A number of things to take note of

Alvaro de Molina, GMAC Financial Service head, out

Only 19 months as head of the troubled financial services unit, not a good sign, and he was kicked out by the board no less. I wonder how much this action speaks about the current condition of the company. Michael Carpenter is taking over who, ironically, was a director at the now in bankruptcy CIT Group.

And speaking of CIT – Goldman Sachs goes after the business

One major worry about the CIT bankruptcy was the ability for small business to obtain credit.  While contracting is still taking place, it looks like Goldman Sachs is going after CIT business while the company is in bankruptcy. The story doesn’t explicitly state it, but when you are targeting 10,000 small business customers for credit – and the company that would service such a market is in ruin – not hard to put the pieces together.

Oh, yea, and on the topic of taxes

Yesterday I posted a graphic from mint.com regarding taxes in the US. As I did not go into more detail, I want to point out one thing – 5% of the population pays 60% of the income taxes.

President Obama warns of double dip recession

Just a few short months ago President Obama was standing in front of congress, touting his policies, and taking credit for the “economic recovery”.  Today he is warning that his very same policies could fuel a double dip recession. A number of people have been saying this for months – myself included: Chances for the recession to pick up next year are near 100% once government spending stops.

People needs to come to terms with high jobless numbers, lower paying jobs, and a lower standard of living.  How is that for change?

The Dollar

The USDX is quickly heading back toward 75 today, and gold has hit another high.  The signs as to why this is happening are just all over, people just need to look. Despite the administration saying they have a strong dollar policy there is little evidence to support those claims.

Finally, the post office records huge loss – again

The post office recorded a $3.8 Billion dollar loss and, once again, is thinking of cutting Saturday service. How the USPS is around still amazes me.  Most mail I get is junk, nothing of any value.  FedEx and UPS have put them to shame and can provide better, quicker, services… All the USPS manages to do is drive up cost, cut employees and watch satisfaction ratings drop…

Note to President Obama – as others have pointed out, using the USPS as to a ’successful’ government run program is a poor move, especially when trying to pitch health care.

Do you happen to think it odd that GMAC is asking for ANOTHER financial life line only days after Capmark Financial went belly up?

In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 34% stake in the company could increase if existing shares eventually are converted into common equity.

Seeing they retained 25% ownership in Capstone, GMAC was abound to take a hit.

Recently the FDIC stated the United States needs to move beyond the concept of “too big to fail.” Even the Treasury also got into the mix; however, it seems that no one in the government is serious about the situation. If the administration was, wouldn’t they stop throwing funds at these worthless banks?

Oh, that is right, GMAC will get more funding because they finance GM purchases.

GMAC going back to the well also raises the question of  how long before others will head on back to Uncle Sam for a check?

I’m not saying, I’m just saying.

As discussed yesterday, Capmark Financial filed for bankruptcy on Sunday, 10/25/2009, with roughly $21B in debt.

“We view this reorganization process as an unfortunate but necessary response to recent unprecedented conditions in financial and commercial real estate markets, which presented a significant challenge for Capmark and similarly situated finance companies,” said Capmark President and CEO Jay Levine, in a statement. “By constraining the availability of capital, these difficult market conditions had a negative effect on all our core businesses.”

Remember that Capmark is a CRE (commercial real estate) lender, and this could be a sign for other CRE firms.  It is also important to recall that Capmark was part of GMAC at one point.  One has to wonder if the GMAC retail business is showing signs of weakness.

This – Capmark, Big Commercial Lender, May File for Bankruptcy - has the potential to put even more stress the financial markets…not simply because it is a bankruptcy but to long term – commercial banking – c0nnections:

The Capmark Financial Group, the big commercial real estate finance company cobbled together from pieces of GMAC, may file for bankruptcy as soon as this weekend, a person briefed on the matter told DealBook on Saturday.

…

Capmark has about $10 billion in assets, with another $10 billion in a Utah bank the company owns that would not be subject to a bankruptcy filing. Capmark has already moved several hundred million dollars into the bank to shore up its financial health.

Walk through this with me.

1. Capmark Financial is GMAC’s former Commercial Real Estate lender, but GMAC retained their retail banking  and renamed it to Ally.
2. GMAC still retails 25% ownership of Capmark Financial
3. Capmark Financial just had a $1.62B quarterly operating loss
4. Capmark Bank, a sub of Capmark Financial (the company that $posted a 1.62B loss) just obtained an FDIC “raise capital” letter from the FDIC

Add all the things above together and I have to wonder how far off are the failures of Ally and Capmark Bank.  Unless they simply packaged up ALL of the toxic assets and moved them to Capmark Financial, I would have to think both banks are/were involved in driving the losses at Capmark Financial, not just the CRE investments by the parent company.

At 5:00 PM this afternoon, the bank “stress test” results were published.  From the looks of it, a number of banks need significant amounts of capital (originally posted at Calculated Risk):

Once you look past the fact that roughly $75B more is needed, one has to ask “what does this really mean?”

I’m afraid to say that the results may mean nothing.  Yes, $34B for Bank of America is a boat load.  Same goes for the $15B Wells Fargo and $11.5B for GMAC need, but what if the additional funding does not help in the long run?  I ask this question simply because there is significant doubt around the credibility of the stress test results.

The assumption the test is based on is that these 19 financial institutions could potentially face another $600B in losses under “the worst conditions” but what if it’s more?  What if there is another $1.2T in losses? Will the banks be able to turn to the private markets in order to raise capital, as Wells Fargo is already saying they will do?  Would the investment community continue to throw money down the hole, or would Uncle Sam need to act as backstop once again?

I still believe the worst is yet to come.

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…

We knew it was going to happen, it’s not like there was any question is GMAC was going to become a bank. If they did not achieve bank status GMAC would have gone into bankruptcy, which would have meant that GM would have not been able to obtain credit for consumers through any other source.  

Get it?  

If GMAC went down the tubes, GM would have followed.  The second GM received their “loans” GMAC was almost guaranteed to receive bank status.  It is all tied together.

So why does the Fed continue to work with their head up their collective asses? GMAC lost roughly $5.5 billion during the first 9 months of 2008 and major losses are expected moving forward. The additional $6B provided by the TARP funding will only allow the company to operate for a few more quarters.  

Maybe that was the intent of the government – put GMAC into a position where they can support GM until the new administration is in office, and where the new government has the ability to implement their own bailout. 

Frankly, I don’t understand how either GM or GMAC make it out of 2009 without going into some form of Bankruptcy restructuring.  They are both bleeding money like there is no tomorrow, the government continues to prop up businesses that should be failing on their own.

Anyone care to bet?