Last Call

I'm a bit depressed.

I honestly thought the Obama administration would be better than this. We're heading down a path here to a very nasty place.

Perhaps the damage from the previous administration is so great, all we can do is assume the crash position, but I refuse to believe that. We're America. We make the impossible work and have for 230 plus years.

I hope we get another shot at saving this economy. I worry greatly about the fact that if I had a child today what kind of world they would have in 20 years. Right nowI don't have a lot of hope. America will survive, but it's going to be a lot tougher than anyone in my generation has ever seen here in the States.

We're going to be tested pretty harshly over the next couple of years. All of us. I hope we pass, because history has shown us that empires always end badly, and economic chaos leads to war. The last time this happened it created 16 years of strife, death, and chaos from 1930-1945. America and the world changed forever.

How will we respond now?

Zandar's Thought Of The Day

The Fed printing a trillion dollars to buy US treasuries + The Fed printing trillions more to fund Timmy's Bailout Bonanza + China clearly concerned with depreciation of the US Treasury debt it owns + The Fed maintaining ZIRP (Zero Interest Rate Policy) + Obama's budget, TARP, the stimulus, and everything else we've already spent + UN telling the world to stop using the dollar as the world's reserve currency = Big smoking crater where the US dollar used to be.

When China eventually stops buying US debt and we're forced to print money to do so, inflation will basically finish off the economy.

This week has basically brought the odds of a multi-year depression up to "frighteningly realisitic".

WaMu Sues The FDIC

Claiming the fire sale price it garnered when the FDIC sold WaMu to JP Morgan, the former bank's parent company is suing the FDIC for $13 billion.

In a complaint filed with the U.S. District Court for the District of Columbia, the thrift's former parent accused the FDIC of having on January 23 made a "cryptic disallowance" of its claims, prompting the lawsuit.

It also accused the FDIC of agreeing to an unreasonably low price in arranging the a $1.9 billion sale of the banking business to JPMorgan on September 25, when regulators seized Washington Mutual and appointed the FDIC as receiver.

JPMorgan did not buy the parent holding company, which filed for Chapter 11 bankruptcy protection the following day.

In its complaint, Washington Mutual seeks to recover as much as $6.5 billion of capital contributions it said it made to its banking unit from December 2007 through the seizure.

Washington Mutual also seeks the return of $4 billion of trust preferred securities it said were wrongfully transferred to the banking unit, and said it may be entitled to as much as $3 billion of tax refunds. It also seeks damages of $177.1 million related to unpaid loans made to the banking unit.

I love it. "We lost all this money, and a bank run killed us, so we're suing the government!" Why not? Everyone else is lining up at the trough for trillions. Helicopter Ben will just print more.

Timmy's Plan Is An Abject Failure

Let me say that again. The Treasury Secretary's plan to save the economy will not work. It's terrifying if you thinkg about it. It works like this:

The plan to be announced next week involves three separate approaches. In one, the Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

In the second, the Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money.

In the third piece, the Treasury plans to expand lending through the Term Asset-Backed Securities Loan Facility, a joint venture with the Federal Reserve.

The goal of the plan is to leverage the dwindling resources of the Treasury Department’s bailout program with money from private investors to buy up as many of those toxic assets as possible and free the banks to resume more normal lending.

But the details have been treacherously difficult, politically and financially, and some of the big decisions are the same as those that bedeviled the Treasury Department under President George W. Bush last year.

Timothy F. Geithner, the Treasury secretary, provoked scathing criticism from investors in February by announcing the broad outlines of the plan without addressing the tough questions, like how the government planned to share the risk with investors or arrive at a fair price for the assets that would neither cheat taxpayers nor harm the banks.

Although the details of the F.D.I.C. part were still being completed on Friday, it is expected that the government will provide the overwhelming bulk of the money — possibly more than 95 percent — through loans or direct investments of taxpayer money.

The bottom line is instead of giving the banks $2 trillion for toxic assets, they give $1.95 trillion or so to big investors to buy the crap from the banks. On the rare chance the assets make money, the investor scores huge returns. If the assets continue to lose value (and they will) the taxpayer has to pick up the tab.

It's nothing more than a $2 trillion bailout for the banks...oh and taxpayer money will then go to private investors. It solves precisely nothing. It is, quite literally, robbing Peter to pay Paul. The toxic assets continue to decay radioactively. The banks pretend they are solvent again. The investors pretend they are solvent. The taxpayer is decimated, and the economy continues to spiral down into hell as the money America needs to reform health care, education, and the enviroment instead goes to Wall Street.

It's the financial system that's broken. Timmy is trying to fix a car with no engine, no transmission, no brakes, and no steering by pretending the gravity making the thing roll downhill is all it really needs.

And on top of everything else, the plan is the very essence of moral hazard. The government is going to be setting up these private investors with decent returns if they make money, but staggering returns if the assets lose money all at taxpayer expense. On top of all THAT, the bidding process absolutely ensures that the government will be overpaying for these bad assets because if the banks sell the toxic crap for less than what they paid for it, the banks will lose money. Ergo, the banks have every reason to sell this stuff way higher than what they are assessing it for and make a profit off the American taxpayer's back. It's a direct bailout. Period. It's a travesty of the highest order and it will not work in the long run.

Now the government will lose trillions on this deal. Trillions.

Let me say that one more time: Abject failure. The Kroog, CalcRisk, Jim Galbraith, John Cole, and Yves Smith have more, and they all hate it.

I hate it. If this is truly Obama's plan, he will be a one-term President, and we will be in a depression for years.

Mark this one, kids. I hate to say it, but Barack Obama is about to bury this country. in the long run this will explode because the housing market will continue to fall, and as it does, America's credit rating will disintegrate until our foreign creditors say "We'd like to be paid back now, please."

Then it ends.

This Week's Busted Banks

A whopper of a week in Busted Banks as yesterday the government seized not only three more banks, but two major corporate credit unions as well.

Two corporate credit unions, with combined assets of $57 billion, were seized by the National Credit Union Administration yesterday to stabilize a system used by 90 million customers amid a worldwide financial crisis. Three U.S. banks failed, bringing this year’s total to 20.

U.S. Central Corporate Federal Credit Union, in Lenexa, Kansas, and Western Corporate Federal Credit Union in San Dimas, California, were put into conservatorship, the regulator said in a statement. The credit unions failed so-called stress tests that found an “unacceptably high concentration of risk” from mortgage-backed securities, the agency said.

“Most of the bad assets that we’ve seen in the corporate world reside at these two institutions,” NCUA spokesman John McKechnie said in a telephone interview. “We will be able to resolve them in a more efficient way.”

The U.S. has 28 corporate credit unions, which make loans and provide other services for the retail credit unions that cater to the public. This is the first time a corporate credit union was seized since 1995, when NCUA took control of Capital Corporate, based in Landover, Maryland.

U.S. Central has about $34 billion in assets and serves 26 retail credit unions. Earlier this year, it was granted a $1 billion federal injection in an effort to shore up public confidence.

Western Corporate has $23 billion in assets and about 1,100 retail credit union members, the NCUA said. Yesterday’s two seizures may cost the agency’s insurance fund about $1.2 billion, McKechnie said.

This is bad news. These are major credit unions going under with billions in assets. They are failing the bank stress tests badly enough that they are now immediate candidates for receivership. More and more of this will happen as 2009 wears on, folks.

StupidiNews, Weekend Edition

• Twenty states are launching their own investigations into AIG's bonuses.
• The US Postal Service is cutting thousands of jobs and offering earlyretirement for 150,000 postal workers.
• The crime of "good old fashioned cattle rustling" is on the rise in Texas in the bad economy.
• GM and Chrysler may need significantly more money than the $21.6 billion they requested.
• The Obama administration's new Freedom Of Information Act guidelines could open the floodgates.