Archive for November 24, 2008

Bank Collapse Watch: CitiGroup 3

November 24, 2008

No, I’m not removing CitiGroup from Bank Collapse Watch status. The government sponsorship is a sham.

What The Citi Deal Doesn’t Do

Citigroup’s stunningly complex rescue deal with the federal government buys it enough time to restore confidence, but leaves many issues unresolved.

The company still faces surging credit costs, potential losses from loans on its books and a massive restructuring project aimed at eliminating 53,000 employees by the spring. Its management remains intact even after the government rescue, but it is still unclear what the Citigroup of the future will look like.

Chief Executive Vikram Pandit wants to shed $500 billion of unwanted assets (he’s 35% of the way there), exit unprofitable businesses and redirect Citi, all at a time when profits from its mainstay corporate and investment bank are hurting from the softening economy.

Emphasis added by me.

Ever been behind in rent to landlord? Ever bought extra time, hoping you’d come up with the back rent — but you currently had no way in the world to do that? This is the position of CitiGroup.

The government will buy $20 billion in preferred shares in Citi, nearly doubling its equity investment in the company since October. It is also guaranteeing losses on $306 billion of assets in exchange for a $7 billion fee. Citi has to cut its dividend to 1 cent and will absorb the first $29 billion of losses on the troubled mortgage and other assets, with the government stepping in after that.

The guarantee is believed to cover most of an estimated $314 billion of residential and commercial mortgage loans and securities and some of $9.4 billion in related hedges, according to analysts at CreditSights. Those assets have weighed on Citigroup all year as the credit markets seized up.

But that leaves unguaranteed another $362 billion of credit card and consumer loans and $428 billion in corporate loans, asset-backed securities, derivatives and other assets. “We believe these assets are not guaranteed by the U.S. government for the most part and are not immune to weakness in the overall economy,” CreditSights says.

Emphasis added by me.

So we’ll wind up eating another third of trillion dollars?

Because no way no how is this going to work.

And still in the shadows, lurkling still unmentioned, is that one trillion dollars of off-the-books stuff CitiGroup is scared to death will come to light.

You think with this, CitiGroup is finished begging at the public trough?

Hardly!

There will be a second round.

Chronicles Of Depression 2.0: #437: Global

November 24, 2008

The world’s central banks must buy assets

The world economy is suffering from a Keynesian shortage of demand. Worse, it is trapped in a dangerous downward spiral of falling asset prices, rising bankruptcies, foreclosures and unemployment feeding into more of the same, along with falling commodity and now goods prices. Since no country is exempt, international co-ordination is needed and made easier because of the obvious common interest. The rapidity of the current contraction also means that fiscal solutions, though helpful, are not timely enough and create obvious free rider problems.

That is why monetary policy should be the first line of action. But conventional monetary policy has gone almost as far as it can in the US and Japan. The failure of the European Central Bank and the Bank of England decisively to respond in October was very damaging, but that is now history. Policy rates will fall further in December, but may make only a modest contribution to stabilising demand, given the further decline in bank balance sheets and rising levels of fear. It is therefore time for unorthodox policy, but one that is far better than Milton Friedman’s helicopter drops of money, because it is reversible.

Emphasis added by me.

This is the first article I’ve encountered calling for cooperation on a worldwide scale.

Why continue to throw bad money after good?

If demand is the problem, it can be created on a scale never before witnessed in the history of mankind.

This guy’s “unorthodox” solution is merely orthodoxy writ larger.

Why call for worldwide cooperation and coordination for just that paltry effort? It wouldn’t work anyway.

James Bond Vs. James Bond

November 24, 2008

I previously posted about the latest James Bond movie, Quantum of Solace.

It gnawed at me because I’d never read the Ian Fleming books and so my only exposure to the character of James Bond was via the movies.

Since that post, I’ve read two Ian Fleming books: Casino Royale and Dr. No.

I’ve also seen the newest Casino Royale and just finished watching Dr. No.

I’m still at a disadvantage because I’m sure the screenwriters of Dr. No — and the other Bond movies — read all the Ian Fleming books to compile the filmed mythos.

Still, I think I have enough information to point out a few things.

In the book Casino Royale, Bond is described by Vesper Lynd thusly:

He is very good-looking. He reminds me rather of Hoagy Carmichael, but there is something cold and ruthless in his …

Let’s do some photo comparisons. This is Hoagy Carmichael:

hoagycarmichael

Then the classic Bond and the rebooted Bond:

connerybond

rebootbond

Well, Connery wins the face contest.

But based on the “something cold and ruthless” bit, reboot Bond wins:

rebootbond01b

— his expression after beating, strangling, and drowning a man! Now that is cold and ruthless!

Compared to the book, I couldn’t help thinking what an absolutely stupid movie Dr. No was. An island mined for bird shit was turned into one mined for uranium and featured a nuclear-powered(!) telemetry beacon to override NASA signals for a moon shot!

I hadn’t seen Dr. No in decades. Now I know where the Austin Powers joke came from.

drnoinsuit

drevilinsuit

No wonder so many things in Austin Powers were so funny. Even though I couldn’t place the exact references, the basic framework had been drilled into my head for decades, not just by the Bond movies, but spoofs such as In Like Flint.

I’m not going to re-watch all the Bond movies. I don’t know which one started the gadgetry kick. But that quickly got out hand! And I also don’t know which one started the wisecracks to release tension in the audience after a violent scene. That quickly got out of hand too.

The libertine appetite of Bond must have been daring for its time. These days, seeing it dramatized in Dr. No, it all looks rather ridiculous. In the two books, there’s no underlying explanation for Bond’s appetite. We’re left to think the guy is simply horny all the time. There’s no clear psychological exposition tying his need for sex to the violence he’s paid to commit.

One final thing. In the movie Casino Royale, I was really shocked by the line, “The bitch is dead.” That was just cold. I was looking to pin that line on Paul Haggis. As it turns out, it was in the book itself:

The bitch is dead now.

Which, in the book, is even colder — because it’s the final line. In the movie, M tries to explain Lynd’s actions as protective of Bond, which actually undercuts the line, making M seem like a Mommy to a childish, misunderstanding Bond.

Surprisingly, I have to say the two reboot Bond movies are closer in spirit to the Ian Fleming books than what I recall of the Connery series. (Roger Moore? Let’s not go there!) I do think they’ve made the violence in the reboot movies absolutely brutal and graphic. But I understand why. That is what real-life violence is like.

Compare these two images:

connerydrnobeating

rebootbond021

The first is James Bond after a beating in Dr. No. The second is Bond after a beating in Casino Royale. The reboot Bond often winds up washing blood off his face!

So, in summary, yes, the 20th-century movie James Bond is dead. Make way for the James Bond of the new century.

— thanks to filmmaker Philip R. Cable and Judie Lipsett who each provided reasons for me to read the Fleming books.

Kat Meyer Now Has A Blog

November 24, 2008

The Bookish Dilettante

It’s all drenched in girly-girl polka dots and pinks and purples. But no cats!

And she needs some help in applying categories correctly. She lists this blog under “Highly Recommended, Life-Enhancing, Webby Distractions.” Say what?

She needs a blog mascot. I recommend this one.

Writer Emma Larkins Get Story Idea Turkeys

November 24, 2008

A Fictional Twist on Traditional Turkey Day and Community Fridays Guest

All of these leave me thinking one thing: what’s so bad about Thanksgiving? Does everyone really have such bad memories that all they can think about the holiday involves madness and mayhem?

I think she was shocked by no one offering a “traditional” Thanksgiving story idea.

The first person listed should be locked up!

Previously here:

The Charm Of Fairy Tales

Wayne MacPhail’s Fake Farmer’s Almanac

November 24, 2008

wmacphailffa112408

Previously here:

How Our Future Does Things
Wayne MacPhail’s Linux Vindication
Linux: The Best Reason For Windows XP

Chronicles Of Depression 2.0: #436: HYPERINFLATION!

November 24, 2008

drudgered112408938am

Bloomberg: Fed Pledges Top $7.4 Trillion to Ease Frozen Credit (Update1)

Nov. 24 (Bloomberg) — The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

Emphasis added by me.

God Almighty!!!

It gets worse:

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms.

The Dow Jones Industrial Average through Friday is down 38 percent since the beginning of the year and 43 percent from its peak on Oct. 9, 2007. The S&P 500 fell 45 percent from the beginning of the year through Friday and 49 percent from its peak on Oct. 9, 2007. The Nikkei 225 Index has fallen 46 percent from the beginning of the year through Friday and 57 percent from its most recent peak of 18,261.98 on July 9, 2007. Goldman Sachs Group Inc. is down 78 percent, to $53.31, on Friday from its peak of $247.92 on Oct. 31, 2007, and 75 percent this year.

Emphasis added by me.

Twenty-three trillion! Poof! GONE!

Worse still:

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

Emphasis added by me.

That $24,000 is on top of the existing debt.

Even more worse:

The commitment of public money is appropriate to the peril, said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. and a former economist at the New York Fed. U.S. financial firms have taken writedowns and losses of $666.1 billion since the beginning of 2007, according to Bloomberg data.

Emphasis added by me.

Near three-quarters of a trillion! Poof! GONE!

And yes, even worse:

Bernanke’s Fed is responsible for $4.4 trillion of pledges, or 60 percent of the total commitment of $7.4 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

Emphasis added by me.

Thank you, Bernanke, for turning us into the next Zimbabwe!

OK, here’s the fatal shot to the head:

Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

Emphasis added by me.

There! It’s been said! The house of cards has collapsed. Economic orthodoxy is over.

What is not being said: This is going to destroy us. Under economic orthodoxy, Bernanke has just set the stage for a lethal hyperinflation crisis next year. That is the consequences of a Central Bank printing massive amounts of funds. There is no escaping that. Nation after nation has suffered this inevitable consequence. We are not immune from it.

And let me remind everyone again: $23 trillion is nothing. There’s a quadrillion total out there. That’s one thousand trillion dollars.

There is now only one way out.