gathering in New York earlier this week,
Rubin said such accounting did “a great deal of damage.”

Overlooking the Obvious

Never mind that he and fellow directors and executives at Citigroup misjudged the housing and credit markets.
Never mind that they were unaware of a $25 billion risk the bank took on by way of collateralized debt obligations.
Never mind that Rubin and his ilk didn’t complain back when such accounting led to big bonuses and huge profits in rising markets.

Wells Fargo & Co. Chief Financial Officer Howard Atkins, meanwhile, said Wednesday that any government-owned bad bank
would need to buy toxic assets at prices that are based on estimates, or what he called “mark to model,” rather than the market.
Never mind that estimates that ignore market values in the hope of capturing long-term, intrinsic value have repeatedly led banks
and investors to miss the depth and severity of the crisis.

Thankfully, JPMorgan Chase & Co. chief Jamie Dimon, whose bank has weathered the meltdown better than most,
struck a more realistic note during a conference last fall. Asked about market- value accounting, he said banks and investors
had to realize that the losses are real.

Bankers’ own actions bear that out. While banks protest that market prices are too downbeat, each quarter they ratchet up loss
expectations and chase markets down. And with each big bank acquisition -- Countrywide Financial Corp., Washington Mutual Inc.,
Wachovia Corp. -- the acquiring bank ends up recognizing huge losses on loans being bought.

Pricing Rotten Assets

If it creates a bad bank, the government will have to choose sides in this debate. Here are some possible outcomes.

Say a bank has a security it wants to sell to the bad bank. The face value is $100. The bank holds it at a value of $85. The market thinks it’s worth $65.

Banks will want the government to purchase assets for as high a price as possible, or at least to find some middle ground above depressed market values.
Buying the security at, or close to, $100 means the government would recapitalize the bank while transferring losses from shareholders to taxpayers.

Well, future taxpayers. They will be the ones who pay down the debt the government hopes to sell to fund this transfer, and make good on any losses.
That debt, meanwhile, could prove stifling to the economy, and the losses pushed onto taxpayers could further undermine government finances.

‘Postpone the Pain’

“Creative pricing of toxic assets will only postpone the pain, extend the duration of the crisis, and present a bigger bill,”
Northern Trust Securities Inc. economist Asha Bangalore said in a Jan. 23 research note.

If the government purchases the security at $85, the future losses and bill to the public purse would be less.
The problem is, this price could cause banks to recognize as permanent their losses on other securities.
Right now, they claim those losses are temporary. Such a move would cripple banks’ regulatory capital ratios.
Plenty of banks could still fail. In that case, banks and taxpayers both get hit.

Buying the security at the market price of $65 means banks and the financial system immediately face a day of reckoning.
While bank balance sheets would get unclogged, many wouldn’t be able to, or willing to, face the losses.

Nationalizing Banks

“If the government elects to pay fair market value, the bank will likely not elect to participate as capital hits would be too dear,” Oppenheimer & Co. analyst Meredith Whitney wrote in a report yesterday.

That could force the government to nationalize banks or seize them as part of the process of buying up assets.
Either way, shareholders would get wiped out.

The strain caused by owning up to losses today would be enormous. It would also make more sense if we want to move out of the crisis sooner rather than later.
And what if market prices indeed overestimate potential losses? We would pass a windfall to future generations, along with a stronger financial system. Nothing wrong with that.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: David Reilly at dreilly14@bloomberg.net
Last Updated: January 30, 2009 00:01 EST

So, when the worshipful throngs come at you with the apocalyptic strains of sirens song...read and think...
study this mess...I'm coming to the opinion that we can take it on the chin now...or in the keyster later.

Things aren't always what they say...you might take another vantage point...
a "bad bank" bought at market value might be okay...it's how you play it...

Apocalyptica - A band famous for playing Metallica with four cellos.

the economy is great.

Bush said so.

Everything Bush said is true, for those that hate Obama.

therefore, the economy is great.

(just look at that other thread mac2 started- the title said it all).

One can't complain about the economy now, as they weren't complaining then.

Get rid of the defense department, and you got zillions of dollars right off the bag.
Tax those who make over $200,000 at 90%, and the world will be a better place.

If I was president myself, right now I would have a team of people picking through Hank "HENRY" Paulson's financial accounts with a fine-tooth comb ....

He came on board the BUSHITE TRAIN with over $700 MILLION ....

I would want to know what he was worth now, and how it came to be that way ....

IS HANK A TRILLIONAIRE NOW?

Everybody else took a beating, but did our Hank?

That is what I would want to know if I was president ....

AND IF I WAS PRESIDENT, I WOULDN'T BE RUNNING AROUND LIKE A CHICKEN WITH ITS HEAD CUT OFF CRYING ABOUT "DIRE CONSEQUENCES" AS OBAMA IS ....

That fear-mongering BULL**** is real old now, and I am damn sick and tired of it after listening to that BLATHER since 2001 ...

THE SKY IS FALLING!

THE SKY IS FALLING!

THE SKY IS FALLING SAYS BARACK OBAMA .....

Well, dude, it ain't falling up here ....

Just some snow is all it was ....

And so ..

Dont you think one should look at how everyone calls Bush incompetent

yet

Bush and family made 100s of billions of dollars and accomplished 100% of what they set out to do
including at the very end, he pardoned every single person he dealt with, though the public didn't realize it was hoodwinked and it wasn't called a pardon

public B. Stupid

IH,

There are a couple problems with the article beyond the difference in MTM and reasonably assumed value being understated (right now MTM would be in the range of 20% and assumed value around 70%). I agree the devil is in the details and we can count on anything implemented being far from perfect, but that doesn't mean models that protect the taxpayer and are better for the banks aren't possible or rational metrics don't exist with that approach.

As an example, say MTM is 40% and reasonably assumed value is 60%, if you have the bad bank buy at a premium to MTM of 25% of the difference (45%) or even 50% of the difference (50%) with a ceiling of the amount paid being no more than assumed value minus 1.5X conversion, carry and overall foreclosure costs (probably in the range of an 8% discount from assumed value) several goals are achieved about as quickly as possible. Banks still have some incentive to unload toxic paper to the bad banks, more of a market develops for toxic paper because of risk reduction, visibility is at least partially restored to markets and at least some vague sense of scale can be gained regarding the maximum amount of government intervention a solution requires.

Of course if the government rewrites the mortgages as fixed 6% it precludes reinflating the bubble (a huge factor IMO) while allowing prices to bottom as quickly as possible (another benefit even without maintaining a more normal interest rate).

I think it's a much stronger position to look at what constructs or modifications will make something work than being a naysayer if the program isn't so flawed that no factors can make it practical and it will certainly be implemented anyhow.

AND SOME REALITY BEHIND THE OBAMA SMOKESCREEN BEGINS TO EMERGE ...

"TARP funds turned down - Citing fiscal strength, several banks in region say they don't need federal bailout money"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published in print: Saturday, January 31, 2009

Several Capital Region banks, joining dozens of others nationally, have decided to reverse course and opt out of the federal government bailout, saying they're strong enough to thrive without taxpayer help.

The decisions to avoid the Troubled Asset Relief Program are coming as banks that did take taxpayer money, appropriated by Congress as a way revive an industry feared to be verging on global collapse, are facing tough questions on their use of the funds.

Among Capital Region banks that accepted TARP funds are First Niagara ($184 million); KeyCorp ($2.5 billion); M&T ($600 million); and Berkshire Bank ($40 million).

But three banks with a presence here have, in recent weeks, turned the funding down, even though they initially applied for it and were approved: Arrow Financial Corp.; Legacy Banks; and NBT Bank.

Some banks, like TrustCo Bank Corp NY, never showed interest in the money.

"We have a very strong balance sheet, and we have all the capital we need to have," said Kevin Timmons, a spokesman for the Glenville-based company.

But many of the banks that did participate in the $700 billion bailout insisted that they, too, didn't really need the money.

"We neither asked for nor received help," Leslie Garrity, a spokeswoman for First Niagara, said in an e-mail last November, when the bank received its federal money.

"The $184 million is an investment by the federal government to help ensure access to the credit markets."

"We were happy to volunteer to do our part."

Accepting the money essentially gives the government ownership of a portion of a bank's stock, giving officials increased regulatory authority.

And with criticism of the plan often focused on a lack of oversight, taking the money also opens a bank to queries from lawmakers eager to see that the money was made directly available for loans — an antidote to the credit crunch.

But many bankers privately say it's impractical, if not impossible, for a bank to trace exactly how it is using the money.

They also often say that additional capital isn't particularly helpful if a bank has no way to quickly profit on the money.

"One of the measures of success at any bank is return on equity," said Raymond O'Conor, president and chief executive at Saratoga National Bank & Trust Co. in Saratoga Springs.

"If you don't need the capital, or you can't deploy the capital, it doesn't make a lot of sense to accept it."

Saratoga National is a subsidiary of Arrow, the Glens Falls company that this week said it had turned down $20 million in TARP funding.

O'Conor said the bank didn't need help, but like many banks was encouraged by federal regulators to seek the money.

Chris Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com.

I understand there will be formula of all sorts proposed...with the banks seeking the
greatest % of what their books claim, and Joe Six-pack wanting to pay the smallest %.
Negotiation will be conducted...but remember this is brand new country we're in and all
the predictions (outside the RTC model on the S&Ls) are only that. One thing for sure,
we will be the owners of the BAD BANK and I want to buy it at the lowest possible cost.

Real Estate prices must return to reality before that market can recover...speculators
are taking a bath. Those who speculated on their own houses will suffer the worst.
And, in the same vein, this B.S. paper the banks have insulated their "houses" with
has to find reality pricing as well. Stock and bond holders will suffer...maybe a lossing everything
they have in them. So...if they want to refuse a REAL gaurantee of their bad-decision-paper
because they think they'll lose too much, let them handle it.

It's triage, IMHO, but there's the additional factor of family, tribe, etc. and because
of that I'm not buying what they are trying to sell as something "I have to understand".
In other words their vision of our society, our country, our place in the global family and
even our economy is just that: their vision. Thus, the Big Pitch this coming week.
I won't be surprised if it bounces to the plate...and is still called a strike.

I expect the Bad Bank idea to be a cornerstone in the upcoming Obama team solution,
and it may well be required, but I want to drive the hardest bargain I can.
It's a good thing I'm not president, I'd make those SOBs crawl to me for lines of credit
tied to performance benchmarks.

I want to buy it at the lowest practical cost, not the lowest possible. First the numbers to the best of my understanding (mortgages only), written down to 80% on books (but still charging borrowers 100%), current value about 75%, probable value at bottom 60%, last transaction to base MTM on 20%, probable point at which at least some transactions could occur 40%. Banks will go under holding on instead of going under selling at 20-30%, can't really blame them for rolling the dice at that point. If we go25% of the way between MTM and current value we're at 34%, but if we go 25% between possible partial liquidity and probable bottom we're at 45%, still a great number and it unfreezes the markets a lot more rapidly. I wouldn't offer other bank bailouts along with the bad bank, it's a take it or leave it proposition. To my mind action on student loans and to some degree commercial paper are separate issues, but if the mortgages are freed up those aspects should be relatively minor and short lived. I wouldn't bail out consumer credit, if they can't make money charging the retailer 3-5% then 12-30% on balances they deserve to go broke, as does anyone who bought it as high quality paper in the last 2 years.

I doubt they'll do it my way, but hope they get pushed or pulled into something reasonably close. Please note, my approach allows housing to bottom faster than the current approach (backed by both parties).

"Workers receiving unemployment at 25-year high - Share of workers claiming unemployment benefits reaches 25-year high as layoffs spread"

By CHRISTOPHER S. RUGABER, Associated Press

Last updated: 7:25 p.m., Thursday, January 29, 2009

WASHINGTON -- Week by week, the numbers that measure the economy get worse, heading toward uncharted territory.

The Labor Department released figures Thursday showing that the percentage of the workforce receiving unemployment benefits reached a 25-year high in mid-January.

The raw numbers were the highest since the government started keeping records in 1967, although the workforce was much smaller then.

Adding to the grim picture were separate government reports that showed December home sales plunged to their lowest rate since recording began in 1963.

And orders for big-ticket manufactured goods dropped more than expected, capping the worst year for manufacturers since 2001.

But the jobless numbers were the worst -- with more layoffs on the way.

The Labor Department reported Thursday that a seasonally adjusted 4.78 million Americans claimed unemployment insurance for the week ended Jan. 17.

That's an increase of 159,000 from the previous week and worse than economists' expectations.

As a percentage of workers covered by unemployment insurance, the tally is the highest since August 1983.

The figures underscored how hard it is for laid-off workers to leave the unemployment rolls by finding a new job amid the deepening recession.

And the 4.78 million figure is deceptively low.

It doesn't include about 1.7 million people receiving benefits under an extended unemployment compensation program authorized by Congress last summer, meaning the total number of recipients is actually closer to 6.5 million.

That pushes the share of the work force receiving benefits to the highest level since December 1982, when the economy was recovering from a steep recession.

Jobless benefits typically last 26 weeks, but Congress usually authorizes extensions during economic downturns.

More job cuts were announced Thursday.

Cessna Aircraft Co., part of the Providence, R.I.-based conglomerate Textron Inc., said it plans to lay off 2,000 workers, on top of 2,600 cuts it announced earlier this month.

Ford Motor Co. said its credit arm would cut 20 percent of its work force, or 1,200 jobs.

Eastman Kodak Co. said it's cutting 3,500 to 4,500 jobs, or 14 to 18 percent of its work force.

Black & Decker Corp. and Bon-Ton Stores Inc. also announced layoffs.

Starbucks Corp., Time Warner Inc.'s AOL, Target Co., Boeing Co., Pfizer Inc., Home Depot Inc. and others have announced tens of thousands of job cuts this week alone, bringing layoffs announced in January to about 130,000, according to a tally by The Associated Press.

On the housing front, the Commerce Department said new-home sales fell 14.7 percent in December to a seasonally adjusted annual rate of 331,000, the lowest pace on records dating back to 1963.

For 2008, builders sold 482,000 homes, the weakest results since 1982.

The median price of a new home sold last month was $206,500, a drop of 9.3 percent from a year ago.

The median is the point where half the homes sold for more and half for less.

Meanwhile, new orders for durable goods dropped by 2.6 percent last month, even worse than the 2 percent decline economists expected.

Orders fell 5.7 percent for the year, the second-biggest drop on government records, exceeded only by a 10.7 percent plunge in 2001, according to the Commerce Department.

The financial markets fell on the news.

The Dow Jones industrial average sank 226 points, or 2.7 percent, while other indicators tumbled more than 3 percent.

On Wednesday, stocks had soared on hopes that the government will take bad debt off banks' books.

Government data due out Friday are expected to show the economy contracted at a rate of 5.4 percent in the final three months of last year, according to the consensus estimate of economists surveyed by Thomson Reuters.

If they are correct, that would mark the worst performance since a drop of 6.4 percent in the first quarter of 1982.

The tally of Americans filing new jobless benefit claims rose slightly to a seasonally adjusted 588,000 last week, worse than analysts expected.

That nearly matched a late December tally of 589,000, which was the largest in 26 years although the labor force grew by about half during that time.

Amy Wilson, 38, who lives in Whiting, Ind., has seen all types of companies reluctant to add workers.

She's applied for about 100 jobs since she was laid off from the Metal-Matic steel company in October.

Other steel makers with nearby plants, including Arcelor Mittal and U.S. Steel Corp., also laid off workers this fall.

She said she had also planned to apply for a job at a nearby refinery which planned to expand, but they put the project on hold as oil prices plummeted.

"I'm going for anything," she said.

"Pizza delivery, any kind of work, you name it."

A year ago, continuing claims stood at about 2.7 million, less than half their current level when the extended unemployment program is included.

The unemployment rate, which hit a 16-year high of 7.2 percent in December, likely rose this month to 7.4 percent, according to a Thomson Reuters survey.

The crush of new and continuing claims has overwhelmed many states' ability to process them all.

Electronic filing systems crashed in three states earlier this month, and last week Michigan said it would hire 276 workers and open a fourth call center to handle increased phone traffic.

President Barack Obama's $819 billion economic stimulus package, approved by the House on Wednesday and now on its way to the Senate, would provide $500 million to the states to upgrade their unemployment insurance systems.

The measure also would continue the extended unemployment compensation program, which adds up to 33 weeks of benefits, until the end of the year.

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AP Economics Writer Jeannine Aversa contributed to this report.