New York State Attorney General, Andrew Cuomo, has been making headlines lately with his efforts to try and figure out the mess behind AIG, and why it continues to make decisions that anger US taxpayers.

Congress and Cuomo’s office are asking AIG for detailed information on how and why billions of taxpayer dollars found its way through them and into the hands of several big banks, allowing them to be saved from on going losses.

Breakdown:

·          Were counterparty payments in the best interests of the taxpayers?

·          What factor played into the decision?

·          AIG was largest recipients of money from the TARP.

Breakdown: NY State Attorney General

·          Subpoenaed AIG for information about derivatives portfolio

·          How it is being managed

·          Names of people in charge of the negotiations

·          New phase of investigation is civil

·          Subpoena was served under the Martin Act, state law giving broad prosecutorial powers

“The banks and investment firms that ended up with A.I.G.’s bailout money last fall were, in many cases, counterparties to derivatives contracts it had sold, known as credit-default swaps, which guaranteed the value of assets in their investment portfolios. Had A.I.G. not been bailed out, and simply allowed to go bankrupt, they would have suffered investment losses running into the billions of dollars.”

Force by federal officials, AIG released the names of counterparties to the CDO this month. Included was the who’s who on Wall Street. Names such as Goldman Sachs, JPMorgan Chase and Merrill Lynch, all of whom have successfully resisted efforts to regulate credit derivatives in the past. Wall Street believes that these contracts are valuable risk management tools that are safer in the hands of the experts, then government regulations. Congress on the other hand believes the derivatives where used to speculate, not to manage risk.

Regulators are now asking why AIG paid out the trading partners at 100% and did not perform haircuts on the terms, saving taxpayers millions. After all the contracts where money-losing trades, and should be reflected as such in the terms of the repayments.

The alternative would have been to allow AIG to fail. In that scenario the counterparties would of received zero, possible causing their own failure. Seems like the prefect condition for renegotiating contracts. Why are ordinary Americans paying for the bailout at 100% when they have suffered losses in their own investment accounts?

Lately we have heard that many Wall Street banks are not happy with the new rules placed on them via the latest legislation limiting executive pay. The banks say it will not allow them to keep the smartest people. They say that they are in better condition then they original thought. The banks now want to repay the government. But it seems they want to repay the government with its own money. At the height of the crisis at AIG, Goldman Sachs reported that it had “no material exposure to AIG, but turned out to have received almost $13 billion during the rescue.”

Read Article: Inquiry Asks Why A.I.G. Paid Banks

A letter was posted on NYTimes.com (contents are included below).  Please read it.  It is a letter from an AIG employee (now former) Jake DeSantis to Edward Liddy.

I know I have had the opinion that bonuses to the employees at AIG are absurd, especially in the amount specified.  I hadn’t thought the whole thing out (like I’m sure the rest of us didn’t).  

Along with the author of the letter, I’m not arguing that the amount of the bonuses are fair, what I’m arguing is we are deciding who is guilty, without due process.

The employees that we have all been so pissed at, getting those huge bonuses, may not be responsible for the failures at AIG.  Yes, AIG did do a lot of damage to the United States and global economy.  AIG has (maybe had by now) 116,000 employees.  

The government, the public, and the media can’t judge whether the employees who are receiving bonuses deserve it.  For all we know, there could have been 5 people who lost all the money, and another 400 actually making ground in earning more money back for AIG.  

According to this letter, the employees who are responsible are no longer with AIG.  That makes sense, the writing is on the wall when you cause a company to ask the government to be bailed out. 

Now we have the public outraged at the actions of a subset of AIG employees, as they should be.  These people were gambling with the fortunes of the country, and the nation.  

Only AIG can decide who it should keep or fire.  AIG has to make money, and shouldn’t unilaterally be punished — as certain departments were probably making money and should be appropriately rewarded.

We are having another witch hunt.  

This is why we should be scared when the government gets involved in the very personal business of a corporation.  

Maybe just this one employee was earning his salary.  Still, we shouldn’t persecute him just because his colleagues caused problems.

Finally, these were contracts.  As the author points out, the employees knew the company was going down fast.  If they all left, the company would surely crumble (along with all of our taxpayer money).  AIG was trying to keep itself going, and also trying to appease it’s high earners. 

Enough of a rant, please read this letter:

DEAR Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P. I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P. Most of those responsible have left the company and have conspicuously escaped the public outrage.

After 12 months of hard work dismantling the company — during which A.I.G. reassured us many times we would be rewarded in March 2009 — we in the financial products unit have been betrayed by A.I.G. and are being unfairly persecuted by elected officials. In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I take this action after 11 years of dedicated, honorable service to A.I.G. I can no longer effectively perform my duties in this dysfunctional environment, nor am I being paid to do so. Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

You and I have never met or spoken to each other, so I’d like to tell you about myself. I was raised by schoolteachers working multiple jobs in a world of closing steel mills. My hard work earned me acceptance to M.I.T., and the institute’s generous financial aid enabled me to attend. I had fulfilled my American dream.

I started at this company in 1998 as an equity trader, became the head of equity and commodity trading and, a couple of years before A.I.G.’s meltdown last September, was named the head of business development for commodities. Over this period the equity and commodity units were consistently profitable — in most years generating net profits of well over $100 million. Most recently, during the dismantling of A.I.G.-F.P., I was an integral player in the pending sale of its well-regarded commodity index business to UBS. As you know, business unit sales like this are crucial to A.I.G.’s effort to repay the American taxpayer.

The profitability of the businesses with which I was associated clearly supported my compensation. I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

This choice is right for me. I wish others at A.I.G.-F.P. luck finding peace with their difficult decision, and only hope their judgment is not clouded by fear.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Sincerely,

Jake DeSantis

In a year that has seen hedge funds loss about 18% on average, and investors taking back their money in mass, there are some bright spots in the industry. Be shore that those lucky enough to be investors are extremely grateful. In the end for a hedge fund manager to get paid he has to make money.

The government is now look to those few individuals who have weather the storm, and come out ahead with profits, to now find ways to poor those profits back into the game, partnering with the government to buyout toxic assets and get banks lending again.

In the end the hedge funds and the government need to partner continue to create an environment in which profits can be realize. After all even the hedge funds which where successful in 2008 need to acknowledge that they had benefited from the government’s bailout of the banking system. If the government had not intervened there would not be anyone to trade with.

Breakdown: The Top

1.      James H. Simons(former math professor), earned $2.5 billion

2.      John A. Paulson (bet against housing market) second earned $2 billion.

3.      George Soros (secretive moneymakers) earned $1.1 billion.

·          25 top managers made a total of $11.6 billion in pay

·          According to Alpha magazine

“Earnings were not unscathed by the extensive shakeout in the markets. In a year when losses were recorded at two of every three hedge funds, pay for many of these managers was down by several million, and the overall pool of earnings was about half the $22.5 billion the top 25 earned in 2007.”

Breakdown: Making the Cut

·          Hedge fund hotshot needed to earn $75 million,

·          Down sharply from the $360 million cutoff for 2007’s top 25.

·          The combined pay of the top 25 hedge fund managers beat every year before 2006.

Read Article: Top Hedge Fund Managers Do Well in a Down Year

As the details of the toxic/bad asset purchasing program became public on Monday, financial industry executives have taken to trying to figure out who can profit from the governments generous plan to purchase bad assets. The problems as always are in the details, and the details have been slow to emerge.

The question that all Americans should be asking themselves is not who will benefit from the program, but what will the final bill to the American taxpayer. Will this be the program that works, in the face of so many that have not done much to install confidence in the markets? Judging from the increase of the stock markets, the plan is pointed in the right direction but for how long.

The final question is, will the banks and other financial players be willing to let go of the assets at the fire sale prices, or will they hold out to see what others are pricing items for, trying to get the best price, there for delaying plan.

Breakdown: Possible Buyers

·          Buying opportunity in the so-called public-private investment program

·          Pension Plans

·          Institutional Investors

·          Banks

·          Hedge Funds

·          Mutual Funds

Breakdown: Reluctant Sellers

Federal regulators, in some cases, may pressure banks to sell

Insurance companies have a long time horizon; can hold impaired bonds through market downturns

Breakdown: Pricing

·          Fundamental question: What is this stuff really worth

·          Not all toxic assets are bad

·          Price biggest sticking point

·          The banks want to sell high

·          Potential investors want to buy low

Breakdown: Questions

1. Can banks use taxpayer (bailout) money to bid on toxic assets?
2. Can banks sell some assets and then use the proceeds, leveraged by generous government financing, to buy more of the same?
3. Might investment houses be tempted to overpay, if doing so buoys the value of their own investments?

In the end, the biggest challenge will be getting the banks to sell the assets. Banking executives will not want to unload assets at fire-sale prices. If banks sold at these depressed prices, they would be forced to raise additional capital. Selling at distressed prices would lead to large losses. “Such losses might raise questions about how some banks will fare in a so-called stress test”.

Read Article: Dissecting Bank Plan for a Way to Profit

This week has been a good one for the Obama administration. Geithner, secretary of the treasury has been making head-lines, and has finally put forth a plan that seems to have wide spread acceptance judging by the 7% gain in all the major indexes.

The treasury office is now looking to expand its reach, by having congress give it more power to deal with non traditional institution with large systemic financial risk. This would allow the treasury have similar tools as the FDIC in dealing with crisis as they come up.

Breakdown: New Role

·          Treasury to ask Congress for new authority

·          Take over financial institutions in distress

·          Expanding existing powers to include insurance companies, other less-regulated market players

Breakdown: Resolution Authority

·          Comprehensive overhaul of the government’s financial regulatory system

·          Ability to change contracts

·          Change the business model

·          Unwind parts of the institution that don’t work

Read Article: Treasury Chief Is Expected to Ask Congress for New Powers

The government has developed a plan that will bring in private investors, who will in turn get generous terms, to help the government develop an open bid system for dealing with toxic assets. In the latest effort, the government will put up to $100 billion dollars from the original $700 billion TARP program passed by congress last October.

Because the market for CDO an other Derivatives has all but disappearing, the hope is that the government, with private sector help, can create a new home for these assets. In time creating an open bid market, allowing these assets to be priced and once again be trade in a healthily economic environment.

Breakdown: Privatizing

·          8% of toxic asset plan from private

·          Government is offering generous financing for private investors

·          Plans to purge banks of up to $1 trillion in toxic assets

Read Article: White House: 8 percent of toxic asset plan from private

The 18th, 19th and 20th banks to fail this year are:

• TeamBank of Paola, KS (FDIC Bank closing information)
• Colorado National Bank of Colorado Springs, CO (FDIC Bank closing information)
• FirstCity Bank of Stockbridge, GA (FDIC Bank closing information)

TeamBank of Paola, KS
The FDIC estimates the cost to the Deposit Insurance Fund will be $98 million (I have seen incorrect reports of $9 million around the web).  All deposit accounts have been ransferred to Great Southern Bank of Springfield, MO.  

TeamBank had 17 offices, which have become offices of Great Southern Bank over the weekend.  TeamBank had total assets of $669.8 million and deposits of $492.8 million as of December 31, 2008.  

Great southern bank has assumed $474 million in deposits.  They have also agreed to purchase $656.5 million in assets, at a discount of $100 million (what a deal eh?) and pay a 1 percent premium on deposits.  

The last bank to fail in Kansas was The Columbian Bank and Trust Company, which happened less than a year ago on August 22, 2008.

Customers with questions can call the FDIC toll-free at 1-800-830-4697.  There don’t seem to be any losses according to the FDIC.

Colorado National Bank of Colorado Springs, CO
FDIC estimates the cost to the Deposit Insurance Fund will be $9 million.  Herring Bank of Amarillo, TX has acquired all deposit accounts.

Colorado National Bank had four offices, which are still open, but operating under the name of Herring Bank.  

CNB had total assets around $123.5 million, and total deposits of around $82.7 million.  At least this wasn’t as big of a failure as TeamBank.  Herring Bank agreed to purchase about $117.3 million in assets at a discount of $4.2 million.  

The last bank closed in Colorado was BestBank, Boulder on July 23, 1998.

This doesn’t sound like the deal that GSB got in the TeamBank failure.  Does anyone care to explain to us how GSB got a 15% discount, and HB only got 3.5%?  

Customers with questions can call the FDIC toll-free at 1-800-830-4698.  There don’t seem to be any losses according to the FDIC.

FirstCity Bank of Stockbridge, GA
FDIC says the Deposit Insurance Fund will take a hit of $100 million.  Deposit accounts will be paid out by the FDIC.  Direct Deposits from the federal government, such as Social Security and Veterans’ payments, will be transferred to SunTrust Bank.

No banks could be located to take over the accounts, so all accounts (up to the $250,000 FDIC limit) will be paid out.  Other accounts will have to verify if their account has been fully insured at Is My Account Fully Insured?.  In the past a large fraction of the balance over $250,000 has been paid out (if not all) to minimize deposit losses.  This depends on the assets of the bank at failure.

Payments will be mailed today, Monday.  

As of March 18, 2009 FirstCity assets totaled $297 million with total deposits at $278 million.  At closing, the bank had about $778,000 in deposits that exceeded insurance limits (thats not too bad, though for a few people I’m sure it will be an inconvenience).  

If you have an account, or questions, please call the FDIC at 1-877-367-2719.  

The Whybanksfail blog primarily looks at the health of banks industry. Recently the Banking sector has experienced a revival or sorts, base on what we believe to be a bear market rally. The euphoria on Wall Street has caused to explore our parts of the economy to see what global recession of 2008/9 has in store for us.

As it turns out, there is still much to be worried about.

Manufacturing makes up about 18% of the worlds GDP. It employees countless millions in its factories and workshops, and it’s in trouble. The depth and speed of the decline in manufacturing is remarkable. The declines have created at a self-reinforcing prophecy, and one that will have a cascading effect leading to a great deal more pain in the near future.

Breakdown: Industrial Production

·          Europe - Industrial production down 12%

·          Brazil    - Industrial production down 15%

·          Taiwan - Industrial production down 43%

Breakdown: China

·          Workshop of the world

·          Production growth slowed

·          Exports falling more than 25%

·          Millions of factory workers being laid-off

·          Accounts for 33 percent of GDP in China

Breakdown: United States

·          Industrial output fell 11% in February

“Plunging manufacturing suggests that as bad as things were in the fourth quarter, they are at least as bad now, this is a classic adverse feedback loop. It won’t quickly correct itself.”

Breakdown: Trade

·          Trade is shrinking faster than production.

·          Germany’s exports down 20% from a year ago

·          Japan’s down 46%,

·          United States exports fell 23.6% in the fourth quarter of 2008.

As manufacturing and the economy continues to decline, more workers can expect to lose their jobs around the world in coming months, especially as global trade contracts.

Read Article: Rapid Declines in Manufacturing Spread Global Anxiety

Lately we have been hearing a great deal of fuss made by financial companies who have received government bailout money, that their activities and trades are proprietary information. To release this information would put the banks at risk.

The primary problems with the banks argument are three fold:

First – the taxpayers are the owners, so if there is proprietary information it’s the tax payer who should know about it.

Second – If the taxpayers are expected to give money to one party, which is in turn going to then give that money to others, the taxpayer needs to know where the money is going.

Third –With stock, companies are expecting to file SEC documents when engaged in large purchase, or transactions. These types of transactions should be regulated and the large transactions should be booked or filed with the SEC, so that people can better gauge what the banking risks are.

“AIG caved in to political pressure Sunday and released a list of some of the financial counterparties that benefited from its $160bn US government rescue, including some of Europe’s largest banks.”

Breakdown: Amounts

• AIG paid $22.4bn of collateral related to credit default swaps
• $27.1bn to help cancel swaps
• $43.7bn to satisfy the obligations of its securities lending operation
• Payments made between September 16 and the end of last year

Breakdown: Payments

· Goldman Sachs received payments worth $12.9bn.

· Top European banks received payments worth – $31.6bn

· “European banks used AIG’s credit insurance to keep from having to hold capital against their long-term securities holdings.”

· “Wall Street banks also used swaps to hedge their sub prime mortgage-backed securities portfolios.”

Breakdown: Exposure Reductions

· Reduce exposure to credit default swaps and other derivatives

· Notional value of derivatives exposure at $ 1,600 billion

· $ 2,700 billion a year ago

· CDS exposure has been cut from $ 433 billion to $ 302 billion

Breakdown: Bonuses

· AIG to pay $165m in retention bonuses

· Employees of AIG Financial Products.

· Unit contributed most heavily to near-collapse

“The bonuses represented “legal, binding obligations”, but said AIG would make a range of compensation cuts in the unit this year.”

These are considered to be the most talented employees. AIG’s Chief Mr. Liddy is concerned that without these bonuses AIG will not be able to attract and retain talented employees who think that their compensation will be subject to rules by the US government.

Makes you wonder, is this the fault of the people that were in charge, or was it the fault of the market? Are these the smartest people who should be retained? For anyone wondering, markets are controlled by people.

These are the people that have failed us all. They are not the best, nor are they the brightest. Unless of course you consider them the smartest for enriching themselves as the rest of us fail.

Read Article: AIG publishes counterparty list

The recession has hit even the fable German car makers, as BMW, maker of sports and luxury cars saw a loss in the fourth quarter of 2008, and Volkswagen predicted a decline in profit this year.

“BMW said in a preliminary statement that it had suffered from write-downs related to the reduced value of leased cars and bad debts in addition to severance packages for employees.”

Breakdown: BMW

·          Fourth-quarter loss of 718 million euros ($ 917 million)

·          Compared to earnings of 1.31 billion euros a year earlier

·          2008 earnings dropped 78%, to 921 million euros

·          Revenue fell 5%, to 53.2 billion euros

·          Automobile production fell 6.6%

Breakdowns: What’s worked at BMW?

·          Rigorous management of free cash flow

·          Funds improved to 8.1 billion euros at the end of the fourth-quarter

·          4.3 billion euros a year earlier

·          helping to deal with fears about short-term financing

·          Capital spending, at 4.2 billion euros in 2008

·          Down 1.5% from a year earlier.

Breakdown: Workforce

·          In 2008 reduced work force by 7%, to 100,041 at the end of the year

·          Approximately 4,000 voluntary termination agreements signed in December

Breakdown: Volkswagen

·          Largest carmaker in Europe

·          Sales fell 15% in the first two months.

·          2008 net profit rose 15.4% on record deliveries, to 4.8 billion euros

·          4.1 billion euros in 2007.

·          Sales were 4.5% higher, climbing to 114 billion euros

·          Releasing more than 20 new models by 2010

·          Brands include Volkswagen, Audi, Seat, Skoda and Bentley

Read Article: BMW and VW Reflect Difficulties Facing Carmakers

Our forums have been up for a while now.  Interest has been decent in terms of readers.  Unfortunately we have a lot of readers, and not enough contributors!

The Why Banks Fail forum is meant to provide an open, and interactive way to discuss money and finance.  

We actively manage it so spam will not be a problem.

Recently we’ve been working with Jefferson National, and providing a series of tips on annuities.  Larry Greenberg will be posting every Monday for the next few weeks, highlighting insider tips on annuities.  They will be happy to respond individually to questions about annuities.

As of this morning, we have announced a Forum Activity Contest!  To promote our readers into becoming interactive, we are giving away a $50 American Express Gift Check on May 1 to the user with the most posts (don’t get smart, we will be monitoring this actively — so real posts only).  

You are welcome to advertise your blogs in our forums, ask us questions, request an article, ask Jeffersion National about annuities, or just stop by and make suggestions.

Thanks for reading Why Banks Fail.

Joblessness on the rise

The government says the number of Americans filing initial claims for jobless benefits rose last week while the total jobless benefit rolls reached a new record.

Breakdown: Joblessness

·          First-time requests for unemployment insurance increased to 654,000

·          Previous week’s figure of 639,000

·          Continuing claims set record of 5.3 million

·          Increased of 193,000

·          Most on records dating back to 1967.

·          Sixth time in the past seven weeks claims set a new record

0.1% Fail in Retail sales

Breakdown: Retail sales

·          Smaller-than-expected margin in February

·          Surprise gain the prior month

·          Commerce Department report

·          Total retail sales eased 0.1%

·          After rising by a revised 1.8% in January

Breakdown: Gasoline

·          Gasoline sales climbed 3.4%

·          Largest increase since November 2007

·          Increasing 2.8% in January

Americans lost 18% of Household Net Worth in 2008

“Hit by the double whammy of declining home prices and a falling stock market”

Breakdown: Worth

·          U.S. households saw their net worth fall by $11.2 trillion, or 18%,

·          $51.5 trillion at the end of 2008

·          Wiping out five years of gains

·          In the fourth quarter alone, household net worth fell by $5.1 trillion,

·          Record 31% annualized decline

Breakdown: Debt

·          Households taking on less debt

·          Deleveraging after five years of double-digit growth in debt

·          Fourth quarter, households paid off more debt than they took on

·          First time since at least 1952

Read article: New jobless claims rise more than expected

Read Article: U.S. retail sales fall 0.1 percent

Read Article: Household net worth plunges 18% in 2008

Large and small banks across the country are looking for ways to return money they received via the TARP program, in hopes of not being forced to fallow strict government rules regarding executive pay, and mortgage foreclosure procedures.

“As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.”

The question is, if the new restrictions where not in place, or the possibility of more restrictions was off the table, would the banks be whistling a different toon.

Breakdown: List of Demands

·          Told to put off evictions

·          Modify mortgages for distressed homeowners

·          Allow shareholders to vote on executive pay packages

·          Must slash dividends

·          Cancel employee training and morale-building exercises

·          Withdraw job offers to foreign citizens

The government has suggested that the restriction are necessary, as they will force banks to a-line compensation and perks, such as corporate jets and bonuses, to more levels that Americans taxpayers can understand.  Critics however believe that the new restrictions are more social engineering, then protecting taxpayers.

Parallel’s can be found in the savings and loan (S&L) crisis of the 1980/90s. There the government regulators “adopted rules known as prompt corrective action that required the government to quickly close weak financial institutions if they could not raise money to absorb mounting losses.”

The idea behind the rules of the S&L’s was that it was better to shut down weak institutions before the losses got big enough to damage healthy banks and ultimately destabilize the entire banking system. At the time, government felt that it was unfair for the healthy banks to compete against government-subsidized banks which could suffer larger losses and there for compete unfairly.

The largest distinction however is the size of the institution. “Administration officials say that some of the banks at issue today are simply too large to be seized by the government, making comparisons to the savings and loan crisis less meaningful.”

Read Article: Some Banks, Citing Strings, Want to Return Federal Aid

Most economist and analyst believe that the credit-crisis of 2008/09 is primarily caused by the large losses in Real-Estate in the United State. If that’s the case, numbers regarding February’s foreclosure rates don’t seem to be pointing to anything but more plan for the near future.

Breakdown:

·          121,756 Completed U.S. foreclosures in February

·          Highest monthly total since the crisis began

·          67% increase from the 72,694 reported in January

·          Above previous monthly high of 104,243 set last September.

·          Pre-foreclosure filings set a new monthly record

·          Rising 24% to 207,703 in February from 166,860 in January

If the prices of stocks amongst other investment type assets have fallen to 1997 levels, based on the well watched indexes such as the DOW, and S&P, will Real-Estate prices need to adjust to similar levels before we see any real improvements?

Read Article: U.S. foreclosures hit record level in February