All Posts Tagged With: "Banks"

On National Debt, Default is Inevitable

Much attention has been focused on the size of the national debt as a whole; roughly $14.4 trillion. That number is astonishing, but the sheer size of the debt actually hides the true horror which is in store for the economy and future generations.

The debt has many component categories, the largest of which is called Marketable Debt. That means the portion of the debt that was issued in treasury securities that can be sold in the secondary bond market, and it is around $9.2 trillion. The rest is Non-marketable, and held mainly by the Social Security Administration through bonds that cannot be sold.

The Marketable Debt also has its own sub-components, based on the type of security that was sold to incur the debt …


Politicians, Bailouts and Bank-Owned Houses

Around the corner from my former apartment in Newton was a house that was taken in foreclosure. The “For Sale” sign had been there for a very long time, the lawn wasn’t mowed regularly and the shrubs had died in the winter but hadn’t been removed.

Walk around your own neighborhood and see how many houses are for sale. Sometimes the sign openly states that it is bank-owned, other times you might have to search on the county assessors website. There are plenty of bank-owned houses in Iowa; there are many, many more in California, Nevada, Michigan and Illinois.

The point is this: With such a large supply of bank-owned houses, of course houses will continue to fall in price. When a store has excess …


Washington’s Shrewd Investment

Today the headlines read something like:  Government Stands to Reap $7.5 Billion Profit from Sale of Citi Stock.  This was reported in both the Wall Street Journal and our local rag, the Des Moines Register, and while estimates vary as to the extent of this transaction, the range of the government’s take is somewhere between $7 and $7.5 billion.

There is nothing intrinsically wrong with this.  The federal government bailed out Citigroup in the fall of 2008, and took an ownership interest in the company in exchange for TARP (or is it TRAP?) funds.  The purpose of TARP was to shore up the banking system, and in the process, the economy.  While many of the banks that took TARP money claimed to not need it, …


Government Intervention

One of the reasons the Dow Industrials index rose 936 points and the broader indices rose more than 11% in one day was because on a global scale governments decided to inject capital into banks and financial institutions.  As I read today’s Wall Street Journal, the credit markets had become so dysfunctional that the only institution left with enough capital, or any capital for that matter, was the government.

How scary is this?  Our government has agreed to invest taxpayer dollars, in the form of preferred stock, in banks and financial institutions, healthy and unhealthy, so that order could be restored to the marketplace.

As a taxpayer, I’m not concerned because preferred stockholders are among the first to be paid in the event of a …


Are Things Looking Up?

The Dow had it’s record highest point gain today up almost 940.  Although it was up a bit today, Oil prices have been retreating and have been steadily below $90/bbl for several days.  And have you noticed the price of gasoline has also been declining?

Of course, we all know it’s not over yet, but it’s good to see some positive signs.  Unfortunately, the price of diesel fuel has not come down with trhe price of gasoline, apparently due to supply issues worldwide.  And this will keep the price of consumer goods general higher.  Seems like this ought to be a priority, and not just now but for the long-haul, that is to ensure that the availability of fuels needed to transport goods (diesel being …


Good News – Bad News: Wachovia And The Market

At least good news for taxpayers… CitiGroup has backed out of talks for Wachovia leaving the entire deal for Wells Fargo.  I’m guessing that after more of the depth of bad debt came to light, it became more and more obvious that the deal just was not longer going to be in the best interest of CitiGroup’s stockholders.

That was the good news, as long as Wells Fargo can consumate the deal without government assistance.  CitiGroup apparently still plans to pursue legal remedies against Wells and Wachovia.

In the bad news column, today was day seven of overall down market results.  Some analysts are starting to say what I’ve been saying for some time now: government can’t fix this, and having the government try to …


Wells, Citi And Wachovia Take A Breath

After a weekend of back and forth, one judge’s order to stop Wells and Wachovia from proceeding on Saturday, and appellate court overturning that order on Sunday, and a $60 Million CitiGroup (C) suit against both Wells Fargo (WFC) and Wachovia (WB), the three parties have agreed to a temporary halt to all litigation and discovery until Wednesday at noon.

Which just demonstrates the fallout that can be expected as the government (in this case, the FDIC) strong-arms companies to act, no matter how imprudently, to prevent the government from stepping in and (in this case) taking yet another bank into receivership.

One could argue that FDIC is just plain embarrassed that events ever got to this point.  Or …


Wells Fargo: Smart Like Buffett

It probably comes as no big surprise that Wells Fargo (WFC), one of the largest banking concerns in the US, well diversified in financial products across deposits, lending, credit cards, sales finance, and a smart mortgage originator, announced Friday that they had made a deal to purchase the entire Wachovia package for $15.4 Billion. The surprise comes with the fact it was five days late.  The deal undercuts CitiGroup’s (C) announced purchased of part of the Wachovia (WB) operation, and does what CitiGroup could not do: completes the deal without Federal Funding.

I was shocked when I heard, since Wells had originally participated in negotiations last weekend along with CitiGroup.  Wells evidently was able to use the week, in …


The Latest Treasury Bailout and the Law of Unintended Consequences

I have to admit, my thoughts regarding the latest financial debacles waver from one extreme to the other.  My initial instinct is that the markets need to be stabilized, and anything that provides a floor for a stock market in apparent free fall is a good thing.

My next thought is that $700 billion is a huge chunk of change, and ultimately, the taxpayer, that is, you and me, is on the hook.  The current US budget is running a significant deficit, Congress and the current Administration have not proven themselves worthy of handling such a large sum of money.  On the other hand, the Treasury is acquiring these assets at a fire sale price, so as a taxpayer, we may be able to recoup …


Is The Crisis Abated?

On Sunday I shared some initial thoughts about the Fed take-over of Fannie Mae and Freddie Mac. If you read it, you know I’m not exactly happy about the outcome.  My friend Bithead shared some great thoughts Monday, and I don’t disagree that something needed to be done.   He and I both agree dumping the CEOs was necessary.

And on Monday the Stock Market reacted very favorably to the news, with a huge rise in the Dow (500 points, settling up 289), with a strong positive impact to the banking industry.

But I’m still convinced that the solution divides the interests of those in the government now set to manage the affairs of these companies.  Everyone who looks at this right now is breathing …


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