After 3 bacon cheese burgers, one lemonade, and two cokes I found myself having a conversation with two federal employees, both of which are blood related, about how much it cost to rent an apartments. Turns out of one them recently purchased a 17 unit building in a ruff part of town. He told me that he was able to buy the building for 7 times rent. Something that use to be the norm IN THE OLD Day’s but unspeakable for the last decade or so when resale was closer to 10 – 12 times rent. More interesting then the cost of the build is the amount of rent he was able to charge for a 2 bedroom apartment.

If a respectable family (with decent paying jobs) came to see that apartment, the most that he could ask for rent would be in the neighborhood of $1,070 dollars. (Mind you this is America’s most expensive city). However if he rented the apartment to government sponsored program (both city and federal) the apartment would rent for something in the neighborhood of $1,450. That said, the person living in the apartment was only responsible for about $50 of the monthly rent. On top of that, if that person continued keep the job they had the whole year, the government would match there savings for the year up to $5,000.

So if you are normal person with a good job, you are expect to pay $400 more for an apartment then would otherwise be the going rate, because the government has stepped in with deep pockets.

The following day came an article in the New York Time regarding the FHA loans.

“In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.”

“A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.”

“In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.”

“The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.”

Breakdown: Economic Stimulus Act of 2008

            1) Temporarily doubled \maximum loan the F.H.A. insured, to $729,750.
            2) Two-unit property can be insured for up to $934,200.
            3) Planned legislation next year raising maximum to $839,750.

The problem with all this, if you still don’t see it, is that the idealized American Dream is no longer turn. There was a time in the country that a person could work hard, save some money and buy a house. Now the concept has change to work less, get help from the government, and hope that there will be bigger programs in the future so that some one could be stupid enough to buy out your (mistake) golden egg.

If you keep putting pressure on the middle class it will break, that would be disasters for this country, as its success or failure is directly mapped to that of the middle class.

Lastly, if a building is burning you don’t use gasoline to stop the flames, you use water. If loans are the cause of the latest financial problems of American, what makes anyone thing that we should giving out larger loans?

Read Article: With F.H.A. Help, Easy Loans in Expensive Areas

Do you see what’s happening to the dollar. I believe, and this is just a theory, the reason that the stock market is seeing growth is because most of the major companies on the DOW and S&P today are international companies, and are generating a great deal of the profits from international sources. As the Eastern economies have shown that they are on their way to recovery, the profits will come in to the asset owners. It just so happens to be that assets owners are mostly US and European companies. At the very least they are traded on the US/Euro markets. Since it cost too much to buy the stock in Europe, why not buy in the US. (Euro/dollar 1/1.50)

In a recently conversation with a major player, who told us that he see is the market as two camps. One that believes the recover has started and that there will be a normal recover, and follow the historic curve back to a bull market. The other is a group who also see the stabilization and recovery, but believes that there was nothing normal about the recession, and there will be nothing normal about the recovery. The fundamentals have shifted.

Since the economy in the US is based largely on the consumer, I think I read 73% in the Journal, what happens to the buying capacity if the dollar stays week. People will need to earn more to be able to just keep up. Luckily for us in this respect, the Chinese currency is tied to the dollar. Not so luck they have to purchase commodities in dollars, causing their production cost to go up.

The other solution is that Americans can start to manufacture again. But we have already sold off most of our industry. With current asset prices and commodities prices so high, can we even afford to rebuild the infrastructure? I am sure we can, but we are going to need more dollars to do so. The good part is that would create jobs.

With housing at the currently levels, I did not really see any great improvement in pricing (10% to 15%, is not enough since asset prices where going up 20+% yearly the last decade). We need to see prices that resemble 2002, not 2005. The rest of the economy has fallen back to 2000 levels. Food at the current level is also a big point of concern, as feeding American families should be on everyone’s thoughts.

The most populace political move would be to create jobs. Huge public works programs. Increase interest rate to 4% and get normalization back to financial markets via a return to the Glass Steagall act. It would be painful, but within 3 to 4 years you would have huge increases in productivity and employment levels. The Banks would be forced to be Bank’s again, and make money from leading. Not all this aggressive manipulation of the markets. There needs to be separation between, Banking, Insurance, Brokerage and Information. Otherwise it’s all too insular and it does not work for the people, only for the few guys that get to sit in the private rooms.

On a political front the current administration is too tied into everyone to ever make a difference. While I am for universal health care, I am not for the current programs. I believe they do nothing to address the crises in cost; all that is happening is smoke and mirrors.

On one front they will damage the good health care plans that unions (mostly skilled workers) and educated workers have. Say what you want about unions, but it’s because of them that we have any employer benefits at all. Unions keep companies honest. If companies did not offer health care, people would be forced to unionize. It’s happened once. It could happen again. The problem of course is that it will take blood and time to do it. Much like it did at the start of the last century.

The administration seems to have made a deal with everyone. The union’s, the hospital’s, the doctors, the health care providers, the drug manufactories, everyone. Some might say that’s a way to get everyone to the table, but in my experience, when you have too many people at the table nothing gets done.

As for the smoke and mirrors I referred to above. All this plan does is decreases everyone’s benefits, while increasing out of pocket cost, and increase or create a new tax. The poor will technical benefit in the short-term, but because people will figure out a way to cheat the system both on micro/local level (Doctors/Hospitals/Lawyer) while others will figure out how to cheat on the large scale (health care provider/Congress).

As for the currently Obama protection moves, such as tariffs on tire and still pipes. I am not a fan of creating protections for individual industries. I don’t think that helps anyone, I think that it reduces creativity and trade. What I do believe in is a level the playing field. I believe that we should only trade with countries that have similar value as our own country. If we are so against Communism, why is our largest trading partner a Communistic country? Why do we support the World Bank with tax player supported funds, and then create programs which take away their jobs. You want to compete, that’s fine. Create a level playing field. If these countries did not have the zero to low level interest rates, would they be able to compete with out works? The very worker whose tax revenue creates those international programs.The fundamental questions is, if we did not support their systems and governments, would they be able to compete.

$25M-plus insider trading case

“One of America’s wealthiest men was among six hedge fund managers and corporate executives arrested Friday in a hedge fund insider trading case that prosecutors say generated more than $25 million in illegal profits and should be a wake-up call for Wall Street.”

Breakdown: Raj Rajaratnam

• Partner in Galleon Management
• Portfolio manager for Galleon Group,
• Hedge fund with up to $7 billion in assets under management
• 52 years old
• Ranked No. 559 by Forbes magazine this year among the world’s wealthiest billionaires
• $1.3 billion net worth.
• Born in Sri Lanka
• Graduate of University of Pennsylvania’s Wharton School of Business

“Raj has been described as a savvy manager of billions of dollars in technology and health-care hedge funds at Galleon, which he started in 1996. The firm is based in New York City with offices in California, China, Taiwan and India. He lives in New York.”

“The firm added that Galleon “continues to operate and is highly liquid.”

Breakdown: Also Charged

Rajiv Goel, 51, of Los Altos, Calif.,

• Director of strategic investments at Intel Capital,
• Investment arm of Intel Corp.,

Anil Kumar, 51, of Santa Clara, Calif.,

• Director at McKinsey & Co. Inc., a global management consulting firm,

Robert Moffat, 53, of Ridgefield, Conn.,

• Senior Vice President and group executive at International Business Machines Corp.’s Systems and Technology Group.

Danielle Chiesi, 43, of New York City,

• Worked for New Castle, the equity hedge fund group of Bear Stearns Asset Management Inc
• Assets worth about $1 billion under management

Mark Kurland, 60, also of New York City.

• Top executive at New Castle

Read Article: Billionaire among 6 nabbed in inside trading case

When hurricane Katrina hit New Orleans in 2005, thousands upon thousands of people lost their homes to the flood that followed. Many, I am sure got the proverbial at least you have your life, or we can, we will rebuild. But as you pass through the parishes today, you still see the evidence of that faithful day. And that fact that many of the people of this exceptional city never returned to the complete destruction that is the city post Katrina.

The economy sucks. We all know this. Yet we all tell each other that it will get better. We say this in part because America has gone through a few recessions and even a depression and every time we did, we came out better then when we went in. We also believe this because our government keeps telling us things are looking up. The tides seem to be turning.

But I am start to get the feeling every much that either a) they’re lying to us, or b) they’re just that stupid. I started out believing that they are lying to us, then as the crisis continued, I truly began to believe that maybe, just maybe they are that stupid, and I felt that if they are stupid there is a chance that thing will get better.

But now, who knows. Between the price of oil, food and everything other then Victoria Secret going up. The fact that 9.4% of our neighbors are out of work, and yet another Country to possibly go to war with it seems that we need to fundamental change directions and figure out that its going to mean to be an American in this new millennium.

Breakdown:

·          Rate of job losses in the United States slowed significantly in May

·          345,000 jobs lost in May 2009

·          Smallest number of monthly job losses since September 2008

·          Six million jobs have now disappeared since the recession began in December 2007

·          14.5 million people are now unemployed

·          Manufacturers cut 156,000 jobs, \

·          Construction cut 59,000 jobs – improvement over last months 108,000 jobs

“But in a sign of the recession’s worsening toll, the unemployment rate climbed to 9.4 percent, its highest point in 26 years. The rate — a measure of jobless people looking for work — rose more than expected, partly because more people were resuming the hunt for a job.”

“Job losses likely to pile up through the rest of the year as the country’s labor market bottomed out.”

Read Article: Joblessness Hits 9.4%, but Losses Slow

The economy is getting better, but people are still losing their jobs, and banks are still going bankrupt. At least we are told it’s getting better. They need someway to keep the engines running on Wall Street.

Although BankUnited is a regional player, it’s still somewhat of a larger bank, with nearly 14 billion in assets, and a large number of outlets. When a bank this size goes belly up, it brings some major concerns to the market. What’s different here is that private investors have stepped in riding a white horse to save the bank, after the last minute. It will be interesting to see how the investors position themselves as possible takeover targets come up. The investor group will inject an additional $ 900 million into the bank; bring its tangible common equity to 8% of assets.  

Breakdown: BankUnited

·          Worth nearly $13bn by assets

·          Closed by federal regulators in the biggest US bank failure of 2009

Breakdown: Investor Group

·          Blackstone Group

·          The Carlyle Group

·          Centerbridge Partners

·          WLRoss & Co

“The auction, conducted by the Federal Deposit Insurance Corporation, was the second of a troubled US bank during the credit crisis. Earlier, a group including JC Flowers, hedge fund manager John Paulson and Dune Capital won the bidding for IndyMac’s assets.”

Breakdown: The Deal

·          Deal includes a loss-sharing agreement on $10.7bn of the bank’s $12.8bn in assets

·          Government will take 80% of the first $4bn in losses

·          95% of any remaining losses

·          Federal government receives warrants, share of any future upside

·          Investors will put $900m of equity into the bank

·          Bringing tangible common equity up to 8% of assets

·          Giving the bank the ability to make acquisitions

·          Will be run by John Kanas, former chief executive of North Fork

·          Winning group has talked to regulators for almost four months

“Regulators have worried that sales of troubled banks to private capital should not look overly generous. Those fear were fed when Chris Flowers, founder of private equity firm JC Flowers, said the investor group that bought IndyMac’s assets had all the upside for the failed California bank, while the government had all the downside. Calls to Mr Flowers were not returned.”

Read Article: Private equity consortium wins BankUnited auction

FDIC: FDIC Bank Closing Information for BankUnited, FSB

There is an All State Insurance commercial currently running on televisions in the United State that talks about how the company was created in the middle of the great depression, and how they have been around for the 7 or so recession since. The actor in the commercial says that when the fear subsides, and the economy starts up again a funny thing happens. Hope.

The question is, is this a false start. The general numbers are still down. New housing starts are down to there lowest leaves. 10 out of 19 banks needed to raise more capital. The two largest automakers in the world are declaring bankruptcy, and unemployment is reaching levels not since in generations.  

Are we just over optimistic, or have been become so use to contunited growth, that with out it, we can not survive. What scary is at want point does hipper inflations start? If we don’t increase the money supply, can we deal with all the bills we have pilled up?

Experts are saying that “stocks have moved up too quickly from their March lows, there is one undeniably healthy thing about this surge: Investors are not nearly as afraid about the economy as they were a few months ago.”

Breakdown: CBOE Volatility Index (VIX)

·          Market barometer Measuring expectations of risk and turmoil

·          Created in 1993

·          Changes to its methodology made in 2003

·          Commonly look at as a gauge of fear

·          Rule of thumb, the higher the level of the VIX, the more panicky the investors

·          Last Bull Market, 2002 to 2007 – range of between 10 and 20

“VIX closed below 30 for the first time in more than eight months”

VIX has not been this low since the investment bank Lehman Brothers went bankrupted. After which the VIX peaked near an all-time high of 90 in late October. Investors feard the demise of AIG and the possible nationalization of large banks like Citigroup and Bank of America.”

“As long as the VIX doesn’t get too low, then there is a good chance that this recent rally is actually the start of a new bull market and not merely a temporary blip in the bear market.” The VIX around 27 is still historically high and therefore not a sign of too much exuberance.

“If the VIX gets too low, it could be indicative that good news is already reflected in stock prices. Then you would have to begin to ask yourself what other news could drive stocks higher that investors haven’t already discounted.”

“A low VIX isn’t necessarily a positive,” Roberts said. “It could mean that people are getting comfortable and that might set us up to more shocks in the system. Investors might not be factoring bad news into the equation.”

Read Article: Who’s afraid of a big bad bear?

In banking size does matter, and when a big bank fails it has the potential of taking down the whole economy as many experts say the failure of Lehman Brothers did in 2008. But much of the American banking system is built on smaller, community banking institutions rather then the mammoths of Wall Street like Citibank and Bank of American. What happens if these 7,900 smaller banks fail? What happens to the communities they serve, and the families they employee.

Breakdown: Capital Needs

·          Small/Medium-sized banks must raise $24bn to meet the capital standards

·          10 of the largest 19 US financial institutions need additional capital

·          Identifying a $74.6bn combined shortfall

“Since this month’s release of the tests for the 19 largest banks, regulators and investors have increased their focus on the next tier of lenders, amid concerns some of them might struggle to survive if the economy worsens.”

Breakdown: Stress Test Results

·          200 banks below the 19 largest financial would result in capital shortfalls for 38% of the institutions

·          Leading to a deficit of around $16.2bn in common equity

·          Applying similar criteria to the remaining 7,700 banks in the US would result in a further $7.8bn capital deficit

·          The banks have to repay a combined $27bn in aid

“US Treasury does not intend to extend the stress tests beyond the 19 top institutions. Analysts say that the public release of the government’s test methodology and capital adequacy philosophy means that the tests’ standards will become a model for the rest of the US banking system.”

Read Article: Smaller US banks need additional $24bn

What do you do when you when don’t make enough money to cover your monthly expenses. You use your credit card. You also us it for that nice 46 inch TV, but we’re not judging. Well as most people are aware, American has had a 20+ year love affair with there credit cards.

Every bank issues them. You can get anything from your favorite sports team, to a picture of your pet dog on them. And for a long time even dead people where getting pre-approved applications for cards. But as the 2008/09 crises has hit the banking sectors the hardest, the providers of credit cards are preparing for the largest defaults they have seen in decades.

“Experts predict that millions of Americans will not be able to pay off their debts, leaving a gaping hole at ailing banks still trying to recover from the housing bust.”

Breakdown: Stress-Test Results

·          19 biggest banks could expect $82.4 billion in credit card losses, by end of 2010

·          Federal regulators call a “worst case” economic situation

·          Regulators published losses only on credit cards held on bank balance sheets.

·          $82.4 billion figure did not reflect another element in their analysis:

·          billions of dollars tied to credit card are held off their balance sheets

·          A portion of losses will be absorbed by outside investors

Breakdown: Unemployment Breaches 10%

·          Many economists predict it to get worst

·          Rate of uncollectible balances at some banks could far exceed that level

·          American Express and Capital One Financial, Expect 20% of balances to go bad this year

·          Bank of America, Citigroup and JPMorgan Chase, about 23% are expected to sour

Breakdown: Vastly Understate

·          Regulators’ loss rate was applied to their entire credit card business

·          Card losses could reach $141.5 billion by 2010

·          It could top $186 billion for the entire credit card industry

“(T)he peak unemployment level that regulators used to drive their loss estimates is roughly what current rates are on track to reach. That suggests that if the unemployment rate gets much worse, credit card losses could be worse than what regulators projected.”

Breakdown: Job Losses

·          Unemployment rate reached 8.9% as the economy shed 539,000 jobs.

“The unemployment rate and the rate of credit card charge-offs, or uncollectible balances, have been aligned because consumers who lose their jobs are more likely to miss payments.”

Breakdown: Write-offs

·          Banks wrote off an average of 5.5% of their credit card balances in 2008

·          Average unemployment rate was 5.8%.

·          End of the year, rate of credit-card write-offs was 6.3%

“Experts predict that the rate of credit-card losses could eventually surpass the jobless rate because of the compounding effects of the housing crisis and lackluster consumer confidence. Shortly after the technology bubble burst in 2001, credit card loss rates peaked at 7.9 percent.”

Breakdown: Prior Recessions

Unlikely to be able to extract equity from their homes

Or draw down retirement accounts to help pay off their debts

“After writing off about $45 billion in bad debts during 2008, credit card lenders are bracing for the worst year in the industry’s history. Not only are losses spiraling, but also lawmakers are on the verge of passing a set of tough new consumer protections that could have a devastating effect on profits. This week, the Senate is expected to take up the Credit Cardholders Bill of Rights after the measure passed in the House with a strong bipartisan vote of 357 to 70.”

Breakdown: Average American

Household have with nearly $8,400 of credit card and other revolving debt.

Read Article: Banks Brace for Credit Card Write-Offs

For most people on Main Street, looking at Wall Street today, its almost trying to figure out what side is tails on a double side coin. Who the hell knows what’s going on? On one hand the government is saying that there are banks out there that are in good standing. But other banks need around $75 billion dollars of additional capital to survive a worsening economy. That money is expect to come either throw private channels or by converting already barrowed government aid into common equity. But people that’s still $75 billion dollars.

Wall Street was up today on news that job loss are slowing down, but we have almost 14 million people out of work, with most analysts expecting additional 2 million loses this year, and 20 million totals before its all said and done.

How can this be good for the economy? Whybanksfail does not see anything improving until we start to add jobs. Not lose them.  

Breakdown: April Numbers

·          Bureau of Labor Statistics

·          Economy lost 539,000 jobs

·          Unemployment rate at 8.9 %

·          Pace of job losses starting to level-off

·          13.7 million American unemployed

“The economy, while still bleeding hundreds of thousands of jobs, is starting to lose them at a slower pace, offering the latest hint that the recession is bottoming out.”

Breakdown: Last four months

·          Jobs vanished at a rate of more than 650,000 every month

·          741,000 jobs lost in January

“But some 17 months into one of the worst downturns since the Depression, many businesses have already cut their own costs to line up with lower revenue. And economists said employers were likely to cut fewer and fewer jobs over the rest of the year as tax cuts and stimulus spending wash through the economy.”

Breakdown:

·          Economy has now shed 5.7 million jobs since the recession began in December 2007

·          Most of those coming in the last five months

·          March was revised upward Friday to 699,000, from 663,000

“Many economists expect businesses to cut an additional two million jobs before the economy begins growing again and the unemployment rate begins to ebb, probably sometime in 2010.”

What effect can 20 million unemployed or underemployed workers have on a fragile economy? The unemployment rate is already as high as the Obama administration believed it would be at the end of the year, and it is all but certain to climb even higher.”

Breakdown:

·          27% of unemployed people have been out of work for more than six months

·          Number of people who can find jobs in five weeks or less is dwindling

Read Article: U.S. Jobless Rate Hits 8.9%, but Pace of Losses Eases

US Government Federal Regulators are preparing to release the results of the much talked about Stress-Test, which are designed to give the country an understanding of were the nations banks stand, and what they might look like if the ongoing crisis continues or worsens.

Regulators have pushing banks to use common shares to bolster their “tangible common equity,” a measure of capital. Regulators are placing greater emphasis on the resources that a bank has at its disposal than the more traditional measure of “Tier 1” capital.

Bank of American

Regulators told BOfA that it needs $33.9 billion in capital to withstand any worsening

“If the bank is unable to raise the capital cushion by selling assets or stock, it would have to rely on the government, which has provided $45 billion in capital through the Troubled Asset Relief Program.”

Breakdown: Game Plan

·          Could convert non-voting preferred shares into common stock

·          Making government one of the bank’s largest shareholders

Executives at the bank believe the requirements should be less and have sparred with the government over the amount

Bank of America says they have plenty of options to raise the capital on its own before it would have to convert any of the taxpayer money into common stock.

“The government’s determination that Bank of America doesn’t need as much capital as it has already received from taxpayers is an indication that even some of the most troubled banks may not need more government money than has been allocated to them.”

Citigroup

Has allowed the Government to convert investment into common stock

Arrangement worked out between the Treasury and Citigroup earlier this year

Treasury received mandatory convertible preferred shares (Preferred Shares)

Those shares can  be converted to voting shares at the will of the government

Citigroup is expected to need to raise capital as insurance against any further downturn in the economy.

The government told the bank it would need $50 billion to $55 billion in capital, a requirement that would force it to raise $5 billion to $10 billion in new capital

Read Article: Bank of America Needs $33.9 Billion Cushion, U.S. Says

As the size of the nation’s debt grows to levels never seen before, Wall Street is starting to sound the alarms, saying that we need to keep the debt growth in check, or suffer a longer recession. Private firm will not be able to compete with the government in spending, washing away their ability to create wealth. We are also putting greater obligations on future generations to replay today’s debt.

As Tax revenues were continue to decrease, 14% in the first half of the fiscal year, the government will be forced to look for other ways to fund operations, and keep the country open for business. The question is how much can the United State afford to barrow before it collapses under its own weight.

Breakdown: Unprecedented Spending

·          Bank bailouts

·          Detroit rescues

·          Health care overhaul

·          Stimulus plans

Breakdown: Yield

·          10-year Treasury notes rose to its highest level since November, to 3.17%

·          Investors are demanding larger returns

·          Low by historical standards – Averaged about 5.7% in the late 1990s

As the economy stays in recession, for the first six months of the current fiscal year, federal deficit is running at $956.8 billion or about one seventh the gross domestic product (GDP). These levels have not been seen since World War II.

The debt which is held by the public is expected to go from 41% of GDP in 2008 to 51% in 2009, and will peak at 54% in 2011 at which point it is expected to declining the following years.“For all of 2009, the administration probably needs to borrow about $2 trillion.”

“Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year.”

Breakdown: Interest Payments

·          Interest payments to more than quadruple in the next decade

·          $806 billion by 2019 from $172 billion next year

Read Article: Worries Rise on the Size of U.S. Debt

The end of Chrysler nears, at least before it is reorganized in bankruptcy court, at which point it may reemerge as concern owned mostly by its unionized worker force and the Italian car maker Fiat, better known to some Americans as Fix It Again Tony.

“The American automaker Chrysler will file for bankruptcy on Thursday, an Obama administration official said. The White House said President Obama and members of the auto task force would address the fate of the company at noon.”

Breakdown: Debt-Holders

·          Last-minute efforts to win-over recalcitrant Chrysler debt-holders failed

·          Administration had the “full support of Chrysler’s key stakeholders”

·          Administration was frustrated with the holdout creditors.

Breakdown: Holdouts

·          Holdout lenders, primarily distressed-debt hedge funds

·          Bought portions of Chrysler’s $6.9 billion of bank debt at a discount

·          Likely to argue that they have the first claim to the carmaker’s assets

·          Would see greater recovery in a liquidation

·          They contend would yield about $.65 on the dollar

·          Treasury Department would have given the creditors $.33 on the dollar

“If all 46 lenders do not agree to the new offer, and a bankruptcy filing occurs, the lenders will be forced to accept the $2 billion they were originally offered or fight in court for a higher amount.”

“People briefed on the negotiations said that while it seemed certain Chrysler would survive and avoid liquidation, it was not yet clear whether it would have to be placed into bankruptcy to sort through any unresolved issues with creditors.”

Breakdown: Prolonged Battle

Bankruptcy filing could lead to a prolonged battle in court

Company’s lenders, dealers and parts suppliers across the country

Government would need to provide financing for the company to operate

Read Article: Final Effort to Avert Chrysler Bankruptcy Falls Short

As Chrysler works against the government clock, it seems as they have come up with a plan that might keep the automaker out of bankruptcy court. Chrysler’s unsecured creditors have reached a preliminary agreement with the Treasury Department and United Auto Works which will change the ownership structure of the company, and keep them making cars.  

The only question that we at Whybanksfail have is, with the UAW and Fiat taking control of the company, what will Cerberus Capital Management get, and what about Daimler AG.

The understanding that WBF has is that Cerberus owned 80.1% and Daimler has the remaining 19.9%, however Cerberus never paid anything to Daimler, it simply stepped in to take over debt, and Daimler already has write their remain ownership stake to zero. So the true value of the company today is the $2 billion dollars that large unsecured debt owners have agreed to, and the value of the secured debt. How does Cerberus make money??? Because you know they will.

It would be very interesting to see how this all plays out in a few months. WBF still feels the best solution here is bankruptcy. It will let us see what’s really under the covers.

Breakdown. Debt Deal

·          $6.9 billion in unsecured debt

·          Debt owners include Citigroup, JPMorgan Chase, and hedge funds

·          All debt to be canceled in exchange for $2 billion in cash

The two sides had been far apart in negotiations ahead of a Thursday deadline, but they have significantly narrowed the gap in recent days.

Breakdown: Union Deal

·          Chrysler reached deal with the United Auto Workers

·          Union would own a 55% stake in the newly reorganized automaker

·          Italian automaker Fiat and US government would likely own the rest

·          The agreement with the UAW must be ratified by union members

·          UAW agreement relieves portion of $10 billion owed to retiree health fund

Read Article: Deal Is Set on Chrysler Debt That May Avert Bankruptcy

The Supreme Court will hear arguments today that could change the way big banks are regulated. The case, “Cuomo v. The Clearing House Association” tries to figure out who has the right to regulate national banks, federal or state governments, when it comes to the mortgage business 

“The case began four years ago, when Eliot Spitzer, New York’s attorney general at the time, questioned why some national banks seemed to be making a disproportionate number of high-interest home mortgage loans to black and Hispanic borrowers.”

The hope is that whatever decision the court makes, the language of the ruling will have the appropriate wording so that any future regulatory frame work that is put in place, has a good chance for project customers from bad bank policy’s

Breakdown: 

•  Attempting to enforce anti-discrimination laws
•  Ran up against federal precedent
• Rended to leave regulation of national banks to the Treasury Department
• And Office of the Comptroller of the Currency
• Consortium of banks sued Mr. Spitzer
•  So did the Office of the Comptroller of the Currency 

Read Article: Justices to Hear Arguments on Bank Regulation

The FDIC will take another hit this week, in the tune of $700 million caused by the collapse of 4 regional banks bringing the annual total failure to 29.

“Banks in a bind: The recession has left regional banks reeling, with cash-crunched consumers struggling to pay off their loans.”

The number of banks which have failed in 2009 now totals to 29, four more than the 25 that failed all of last year. The additional 4 failures will cost the Federal Deposit Insurance Corp.’s deposit insurance fund $698.4 million.

Georgia now has 10 bank failures, the most bank closures of any state since the crisis intensified at the start of last year.

Breakdown: First Bank of Idaho

·          Ketchum, Idaho

·          First bank based in Idaho to fail in more than 20 years

·          FDIC appointed receiver by the Office of Thrift Supervision

·          $374 million in deposits

·          $488.9 million in assets

·          Most deposits acquired by U.S. Bank of Minneapolis

·          U.S. Bank paid a 0.55% premium for the deposits

·          U.S. Bank will not assume $112.8 million in brokered deposits

·          Agency will pay brokers directly for the amount of their funds

·          U.S. Bank acquired about $17.8 million in First Bank’s assets

·          Remaining assets will be retained for later disposition

·          Cost to FDIC deposit insurance fund $191.2 million

Breakdown: American Southern Bank

·          Kennesaw, Ga

·          Shut down by Georgia Department of Banking and Finance

·          FDIC was named the receiver

·          Total assets of $112.3 million

·          Total deposits of $104.3 million

·          Bank of North Georgia takes over deposits at a premium of 0.003%, except brokered accounts

·          Cost to FDIC deposit insurance fund $41.9 million

Breakdown: Michigan Heritage Bank

·          Farmington Hills, Mi

·          Shut down by state regulators

·          FDIC was named the receiver.

·          Total assets of $184.6 million

·          Total deposits of $151.7 million

·          Level One Bank takes over deposits at a premium of 1.16%, except those from brokers

·          Level One agreed to purchase $46.1 million in assets

·          Cost to FDIC deposit insurance fund $71.3 million

Breakdown: California: First Bank of Beverly Hills

·          Calabasas, Ca

·          Shut down by State regulators

·          FDIC named the receiver

·          But the FDIC was not able to find a buyer for the local bank

·          Total assets of $1.5 billion

·          Total deposits of $1 billion.

·          Cost to FDIC deposit insurance fund $394 million

Read Article: Bad year for banks: Failures surpass ‘08