Posts Tagged ‘bernacke’

Ge, which had for all intents and purposes closed down GE Capital, its finance division, in November, has finally announced layoffs.

Back in November, GE very quietly announced that it would not be doing any financing through GE Capital, except to only the highest rated credit risks. They completely killed their Senior Bank Lending programs, their Health Care Financing, their trade financing and reviewing of most new deals.

Their announcement came as a surprise to Wall Street investment bankers, who had come to rely on GE Capital as the leading source for Senior Bank Debt when doing M&A. With GE out of the market, hundreds of deals died on the table in the 4th quarter.

GE had inidicated they would review their position re GE Capital and new lending in the first quarter. They had made some remarks in a news release, but it was very unclear as to what steps they were taking.

With the layoffs announced today, comprising of 11,000 highly paid financial professionals (15% of the employees of GE Capital), GE’s intentions and expected operations are quite clear.

GE Capital, which had once generated approximately half of GE’s net income, will be no more as we knew it. Thus, GE’s earnings, as we knew them, will be no more.

The main questions that still exist have to do with the level of potential write-offs that exist on GE Capital’s balance sheet.

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Two Wall Street Journal columns jump from their website today.
After Dow’s Collapse, Guarded Hope

After the U.S. stock market’s third-worst year in more than a century, many investors are hoping for a turnaround in 2009. But considering the pain that has continued for more than a year, they are reluctant to bet on it.

Stimulus Versus Recession

The U.S. is preparing massive efforts to battle the twin threats of deep recession and deflation in 2009. The results will affect the investment climate for years to come.

These two observations are right on target, but the impact and implications so grand, that the folks at the WSJ should be shouting from the building tops in Manhattan, Greenwich, The Hamptons, and DC.

First, it should not be understated but the International Monetary Fund had estimated financial security losses in the range of $1.4 trillion as of this past October. To date, US institutions have only written off less than $800 billion! The IMF estimates were before the $50 billion evaporation of Madoff assets and the severe financial market declines of late October and November.

Additionally, there have been several estimates in the area of $2 trillion for the total losses to be expected by the inability of the “two pillars” of homeowners/credit users and small businesses to obtain any lifelines quickly and without “strings” of steel to further sink them. The lifelines are not appearing on Uncle Sam’s drawing boards at the moment, which means that we should not count on them in the near future. Uh, oh!!

Current LIBOR based mortgage rates are in the area of 2.25% currently for up to $2 million!!! The rates are less than the average yield of a local CD for a few months. Fixed rate conforming mortgages are at less than 5% for 30 years. We can expect mortgage rates to further decline as the Fed continues to intervene in the market for Fannie and Freddie securities. (They have billions of $ in their pockets to manipulate the market and lower the rates further.) Unfortunately, other than the variable LIBOR loans, jumbo fixed mortgages are still in the range of 8% or so. Because the government is ignoring this sector of the market, there has been only increases in the rates as the riskiness of the credits have increased.

Banks are demanding more collateral, rather than less. In a time of declining asset values, with collateral worth less, fewer and fewer are able to meet the stricter lending requirements. Where is Super Paulson and our Hero Bernacke when we need them???????? Will HOPE and CHANGE help? Or should we turn to God as our only salvation?

Today’s WSJ made the analogy of an individual escaping from a very painful marriage. The journalist stated that this individual would be very likely to resist remarrying. The journalist paralleled the experience to a stock investor during 2008 and their fear of buying stocks in 2009. I thought this very appropriate.

In a world of great interconnection, with great uncertainties, the need for faith and confidence in systems and governments, unified and coordinated efforts are crucial. Given all we have seen from our government over the past year and years, can we have confidence? Should we have hope?

Given the way America has been raped and brutalized by Wall Street, can we have faith in the Heroes of Capitalism to save us?

Please share your thoughts and ideas………

Today’s Wall Street Journal cites the anticipation of looming “mortgage cram-downs”, as a result of the failure of government’s steps to cease the increase in foreclosures.

The article notes that there are 7.5 million homes underwater currently and that foreclosures are expected to exceed 8.1 million over the next four years!!!! It also notes that Congress was hoping to help 400,000 homeowners through its latest program, “Hope for Homeowners”, but only 357 have applied for the program to date.

Sounds like one of the pillars we discussed yesterday on this blog is still not being secured!!! Unless action is taken, we will see the Red Plague sweep the homeowners and consumers downriver, like the banks and Wall Street firms were washed away this past year.

Unfortunately, the free market and refinancing will not solve the liquidity crunch paralyzing the homeowner/consumer pillar and the small business pillar.

Some insight and real hope are desperately needed. And fast!

On December 15, 2008, Peter Zeihan wrote “Falling Fortunes, Rising Hopes and the Price of Oil”. See it at:

Stratfor is the world’s leading online publisher of geopolitical intelligence. Thus, it is an amazing source of real news and analysis.

Mr. Zeihan’s article begins: Oil prices have now dipped — albeit only briefly — below US$40 a barrel, a precipitous plunge from their highs of more than US$147 a barrel in July. Just as high oil prices reworked the international economic order, low oil prices are now doing the same. Such a sudden onset of low prices impacts the international system just as severely as recent record highs.” Please see it at the link for the full article.

My thoughts:
I would emphasize the tremendous risk economically, politically, and globally that severe volatility (both on the upside and downside, of valuations for energy, currency, food, labor and more) can and will present to the US and all global economies and cultures.

Though economically, the US will benefit from significantly lower energy costs and many, many other commodities which have inflated over recent years due to the the rising energy costs and the great speculation/investing in “hard assets”, the risks to our way of life and our economic vitality are potentially greater.

The article describes the potential impact on governments and regimes, and the possible instability that will likely ensue, given human nature. Interestingly, I have been pounding the table with my equity investor clients on the reasons to purchase stocks in defense oriented companies, due to these very reasons. This article, plus the recently announced government spending plan, fully supports the strength of the sector and the essential need for continued development, irregardless of our incoming government’s timetable for Iraq.

Interestingly, our financial leaders are extremely concerned about the potential for spiraling deflation. They have defined deflation as the deferral of purchases in anticipation of lower prices. From my vantage point, the deflation that we are currently experiencing is more of the reversal and undoing of inflation of past years. Additionally, in the economic studies I have read recently, the decline in current consumer spending has not been due to “waiting for lower prices” but due to the lack of money to buy goods and services within neighborhoods and communities throughout our country and in many places in our interconnected world. The volatility economically and emotionally of having significant access to money (through savings or credit) to having little or no discretionary spending capability should be an area of focus for our national and global leadership.

In this holy season, as well as this season of new beginnings, we all must be optimistic about tomorrow and at the same time pray for political, economic and social stability locally, nationally, and globally .

All the best for the New Year!

With credit lines continuing to be cut, banks not negotiating outstanding loans, and new loans only being extended to those who do not need the money, there is but ONE QUESTION: WHERE IS THE MONEY?

How can $340 billion have not have any impact? How can Paulson and Congress let the greed of the banks and institutions destroy whatever remaining confidence Americans had in the government?

As Dr. Michael Savage has said, the US has just witnessed the greatest legal theft of $340 billion in the history of the world. The only beneficiaries have been the creditors, shareholders and CEOs of those institutions receiving the $. Please show me examples of the Americans and Main Street who have benefited!!!!!!!!!!!!

Paulson, Bernacke, Bush and our favorites Pelosi, Reid, and VP Cheney are all to be blamed. The should be held accountable for the fraud they have perpetuated on the American Taxpayers. We have been duped.

Those without jobs, those who have lost and will lose their jobs and credit, will pay. Pelosi, Reid, Cheney, Bush, Bernacke and Paulson can continue to dance all day until the sun sets and beyond, while we all suffer from the Red Plague they have contributed in spreading!!!!!!!!!!!!!!!

Tell me your thoughts…………

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The markets today gave up all their gains of last week!  Though the Black Friday numbers were much better than expected, the economic numbers regarding economic activity and future activity were horrendous.

The official group that announces recessions, announced today that the recession started December 2007.  Brilliant!!! It took them 12 months to figure it out???  Just look at any economic indicator and it is abundantly clear!

But, now that we are officially in a recession, it will either good worse or get better.  Its like alcoholism.  To be treated, first you must acknowledge the problem.  But, of course, it is not that simple.

Typically the Fed will lower rates and the lower cost of funds will encourage lending and capital investment.  The lower rates would also boost home prices through more affordable mortgages and refinancings.  This time, banks are not lending, companies cutting back on investing, and people generally unable to refinance due to the significantly reduced values of homes!  What’s Mr. Bernacke to do?

He will continue to reduce rates and flood the channels with money.

There is an old saying “Don’t fight the Fed.”  That is definitely going to be the case.  The question is how soon?

The reduced rates will ultimately make stocks more attractive.  The government bailouts, forced refinancing, numerous programs, etc.  will make things look better.  People will start feeling a bit better.  But, not until some more pain is incurred and fear speads like the Red Plague……

So, it can go lower.  It can go much lower.  It likely will retest lows over the next few weeks and then rally through inaugeration.  From there, it is the new administration’s problem, and ours………………

“Negative Redlining” – marketing disproportionately to minorities – is the accusation being made against two of three leading Wall Street “ratings agencies”.  Ratings agencies, like Moody’s, S&P, and Fitch, are hired by bond issuers to rate a bond, i.e. to quantify the likelihood of the bond not being repaid, and thus give it a letter grade.  Because ratings agencies are paid by the issuers to do the rating, they are absolutely not independent of the process.  They obtain the information they use from the issuer and the higher the rating, the greater the profit to all Wall Street parties involved in the issuance.

The National Community Reinvestment Coalition in their legal complaint alleges that Moody’s and Fitch knew that the mortgages were designed to fail, though the rating issued did not reflect this.  The complaint indicates that Moody’s and Fitch knew that the payment terms were unfair and that the borrowers’ income levels were too low to support the expected future payments.

In my humble opinion, there are many parties to blame.  The ratings agencies have the deepest pockets, so the attorneys have started there.  If my memory serves, mortgage brokers and their agencies are regulated at the respective state level.  Mortgage products, thus, are also regulated at the state level, either directly or indirectly.  Thus, where were the government agencies with the responsibility?   Those issuing the mortgages should have been at risk too, with their own capital on the line.  The underwriters, in agreeing to represent the sale of the securitizations, should have a legal responsibility also.  The list is a lot longer than this one paragraph……

Who is ultimately responsible in the world of Sir Paulson, Sagely Bernacke, and Mz Nancy Pelosi?  The American Citizens!!!!!!!!!!!!!!  You and me and my mother and our cousins, our elementary school teacher and our doctors, etc.  are responsible.  It is now our problem.  I forget if this is the definition of democracy???? It is definitely not the definition of capitalism………………………

Share your thoughts…. What happens tomorrow is always dependent on what happens today…

Share the word, share your knowledge.  Help save America for its citizens.