Looks Like The WHite House Needs A Sacrifice

I may be getting really cynical, but it sounds like they are about to feed Geithner to the wolves:
Breaking News: "The New York Federal Reserve is being investigated by Neil Barofsky, the special inspector general overseeing the troubled assets relief programme, over its disclosure of documents relating to the bail-out of AIG and its counterparties.
In a statement submitted to the House oversight committee, Mr Barofsky said his team is examining whether the New York Fed improperly withheld information about the AIG bail-out from the Securities and Exchange Commission and his office."

I am on record as to the inappropriateness of Geithner as TresSec, but it now looks like political expediency may do what conscience could not.

Outrageous Bonus, Unfair Compensation

Change is definitely in order when it comes to the design of C suite compensation packages. However, rigorous thinking and careful writing is required lest we make this issue as silly as the administration has succeeded in making it sound. The investment of education and time, combination of special talents and dedication that it takes to join the C suite (or in fact get anywhere near it), merit high compensation. So greed may or may not play a factor in a particular case, but in general, the executives that manage and run the major for-profit business organizations, have risen to the top by merit, and thus merit considerable "reward". However, it is reasonable to say that the most senior managers should be held to the same measure as their reports: performance. So, while it may be really upsetting to see this one or that group making enormous amounts of money, it is not necessarily true that it is wrong or unfair. In any case, the root of this problem lies in the reward for short term performance that is integrated into the institutional money managers' compensation/career progress. Having said all of this, the use of taxpayers' funds/National debt to enable financial institutions to reap outsize rewards is not acceptable, and so the lightning that these firms have drawn for large payouts from huge performance, is well deserved. But, let's agree that it is our public servants who made this possible, so we the people should direct our anger and disgust at them.

A Tax on Transactions????

Wrong, wrong wrong. I cannot understand how it could be considered smart to set up a "fund" (from a transaction tax or any other tax), to bail out bad business operators (the argument that tax payers should not bear the burden is founded on a corruption of the basic business model: that a company needs operate to make profits, not lose capital, or it goes out of business). This tax would only encourage financial risk takers to act irresponsibly (with respect to shareholders), knowing there was an external safety net. We should be striving for true accountability, not devising ways to avoid it and then spread the pain that results.

Unemployment Down, Unemployment Up: Looking Past the News Blurbs

The Labor Department's Bureau of Labor Statistcs (BLS) announced that October unemployment was down to 10% from 10.2% in September. The unemployment benefits extension that Congress agreed to in November was not appoved by the Senate until December and thus those individuals that were eligible for the unemployment benefits under the extension did not get counted in the BLS November numbers as they were neither "here" nor "there".

We will not be surprised to see December's BLS info give us 10.2%+ as these people are again counted as unemployed. Of course, one might ask why we don't count the rest of the unemployed who taken together push the real unemployment rate to 17-18%. Wait until January when the holiday hiring effect is gone.

Talf will end and then?

The Fed said its TALF expiration remains set at June 30, 2010 for loans backed by new-issue CMBS and March 31 for loans backed by all other types of collateral.

This means that we can expect some deflation of the bubble in certain securities, but certainly in CMBS. I'm not suggesting trying to set up a short and time it just right. Rather, I am suggesting that with a fall in cheap,tax-payer financed, low risk (yours not mine) buying power, we will see spreads widen, providing some good buying opportunities. Well researched CMBS buys will provide better yields than almost any other fixed income play. The window for this will be relatively small-9 months max, as the world is chasing yield and won't miss this moment.

Poor U.S.: Unemployment, Net Worth & Buying Power

Under-employment is of paramount concern. The recent proposal to use some TARP funds to create a financing source for small-medium sized businesses (SME’s) is a good idea as there is very little capital currently mobilized to do this. However, there is a question as to where the demand for new/more product/services is to come from. In this crisis, in addition to low employment, we have seen something equally problematic: a dramatic reduction in consumers’ buying power that is not just the result of low employment. Specifically, the consumer, having first borrowed to buy a house/2nd/3rd vacation home, now finds the value of these houses to be worth less than what is owed or, at the very least, 25-75% less than what they paid and thus the consumer in every income bracket has experienced a substantial capital loss. Compounding this loss, the consumer finds that his ability to obtain buying power by borrowing through HELOC and first mortgage refinance is non-existant. Compounding this buying power reduction, the consumer finds that his credit cards now cost more to use while at the same time, the credit card issuer has reduced the amount of available credit. Compounding this, the consumer finds that his store credit cards credit have been reduced. The only possible solution for restoring wealth and buying power to the consumer (and thereby demand for products and services) is through actual growth (and the current loose money is not doing that, it is artificially inflating asset prices and those prices will come back to earth when money is tightened). The problem that we have is that the amount of growth we must achieve to restore wealth to the consumer (and buying power) is enormous when viewed relative to the increase in national debt burden that is developing as a result of the structure of our military committments and entitlements obligations to our indigent, elderly, retirees, veterans, handicapped and economically dis-enfranchized members of our populace. From a global perspective, China and India are experiencing actual growth as they move from the 18th century to the present. Unfortunately, the U.S. (and Europe) has already enjoyed the radical growth in wealth resulting from moving from the pre-industrial to the post industrial, and, we then over-shot with debt-enabled inflated buying power, which we now must carry as a drag weight. China and India enjoy the benefit of the growth opportunity and no drag from debt. As their populaces grow in wealth and buying power, they will develop ever increasing internal consumer demand, and this growth will be geometric. While this is happening, the U.S. populace will be paying back the money it owes for assets that no longer have the value that they paid for them, and our growth will continue to lag that of China and India as we grow incrementally on a linear trajectory. The result is that we will continue to borrow from those that have the wealth, becoming evermore indebted and burdened as they continue to grow in wealth. This scenario is not one that any business person would accept as a viable model for their business, and it is not viable for our nation. Our currency is headed down, and with it our buying power, and that means that we are on a track to experience less and less wealth. So, while we need to finance SME’s, we also need to address the fundamental imbalance in our nation’s operating budget, or these SME’s will choke on taxes to fund our debt.

The Gathering Geithner Storm

The Gathering Geithner Storm
Posted by ccecil

Regrettably for our country, this Administration, which was to be a model of transparency, has betrayed the American people's trust. Too much has been done in the name of expediency and all should have learned by now that the end does not justify the means. At this time it is especially true that it is simply unacceptable that a man with Geithner's conflicts should be allowed to be Treasury Secretary.

Charles Cecil, CEO, Opin Partners LLC