My intent was to spend a significant amount of time on this post, do a bunch of research and publish it tomorrow after President Obama releases his plan to assist people with troubled mortgages. Yea, I can’t wait.. basically my mind is occupied, and very annoyed with, what is going on in the government at this point. This includes both parties. With all the money is being thrown around, with all the waste going on, I want to know where our F&#!ing bailout is!

The Trouble Assets Relief Program (TARP) enacted by the Federal Government last year has turned out to be a huge waste of money – $700 Billion dollars to exact. The whole idea of the program was that good old Uncle Sam would provide the money, either by direct investment in a corporation or insuring of troubled assets, in order to stabilize financial institutions. The execution of the TARP, however, was an unmitigated failure at most, very problematic at least.

As of 02/09, the TARP money has been allotted in the following manner:

• $250 billion pledged for purchases of senior preferred shares and warrants in banks and thrifts (direct investment)
• $20 billion pledged for Bank of America in addition to $25 billion pledged under the direct investment program listed above
• $20 billion investment in Citigroup
• $40 billion investment in troubled insurer American International Group
• $20.9 billion to prop up the U.S. auto industry (GM, GMAC, Chrysler, Chrysler Financial)
• $20 billion pledged to cover potential losses for a Federal Reserve program aimed at improving consumer access to credit.

Guess what? TARP has done very little in terms of changing… well… anything. Had the program followed the original plan – the formation of a bank to take troubled assets – the financial institutions in the U.S. would look significantly different at this very moment. The problem is that those overseeing the original TARP program realized they did not have the funding to support such a bank after the got approval to put their plan in motion.

The credit markets are still basically frozen as banks continue to crank down on available credit. As a matter of fact, lending by the top banks in the U.S. actually fell 1% over the last 4 months. Losses at Bank of America and Citigroup were so large that they needed to go back to the federal government for more money. GM needs an additional $16.6 Billion, a good $17 Billion more than they originally stated they needed to fund operations, if they have any hope of staying alive.

So much for that plan.

Seeing the government has had so much success with the TARP, why would the general public expect the execution of a stimulus plan to make a significant impact on the economy? Who cares if it will or will not, right? Let’s pass a $787 Billion dollar stimulus plan anyway…. a plan that has… a lot of money for a whole lot of nothing.

I don’t have the time to break out all the spending, but you can read the bill here and here.

Based off of what I’ve seen there is very little “new spending” in the bill. For the sake of argument let’s say the “new spending” included in the bill is divided up between the states that need the funding. These states then distribute the money on infrastructure projects. How many IT professionals, finance majors, office workers and the like, who lost their jobs, are going to be building bridges and rebuilding road? How many corporate procurement managers will be able to install those solar panels? Really, how many people will this impact?

My guess is very few. But, let’s take it a bit further.

There will be an $800 tax credit for couples (married couples that file jointly, making under $150K a year) or a $400 tax credit for individuals (making under 75K a year). Oh, by the way, that credit includes people who DO NOT PAY TAXES. The IRS will mail checks to individuals who do not pay income tax due to low/no income? Kinda hard to give someone a “tax cut” if they don’t pay taxes, isn’t it?

So where does this leave me?

I’m decidedly middle class which means I fall outside of the eligibility limit set by the government… so I will not be getting a tax credit. Obviously I am not a giant bank, so I am not getting anything there….But let me get this straight. The financial institutions have money thrown at them, they continue to fail, and the government continues to support them. Here, I am paying my taxes – which end up supporting those financial institutions – and I cannot get any type of consideration?

Ok….

The government is providing a “tax credit” to people who DO NOT even pay taxes AND I GET nothing!?!

How is this fair? Let me get past the anger, no rage… I don’t like that idea. It’s socialism, plain and simple, but for the greater good (and I only say in such an extreme case) I can get on board with the idea. As much as it goes against my principles, I can still get on board as I would much rather see the survival of the United States than total anarchy in the name of a personal view.

So far my tax dollars are supporting major corporations and the nations poor but the government and I get nothing. Where is my help on what I need – my property value.

My condo value has fallen so much that I am now roughly anywhere from 60K to 90K “in the red” on my mortgage. While President Obama is expected to announce a mortgage relief program tomorrow, to help those who face foreclosure due to the inability to pay on their mortgage, it appears that there will be very little to assist families that are significantly “in the red” due to property value declines.

Just to recap…

1. Money goes to companies that continues to fail
2. Money goes to people that do not pay taxes
3. Assistance is provided to those who are facing foreclosure but not those in the red due to property value decline

[NOTE: 2/18 - The news coming out today is saying the Govn't will help people underwater by using cash to refi their mortgages. Depending on the info point #3 may change... and my frustration may be defused]

[NOTE #2: 2/18 - Read the impact of the bill, no... didn't defuse my frustration.]

How is this fair to me? How is this fair to the countless other middle class families and individuals facing the same situation, the countless households in this nation that have continued to pay their bills and taxes, even in the hardest of times?

It’s not.

Where is our F&#!ing bailout?

I understand the economy is facing more and more difficulty and that there is no plan that can address everything, but the segment of society that is actually footing the bill – and that is hurting as well – is the group eventually facing pain. The fact no relief or consideration for the individuals actually paying for everything will come back to haunt the government when this segment of society faces large layoffs (more so they they are now), which will trigger an even large wave of bankruptcies and foreclosures.

The shortsighted call to “help the poor” and “the corporations” will create a pressure on the middle class who will be unable to sustain funding the rest of the nation. If we are a lucky nation, and I fear that we are not, the United States will be able to get past this economic event on shoulders of the middle class. If not, the nation will face a depression longer and deeper than anyone had expected. Once the back of the middle class is broken, and there is no where else for the government to find the tax revenue, will the economy face capitulation and a true bottom to the recession will be called.

Things are going to get a lot worse before they get better…

The last post about the S&P volatility got me thinking about what 2009 has to offer for the stock market (and the economy).  I don’t have a crystal ball, so don’t take what I am saying as gospel truth… just putting two and two together based on information that is publicly available.   

1. The economy will stay in recession for most, if not all, of 2009.
2. Stock markets will continue to have volatility and remain range bound until October, shortly there after the market begins to move out of the range toward the positive in anticipation of the Recession ending in 2010.
3. Due to the massive amount of capital put into the market the dollar will remain weak unless there is a major war that breaks out.
4. The housing market is in the crapper for most of the year, values continue to fall and foreclosures will continue to rise – the fed will take more action to stop the decline in values which will create an environment that will allow for the housing market to bottom late in the year.
5. Unemployment will catch most people off guard and may go higher than 10%.
6. The credit market will being to defrost (and in some regards it already has) which will help the economy come out recession.  The big indicator here will be when Companies start to merge/buy each other out by returning to the credit market.
7. Inflation will be a non-starter in 2009 but will come back in full force come late 2010/early 2011.
8. More bailouts to come…

Again, I have no clue what is going to happen, no one does.  Just experience and a bit of knowledge talking.  

The big unknowns are the global and geopolitical factors.  A war breaking out, a major terrorist attack or huge natural disaster in a major economic zone can change the playing field in the blink of an eye.

The New York Times has a long and detailed article about the lending practices of Washington Mutual and it’s very scary.

What do you do?  Mariachi Singer?  Well, we can’t verify your 6 figure income… let’s take your picture, that should work! 

Yet even by WaMu’s relaxed standards, one mortgage four years ago raised eyebrows. The borrower was claiming a six-figure income and an unusual profession: mariachi singer.

 

Mr. Parsons could not verify the singer’s income, so he had him photographed in front of his home dressed in his mariachi outfit. The photo went into a WaMu file. Approved.

Ok, fine – let’s say a photo was proof enough for a mortgage.  The companies cannot deny predatory lending practices if management was aware of actives like this took place:

Top producers became heroes. Craig Clark, called the “king of the option ARM” by colleagues, closed loans totaling about $1 billion in 2005, according to four of his former coworkers, a tally he amassed in part by challenging anyone who doubted him.

 

“He was a bulldozer when it came to getting his stuff done,” said Lisa Alvarez, who worked in the Irvine office from 2003 to 2006.

 

Christine Crocker, who managed WaMu’s wholesale underwriting division in Irvine, recalled one mortgage to an elderly couple from a broker on Mr. Clark’s team.

 

With a fixed income of about $3,200 a month, the couple needed a fixed-rate loan. But their broker earned a commission of three percentage points by arranging an option ARM for them, and did so by listing their income as $7,000 a month. Soon, their payment jumped from roughly $1,000 a month to about $3,000, causing them to fall behind.

Really, I want to know why our money is going to these organizations unchecked. 

I believe the bailout was required to prevent a total credit freeze IF it was implemented as planed. Unfortunately, it changed and no one – NO ONE – is providing any oversight of how the money is being spent.  Companies will continue to act in unethical ways if they know the government will simply given them money when they need it.

It’s official, arguably the best managed car company in the world is posting their first full year loss in 2008 due to economic downturn.  The news first came out on 12/18 but the market really didn’t pay attention to the news yesterday.  

The company expects to post an operating loss of roughly $1.66 billion for the fiscal year ending in March. That doesn’t seem to shocking, all thing considered, but if you compare the information to the previous year where Toyota had an operating profit of $25.2 billion, it’s obvious just how bad things are.  That is a $27 billion dollar swing!

Let’s put Toyota’s loss into perspective and compare that to General Motors…

Since 2004 General Motors has not turned a profit from it’s North American auto division.  As a matter of fact, General Motors has posted $72 Billion in net losses in that time.

It’s amazing that the we are providing funding to this type of operation.   What I would like to know is how will the Federal Government (and Canada, too) govern the entire bailout process?  They have done a poor job administering the funds to the Financial markets, why will the auto industry be any different?

The collapse of the commodities market, specifically the major drops in the price of oil and natural gas, has caused an economic crisis in Russia due to their high dependence on both commodities.  Add in the falling price of the ruble and roughly 70 banks going under, Russia now faces their version of the 2008 collapse.  

While their government tries to calm investors by saying the volatility is due world economic conditions, the falling price of oil may significantly impact their ability to quickly – and independently – come out of the crisis on their own.

Last Friday, the World Bank came out and ward that Russia may need a bailout of their own.  

“If oil prices in 2009 and 2010 average $30 a barrel, that would be a nightmare scenario for a global economy,” Zeljko Bogetic, the World Bank’s chief economist in Russia told investors on Friday. “The pressures on the current account and public finances in Russia would quickly rise to a point where the financing constraint would become so sharp that it’s possible even to envisage Russia’s return from a creditor to international organizations to (that of) a borrower.” 

Translation – if oil continues to fall the Russian government will have revenue decline significantly, and as a result, the government will need to turn to the World Bank or other governments for loans in order to continue to function.

I believe this is exactly why OPEC countries decided to cut output as drastically as they did recently. Each country relies of oil revenue in order to fund government activity.  As the money dries up, so does the ability for the governments in question to provide funding for needed programs – like military spending.  

So as we look at Russia potentially turning to the world for money to survive, other countries dependent on oil revenue may not be far behind.

Everyone keeps talking about what would happen if the auto industry went into bankruptcy, and the one thing people consistently talks about is the autoworkers (obviously).  There are roughly 2 million workers in the industry be it assembly, auto parts or in dealerships. 

Here is how it breaks down, via CNN/Money:

I cannot write worth a damn, and I sure have a big problem editing what I write.  Usually this is due to the fact that I read every third word.  Sometimes I will “read” words that are not there.  It’s like my mind fills in the blanks.

Just so we are all clear – I’m saying I am highly aware that I lack when it comes to being a writer (and I’m OK with it), however, I know that at my worst I would have the ability to be a writer at the AP.

Read this line from the story “Chrysler execs say cash will run short in January”

Kolka says most suppliers are working with Chrysler and getting payments in the normal 45-day cycle. But LaSorda says an oil company that is making billions has demanded cash before shipments.

 (emphasis mine)

Is this a quote, biased “reporting” or simply poor writing? If this is a direct quote it should be denoted as such (hello quote marks!) and the editor should be looking for a new job. Assuming it is not a quote, because why would the AP actually bother to have a writer and editor read over something before it goes to press, both the AP and Tom Kirsher end up looking like they are highly biased in favor the auto industry bailout. 

What this line says is this: a well-managed company, one that is able to turn a profit, should obviously be “spreading the wealth” to a company that may, possibly, be unable to pay the bills.  This single line continues to promote the idea that the oil companies are evil and the automakers are innocent victims.  As a result of being a victim, on principle alone, the U.S. give automakers a bailout.

No, I don’t think so…

Again, I understand I have limited ability as a writer, but if Tom Krisher can be a writer for the AP with crap like the above, so can I. 

Where do I sign up?

Don’t know who did this, but nice work by the creator!

Hmmm…Well, what did GM say?

 ”While we’re still the U.S. sales leader, we acknowledge we have disappointed you,” the company said in the magazine ad. “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster. We have proliferated our brands and dealer network to the point where we lost adequate focus on our core U.S. market. We also biased our product mix toward pick-up trucks and SUVs. And, we made commitments to compensation plans that have proven to be unsustainable in today’s globally competitive industry.”

The company just admitted it drove itself (no pun intended) into the ground. They made poor business decisions and now have no ability to continue operations without government loans…. Human impact aside, why should we bother supporting a bail out? 

Two things missing from the admission where a) we are sorry for operating our company in this fashion and b) here is how we are going to change.

Obviously, admitting any type of fault would place management in a questionable legal situation.  While they did run the company into the ground, why admit your mistake when shareholders could sue you?  More importantly, there was no evidence of change…. No plan as to how the company would avoid such a situation moving forward.

The only company I support in this process thus far is Ford due to strategic moves they made last year, and because they are claiming they do not need the money for operations but simply as a backstop incase things were to get worse (which I suspect they will). 

Basically, Ford is the only one with a plan and is acting accordingly.  If anyone should get “bailed out”, we should look in their direction.