Rolling The Dice On Jobs

In the wake of yet another miserable jobs report comes news that Ohio school gets 700 applicants for janitorial job.

MASSILON, Ohio - Evidence of the slumping economy is stacking up at an Ohio school which has nearly 700 applications for one open janitorial job.

Officials at Perry Local Schools near Canton in northeast Ohio say they've extended the deadline until Monday to accommodate the overwhelming response to the week-old posting.

The full-time position at Edison Junior High School pays $15 to $16 an hour plus benefits. Superintendent John Richard says many applicants are laid-off workers with heart-wrenching stories about the tough economic times.

Perhaps they should reduce the pay to $7 an hour and put two people to work. I am quite certain there will still be 700 applicants. The odds of getting lucky become 1:350 instead of 1:700. Of course applications are still flowing in. The odds will change by Monday.

800 Apply for Water Meter Reader Job

In Tacoma, More than 800 show up for one Water Meter Reader Job.

More than 800 people showed up to take a test for a job as a Tacoma, Wash., water meter reader. One job.

Tacoma Public Utilities spokeswoman Sonja Hall says 1,400 applications were received when the position was advertised. Typically the utility receives about 300 to 400 applications for such a job. About 1,300 of the hopefuls were invited to take an 88-question test.

On Wednesday, some 807 showed up. The job pays $17.76 to $23.56 per hour.

Reading meters is a job that requires essentially no skills yet pays up to $23.56 per hour. People would be lining up to take it for $8.00 per hour.

1,200 Apply For 40 Jobs

In Rhode Island 1,200 apply for 40 jobs to clear unemployment backlog.

More than 1,200 people have applied to fill 40 new jobs at the state Department of Labor and Training to help process claims for unemployment benefits, Sandra M. Powell, the department director, said yesterday.

There are so many candidates for the $19-an-hour jobs, the agency will need help from another state department just to sort through the applications and begin hiring.

Meanwhile, legislators grilled Powell at a State House hearing yesterday, expressing frustration that the agency is not working quickly enough on a backlog of calls and e-mails from people who have lost their jobs — and are still looking for their first payment of unemployment benefits.

Rep. Steven M. Costantino, chairman of the House Finance Committee, said, “We have a crisis here. ... People are waiting weeks and weeks and weeks” to obtain their benefits.

Rhode Island has a 10 percent unemployment rate, the highest level in more than 30 years — and one of the highest in the nation.

Good Lord. These are the last kind of jobs I would hope we would be creating. Moreover, such jobs do not require a lot of skills. They could hire twice as many applicants for $8.00 per hour and serve the public far better for cheaper.

20,000 Apply For 'Best Job In World'

In Australia 20,000 Apply For 'Best Job In World', Caretaker of the Islands of the Great Barrier Reef.

"20,000 people from over 180 countries have so far applied for the role of Caretaker of the Islands of the Great Barrier Reef in what has become arguably the most talked-about job vacancy in the world".

The promotion gained worldwide attention when it launched in January, offering a six-month gig in which the successful applicant will live in a luxury Hamilton Island villa, explore the reef, its islands and wildlife, swim, snorkel and blog about it.

Just two days after the launch of the campaign the site was flooded by hundreds of thousands of hits, sending it into meltdown.

Applicants' 60-second video clips uploaded to the competition's website show eager job hunters from Mongolia, Romania, Turkey, Brazil, Canada and the Vatican bragging, begging and singing for the job.

Sorry folks, applications are closed. The winner will be announced on May 6th.

Place Your Bets

Meanwhile back in the US, CNN Living says Unemployed place their bets on casino jobs.

Sometimes the best way to roll with the punches is to roll the dice. That's Jerry Goldsmith's attitude. The Colorado man lost his engineering job of 29 years -- and the six-figure salary that went with it -- and is now applying for a casino job dealing craps, blackjack, roulette and poker.

"I was angry. I think everyone gets angry," says Goldsmith, 60, recalling his New Year's Day firing. "It's 'Why me?' But after a while I just learned: One door closed, but many more just opened.

Goldsmith was one of 750 people who showed up Wednesday to apply for casino dealer jobs near Denver. Another 550 applied on Thursday. The applicants were going after 90 spots in dealer school.

In a November referendum, Colorado voters approved a measure to expand betting limits at casinos in Colorado from $5 to $100 and to add the games of roulette and craps. The new rules will also allow the casinos to stay open 24 hours a day. They currently close at 2 a.m. and open at 8 a.m.

The state hopes to benefit from the increased tax dollars, a portion of which will help fund community colleges, but before the first new tax dollar goes into state coffers, the casinos need to staff up.

"Twenty-four-hour gaming adds a whole extra shift every day, seven days a week. You're adding an extra shift in every department of the casino," says Jef Bauer, who runs three casinos in Black Hawk, Colorado, for Golden Gaming: the Golden Mardi Gras, Golden Gates and Golden Gulch.

Before the hiring event even started, more than 100 people were lined up, waiting for an interview outside of a bar in Golden, Colorado. The would-be croupiers filed in, filled out applications and were assigned a number. They were photographed and then sat down for a 3-minute job interview.

No experience was necessary for the casino jobs. The jobs pay between $40,000 and $80,000 a year, depending on tips.

Quite A Deal

$40,000 to $80,000 a year for jobs that require no experience and a mere 3-minute interview is quite a good deal. Of course I do not see how our economy can improve by shrinking manufacturing jobs and adding a 2:00AM to 8:00AM shift at casinos.

Let's review Jobs Contract 14th Straight Month; Unemployment Rate Soars to 8.1%).

Highlights

• 651,00 jobs were lost in total
  
• 104,000 construction jobs were lost
• 168,000 manufacturing jobs were lost
• 375,000 service providing jobs were lost
• 40,000 retail trade jobs were lost
• 180,000 professional and business services jobs were lost
• 26,000 education and health services jobs were added
  
• 33,000 leisure and hospitality jobs were lost
  
• 9,000 government jobs were added
  

A total of 276,000 goods producing jobs were lost (higher paying jobs), and the service sector was clobbered once again as well. Government, the last place one wants to see jobs, added 9,000 jobs. The number government jobs has declining sharply, a welcome event, but I expect this to change in the months ahead along with various stimulus programs.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Obama Calls For Sacrifices

Flashback January 10, 2009 Obama Calls For Sacrifices, Scales Back Campaign Promises, Ups Jobs Program To 4M

“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” Obama said in an interview on ABC’s “This Week” program, scheduled to air tomorrow. ABC posted excerpts of the interview, Obama’s first since returning to Washington as president-elect, today on its Web site.

All Americans will have to sacrifice to put the economy back on track, Obama said. “Everybody’s going to have to give, Everybody’s going to have to have some skin in the game.”

"Everybody’s going to have to have some skin in the game.”

Where is the skin in the game or the sacrifice for Congress, state legislatures, or judges? Where is the skin in the game for corporations being bailed out? 99% of the skin is public expense to bailout banks, insurance companies, and automakers while not creating one job.

Bear in mind the Government cannot really "create" any jobs per se. It can raise taxes and shift private sector jobs creation to government jobs creation (typically a malinvestment), and it can bring production and consumption forward for those jobs that are genuinely needed (filling potholes), but once the potholes are filled, one has to ask the question, "What will we do for an encore?"

For those jobs that are shifted forward, they ought to be at the lowest possible cost rather than the highest possible cost.

I Urge Congress To Scrap Davis Bacon

When it comes to jobs creation, we need to get the most done for the cheapest amount and the way to do that is scrap the Davis-Bacon act. Please see Thoughts on the Davis Bacon Act for details.

Inquiring minds may also read Greg Mankiw's post Passing the Buck for his thoughts on Davis Bacon.

More public projects would pass a cost-benefit test if we repealed the Davis-Bacon Act. This law requires contractors on these public projects to pay "prevailing wages," which are typically union wages well in excess of what would occur in a free market. If the government paid market-determined wages for infrastructure projects, we could have both more infrastructure and less government debt. Without doubt, that legacy would benefit future generations.

I do not agree with much of Mankiw's monetarist leanings, but he is bang on about Davis Bacon. And when it comes to "creating those jobs" I would rather see 5 people employed at $8 per hour than 1 person for $45 per hour or 2 people at $22 per hour.

In the meantime bear in mind that the dice have between 700 and 20,000 sides. The odds of your number coming up are not very good, yet the odds you have some "skin in the game" are nearly 100%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Famous Last Words

Inquiring minds are investigating the 10 point CNBC Slideshow On Famous Last Words of 2008 boneheaded comments. Here are some of my favorites.

#3: Erin Callan

"Categorically no."

Lehman Brothers CFO Erin Callan responding on March 18, 2008, to the question as to whether the firm would be the next to go out of business.

Callan was ousted from her job in June. In September, Lehman Brothers filed for Chapter 11 bankruptcy protection.

#4 Ben Bernanke

"I expect there will be some failures” of smaller banks. “Among the largest banks, the capital ratios remain good and I don't anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system."

—Federal Reserve Chairman Ben Bernanke in February 2008.

#6 Dick Bove

"Lehman is a takeover target…I upgrade to buy".

—Dick Bove, banking analyst at Ladenburg Thalmann on Aug. 21, 2008.

Within three weeks, Lehman Brothers filed for bankruptcy. The stock went from $14 a share to $0.

#7 Chris Dodd

"Fannie and Freddie are very solid institutions. They have more-than-adequate capital. They have access to capital markets."

—Chris Dodd, chairman of the Senate Banking Committee, July 14, 2008.

In September, the U.S. government seized control of both Fannie Mae and Freddie Mac, concerned about their mounting losses.

#10 Bernie Madoff

"In today's regulatory environment, it's virtually impossible to violate rules...it's impossible for a violation to go undetected, and certainly not for a considerable period of time."

Two Bonus Picks

#11 Shelia Bair FDIC Chairman (March CNN Money Interview)

"This very challenging credit environment will likely continue through most of 2008, but will clear out towards the end of the year."

Sheila Bair Real Clear Markets Interview October 6, 2008

"we actually think our industry reserves will be sufficient. I think it’s important for the public to understand we are with the government – we’re backed by the full faith and credit of the United States government. ..... Well, you know, I think overall, banks are very well capitalized. They have – yes, they have some stresses in their outset quality, some a lot. But they also have very strong reserves; they’ve been very aggressive about getting reserves. So I really think the balance sheets are strong, they’re in a good position to what it is."

#12 Peter Schiff (Peter Schiff Was Wrong)

Schiff asks "But what if it [the US$] keeps falling? What if it's down 5% next week? And 5% the week after that? And then what if it drops 10%? ...."

"There is extraordinary excitement in commodities." Little Book of Bull Moves in Bear Markets, "Hot Stuff" on page 105.

Little Book of Bull Moves in Bear Markets, page 41:

"I'm rather fond of the word decoupling, in fact, because it fits two of my favorite analogies. The first is that America is no longer the engine of economic growth but the caboose. [The second] When China divorces us, the Chinese will keep 100% of their property and their factories, use their products themselves, and enjoy a dramatically improved lifestyle."

What Happened? Commodities crashed, foreign equities crashed, the US$ soared. There was no decoupling. Instead there was coupling with a vengeance.

Addendum:

Several people noted that CNBC did not include any of their own silly comments. Here are some notable quotes including one from CNBC's Jim Cramer.

#13 Eugene Peroni Jr. of Advisors Asset Management

January 1,2008
Market Monitors Predict Stock Activity For 2008
Eugene Peroni, Jr. of Advisors Asset Management tops the bulls. He sees the Dow climging all the way to 15,200 and then closing the year just below the 15,000 mark. Gene regards healthcare, infrastructure, and energy as this year's best sectors. And among mutual funds, he likes large cap growth funds. Gene isn't phased by current bearish sentiment, in fact he sees that as part of the recipe for upward surprises in the stock market.

#14 Mark Leibovit of VRTrader.com

Nearly as bullish is Mark Leibovit of VRTrader.com. He sees the Dow ending the year only 100 points lower than Peroni.

#15 Joseph Cohen of Goldman Sachs

Abby Joseph Cohen of Goldman Sachs tied for the honors as last year's "top bull." While she's in the middle of the pack now, she's still bullish calling for a Dow close of 14,750. Cohen sees a new economic equilibrium emerging, leading to higher stock prices. But she also hints it could be a rough year for bonds.

#16 Jim Cramer

Aguust 2008: CNBC's Jim Cramer announces that the market has hit bottom



click on chart for sharper image

"I am indeed sticking my neck out right here, right now, declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15. and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside. Stop waiting, [and] buy the next dip because I think it might be the last big one."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jobs Contract 14th Straight Month; Unemployment Rate Soars to 8.1%

This morning, the Bureau of Labor Statistics (BLS) released the February Employment Report.

Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.





Nonfarm Payroll employment has shrunk below mid-2006 levels.

Establishment Data

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Highlights

• 651,00 jobs were lost in total
  
• 104,000 construction jobs were lost
• 168,000 manufacturing jobs were lost
• 375,000 service providing jobs were lost
• 40,000 retail trade jobs were lost
• 180,000 professional and business services jobs were lost
• 26,000 education and health services jobs were added
  
• 33,000 leisure and hospitality jobs were lost
  
• 9,000 government jobs were added
  

A total of 276,000 goods producing jobs were lost (higher paying jobs), and the service sector was clobbered once again as well. Government, the last place one wants to see jobs, added 9,000 jobs. The number government jobs has declining sharply, a welcome event, but I expect this to change in the months ahead along with various stimulus programs.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Birth Death Model Revisions 2008



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Birth Death Model Revisions 2009



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Birth/Death Model Revisions

After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers are back in outer space.

Many small 1-5 person service providing shops in mortgage lending and real estate are throwing in the towel. Those small businesses are not properly accounted for in the Birth-Death Model. At this point in the cycle birth death numbers should be massively contracting.

Month after month, with the exception of January, the BLS is assuming more jobs were created by new businesses than lost by businesses closing shop. The BLS model is horribly wrong.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

• The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
• Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
• The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Household Data

In February, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) rose by 787,000, reaching 8.6 million. The number of such workers rose by 3.7 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.

Persons Not in the Labor Force

About 2.1 million persons (not seasonally adjusted) were marginally attached to the labor force in February, 466,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 731,000 discouraged workers in February, up by 335,000 from a year earlier.

Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in January had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Table A-5 Part Time Status



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The chart shows 8.6 million people are working part time but want a full time job. A year ago the number was 4.9 million.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look



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Grim Statistics

The official unemployment rate is 8.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 14.8%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is a lagging indicator, it is likely to continue rising until sometime in 2010.

ADP Employment Report

For another look at February jobs including a breakdown of stats by small, medium, and large sized businesses, please take a look at ADP Reports February Nonfarm Private Employment Decreased 697,000.

Depression Level Statistics

I consider these job losses to be depression level totals. Admittedly conditions are not as bad as the great depression, but this is certainly no ordinary recession by any economic measure including lending, housing, bank failures, jobs, the stock market, commodity prices, treasury yields etc. For more on this idea please see Humpty Dumpty On Inflation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Gold, $HUI Looking Good

Gold and miners continue to act very well. Here are some charts I am following. Click on any chart for a sharper image.

$HUI Daily Chart



On a daily chart the $HUI has been a good buy in general when the slow stochastic (10,3 on Stockcharts) has turned up from these levels.

On a retrace basis the $HUI is also acting well.

$HUI Fibonacci Levels



The $HUI has turned up on a perfect bounce off the 38.2% retrace move from the top. Moreover, the move down off the top appears to be a corrective a-b-c move. Further correction is possible, but longer term the $HUI is acting well.

Gold Daily Chart



US$ Index Daily



Gold and the US dollar have been rallying together for some time. This is what one would expect to see in deflation after the leverage in gold has been washed out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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'Groping In The Dark' With Quantitative Easing

The Fiscal Insanity Virus has struck again. See if you can spot the occurrences in BOE’s King ‘Groping in the Dark’ as U.K. Expands Money Supply.

Bank of England Governor Mervyn King, criticized for his initial response to the credit crisis, is now embarking on one of the biggest risks in British economic history.

The central bank yesterday won authority to print as much as 150 billion pounds ($212 billion) and pump it into an economy facing its worst recession since World War II, after cutting interest rates close to zero. With markets clogged and economic activity shriveling, King can’t be sure the gamble will work.

“We’re groping in the dark,” said Willem Buiter, a former Bank of England policy maker and now a professor at the London School of Economics. “Ultimately, we’ll know it works if the economy turns around, and that we won’t know for a couple of years.”

“You have to ask what it would be like if they weren’t doing anything and I suspect a lot worse,” said Amit Kara, an economist at UBS AG in London. “But the whole banking system has yet to be fixed, the economy has yet to deliver and credit is not available. It’s all a shot in the dark.”

“We don’t know whether quantitative easing works or not, but it’s a good thing to try,” said Christopher Allsopp, a former U.K. policy maker. “The amount looks serious, and it needs to be to make sure it has a chance of working. They’re doing what they can.”

With the U.K. slipping deeper into recession, some economists nevertheless say the Bank of England’s policies are bold enough to help turns things around.

“Ultimately it has to have an effect,” said Matthew Sharratt, an economist at Bank of America Corp. in London. “It’s going to bring an extraordinary amount of stimulus into the pipeline along with all the other measures that have already been taken.”

New FIV Victims

• Willem Buiter, London School of Economics
• Amit Kara, an economist at UBS AG in London
• Christopher Allsopp, a former U.K. policy maker
• Matthew Sharratt, an economist at Bank of America Corp. in London

Of course it has long been know that Bank of England Governor Mervyn King has a terminal case of FIV.

Of the new cases, Christopher Allsopp really stands out for his statement “We don’t know whether quantitative easing works or not, but it’s a good thing to try.”

Excuse me, if you don't know if it works, how the hell can you possibly suggest "it’s a good thing to try."

Quantitative Easing Does Not Work

But the point of fact is we know without a doubt quantitative easing does not work. Japan proved it in spades. Yet idiotic ideas like that expressed above are exactly How "Something For Nothing" Ideas Become Policy.

1) Those with money control policies in Congress. In return for sponsoring policies that make no economic sense, corporations pour massive amounts of money into campaign coffers of those who will support whatever legislation the corporations want. The first thing corporations want is government sponsorship at taxpayer expense. The last thing corporations want is a free market.

2) Inflation (expansion of money and credit) is a stealth tax (theft), demolishing the middle class over time. Inflation allows government to collect more every year in property taxes, sales taxes, income taxes, etc., typically to pay for war mongering and social redistribution activities sponsored by the corporations that benefit from war mongering and social redistribution activities. The expansion of credit scheme "works" until it all blows up in deflationary bust every few generations.

3) Academia is a breeding ground for socialists. I discussed this aspect at length in Fiscal Insanity Virus Rapidly Spreading The Globe (Part 1) and Fiscal Insanity Virus Rapidly Spreading The Globe (Part 2). Academia likes to promote socialism and blame the free market for failures caused by excessive regulation.

4) People want to believe someone is in control. Even though it is crystal clear that the Fed is a huge part or the problem, people want to believe the Fed is in control. It is very discomforting to think the Fed has no idea what it is doing, so people simply refuse to accept the fact that the Fed has no idea what it is doing.

5) People want to trust the experts even though the experts screw them time and time again. The same thing exists in the stock market. People want to believe stocks will go up so they believe anyone who tells them stocks will go up.

6) There is an overwhelming propensity by everyone to seek something for nothing. People will listen to and vote for anyone promising something for nothing. Economic professors and members of Congress are both particularly adept at promoting something for nothing.

Groping In The Dark With Heavy Hands

Chinese central bank Governor Zhou Xiaochuan is groping in the dark as well. Please consider Zhou Pledges Fast, Heavy-handed Policies to Restore Confidence.

Chinese central bank Governor Zhou Xiaochuan pledged “fast and heavy-handed” policies to restore confidence and prevent the global financial crisis from deepening the nation’s economic slump.

“If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence,” Zhou said at briefing in Beijing. The central bank has “ample room” to fine-tune monetary policy after a record surge in lending in January, he said.

“This isn’t the time to be cautious with the measures you roll out, it’s time to overdo it,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “The outlook for the global economy has deteriorated dramatically.”

Excuse me but has anyone looked at the success rate of Bernanke's quick slash of interest rates from 5.25 to 0 and the fast $trillions Congress, Paulson, Geithner and Obama have thrown down various black holes?



Of course the Keynesian clowns will always come back with "It would have worked if only we threw money away faster". They do every time. Krugman Still Wrong After All These Years is the perfect example.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Are Mattresses A Safe Cash Stash?

Inquiring minds are asking Are Mattresses A Safe Cash Stash? I's a good question too. So let's explore with a point counterpoint.

How to safely store cash under the mattress

Bed manufacturer Feather & Black says New 'safe' bed allows savers to safely store their cash under the mattress.

Bed manufacturer Feather & Black is offering savers who have lost faith in the banks somewhere to keep their money safely – under the mattress in a concealed safe.

The company admitted it was a 'tongue-in-cheek product' but added that it was a serious proposition.

A small safe with a sturdy lock the compact box is big enough to store a stack of notes, securities or valuable belonging like jewellery. Covered with a valance or chunky throw the safe will remain hidden from prying eyes, the company said.

Robbie Feather, managing director of Feather & Black said: “Confidence in banks has hit an all-time low and fears of a recession crime wave have been raised by the Home Secretary. As a result people genuinely seem concerned about the safety of their money. "

Earlier this year it was revealed that sales of household safes have also soared as the ongoing economic downturn has seen the markets collapse and banks pushed into hasty mergers.

Mattresses Aren't a Safe Cash Stash

The Wall Street Journal is taking the other side of the bet. Please consider Mattresses Aren't a Safe Cash Stash.

The mattress industry apparently didn't stash much underneath for a rainy day, and private-equity funds that flocked to the segment, counting on cushy cash flows, are taking big hits.

Simmons Bedding Co., the country's second-largest mattress maker, has hired bankruptcy counsel and financial advisers as it looks for new backers. Otherwise, the company, which opened its doors in 1870, could file for bankruptcy reorganization, say several people familiar with the matter.

"All options are being looked at, and it's not clear what will happen," says a person close to the company. Simmons is best known for its Beautyrest brand and the brand's TV commercials, which feature a bowling ball dropped on a mattress.

On Wednesday, mattress maker and retailer Select Comfort Corp. announced that it would delay reporting fourth-quarter earnings and has obtained an amendment to its credit agreement to explore "a range of strategic and financing alternatives to enhance its financial flexibility."

Select Comfort is the country's fifth-largest mattress maker and the largest U.S. bedding retailer, with about 475 stores nationally. In 4 p.m. trading on the Nasdaq Stock Market yesterday, its shares traded at 21 cents, down from about $4 a year ago. It had a $12.7 million loss through the first nine months of 2008 as its sales fell nearly 25%.

The problems at publicly traded Select Comfort and privately held Simmons are symptomatic of larger issues across the industry, which is suffering through its worst three years in four decades.

In previous downturns, industry sales usually dipped only 1%, and per-unit prices generally continued to grow at least 6% a year. Since 1970, mattress sales had dipped only twice before 2007, according to the trade group International Sleep Products Association.

Those characteristics made the industry attractive to private-equity buyers, which depend on steady cash flows to support the large amounts of debt they use to buy companies.

But this downturn has been far nastier. Sales and prices both fell almost 12% last year, and they are poised for a projected 9% slide this year, according to industry experts. Those shortfalls mean the companies can't keep up with debt payments.

Although this is not an apples to apples comparison, the Wall Street Journal seems to have the better argument. I don't advise storing money under the mattress, in the mattress or betting on bedding at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Frank Monstrosities

Barney Frank is in the news. As is typically the case with "Frank News", Barney is throwing stones in the wrong direction. Please consider Frank Seeks to Curb ‘Phenomenon of Securitization’.

The “phenomenon of securitization” must be curtailed by lawmakers to prohibit banks and mortgage lenders from shifting all the risk on loans they originate and sell to investors, U.S. House Financial Services Committee Chairman Barney Frank said.

“I will be pushing for legislation that will make it illegal for anybody to securitize 100 percent of anything,” Frank, a Massachusetts Democrat, told reporters at a briefing in Washington today. Securitization is a “large part” of the problem in the housing market, he said.

“It’s 100 percent securitization that allows bad originations because people make loans and don’t have to worry about being paid back,” Frank said. “Nobody should be taking more risk than he or she can afford to pay off.”

Frank also said he plans to hold committee votes this month on a separate bill to curb so-called predatory lending, as well as legislation to curtail credit-card companies from practices “harmful” to consumers. The mortgage bill will be designed to “rein in the abusive practices that significantly contributed to the current mortgage crisis,” Frank said.

Barney Frank Is A Hypocrite

Dear Barney "You are a first order magnitude hypocrite. I am talking about your support of HR 600, the down payment assistance program that allows for 0% skin in the game via seller financed down payments."

FHA loans are blowing up 3 times as fast under programs sponsored by Frank. Inquiring minds who have not yet done so should read Stop The Seller Funded Down Payment Assistance (SFDPA) Scam then send hypocrite Frank an appropriate message.

Is Securitization The Problem?

Some might think that Barney Frank's legislation is appropriate. I don't. The problem is not securitization, but rather policies that foster reckless lending. In other words the the problem is the Fed, fractional reserve lending, and Congress.

Amazingly banks are acting responsibly for the first time in a decade, and guess who has a problem with that. Why it's none other than Barney Frank who wants to force banks to lend.

Please give Barney Frank a call at (202) 225-5931 and tell him how you feel about HR 600, his ideas about forcing banks to lend, and other "Frank Monstrosities".

Frank Seeking Prosecutions for Financial Wrongdoing

Here is an interesting headline: Frank Seeking Prosecutions for Financial Wrongdoing

U.S. House Financial Services Committee Chairman Barney Frank said he wants to see people prosecuted for wrongdoing related to the financial crisis as lawmakers overhaul regulation of Wall Street.

Frank will call on attorneys general, bank regulators and officials from the U.S. Securities and Exchange Commission to outline plans for prosecuting and recovering funds from those responsible for the crisis, he said today at a news conference in Washington.

“What are your plans to prosecute those people whose irresponsible and, in some cases, criminal actions helped bring about this crisis?” said Frank, a Massachusetts Democrat.

“I do want all these people with enforcement powers, state and federal, in that room outlining what their plans are to do these recoveries,” Frank said about the March 20 hearing.

“We want to know what proposals there are to recover funds from people who caused this loss of taxpayer dollars and investor dollars,” Frank said.

In Favor Of Frank's Proposal

I whole heartedly endorse the proposal by Barney Frank. Furthermore, I suggest we go after the one most responsible for causing the loss of taxpayer dollars. That person is of course Barney Frank.

Barney Frank and Nancy Pelosi have been 100% supportive of every bailout measure to date, ramming them down the public's throat in spite of overwhelming public opposition. Frank and Pelosi, along with Ben Bernanke, Hank Paulson, and Tim Geithner responsible. So while you are at it, please call Nancy Pelosi at (202) 225-4965 and tell her she is to blame for the loss of taxpayer dollars and ask for her resignation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GM's Auditor Expresses Doubts Over Survival

In what I consider good news, GM's Auditor Expresses Doubts Over Survival.

General Motors Corp. shares fell as much as 18% on Thursday after the troubled automaker and its auditor stoked more doubts that the company can keep its assembly lines running amid a historic dearth of new-car buyers.

The stock moved down 38 cents to $1.82 in midday trading, as part of a broad pullback in the Dow Jones Industrial Average (INDU). Prompting the retreat, GM reiterated in a Securities and Exchange Commission filing that bankruptcy is a possibility if its viability plan, as submitted to the Congress, doesn't succeed.

The Detroit-based giant is seeking up to $30 billion in loans from the U.S. government, as well as loans from foreign governments including Canada, Germany, the U.K., Sweden and Thailand for up to $6 billion more.

Deloitte & Touche made a similar analysis, concluding that GM's "recurring losses from operations, stockholders' deficit and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern."

"The best course of action, if such a thing exists, would be for the bondholders and the United Auto Workers to come to some sort of agreement to do what it takes to make GM viable," he said. "Given the current administration, what are the odds that the Democrats tell the UAW to dissolve the union? It's just not very likely."

I resent taxpayer money bailing it out just as I resent taxpayer money bailing out banks and homeowners. I consider this admission "good news" because I am hoping that the Obama administration finally comes to its senses and stops throwing money down black holes.

Unlike what CEO Wagoner is saying, we will find that a GM bankruptcy will not be the end of the world. Furthermore, a bankruptcy of Citigroup or AIG would not be the end of the world either.

The Obama administration has had too much reckless hope and not enough reality when it comes to handling the banks, the auto industry, and the housing industry. The sooner we get to the bottom, the better off everyone will be. We can only get to the bottom if we stop rewarding failed institutions with taxpayer money.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Top Secret Musings And Other Economic Insanity

Interesting stories are stacking up again so it's time for some economic potpourri starting with secret dealings by the Fed.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg sued Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It sued Nov. 7.

In response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

In plain English: Bernanke Lied.

Japan clears cash hand-out bill

Japan's parliament has passed legislation to give a cash hand-out to every resident in attempt to boost the recession-hit economy. Most people will get at least 12,000 yen ($121; £86) under the $20bn plan.

China Considering New Stimulus Measures

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a 4 trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world’s third-biggest economy.

Wen will announce “a new stimulus package” in his annual address to the nation’s legislature tomorrow, former statistics bureau head Li Deshui told reporters in Beijing today. He didn’t say whether spending would increase or give further details.

“The existing stimulus package may not be adequate considering the total collapse of global trade,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. “There should be more spending, especially on the social side to cushion unemployment. This is quite urgent.”

Doting On Animals In Hard Times

When markets drip tears and For Rent signs appear over products in shops that were once For Sale, people still spend almost as much resources, time and energy as ever on a completely wasteful economic category: pets.

I once did some consulting for the chairman's office of A&P and assumed that surely, in tough times, poor people would choose the generic cat food rather than Hill's Science Diet Culinary Creations cat food. But I was wrong. Consumers would rather buy plain-label generic creamed corn or tomato soup for themselves than subject their four-footed treasures to what they fear will be second-rate grub.

Ellen DeGeneres promotes her Halo line, with "holistic foods for pets' total well-being. Highest quality meats, grain and fresh vegetables." She could be joined by the producers of Haute Canine, the Natural Gourmet Dog Snack and Dandy Doggy Bowser Brittle (with rain-forest nuts).

Of course there are countless miserable stories of pets abandoned in foreclosed homes, left off from cars in parks and simply ignored once a summer vacation is over. The story is not wholly pretty and contains abundant cruelty, exploitation and heartlessness.

Nevertheless, for a sense of proportion about broad economic forces, go to a supermarket and watch the purchasers of pet food. Observe elemental mammalian life at work, for it has been around for an endlessly long time and will be present in the future.

Brown Will Urge World to ‘Seize Moment,’ Unite on Stimulus Plan

U.K. Prime Minister Gordon Brown will use a speech to both houses of the U.S. Congress today to urge countries to “seize the moment” following President Barack Obama’s election and agree on new global financial regulations.

“Now, more than ever, the rest of the world wants to work with you,” Brown, the fifth British prime minister to address Congress, will say, according to extracts of his speech released in advance. “Never before have I seen a world so willing to come together. Never before has that been more needed. And never before have the benefits of cooperation been so far-reaching.”

Never before has there been so much meaningless political sap.

Australian Economy Grinds To A Halt

THE global recession has caught up with Australia's economy, forcing the first fall in output in eight years and making the Rudd Government revise lower the budget forecasts it made only four weeks ago.

Wayne Swan said the downturn made it unlikely the economy would achieve the optimistic 1 per cent growth this year forecast by Treasury just four weeks ago.

The Treasurer said it was likely that revenue would also fall short of the latest forecast, which was itself a $115 billion downward revision from budget. This will push the deficit out from Treasury's estimate of $22.5 billion.

However, Mr Swan defended the Government's actions in launching its first economic stimulus package last October, in the face of criticism from the Opposition that it was spending too much, too soon.

"There is absolutely no doubt that things in this country would have been far worse had the Government not acted when we did with the economic security strategy announced last October," he said.

"If we pull together, if we keep doing whatever is necessary, we can come out of this stronger than ever," he said.

Swan needs to get together with Brown, Obama, and Bernanke to sing Kumbaya.

Hawaii: Teachers union unit files for bankruptcy

The union that represents Hawaii's public schoolteachers says the activities and finances of a subsidiary corporation had been ``grossly mismanaged.''

Member Benefits Corp., which filed for bankruptcy Monday, has been shut down. It had managed the Hawaii State Teachers Association's Voluntary Employees Benefits Association.

The HSTA decided to dissolve the corporation last year after determining the for-profit subsidiary didn't fit within the union's mission.

The union has told it members the mismanagement was discovered by an outside team of attorneys and accountants that was brought in as part of the process of closing the corporation.

Bernanke grilled on latest $30B bailout of AIG

Irritated lawmakers grilled Federal Reserve Chairman Ben Bernanke Tuesday over the latest bailout of American International Group, even as the Fed chief warned that an economic recovery hinges on the government's success in stabilizing shaky financial markets and their major players.

"I share your concern, I share your anger," Bernanke told the Senate Budget Committee. "It's a terrible situation, but we're not doing this to bail out AIG or their shareholders. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."

Bernanke defended the government's repeated rescue attempts on AIG, saying "the failure of major financial firms in a financial crisis can be disastrous for the economy."

Sen. Ron Wyden, D-Ore., and others said the identities of banks and other so-called counterparties that do business with AIG and other bailed-out institutions should be made public. Those companies also should have to make some concessions, he added.

"They ought to ... have some kind of consequence," Wyden said. "The American people are in the dark on this issue, and I think it's time for some sunlight. I think that the public really wants to know why are these people so important."

Sunlight is illegal. Bernanke wants us in the dark. It's Top Secret.

Pressure to reveal major AIG counterparties grows

Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn't have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.

By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company's third-quarter regulatory filing.

"AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won't the Fed disclose who those are?" Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.

Bernanke said the counterparties made "legal, legitimate, financial transactions" with AIG and presumed at the time that the contracts would remain private. "That is a consideration we have to take into account," he added.

Sen. Mark Warner, D-Va., suggested that AIG's counterparties should have to take a "haircut," rather than be made whole, because some of them probably didn't do enough due diligence on whether the insurer was financially strong enough to be selling such protection.

"In effect, what we're saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn't do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior," he said.

"I'm as unhappy as you are about that, senator," Bernanke replied. "I just don't know what to do about it."

There are many problems with the handling of AIG but it all starts with the initial decision to do something as opposed to nothing. Government has no business bailing out anyone and the decision is made all the more galling by making everything a secret.

Note that the Fed is picking winners and losers. There are other creditors of AIG who might have a better claim on its assets than who the Fed is picking. Remember that the Fed promised transparency. Instead, we have gotten noting but lies and secrecy from Bernanke, Paulson, and Geithner every step of the way.

Words cannot begin to express my disgust of the lies and secret shenanigans of the Fed and Treasury.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Cube Steak's Resurgence With Sinking Economy

Beef sales are up 3% but cube steak sales are up 10%. It's a fitting tribute to the economy according to the New York Times article Turning to Cube Steak, and Back to Childhood.

The cube steak is suddenly one of the hottest cuts of beef in the country, according to figures from the National Cattlemen’s Beef Association. The amount of cube steak sold during the last quarter of 2008 was up by almost 10 percent over the same period a year earlier. The overall amount of beef sold went up only 3 percent.

It doesn’t take a wizard to figure out that the economy’s swan dive has much to do with the cube steak’s resurgence. But even before kitchen budgets became tight, the cube steak had its fan base.

Through good times and bad, it has remained a wallflower among meat cuts. Old-fashioned and a little mysterious, it’s a steak without pretension, or maybe a hamburger with humble aspirations.

“Oh, I just really love them,” gushed Kathy Sullivan, 66. A Rhode Island resident, she has warm memories of cube steaks served alongside her father’s homemade piccalilli relish. Later, she pan-fried them for her own children. But only good ones, she said, made from slices of sirloin or round steak she had the butcher cube by hand.

Susan Schultz, who lives in Fort Atkinson, Wis., fondly described the slightly pink centers of cube steak sautéed in nothing more than butter and seasoned with a little salt and pepper.

“It was kind of an upgraded hamburger if you couldn’t afford steak,” said Mrs. Schultz, who raised two children on pan-fried cube steaks. “I’m going to have to have one now.”

The term “cube” can be a little murky. It doesn’t refer to the shape of the meat, which is usually beef but is sometimes made from pork, elk or other animals. Rather, it refers to both the shape of the dimples that checkerboard the surface of cube steak and the process that puts the dimples there.

Although pounding tough pieces of beef to make them more tender has a long history in the Southern and Western United States, it wasn’t until patents on mechanized cubing machines were handed out in the 1930s and 1940s that the cube steak became an inexpensive butcher shop staple.

The machines are usually stainless-steel cases with innards fashioned from rollers covered in dozens of teeth sharp enough to pierce flesh cleanly. There are top-feeding home machines with cranks that do the job, too.

It's an interesting article and although I posted positive excepts, I assure you it's not a one sided love affair. One person quoted said “I fed it to the dogs”.

Personally, I like cube steak fixed exactly like Susan Schultz in the article who sautées the steaks in butter, seasoned with a little salt and pepper. Coated in a bit of flour is fine too.

How Much For Cube Steak?

Kim Severson, the author of the article talks of paying $8 a pound for grass-fed cube steaks, and half that for conventionally raised beef. I am not sure where Kim shops but those prices are outrageous.

Traditionally cube steak is made from round and one can get round steak on sale for $2.00 to $2.79 a lb easily, and sometimes for much less. Moreover, it's a little known secret but you can buy round steak and have the butcher run it through the cuber twice for free.

You can also buy chuck roast at $1.69 or so on sale and have the butcher grind that into ground beef for free. The result is you get handpicked fresh ground chuck for $1.69 yet you might pay $2.59 or more for packaged ground chuck of questionable quality and age.

Cube Steak Recipes

For those looking beyond the simple recipes above please consider Beef Cube Steak Recipes featuring Beef Cube Steak Stroganoff, Ginger-Cinnamon Rice Cube Steak, Curried Beef Cube Steak with Sweet Potatoes, Zucchini Beef Cube Steak, Orange Braised Cube Steak, Cube Steak Parmesan, Beef Cube Steak with Mushrooms and Red Wine, and Whiskey Barbeque Beef Cube Steak.

If you insist on one more, please consider Country Fried Cube Steak with Mushroom Gravy.

Cube Steak, It's what's for dinner.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ADP Reports February Nonfarm Private Employment Decreased 697,000

Nonfarm Private Employment Decreased 697,000 according to the February ADP National Employment Report®.

Nonfarm private employment decreased 697,000 from January 2009 to February 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from December 2008 to January 2009 was revised down by 92,000, from a decline of 522,000 to a decline of 614,000.



Highlights

• February’s ADP Report estimates nonfarm private employment in the service-providing sector fell by 359,000.
• Employment in the goods-producing sector declined 338,000, the twenty-sixth
• consecutive monthly decline.
• Employment in the manufacturing sector declined 219,000, its thirty-sixth consecutive decline.
• Construction employment dropped 114,000. This was its twenty-fifth consecutive
• monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,004,000.

Sharply falling employment at medium and small-size businesses clearly indicates that the recession is spreading aggressively beyond manufacturing and housing related activities.

Medium Businesses Leading The Decline



The above chart, 4th in a series of 5 interesting charts (click on the first link above to see all the charts) shows that medium sized businesses, defined as 50-499 employees are now leading the decline in jobs lost as of summer 2008. Small sized companies (1-49) employees were hanging very tough until July 2008. That is no longer the case.

ADP vs. BLS

Here is an interesting chart showing ADP vs. the official BLS statistics.



click on chart for sharper image

The chart can be customized for date ranges and type of employment, at least in theory. I cannot get any parameters to work other than what shows on the link above.

Small Business Report

The ADP Small Business Report , a subset of the national report notes the following.

• Total small business employment: -262,000
• Goods-producing sector: -116,000 small business jobs
• Service-providing sector: -146,000 small business jobs

“Employment among small-size businesses, defined as those with fewer than 50 workers, declined 262,000. The magnitude of this month’s job loss indicates that the recession has spread aggressively to small-size businesses. Earlier in the recession these businesses had demonstrated more resiliency than medium and large-size ones, but that is no longer the case.”

Look for another grim employment report on Friday, perhaps in the range of 600,000 to 800,000 jobs lost. This will be the 14th consecutive months of jobs lost, and the numbers appear to be accelerating to the downside with no end in sight.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bernanke Angry AIG Operated Like A Hedge Fund

In a case of the pot calling the kettle black, Bernanke Says Insurer AIG Operated Like a Hedge Fund.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

My Comment: By attempting to bail out Fannie Mae, Freddie Mac, AIG, Citigroup, Bank of America, and Merrill Lynch, the Fed is making irresponsible bets, taking huge losses, and has no regulatory oversight. There is a huge gap in the system, and that gap is the Fed itself.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

In another sign of tighter regulation to come, Bernanke said supervisors should have authority to bar new financial products that may be destabilizing to markets.

My Comment: The first thing supervisors should do is eliminate the Fed for its role in destabilizing the markets.

“AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision,” U.S. Treasury Secretary Timothy Geithner said today during testimony to the House Ways and Means Committee. Because of “the risks AIG poses to the economy,” he said, “the most effective thing to do is to make sure the firm can be restructured over time.”

My Comment: The most effective thing to do is let AIG go under.

“Whether we like it or not, America’s federal policy is now driven by the need to avoid another Lehman,” said David Kotok, chairman and chief investment officer of Cumberland Advisors Inc., in Vineland, New Jersey.

My Comment: There is no need to prevent another Lehman. Instead, there is precisely a need for more Lehmans. The sooner we stop trying to prop up failed institutions, the sooner the economy recovers. This is the lesson of Japan. Kotok badly needs a history lesson.

Bernanke said the revised bailout gives taxpayers “the best chance” of eventually recovering “most or all of the investments” the public has.

My Comment: There is no chance of recovering the $163 billion taxpayers have wasted bailing out AIG and Bernanke knows it.

Banks relied on AIG’s financial products unit to back about $298 billion of assets through derivative contracts at year-end, making the firm a “systemically significant failing institution” that has to be propped up, the Treasury said.

My Comment: Bernanke ought to name the banks being bailed out on the other side of those $298 billion in derivatives. And the amazing thing is even with that $163 billion going Goldman, Citigroup, JPMorgan or whoever, and even with a further $300 billion in guarantees to Citigroup and another $100 billion in guarantees to Bank of America, the banking system is still insolvent.

“We’re doing our absolute best in partnership with the Fed and Treasury to unwind the very issues that Chairman Bernanke is talking about in a way that preserves systemic stability and pays back taxpayers,” said Christina Pretto, an AIG spokeswoman.

AIG has reduced the number of bets made by the financial products unit that sold credit-default swaps by more than 25 percent since October and cut expenses by “ hundreds of millions” of dollars, she said.

My Comment: Lovely. Taxpayers have shelled out $150 billion and AIG has only reduced its derivatives by 25%. Pretto has some gall to suggest taxpayers will be paid back.

AIG’s Fourth Rescue May Not Be Last

Taxpayers can expect to shell out still more as analysis shows AIG’s Fourth Rescue May Not Be Last.

U.S. taxpayers may not be done bailing out American International Group Inc. after the head of the Federal Reserve said a fourth rescue of the insurer was needed to keep the financial system from failing.

“We’re not done with AIG by a long shot,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore. “The problem is we still don’t know the extent of the risk AIG has. We don’t know where the bottom is.”

The rescue, which now leaves taxpayers on the hook for $163 billion at AIG, a government official said, was raised after the New York-based company reported a $61.7 billion fourth-quarter loss on March 2. AIG still has billions of dollars in unrealized losses on assets and faces declining revenue on premiums because of the slump in commercial insurance and the company’s struggle to attract new business.

Bernanke told the Senate Budget Committee yesterday that because AIG has so many counterparties, its failure “would have had very adverse effects on the banking system.” The company’s growth in risky markets is attributable to a lack of regulation, he said.

The insurer will probably need more government funds to cover contract liabilities and declines in asset values, according to Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. At the end of December, AIG had $27 billion in unrealized losses on swaps, options and forward contracts and $25 billion in pretax gross unrealized losses on bonds and equity securities. Credit-rating downgrades on structured finance products may also boost losses, Egan said.

“We expect the U.S. will continue to support AIG until it is no longer too big to fail,” Egan wrote in a March 2 report.

More Hedge Fund Insanity

Inquiring minds are reading Ackman’s Pershing Square Target Fund Fell 33.3% in February.

William Ackman’s hedge fund that invests solely in Target Corp. fell 33.3 percent in February, bringing the loss since inception to 93 percent, according to an e-mail sent to investors.

The decline in Pershing Square IV fund was more than three times that of Target shares in February. Ackman made his bet using options rather than the underlying stock, which can magnify gains or losses on an investment. Target tumbled about 9 percent last month.

Ackman last month told investors seeking redemptions that they would get their money back in March.

Ackman, 42, started his fund investing in the Minneapolis-based retailer in 2007 with $2 billion. A call to his office wasn’t immediately returned.

Hedge Funds typically take 2% of assets (annually) and 20% of profits.

In this case there were no profits. However, assuming the 2% figure is accurate, Ackman made a veritable fortune driving his target fund to a 93% loss. Not to worry, investors will "get their money back in March", whatever is left of it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Stop The Seller Funded Down Payment Assistance (SFDPA) Scam

Aaron Krowne at Implode-O-Meter has asked me to help stop the Seller Funded Down Payment Assistance (SFDPA) scam.

Barry Ritholtz at the Big Picture, Dr. Housing Bubble, Patrick.Net, Blown Mortgage and the Mess That Greenspan Made have already written about this scam, so I am risking the dreaded "piling on" penalty but here goes.

In a Statement On "Seller-Funded Downpayment Assistance" Loans Aaron writes:

In SFDPA, a third party arranges for the seller to make a "donation" to the buyer (through the third party) equal to the FHA mandatory 3.5% downpayment, which is then used for the purpose of the downpayment, in direct violation of HUD policy. This means that the buyer does not make a true downpayment born of personal sacrifice, undermining its purpose. In the end, this is the same sort of "100% financed" lending that was a major contributor to the collapse.

In specific:

The home price is typically inflated. As a consequence, the borrower is likely to immediately start out with negative equity. Negative equity has been found to be the leading cause of foreclosure

The FHA has found that SFDPA results in losses running at a rate of 2-3 times normal FHA loans

SFDPA is a breeding ground for "straw buyer" fraud, which is now known to have been rampant amongst failed loan categories (especially subprime). SFDPA "legitimizes" the markup-and-downpayment-launder process which is central to most straw buyer scams.

I agree with Aaron's conclusions.

Furthermore, If HR 600 passes, seller-funded downpayment FHA loans are likely to be abused to an unprecedented level in what is less of an attempt to boost the housing market than a money grab by the real estate complex and the seller-funded laundering companies at taxpayers' expense.

Finally, loopholes are likely to be abused by banks to dump massive amounts of REOs at marked-up values, as Aaron points out in Misleading LA Times Article Distorts SFDPA Program.

Aaron has a Campaign To kill HR 600 with links for how people can help by contacting Congress to voice their opinion on this monstrosity.

Aaron writes "This bill is small enough that we have a real chance of rallying enough support to stop it. However, it will be outsized in terms of its damaging impact if it passes."

Those interested in stopping this ridiculous bill from passing can follow the above link and take appropriate action.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GM Leads the Way with a 53% Sales Plunge

Congratulations of sorts go to GM for its industry leading sales effort. Please consider GM’s 53% U.S. Sales Decline Leads Industry’s February Plunge.

General Motors Corp., surviving with federal loans, said its February U.S. sales plummeted 53 percent as the recession pushed industrywide purchases toward the lowest in almost three decades.

Industry sales at last month’s levels make it more challenging for Detroit-based GM and Chrysler LLC to become profitable and pay back $17.4 billion in U.S. loans. President Barack Obama’s auto task force may approve as much as $21.6 billion more aid for the two automakers and support for the thousands of companies that supply car manufacturers with parts.

GM’s February sales of cars and light trucks fell to 126,170 from 268,737 a year earlier, the automaker said in a statement. That included declines of 69 percent for Hummer, 59 percent for Saab and 57 percent for Saturn, three units the company is seeking to shed.

At Ford, sales of cars and light trucks dropped to 99,050 from 192,178, according to a statement from the Dearborn, Michigan-based company. The sales were hurt by a 55 percent decline to 23,614 for its F-Series pickup trucks. Sales for the Volvo unit, which Ford wants to sell, were also down 55 percent.

Toyota reported a decline to 109,583 from 182,169. Sales for the Toyota City, Japan-based company were dragged down by declines of 60 percent for its Tundra large pickup and 51 percent for the Yaris small car.

Honda said deliveries fell to 71,575 from 115,397, and Nissan said its sales fell to 54,249 from 86,219.

Volkswagen AG said February sales for its namesake brand declined 18 percent to 13,660. Daimler AG said sales of its Mercedes-Benz and Smart vehicles fell 21 percent to 15,614. Bayersiche Motoren Werke AG’s U.S. sales were down 35 percent to 15,805.

Hyundai Motor Co., South Korea’s largest automaker, said it sold 30,621 vehicles last month, a 1.5 percent decline from a year earlier. In January, Seoul-based Hyundai was the sole major automaker to post a gain in U.S. sales.

Seeking To Shed Hummer, Saab, Saturn

What's with this seeking to shed nonsense? Just do it. GM needs to halt operations on all three. The brands are worthless. In fact they are less than worthless. GM has never in history returned a profit on Saturn.

How does GM do it? Volume, Volume, Volume. Volume on Hummer, Saab, and Saturn needs to be zero.

For more on this month's auto woes, please see Ford Sales Decline 48%, Toyota 32%, Honda 21%, Nissan 35%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Ford Sales Decline 48%, Toyota 32%, Honda 21%, Nissan 35%

Once again the auto sales statistics were grim with Ford leading the way. GM and Chrysler have yet to report. Please consider Ford’s February U.S. Auto Sales Declined 48% as Economy Slumped.

Ford Motor Co.’s U.S. sales fell 48 percent in February, the 15th straight monthly decline, as unemployment rose and consumer confidence weakened.

Sales of cars and trucks dropped to 99,400 from 192,799 a year earlier, the Dearborn, Michigan-based company said today in a statement.

No automaker is immune to the slump. Toyota, forecasting its first loss in 59 years, may ask for 200 billion yen ($2 billion) in loans for its credit unit from the Japanese government as private financing has become too expensive, public broadcaster NHK reported today, without naming its source.

Opel Running Out of Cash

GM says Opel Running Out of Cash; Three Factories Risk Closure.

General Motors Corp. said its European Opel unit risks running out of cash next quarter, threatening three factories with closure and imperiling as many as 300,000 jobs across the region.

Opel, based in Ruesselsheim, near Frankfurt, is struggling with 30 percent overcapacity as sales slide, GM’s European chief, Carl-Peter Forster, said today in a press briefing at the Geneva International Motor Show. He didn’t specify which sites might close. The U.S. company has major plants in Germany, Spain, Poland, Belgium and the U.K.

GM expects European governments to reach decisions in “days or weeks” on aid the carmaker is seeking to help save operations in the region, Chief Operating Officer Fritz Henderson said. Any interest in the Saab brand depends on a bailout from the Swedish government, according to the executive, who said GM is determined to eliminate failing units in order to channel resources toward more successful models.

“GM will be global, we think,” Henderson said in an interview earlier. “But we have to be realistic, and the environment today requires us to take a lot of tough measures. We need to focus our brand portfolio. We need to get down to fewer brands that can focus very clearly on the market.”

A failure to reorganize Saab would lead to its bankruptcy, according to Detroit-based GM, which wants to get rid of the unit but aims to keep Opel and the Vauxhall brand in the U.K.

Henderson said GM is “wide open” to options for saving the business and may still end up with a stake of more than 50 percent. Wage cuts, shorter hours and a buyout of worker contracts are being considered to avoid plant closures, he said.

Hypocrisy From GM

Look at the hypocrisy from Henderson. He talks about hard choices but refuses to make any. The way to reduce overcapacity is to shut plants. It's time to give up on Saab, Opel, Hummer, Saturn, etc. instead of seeking help from governments to keep those failed brands alive. Plant closures are absolutely necessary.

Japan Car Sales Hit 35-Year Low

Bloomberg is reporting Toyota Leads Drop as Japan Car Sales Hit 35-Year Low.

Toyota Motor Corp. and Honda Motor Co., Japan’s two biggest automakers, led a drop in the country’s monthly vehicle sales as falling wages and rising unemployment cut demand to the lowest level in 35 years.

Sales of cars, trucks and buses, excluding minicars, fell 32 percent to 218,212 vehicles in February, the Japan Automobile Dealers Association said in a statement today. Toyota’s sales slipped 32 percent, Honda’s slumped 21 percent and Nissan Motor Co., the country’s No. 3 automaker, sold 35 percent fewer vehicles.

Japanese consumers have slashed spending on cars as Toyota, Sony Corp. and other manufacturers shed workers and curb production on plunging demand. The country’s economy, the world’s second-biggest, shrank at the fastest pace since the 1974 oil shock last quarter.

Chrysler Struggles To Stay Alive

Inquiring minds are reading Chrysler Talks Stall as Banks Balk at Trading Loans for Equity.

Chrysler LLC, needing lender concessions by March 31, isn’t negotiating with its banks because it can’t persuade them to discuss trading loans for uncertain equity, people familiar with the companies’ actions say.

Banks have little incentive to trade their loans, and the only other creditors Chrysler lists that could take more equity for debt are the U.S. government and the United Auto Workers union, which already has agreed in principle to reduce its obligation by 50 percent.

“It’s going to be a tough sell to get the banks to give up their position for worthless equity,” said Don Workman, a bankruptcy attorney at Baker & Hostetler LLP in Washington. “The best Chrysler can hope is that the government is going to force them to do it.”

Chrysler Should Give Up The Ghost

The best thing for the banks and for the auto industry is the same. Chrysler should give up the ghost. To keep Chrysler alive will require banks to trade debt for worthless equity. This will hurt the creditors while keeping the zombie Chrysler alive only temporarily. A few months down the road, Chrysler will need yet another bailout from someone. In the meantime Chrysler's production will continue to add to the massive overcapacity in autos.

The attempt to keep all of these zombie auto companies alive means that none of them can be profitable. It is the worst possible approach.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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