Sunday, November 30, 2008

RIP Tanta


You taught us well, and left us with no excuses. Thank you, Tanta, for clearing the fog. We'll do our best to live up to your example. RIP.

Sad News: Tanta Passes Away

Tuesday, November 25, 2008

CalPERS Loses Over $65 Billion This Year

According to the latest CalPERS press release, the fund is down to "over $175 billion."

CalPERS is the nation’s largest public pension fund with more than $175 billion in market assets. It provides retirement and health benefits to 1.6 million public employees, retirees and their families.
2008 losses to date total $65 billion, or about $1,850 for every man, woman, and child in the State of California. That's also $40,625 per member. Thankfully, taxpayers will make up the difference in the years decades to come.

Here are the losses in graphical form. Note: the scale doesn't start at zero to better illustrate change.

Ouroboros

OK, the bailout has officially jumped the shark. From the Treasury:

Treasury Provides TARP Funds to Federal Reserve Consumer ABS Lending Facility

Washington-- The U.S. Treasury Department today announced it will allocate $20 billion to back a lending facility for the consumer asset backed securities market established by the Federal Reserve Bank of New York.

The asset backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards. While ABS issuances in these categories were roughly $240 billion in 2007, issuance of consumer ABS declined precipitously in the third quarter of 2008 before essentially coming to a halt in October. Continued disruption in the ABS market could further deteriorate credit availability for consumers and increase the prospects for further deterioration in the economy generally...

Under the new facility, the Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis to holders of newly issued AAA-rated ABS for a term of at least one year. The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department will provide a $20 billion of credit protection to the Federal Reserve in connection with the facility, using its authorities in the Emergency Economic Stabilization Act of 2008. The attached term sheet describes the basic terms and operational details of the facility.
You read correctly: The Treasury is bailing out the Federal Reserve so it can bail out credit card debt issuers so they can bail out consumers. The twists of logic needed to explain a move like this are beyond me. It should be obvious to everyone by now that these guys haven't a clue.

Thursday, November 20, 2008

Craigslist Trolling: Laid Off Edition


The Craigslist Misery Index keeps increasing. Here's some excerpts:

Makita - $160: I paid 400$ I will let it go for 160. was laid off.
1997 ISUZU RODEO - $2500: NEEDS TLC, RECENTLY LAID OFF NEED TO SELL
Handyman/labor: offering my services i was recently laid off due to lack of work
20 in" rims and tire - $600: got laid off need money bad for rent.
2002 F 250 Power Stroke Lariet Super Duty: Laid off and need to sell.
LANDSCAPING, HOME & AUTOMOTIVE REPAIR: Laid off truck driver does home repairs
Gold Plated Bulova Mens Watch for sale - $200 (Granite Bay): I do have rent coming up and I have been laid off from my current job, therefore, the watch must be sold. I am firm in my price and only want to hear from serious buyers.
Beautiful Bridal Set with Pink DIamonds!! - $700: Husband was laid off and in desperate need of money.
1cwt wedding/engagement RING: I just lost my job and desparetly need money.
Single Mom....Car Trouble....: I have no money really and nobody to turn to for help.
Will Barter For Groceries & Services: I am willing to do anything to provide for my 2 girls as long as its legal and not morally degrading.
RE: SINGLE MOTHER IN EL DORADO COUNTY: Sorry to hear about you losing your job, but I must agree with one of the responders. EVERYONE is in a financial mess right now. I have 2 kids, just bought a house last December and lost my job before the 1st mortgage payment was due. My unemployment just ended and every month we struggle to pay the mortgage. We have borrowed thousands of dollars from family, but we can't rely on them forever.

Vacuum

This has been covered widely elsewhere, but I'm posting it here for two reasons. One, it's very important and everyone should read it, and two, it proves what I've been saying since the bailout was announced. From Economist's View, by Professor Tim Duy:

Fed Watch: Policy Adrift

I understand the Federal Reserve Chairman Ben Bernanke is considered something of a sacred cow, our one point of light in an uncertain world. An academic who cannot be questioned by other academics. A smart person who has mastered the Great Depression and therefore “knows” what to do, and is providing the leadership to do it.

I am beginning to question all of these assumptions.

I am hoping Bernanke can step forward and clarify the direction of policy. At this moment, he has the best perch from which to guide policy between administrations. He has the opportunity to show leadership. But for now, I see a distinct lack of leadership from the Federal Reserve, and it suggests that Bernanke has used up his bag of tricks. And I don’t think that he knows what to do next...

First, policymakers appear uncertain about what to do with the Fed Funds target...

Considering the forest of trees killed in studying the Japanese experience with ZIRP, one would have imagined that the Fed had already answered the question of how low can they go with the target rate. The answer is zero, and they will head there because they need to look like they are doing something... Simply put, debates about the Fed Funds target are nothing more than academic masturbation.

With the Fed Funds target effectively a nonissue, policy needs to take a different direction. And here again I am supremely perturbed by Fedspeak as policymakers throw around the term "quantitative easing" as if it were candy on Halloween. The minutes seem to make clear that quantitative easing is not the current policy. There is no mention of the quantitative easing in the minutes themselves...

Apparently what Fed officials think is that they 1.) already engaged in quantitative easing, 2.) doing something like quantitative easing, or 3.) might be doing quantitative easing or interest rate targeting, but are not sure which. One can only conclude that Fed officials do not understand their own policies. Policy is adrift. Be afraid; be very afraid.

...Bernanke cannot elucidate a coherent policy strategy to his organization because no such strategy exists. What does exist is a potpourri of policy responses that amounts to providing liquidity at all costs, the outcome of Bernanke’s research on the Great Depression. Beyond this, the Fed is stuck in a netherworld of dual policy targets – not ready to admit the loss of the interest rate target, not ready to adopt a formal policy of quantitative easing...

In short, we need policy leadership. Bernanke is positioned to provide it. But will he? As of now, policy is adrift. FOMC members don’t seem to agree on the role of effectiveness of the Federal Funds target. Some think they are already engaged in a policy of quantitative easing. Some think they may be in something that looks sort of like quantitative easing. Kohn seems to think they are following two policies. Ex-FOMC member Poole is certain that they are hiding a policy change. In the meantime, while Fed officials publically debate the intent of their own policies, investor confidence is collapsing. Bernanke needs to step forward and define policy. We need to pressure him into providing that leadership - or to step aside for someone else to do it.
My only comment: Indecision from a guy like Bernanke can only derive from fear. Fear of making the wrong choice. Fear that there are no right choices, and any decision will result in failure that he will be blamed for. Someone needs to shake this guy up. Like it or not, he's part of history now, and he will be judged much more harshly for ignoring reality than facing it, regardless of outcome.

There is much more in the full article. I highly suggest you read it.

Friday, November 14, 2008

Closer To The Truth


"We have in many ways humiliated ourselves as a nation with some of the problems that have taken place here." - Treasury Secretary Henry Paulson, November 14th, 2008, CNBC interview on the first TARP failure.

Thursday, November 13, 2008

Governor Wants A Federal Bailout, But Don't Call It That

The Governator gave a speech at the Fresno Chamber Of Commerce yesterday, and of course the dire California budget situation was the number one topic. Here, the Gov explains our problem:

And you know what we proposed. We have been told by our Finance Department that we are actually falling short on revenues by $11.2 billion for this fiscal year -- not next fiscal year, this fiscal year, which ends on June 30th. So we have just in these last budget negotiations -- which have just ended, literally two months ago -- we have already made severe cuts of $9 billion. So it was very clear to us that we could not make another additional $11.2 billion in cuts, so it has to be a combination of cuts and tax increases, looking for additional revenues.

And that's, of course, always something that I don't like, because I'm anti-tax. I always felt that California has been living way beyond its means and that we have a spending problem in California, but not a revenue problem. But that has changed, as I have explained to the press in Sacramento just these last few weeks.

And that's why we called a special session, because when you have a drop in revenues, in anticipated revenues, by $11.2 billion, then you don't have anymore a problem with the spending, you have a problem now with the revenues. And this is why we have proposed a combination of revenue increases, which is some taxes on services and also a sales tax increase and an extraction tax on oil companies.
So, the state is no longer "living way beyond its means" and has "a problem now with the revenues" instead. Well, it sounds like some hard choices are on the way. Unless something amazing happens. From the Q&A:
I think the other thing I wanted to add is that we are also asking the federal government to help, because I think that we all know, and this is another thing that we have been fighting for the last five years since I have come into office, because they are giving us only 80 cents on the dollar. There are some $40-some billion that they're holding back, so it's not like we're asking them for a bailout, because it's our money. We're just saying hey, give us some of our money back. And so the legislative leaders, as a matter of fact -- Mike, when are you going back there, next week, to Washington?
To be clear, the Governator is talking about federal per-capita tax rates vs per-capita spending. I love this plan! In fact, all people should pay federal income tax based not on their actual income, but on a per-capita averaged basis by state. Of course, the difference will be confiscated by the state government to spend on whatever it wants, but wouldn't you rather have a high-speed rail than an interstate highway?

Don't get me wrong: I think spending is out of control at all levels. But calling this idea anything other than a bailout request requires more mental contortion than a Circ du Soleil show at a pretzel factory.

Tuesday, November 11, 2008

Elk Grove Promenade In Deep Trouble

General Growth Properties, the owner of the much delayed Elk Grove Promenade, has warned investors it will default on $1 billion in debt due within three weeks without refinancing. From the Wall Street Journal (via Calculated Risk):

Ailing mall owner General Growth Properties Inc. warned Monday in a government filing that its failure to refinance or extend $1 billion in debt due this month could trigger default on billions of dollars in debt and its ability to continue operations would be in "substantial doubt."

One of the nation's largest shopping mall owners, General Growth made the warning in a quarterly filing with the U.S. Securities and Exchange Commission. The company, based in Chicago, faces an additional $3.07 billion in debt coming due next year.

If General Growth cannot raise additional capital to pay off that debt or extend its payment deadlines, it would need to take additional steps to acquire needed funds, "including seeking legal protection from our creditors," according to the SEC filing.

General Growth has struggled for the past year to refinance and pay down a $27 billion debt load, amassed in acquisition sprees in recent years. The company owns more than 200 U.S. malls, including flagships such as Honolulu's Ala Moana Center and Las Vegas's Fashion Show mall.
I'll go out on a limb and say this mall won't be completed until 2011 at the earliest.

Saturday, November 08, 2008

FDIC West


The FDIC is looking for office space in Irvine:

The Federal Deposit Insurance Corp. plans soon to sign a major lease of office space in Orange County, probably in Irvine, where as many as 600 people would liquidate the assets of troubled banks and thrifts based in California and other Western states.

The agency needs 200,000 square feet of space and has looked at locations across Southern California, FDIC spokesman David Barr said.

"It's a temporary office -- three to five years is what we're looking at," Barr said Tuesday. "We hope to find the space within the next few weeks."
They shouldn't have much trouble finding some. The above picture, which I took a couple of weeks ago, shows one of dozens of "see through buildings" I saw in south Orange County.

In other news, there were two bank failures yesterday, one more than usual, at least up until now. One was a small bank in Southern California:
Security Pacific Bank, Los Angeles, California, was closed today by the Commissioner of the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, Las Angeles, California, to assume all of the deposits of Security Pacific...

As of October 17, 2008, Security Pacific had total assets of $561.1 million and total deposits of $450.1 million.

Friday, November 07, 2008

Bailout Nation

Looks like General Motors won't survive the next three months without a major government bailout. At the current burn rate of $2.3 billion per month, GM will be out of money in 90 days.

Politically, it is impossible to let GM fail right now. Some estimates put job losses from a GM bankruptcy at 2.5 million in 2009. The problem is, the company is completely inept, and a simple cash bailout won't change a broken corporate culture. This scene from the PBS Frontline show "Heat" is quite poetic:


A picture is worth a thousand earnings statements. An inconvenient truth indeed.

Thursday, November 06, 2008

State Worker Cutbacks

We knew this would happen, and all-in-all, these proposals look reasonable. Among the cutbacks, the Governator is proposing:

- All state employees will be furloughed one day per month without pay, resulting in a 5% pay cut
- The Columbus Day holiday will be eliminated. Lincoln's birthday and Washington's birthday will be merged into one holiday.
- Four, 10-hour workdays will be encouraged.
- Overtime pay will be eliminated for weeks when workers take sick leave or vacation.

You can read the entire memo here:

GAS Letter To State Employees

This is in addition to the $4 billion in new tax proposals announced today. Welcome to the era of declining state revenues. More tax increases and service cutbacks to follow.

Tuesday, November 04, 2008

Landslide


Now the hard work begins. Can Rubin do a better job than Paulson? We're about to find out...

Monday, November 03, 2008

Sacramento Regional Real Estate Trends for November 1, 2008

**Apologies for the "Yes on 8" ads. Google is a little slow taking them down.**
**OK, it looks like they're gone. If you see them again, please let me know. **