Gimme More, Timmy, Or I’m Outtie!

How tired are you of listening to shills and mouthpieces for the status quo in executive pay for finance industry welfare kings?

This morning on Bloomberg TV, there was another one being interviewed about the new restrictions attached to the stimulus bill set to be signed into law later today in Denver by President Obama. I’m sure you’ve heard the reasoning against restricting the top pay in those businesses receiving financial assistance from the federal government.

The argument I’m hearing that grates the most is the threat that those in charge of these sinking ships being thrown tax-payer funded life savers will leave due to the new caps on top salaries. When will an interviewer follow up this statement with the simple question: “Where will they go?” Really, it’s hard to understand how that question doesn’t just flow out with an air of incredulity. It’s like watching some guy bluff in a game of 5 card draw when he’s only holding 2 cards. Makes you wonder if he really understands how the game is played, or if he knows that WE understand the rules of the game.

The next shill who voices those words really needs to be called to expand on this theory of brain drain. The only game left in town, so to speak, is Shanghai, where Wall Street bankers are being hired, but that’s probably so that down the road, when the global economy is recovering, the Chinese banks can swoop into New York with teams of experienced professionals ready to take control. Or at least, that’s one theory I heard. Otherwise, all this talk about offending the delicate financial sensibilities of the finance industry’s eliteis all just so Dubai.

Detroit and Bankruptcy: Like Peanut Butter and Jelly?

Jeeves? I'm going for a spin.

As GM, Ford and Chrysler continued their vaudevillian act in two parts up on Capital Hill today, the likelihood that the largest of the three automakers (GM) will be forced to restructure through bankruptcy continues to grow.  Both GM and Ford (F) touched 52 week lows today ($2.52 and $1.46, respectively), with their market capitalizations hitting $1.6 billion and $3.5 billion.  Wow. GM’s market cap is $1.6 billion.

At this stage, holding equity in GM is a risky proposition, but then again, I think the company needs to reorganize and management’s consistency in failing to find fault with themselves points to bankruptcy as being the most likely path to change.

This is the quote from the NYT.com piece on day 1 of the Big Three leaders’ testimony before the Senate that says so little but yet so much (emphasis added):

The cause of their misfortunes was not management mistakes, they said, but the weak economy and the inability of consumers to obtain credit to buy cars.

Really?  It’s the weak economy and lack of consumer credit that has brought the American auto industry’s leadership to my fair city, hats in hands, Armani-clad knees tastefully genuflected before Senate banking committee?  Poor strategic management decisions have played no part in creating the mess that is now the American auto industry?  Really?  Yeah, uhmm.  No, I don’t think so.  Furthermore, by their logic, it would make more sense to bail out the car buyer instead of the car maker if the only problem is a lack of consumer credit.

Sorry gentlemen three of Detroit, but you have failed to make a compelling case to the American taxpayer (many of us struggling with fear, doubt, uncertainty and our own goddamn problems).  Why should we collectively put ourselves $50 billion deeper in the hole just so you can prolong this tragedy?

Next!

The Splurge Is Going Mobile? To the Detroit Automakers: “Really?”

I’m not going to deny that I find the increasing talk about bailing out the Big Three Detroit automakers more than a little worrisome.  Frankly, as someone else said, the car buyers should be bailed out before any this lot.

Immediately jumping to the defense of giving government welfare money to this bunch of managers are those who raise the specter of a potential domino effect that would result were they allowed to fail.  They point out that a large chunk of Americans will loose their jobs as the effect ripples through the industry.  Well to that, I add my voice to Bernie Sanders and everyone else who says that any company that is “too big to fail is too be to exist.”

Let’s be honest, whether or not the $25 to $50 billion is given to these automakers, their sales are not going to pick up for a couple of very compelling reasons:  (1) the potential pool of buyers has shrunk and (2) their product is less attractive than that offered by other automakers with plants in the US  (Toyota and Honda, primarily).  So this “emergency” bailout would be little more than a means to increase the US national debt by $25 to $50 billion while delaying the inevitable restructuring or death of these poorly managed companies.

What really burns me up about this whole situation with the Big Three is that over the years all the signs pointing to the industry’s changing direction were seemingly ignored by their respective leaders.  They ignored the call for higher quality vehicles.  They ignored the call for more fuel efficient vehicles, fighting any regulatory increase in standards tooth and nail the whole way.  They ignored the increasing US sales of their Japanese and Korean competitors, completely discounting any need to effectively compete in their own home market.

When they were generating revenue, how well did they reinvest proceeds?  Not very, to say the least.  It’s not until we are in the midst of a full blown crisis that this lot seem to realize that the brown stuff on the fan has been there so long that its dry and that’s why it doesn’t smell as bad as it use to.  The fvck?  And now they want $50 billion from the US taxpayer to help them stave off their imminent demise?  How do they propose to pay that back?  Are they going to put up equity as collateral?  Short answers: they don’t propose to repay any debt (because they won’t be able to) and any equity used as collateral will become worthless once they slip into that lasting sleep.  At most, the US taxpayer assumes ownership of and responsibility for Detroit’s auto manufacturing facilities.  Not Good.

For companies in their position and condition, the best alternative I can see for them going forward is one characterized by a radical restructuring.  It starts with replacing top management, but will require a considerable about of time, capital, leadership, viable products and consumer demand.  Looking at my score card, I see gaps in leadership, viable products and consumer demand.  Now is not the time to invest $25 – $50 billion, and not with these leaders.

H’s Curve on Two Platforms – No, You’re Not Dreaming! It’s True!

This photo of Bjork?  Yeah, there’s is literally no reason whatsoever for it to be in this post other than the fact that I like it and wanted to use it.  I prefer to read blog posts that have some visual element to them, even better if it pertains to the story.  Hey, one out of two, right? It’s what I like to see, it’s what I like to give.

Anyhoo, earlier today I changed the name of the Blogger version of Hambric’s Curve to Hambric’s Curve Gets Round in honor of my decision to start posting pics I shoot with my phone while I’m, well, out and about , round and about, if you will.  (Full disclosure: This pic of Bjork was not shot by me or on my phone.)  Maybe I should edit the name change from ‘Round and About’ to ‘Out and About.’  Or I could just get on with the point of this post, which is to draw attention to the fact that the World Wide Web is currently hosting two versions of Hambric’s Curve: this one, and the ‘Round and About’ version on the Blogger platform.  Yeah!  I know! Right?

Why?  Well, the as-brief-as-I-can-make-it-answer-at-this-point-in-my-wine-consumption-this-evening is that there are aspects of each platform that make both desirable to use and as well as pains in the a$$.  It’s on days like this that I miss the paid WordPress.org platform, but not enough to cough up the dough to get it back.  At least, not until I’ve heard back on my application to Paulson’s Treasury for a bit of ‘Teh Splurge.’

So, the point of this post and its gratuitous use of Bjork?  To let you know there is another version of Hambric’s Curve that’ll I’ll use to post brief posts with pics from my phone while I’m out and about in DC, including during Inauguration Week.

Mortgages to Be Restructured Thanks to Hambric’s Curve (?)

Hardwick Hall, More Glass than Wall

I don’t want to brag too much, but I think someone important at JPMorgan Chase may have read one or two of my recent posts and decided the shame was too great to bear. Posted on this week-end’s WSJ.com was a report that JPMorgan Chase launched a plan that would modify the terms of some $70 billion in mortgages. What they’re proposing to do involves reworking the mortgages with lower interest rates and lower principal amounts “or other more-affordable terms.”  They are basically going to throw out the current mortgages and replace them with ones more favorable to borrowers in terms of interest rates, outstanding principal or “other more-affordable terms.”  What’s the word I’m looking for?  Begins with an ‘h’?  Huge!

This is huge! (That’s the word!)  All that ranting I did about the consumer’s need for an equity infusion, how the bailout was not for Americans and how what we really need was something closer to ‘trickle-up’ economics, not more b.s. trickle-down, corporate welfare economics. The power of the Curve! Yeah!  Feel it!

Now, some would say that the bank was probably putting this together before I joined finger tips to keyboard and unleashed the Curve’s power to bring the shame, but they’re just haters. So forget them.

This sets the precedent, raises the bar, if you will, for the other banks that are feeding at the Treasury’s gilded trough.

GMAC Wants Some Government Cheese!

Donnez-moi du brie, Sammy. Oh la la!

The Wall Street Journal reports that GMAC, the lender co-owned by General Motors and private equity group Cerberus Capital Management, has been pushing the Federal Reserve to allow the finance company to become a bank holding company. Now you’re probably thinking: “Why the fuck am I even reading this? And what’s up with the picture of brie? Hambric’s Curve has gone round the bend.” First of all, screw you. My mental state is ‘Phasers Set to Stun, Dano’, and, um. Uh. Oh yea. The reason they want to transmogrify into a bank holding company is so that can have access to chunk of Uncle Sam’s $700 billion cheese. That’s right, they want some bailout welfare.  At this time, it is not known if they also requested a dozen cases of Cristal champagne to wash it all down.

There are several ways this can be interpreted, but I’m just going to go ahead and look at it as equivalent to the mythical welfare queen popping out babies to get more government handouts. GMAC wants to become the latest form of welfare queen! Only this isn’t a myth and the cheese ain’t cheap. To wit, GMAC would join such venerable institutions as Goldman Sachs and Morgan Stanley who have taken the step of changing stripes and subjecting themselves to deeper regulatory probing in exchange for money (in the form of a goodish size slice of $700 billion).

On the one hand, the higher regulatory oversight would add a degree of consumer confidence with respect to the institution, down the road any way, and provide additional financial support to the needy in these lean times. On the other hand, they probably have a lot of subprime debt (what the ‘pros’ would term “financial STDs”) that they want to pass on to our Uncle Sam in exchange for some $$$ and end up making him all itchy down there.

‘Trickle-Up’ Economics – A Policy Whose Time Has Come? (Yeah, like 20 years ago.)

Couple of swells

Continuing my spittle-filled rant about the US economy, I’m going to change gears in this post and approach the subject not from the side of what’s wrong, but rather what can be done to make things right.

In a previous post, I noted that the US economy is driven by middle class consumption, so policy makers that push supply-side economic policies to de-hobotize our economy seem very hopeful, at best, that they can motivate the middle by giving to the top.  What is the fucking goal here? Motivate the middle class through envy to work harder for a few extra scraps to be tossed their way?  I mean, sure that shit hasn’t worked since, what, 1982, but hey, that’s no reason to stop trying! Right? Guys?

Supply-side economics seems predicated on the quaint notion that eventually the drippings will drizzle down the chins of America’s swellegant set to sate the thirst and fuel the consumption of the nation’s remaining 95%.  Meanwhile, as we wait and the temperature falls, don’t be surprised to hear:  “Jeeves! I’ve a discomforting chill in the marrow. I say, throw another hobo on the fire, there’s a good man.”  That is, unless you are the hobo.

Seems a quicker path would be to directly pass a goodish chunk of The Splurge funds directly to the remaining 95% and let them have a go at it (consuming that is.)  And by directly, I mean the provision of cash, not just the reduction of taxes.    Quite frankly, the recent economic nightmare the lower and middle class is living these days will leave most hesitant to shove cash out the door when the bank account is running low and the bills piling high.

Not only is America’s economic engine fueled by middle-class consumption, it is also dependent on small businesses to employ the bulk of its citizens – not on the Cokes, GMs and Goldman Sachs of the world. Those two facts alone bolster the argument that the key to America’s economic recovery, its pace and depth, resides with the middle class. Specifically, the middle class must have two key resources (money and confidence) if America is going to pull itself (sooner rather than later) out of this deep-ass economic hole it has dug for itself.  At the moment, we seem to be unkindly short of both but stuffed to the gills with debt and uncertainty.  (Ruh roh!)  Any plan that is to work must provide us the former two will riding us of the latter two.  To put forth anything less would be un-American (or very elitist).  Where do you stand?

Before you answer, just note that October’s consumer confidence reading dropped to a record low of 38.0 from September’s revised reading of 61.4.  Expectations were for a reading of 51.5.  Discuss .

Bloomberg columnits John F. Wasik recently posted an opinion piece on ‘trickle up’ economics that address the role of small businesses in the context of the presidential election.  Defs worth a read.

Hey! America! That “Bailout”? Not For You! HA HA HA!!!!

How many figures am I holding up, America?

Well, average Americans (which excludes you, Joe the Plumber), I have some good news and some bad news. The good news? The chance of you getting more credit that will only drive you further in debt has been substantially reduced. Whew!  That was close!  The bad news? That doesn’t include the additional $700 billion you now owe since its been given to a small group of financial industry swells, which doesn’t include you, obvs. Yeah, you can’t win. Say it.

Some guy at the New York Times has let the cat out of the bag. All that jawboning about using Treasury funds to unstick the stuck credit markets in order to help the average American get more in debt is turning out to be little more than b.s. I’m just floored that people still buy the whole notion of trickle down economics – give the rich a lot of money and eventually some of that juice will dribble down their chins and file your glass with a quenching liquid.  Or they’ll just boot you in the head and put you out of their misery.

NYT.com’s Joe Nocera found a way to access the tape of an employee conference call held by JPMorgan and discovered the bank plans to use the $25 billion it pulled down from Treasury to fund acquisitions or some such shit.  Increased consumer loans did not appear to be a significant part of its plan, and by “not significant” I mean not at all, or so Joe the Reporter would have his readers believe.  An this is despite the bank’s recent acquisition of Washington Mutual.  By way of “damning words,” Joe attributes the following quote to the verbose JPMorgan executive:

We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.

So yeah, consider yourself lucky that you dodged that bullet!  No more debt for you, America, because the credit spigots will not be open all that much to spew forth the liquidity that drives your economy.  I mean, no debt except the $250 billion already out the door (10% of which went to JPMorgan) and the remaining $450 billion to be distributed among a few swellegants.

But hey, look at the bright side, at least you won’t have some material possession staring you in the face, reminding you of your recent $700 billion credit binge.  I mean, after all, that’s what you voted for, right America?

The Consumer Needs an Equity Infusion. Stat!

Despite all the talk comparing our current economic situation to the Great Depression, the FT.com’s Krishna Guha hits a bit closer to home when he writes that the US is likely to plunge “…into what many experts believe will be its worst recession since 1982.”  Today, this comparison carries more weight psychologically because more people can relate to 1982 than they can to 1932.

The impact of the current credit market collapse on the banking and finance industries has been unexpectedly wide-spread and deep-rooted, no doubt, presenting our leaders with the opportunity to transfer more than $700 billion from the public coffers to the private sector.  I say “more than” because there has yet to be a government program with an estimated cost in the “B” billions that has not just come in over budget, but in some cases astronomically so.  But that’s a different discussion.  The one point that has not been totally absent but nonetheless rather down-played from the high-minded talks about how best to spend US Treasury funds is the supreme importance of the consumer in all of this.  You and me (and Joe the Plumber, if he ever gets his shit together and buys that damn business.  In today’s economy, he defs has the upper hand in negotiations with respect to an in-going valuation.)

The US economy is driven by consumer consumption.  How much of that $700 billion+ is being ear-marked for the consumer’s pocket?  Not enough, apparently, in light of falling consumer confidence coupled with rising unemployment that has reduced the consumer’s propensity to spend.  As reported in Guha’s article, the unemployment rate is expected by some to jump from its 6.1% level to somewhere north of 8%.  “Oh shi!#.”  In other words, people are thinking more about how to pay their bills and make sure there is enough cash set aside in the much ignored Emergency Fund.  So despite the credible stories of tighter consumer credit lending standards (have the banks done too little too late?), I’m also curious about the metrics out there on the rate of consumer demand for such products.  My logic tells me that the tighter lending standards were accompanied (if not preceded) by reduced demand for consumer loans in the face of rising uncertainty.

So if the credit markets do “thaw” and the lending spigots reopen, it is the institutional side of the market that will be back in play, but the consumer side is likely to take longer to come back to life.  More important than the the consumer’s access to credit is the state of the consumer’s balance sheet, which is in pretty bad shape following the substantial decline in its equity account.  In other words, the level of liabilities relative to equity has shot up because of the decline in value of real estate values (the major piece of equity on the balance sheet).  That’s not good, to be technical about it.

For example, before the economy swan-dived into the shitter, let’s say I owed $400,000 on my mortgage (my liabilities), but the market value of the my house (my equity) was $650,000 and my stock portfolio was valued at another $250,000 so I was feeling rather flush.  I might have even considered taking out $100K in equity to buy stuff (Hello MacBook Pro!).  But now, I still owe $400 large, but the market value of the property has declined to $450,000 and my equity portfolio is now worth a $1.49, so now I’m feeling like I just lost a shitload of money and not really in the mood to spend (It’s a Dell, Doooode).  In order to boost my confidence and get me back to spending, I’m gonna need my liabilities to decline, my equity to increase or some combination of the two.  And in all honesty, at this point, I’d prefer that increase to be more liquid (like stocks) than not (property value).  [This last point is for another post on the volitility of the equity markets - any gain in stocks' value will be quickly followed by people looking to cash out, (sell) which will then push down equity values.  What a fucking see saw.]

Hobo Soup, monsieur?

Neocon’s Explanation for the Great Hobotization of America: Jimmy Carter and the Blacks, of course!

Made in China

In what is sure to turn into one of America’s greatest “D’Oh!” moments, the neocon men and women now claim to have the answer to America’s latest economic problem. And really, what are the chances that this explanation will be anywhere near as fucked up, or even more so, than the ones used to justify the adoption of the more onerous bits of the Patriot Act and the launching of a war against Iraq in response to Al Quaeda’s attack against America. I mean, yeah, it could be, but then, maybe not. Let’s see.

Well, the latest explanation for this mess is the CRA – the Community Reinvestment Act of 1977, which
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“Wait. What? 19fucking77!?”
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which was “intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations,” as stated on Huffington Post.

So what happened is that all these libruls and ‘teh Blacks’ decided to wait for America’s mortgage industry to advance its financial engineering capabilities to facilitate the development of a wide-ranging derivatives market serving the origination and tranching of sub-prime debt, with the help of those librul institutions Fannie Mae and Freddie Mac. F’ing devious bastards. I mean, it would be one thing if naked greed run amok had anything, anything at all to do with this mess, but come on! It just doesn’t! And the sooner you libruls admit it, the sooner you’ll be on the road to bending over, grabbing your ankles recovery.

Really! You people and your “facts!”
Just as the neocon bastards were getting up to speed on their journey to economic transcendence, HuffPo reports that some librul by the name of Yellen, who also happens to be President and CEO of the Federal Reserve Bank of San Francisco, (San Francisco, people!) pointed out some info foreign to the neocon policy of creating one’s own reality: Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.

What really burns, chucks salt in the wound, if you will, is this Michael Barr “Law Professor” guy at the University of Michigan (read: elitist), who also happens to be a specialist in banking and finance law. Before going any further, I already know this “Professor” is so steeped in the real reality that he is not even capable of creating the type of alternate reality required to be a neocon in good standing, but let’s just play their game anyway.

Professor Barr thinks it would be “‘odd’ if a 30-year old law suddenly caused an explosion in bad sub prime loans from 2002-2007… Sub prime mortgages made mostly by brokers and lenders and securitized by investments banks — institutions not covered by CRA.” Whatever, egghead!