“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

– Henry Ford

Alan Kohler, of Business Spectator, wrote an article A tsunami of hope or terror?.  The article covers what will happen if more companies go under.

The Breakdown:

• A synthetic CDO cataclysm could save the global banking system (with horrible consequences)
• Investors and funds worldwide will be collateral damage
• Banks paid external entities (usually Cayman companies, or charities) to back investments
• Contracts required investors to pay back 100% of investment, if 9 of the companies defaulted
• The companies were some of the most highly leveraged in the world
• Banks knew what they were doing, deceiving investors, and hedging their bets
• Companies on the list: Icelandic banks (3 have defaulted), Countrywide, Lehman, Bear Stearns, AIG, Freddie Mac, Fannie Mae, Ambac, MBIA, PMI, General Motors, Ford, and a lot of US home builders
• After enough companies fail, massive amounts of money come flowing back into the banks.  From the investors who bought the story.

Peter Schiff on Fast Money, the man who called the economic collapse in 2007, says what he thinks about the economy right now.

“I think what’s happened in commodities and the dollar right now, is temporary …. these prices get sold off, it’s not gonna last … it’s a bottomless pit … when this dollar stops rallying, it’s falling like a stone.”

“It can’t last … you can’t do it on leverage… The world has learned a valuable message, don’t lend Americans any more money.”

“I think next year Gold is going to hit $2000 an ounce”

It makes sense, we need to produce goods.  Without creating exports and products, we have no value.  

Dire predictions, see the video yourself:

In an effort to keep Citigroup, Inc (NYSE: C 3.77 11/21/08) afloat, the US government announced a plan to make available guarantees on over $300 billion of troubled mortgages and other assets after a week were Citibank lost more then 60% of its value.

Breakdown: The plan

·         $20 billion cash infusion via Treasury Dept

·         Atop $25 billion the bank received via TARP

Breakdown: Losses

·         Citigroup and regulators will back up to $306 billion

·         Debt largely residential and commercial real estate loans

·         Citigroup to cover first $29 billion

·         Remaining losses split between Citigroup and the government

·         Citibank absorbing 10% of additional losses

·         Government absorbing 90% of additional losses

·         Treasury Department to use bailout funds to assume first $5 billion

·         Federal Deposit Insurance Corporation next $10 billion of losses

·         Federal Reserve will guarantee any additional losses.

“The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and restore economic growth.”

Breakdown: Citigroup

·         $2 trillion of assets

·         Operations 100 plus countries.

Breakdown: What the government Gets

·         Citigroup issue $7 billion of preferred stock to government regulators.

·         Government buys $20 billion of preferred stock in Citigroup.

·         Preferred shares pay 8%

·         Eroding the value of shares held by investors.

“Citigroup issued a statement last week saying the company has a very strong capital and liquidity position and a unique global franchise.”

Considering that Citigroup had a market capitalization of $ 20.54 billion on Friday it escapes WhyBanksFail.com why the government is getting 27 billion worth of the company and only slight eroding the value of share holders. Its seems to use that they are clearing doubling the value over night with no real market reasoning behind the decision other then its to large to fail. If its to large to fail, maybe we should not let things get that large, and force a breaking of the company in many parts.  But that’s just a thought.

Read Article: Citigroup Gets Government Guarantees on $306 Billion of Assets

Read Article: U.S. Approves Plan to Help Citigroup Weather Losses

On Friday, the FDIC and Georgia regulators shut down the third Georgia-based bank this year. The Community Bank, based in Loganville, Ga. became the 20th nation bank failure this year and was followed by two bank failures in California, making the total number of bank closures this 22.

Breakdown:  The Community Bank  

·         Total assets of $681 million

·         Total deposits of $611.4

“All of The deposits have been transferred to Tappahannock, Va.-based Bank of Essex, the FDIC said, and all four of The Community Bank’s branches will reopen Monday as Bank of Essex.”

Breakdown: The Purchase

·         Purchased by Bank of Essex (NasdaqCM: BSXT)

·         Purchased roughly $84.4 million of The Community Bank’s assets and

·         Paid the FDIC a premium of $3.2 million for the right to assume the failed bank’s deposits.

FDIC said it would retain the remaining assets for later disposition. The FDIC estimated that The Community Bank’s failure will cost its Deposit Insurance Fund between $200 million and $240 million.

Read Article: Regulators shut down three banks

Federal Deposit Insurance Corp was appointed receiver when the Fed was forced to shut down two large banks in California. The banks became the latest victims of acute distress in the real-estate market in that state.

Latest two failures brings the total number of banking failures this year to 22.

U.S. Bancorp has acquired the operations of Downey Savings & Loan Association, F.A. and PFF Bank & Trust from the Federal Deposit Insurance Corporation.

Breakdown: Downey Savings and Loan Association (NYSE: DSL 0.18 11/21/08)

·         Based in Newport Beach

·         23rd-largest U.S. savings and loan

·         Assets of $12.8 billion

·         Deposits of $9.7 billion as of Sept. 30

·         Lost $547.7 million in first nine months of 2008,

·         largely because of risky “option ARM”

Breakdown: PFF Bank & Trust (OTC BB: PFFB.OB 0.36 11/21/08)

·         Based in Pomona

·         38th-largest

·         Assets of $3.7 billion

·         Deposits of $2.4 billion

·         Short for Pomona First Federal

·         $289.5 million in losses from January to September

·         Specialized in loans to developers and home builders

No depositors will lose any money because of the failures, and branches would continue operating as usual under the ownership of Minneapolis-based U.S. Bank, one of the country’s largest banks

U.S. Bancorp’s main unit acquired assets and liabilities of the two California-based financial institutions. The U.S Bank will not buy any assets or liabilities of their parent holding companies.

Breakdown: U.S. Bancorp (NYSE: USB-PL 23.74 11/21/08)

·         Receive approximately $12.8 billion of assets, at Downey

·         $11.3 billion of liabilities, at Downey

·         Assume $3.7 billion in assets, at PFF

·         $3.5 billion of liabilities, at PFF.

·         Assume the first $1.6 billion of any losses on the acquired assets

·         Any excess losses will be shared with the FDIC, U.S. Bancorp said.

Breakdown: Cost to Deposit Insurance Fund (FDIC)

·         $1.4 billion for Downey

·         $700 million for PFF Bank

Read Article: Federal regulators shut 2 California thrifts

Read Article: U.S. seizes “unsound” Downey Savings

Read Article: U.S. Bancorp Acquires Downey Savings and PFF Bank

Timothy F. Geithner, head of the New York Federal Reserve, was picked by Obama to be the Teasury Secretary.  

Good news, as stocks rebound on news of the pick.  

We knew Geithner was a strong possibility, and recently the FBI has been vetting his contacts — it has been confirmed  

Obama plans to reveal his entire economic team early next week. 

Reported by Reuters, Obama picks Geithner for Treasury.

The Breakdown:

• Washington Mutual (WaMu) failed on September 29, 2008
• Biggest bank failure in history
• Federal regulators seized operations and sold to JP Morgan
• WaMu cuts payroll by 13% in California
• 1600 call center jobs cut

The Saudi Prince has spoken, but it’s not enough to help Citigroup out of the downward plunge it is on.  Citibank opened 4% lower, but it got much worst as the day went one. Losing more then 26% to trade close the day at 4.71

Breakdown: Citibank Losses

• $20.3 billion in losses on declining mortgages and bad securities investments
• Citigroup’s down 26.41% or $1.69, to trade at $4.71(NYSE: C)
• Fallen 82.7% this year,
• Analysts expect the bank’s bottom-line losses to continue through 2009.

Breakdown: 1% on the open market

• 5.45 billion Shares outstanding
• $257 million to buy a 1 percent

Prince Walid bin Talal of Saudi Arabia Citibank’s largest signal investors said in a statement that he plans to increase his stake in the global banking giant to 5 percent, from less than 4 percent, and expressed support for Citigroup’s leadership and strategy

Breakdown: Prince Walid Investment

• Started investing in 1991
• Citibank was struggling with troubled commercial real estate loans
• Prince announced he would invest $590 million of his personal fortune in the bank
• Adjusted for inflation, that’s about $940 million in today’s dollars.

The Prince may just be returning his stake to the size it was before it was diluted by Citi’s capital-raising.

Citigroup announcement job-cuts reaching 53,000 to be conducted by the end of the first quarter of 2009.

“Investors are worried that Pandit’s plan to cut expenses, even with Alwaleed’s capital backing, won’t be enough to revitalize Citigroup. Pandit suffered a major setback last month when Wells Fargo (NYSE: WFC 22.53 11/20/08) agreed to buy Wachovia , trumping Citigroup’s bid to buy much of the Charlotte, N.C.-based bank and add to its $418.8 billion of deposits.”

Read Article: No Prince Bounce for Citigroup

Turmoil in the market has caused many investors continue to flock to the safety of government debt, and has increased the demand so greatly for these assists, that yields on the benchmark rate has fallen to a 5 year low.

“Investors appear to be mainly focused on preserving capital”

Breakdown: Treasury Notes

·          Benchmark 10-year note jumped 1-5/32 to 104-24/32

·          Yield now 3.19% from 3.33%

·          Yield on the 10-year bond fell to 3.15%

·          Lowest level since June 2003, traded at 3.12%.

·          Yield on the 3-month bill fell to 0.015% down from 0.07%

“Yield on the 3-month Treasury bill is closely watched as an immediate reading on investor confidence”

Breakdown:

·          2-year note rose 4/32 to 100-31/32

·          Yield fell to a record low of 1% from 1.07%.

·          Benchmark yield curve (the difference between the 2-year and the 10-year yield) at 2.21 points, down from a five-year high of 2.26 points set Friday

·          30-year bond 2-12/32 to 112-21/32

·          Yield fell to 3.78%, an all-time low, from 3.92%.

“Bond prices and yields move in opposite directions and falling yields suggest that investors are less concerned with profit and more focused on safety.”

Some economists expect inflation rates to turn negative in the near further. That, combined with the flight to quality aspect, could drive the yield on the 10-year note below 3%, according to Larkin.

Breakdown: TED Spread

·          TED down 2.09 points from 2.10 points

“TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill and is a key indicator of risk”

Breakdown: Lending rates

·          The 3-month Libor rate fell to 2.15% from 2.17%

·          Overnight Libor rate was unchanged at 0.44%

·          Libor-OIS spread widened to 1.73 from 1.71

·          “Spread measures the difference between actual borrowing costs and the expected targeted borrowing rate from the Fed. The bigger the spread, the less cash is available for lending.”

“Libor, the London Interbank Offered Rate, is a daily average of interbank lending rates and a key barometer of liquidity in the credit market. More than $350 trillion in assets are tied to Libor.”

Read Article: Treasury yields fall to multi-year lows

Workers have filed a 16 year high of new jobless claims in the week ending Nov 16^th. This comes as employers are faced with harsh economic reality and are forced to reduce the size of the labor force.  

“The latest data has added to fears that the U.S. economy faces a deep recession and paints a gloomy outlook for the labor market.”

Breakdown:

·          Seasonally adjusted claims at 542,000

·          Up from 515,000 the previous week.

·          Analysts’ forecasted 505,000

“This report paints a pretty bleak job picture for mid-November and reinforces the comments from the Fed yesterday almost guaranteeing a sizable Fed rate cut at the next Fed meeting on December 16,” said Cary Leahey, economist at Decision Economics in New York.

“It means we’re probably facing another payroll employment report showing November job losses in the vicinity of 200,000.”

Federal Reserve has slashed its economic growth outlook through 2009 to minimal levels

Breakdown: Four-week moving average

Up 506,500 from 490,750 the week before

Highest since the start of 1983

Breakdown: Continuing claims

·          Continuing claims were 4.012 million in the week ended November 8

·          Up from 3.903 million the prior week

·          Highest since December 1982

·          Analysts estimated claims to be 3.92 million

·          Workforce receiving unemployment benefits at 3.0%

Rising from 2.9% from the prior week

Read Article: Weekly jobless claims surge to 16-year high

The Consumer Price index (CPI) has had its biggest drop in October; since the Labor Department began keeping monthly data in 1947. Newly constructed homes saw a new record low as well, underlined how rapidly the economy was weakening.

Breakdown:

·          Labor Department

·          Consumer Price Index Fell 1%

·          Wall Street analysts forecasted 0.8% decline

·          Core prices, excluding food and energy, declined 0.1% – Forecast showed a 0.1 increase.

“Analysts said earlier concern about inflation risks may soon be replaced by worry about deflation, which also has a corrosive effect on the economy’s performance.”

Breakdown: Home Starts

·          New-home starts fell 4.5% in October to 791,000 units

·          Building permits dropped 12% to 708,000

“It appears we are in a period of disinflation right now, where the actual level of inflation is trending lower,” said Michael Sheldon, chief market strategist for RDM Financial, Westport, Connecticut. “The question is will the economy rebound enough with the benefit of a big stimulus plan in 2009 to prevent deflation and get consumers spending again.”

In testimony on Capital Hill on Tuesday, Federal Reserve Chairman Ben Bernanke told Congress that the $700 billion bailout and other treasury facilities have started to ease credit markets, but what is at the core now, are declining home price. This is having a direct affect individual credit and their willingness and ability to spend.

Breakdown: Energy

·          Prices dropped 8.6% in October,

·          3.1% in August

·          1.9% in September

·          October saw biggest drop since recording started in 1957

·          Gasoline prices plunged 14.2 percent in October

·          Expected to drop again in November

·          Retail gasoline at $2.13 a gallon in November,

·          Sharply below the $3.54 a gallon in October.

“On a year-over-year basis, the Consumer Price Index rose 3.7 percent, the smallest increase in a year.”

Read Article: October consumer prices and home starts plummet

CNN has an article, a letter really, The ‘Great Crash’ in the history books.  The author writes to his children (in the future) about what was going through his mind in and around this crash we are experiencing.

It is very well put together, and a recommended read.  Nothing new, just a sobering look at our new status quo.

As energy costs continued to decline, The Labor Department’s Producer Price Index (PPI) decreased 2.8% in October, after a smaller decline in September 0.4%.

Breakdown:

• Producer prices fell 2.8% in October
• Sharpest one-month decline on record
• More than the 1.8% decline that economists expected

Breakdown: Core PPI

• Core PPI number, which excludes food and energy prices, rose 0.4%
• More than the 0.1% increase analysts had forecast

“The 0.4% increase in core PPI was driven by a sharp 2.6% jump in light truck prices, which include sport utility vehicles, and a 4.1% rise in tire prices. Prices for soaps and detergent rose 1.7%.”

“Needless to say this is all about energy prices,” said Ian Shepherdson, chief economist at High Frequency Economics.

Breakdown: Energy & Food

• Energy prices plummeted 12.8% in October
• Falling 2.9% in September
• Largest one-month decline since July 1986 when energy prices fell 14%.
• 24.9% drop in gasoline prices, which fell 0.5% a month earlier.
• Crude oil prices have fallen 60% to roughly $55 a barrel, From all-time high of $147
• Residential natural gas slid 5.9%
• Home heating oil moved down 9.6%
• Food prices declined 0.2% after climbing for the last 5 months

“Despite the rise in core PPI, many economists say inflation is moderating, which could give the Federal Reserve some leeway when it comes to lowering interest rates.”

Read Article: Wholesale prices in record plunge

CNBC has been keeping track of the total dollars spent so far on the Financial Crisis that we are seeing.

That total is, $4.28 trillion.  

The post, Financial Crisis Tab Already In The Trillions, says “… that number is more than what was spent on WW II, if adjusted for inflation, based on computations from a variety of estimates and sources.”

“Not only is it a astronomical amount of money, its’ a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and new releases. Strictly speaking, not every cent is directed a result of what’s called the financial crisis, but it arguably related to it.

Some 68-percent of the sum falls under the Federal Reserve’s umbrella, while another 16 percent is the under the Treasury Asset Relief Program, TARP, as defined under the Emergency Economic Stabilization Act, signed into law in early October.”

Why Banks Fail had analyzed the nubmers back on October 7, 2008, which pegged the total cost of the bailout at $1.5 trillion.  

All of this, and we are STILL only hearing about the $700 billion loan.