NightBlogger

With California’s cash dwindling and legislators still debating a new budget, Gov. Arnold Schwarzenegger eliminated thousands of part-time and temporary state jobs Thursday and ordered that 200,000 state workers receive the federal minimum wage. “Today I am exercising my executive authority to avoid a full-blown crisis and keep our state moving forward,” Schwarzenegger said. “This is not an action I take lightly.” The moves could save hundreds of millions of dollars a month, but whether full-time employees’ paychecks will be cut is in doubt because the state controller, who cuts the checks, has said he will not comply with it. More

Your bank account is insured up to $100,000, but you still have a lot at stake in the event of a major failure: hundreds of billions of state and local tax dollars in accounts nationwide that are not insured by the Federal Deposit Insurance Corp. Losses aren’t likely, says a state official, but government treasurers are keeping a close eye on the funds. Franklin County currently has $300 million of taxpayer money in banks; the city of Columbus easily has tens of millions; and local school districts hundreds of millions more, officials said. By Ohio law, the uninsured portions of these accounts are backed by collateral purchased by the banks. But many might be backed by bonds of agencies that are in trouble themselves, namely government-sponsored mortgage behemoths Fannie Mae and Freddie Mac. More

Thomas Tan
Safe Haven
Last Wednesday, WSJ had a great article called “The Fannie Mae Gang” by Paul A. Gigot…

It had good discussion of another aspects of the current mortgage crisis and roles and responsibilities of many players dated back many years ago. It showed the public the inner circle of the secret “Skull and Bones” society around Fannie Mae (FNM) and Freddie Mac (FRE). It detailed among, for example, former Fannie Mae Chairman Franklin Raines, former Countrywide Financial CEO Angelo Mozilo and House Financial Services Committee Chairman Barney Frank that have helped create the monsters called Fan and Fred.

It wrote, “I recount all this now because it illustrates the perverse nature of Fannie and Freddie that has made them such a relentless and untouchable political force….. The abiding lesson here is what happens when you combine private property with government power. You create political monsters that are protected both by journalists on the left and pseudo capitalists on Wall Street, by liberal Democrats and country club Republicans. Even now, after all the dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever.”

There are probably few things more disturbing and scary than this.

Back in 2002, WSJ had an article called “Fannie Mae Enron?”, questioning their shaky derivatives accounting. And the person who was angry about this article, obviously besides the then-CEO of Fannie, Mr. Raines, was surprisingly the then-CEO of Countrywide, Mr. Mozilo. Mr. Mozilo loudly insulted Paul by stating he knew nothing about accounting or mortgage markets, among other things. Apparently Mr. Mozilo and Mr. Raines were partners, with Countrywide feeding mortgages to Fannie to make Mr. Mozilo very rich. Of course, he got to protect his most valuable customer.

Thanks to its quasi-public and quasi-private dual status, with implicit but correct assumption of government guarantees, Fan and Fred can borrow from financial markets at super low interest rate, enjoyed the spread between such low borrowing rates and much higher mortgage rates in their portfolio from Mr. Mozilo and other originators. If that is not enough, Fannie was creating shaking derivatives from these mortgages to generate more profits, which brought the above WSJ article that compared Fannie to Enron. No wonder Mr. Mozilo was angry, so was Mr. Raines, since regulator James Lockhart later on discovered that Fannie had rigged its earnings in a way that allowed it to pay huge bonuses to their executives, especially Mr. Raines who was forced to resign.

Then the famous FOM (friends of Mozilo) in Congress quickly came over to rescue. First, Republican Rep Cliff Stearns of Florida was stripped of his subcommittee of jurisdiction over Fan and Fred’s accounting by House Speaker Dennis Hastert. Then Barney Frank was taking over the whole show to protect Fan and Fred from stronger regulatory oversight. When Wisconsin Rep. Paul Ryan advocated more supervision for Fan and Fred, Fannie played hardball by calling every mortgage holder in his district, claiming that Mr. Ryan wanted to raise the cost of their mortgage, resulting Mr. Ryan receiving 6,000 telegrams. He left Financial Services for a seat on Ways and Means which of course doesn’t oversee Fannie anymore.

In addition, the “Fannie Mae Gang” article wrote, “Fan and Fred also couldn’t prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post’s Steven Pearlstein in the press…….Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie’s left-wing defenders are underwriters of crony capitalism, not affordable housing.”

This is similar to some charity organizations that use half of the donations for their “expenses” and only pay out half to the claimed causes.

Fast forward to today, taxpayers not only have paid so much and so dearly to support this crony capitalism and so many friends of Mozilo, but also have to inject more capital in the companies, in addition to guaranteeing their trillions of bonds issued in the past, many of which should not have been issued and are now held by foreign governments of our trade partners in their currency reserves. Talking about global crony capitalism among many governments which U.S. taxpayers have to cover all their losses. This is really the beauty of quasi-private and quasi-public dual structures. Profits go to the few Skull & Bones members, while the losses are dumped to the whole society, and all is done in the name of “helping poor people to own houses”.

The best part of this WSJ article is that one analyst at Sanford C. Bernstein, wrote in 2002 about the “Fannie Mae Enron?” article, “Taxpayer Are on The Hook: This is incorrect. The agencies’ debt is not guaranteed by the U.S. Treasury or any agency of the Federal government.” We should all hope his great insight from 6 years ago was correct, so that U.S. taxpayers don’t need to pay for all these huge losses, since we are quickly going down a slippery path from “too big to fail” to now “too big to be guaranteed”.

Back in Savings & Loan crisis, we had the Keating Five. Today in home mortgages, we have the Fannie Mae Gang. Some things never change.

leap2020
GMAC, the auto and mortgage finance company majority owned by Cerberus Capital Management, reported a $2.5 billion loss Thursday as vehicle sales plummeted and the housing slump sent foreclosures higher. The second-quarter loss, GMAC’s fourth straight, compares with profit of $293 million a year earlier, the Detroit-based company said today in a PR Newswire statement. Residential Capital’s loss jumped to $1.86 billion from $254 million a year earlier as the decline in home prices accelerated.

Writedowns from Deutsche Bank climbed to €5bn ($7.8bn) this year as Germany’s largest bank revealed sharply lower second-quarter profits. Josef Ackermann, chief executive, said liquidity remained a problem for the industry and stressed that Deutsche remained cautious for 2008. This week Merrill Lynch sold some subprime assets at 22 cents on the dollar and Kian Abouhossein, an analyst at JPMorgan, said Deutsche was “behind the curve when it came to clearing asset prices”. He estimated the bank might still have up to €3bn of writedowns to make. More

(Reuters) - Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers. Banks’ primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday. “It shows there’s a shortage of liquidity in the system,” said Christopher Low, chief economist at FTN Financial in New York. Secondary credit the Fed extended, which is usually taken out by banks in need of emergency cash, rose to $89 million in the latest week, from $34 million the week before. Although these numbers are still very small compared with primary credit, “What that tells you is that there’s an increasing number of banks that the Fed is classifying as ‘unsound’ or inadequately capitalized,” Low said. More

New York Times
Mervyn’s and the parent company of Bennigan’s both filed for bankruptcy protection yesterday, providing more evidence that the pace of corporate flame-outs is accelerating. Only half way through 2008, billion-dollar bankruptcies are at their highest level in five years, according to BankruptcyData.com, which tracks bankruptcy filings. It said that seven United States-based companies with more than a billion dollars in assets have filed for bankruptcy protection so far this year, according to a Reuters report. “We seem to be in the midst of a ‘perfect storm’ leading to more bankruptcies: high levels of debt, high energy and raw materials costs and weakness in the U.S. economy,” George Putnam III of New Generation Research, which publishes BankruptcyData.com, said in a statement.

Mervyn’s, the department store chain, blamed its Chapter 11 filing on the “state of the economy and difficult operating environment for our industry.” It said its stores will remain open as it reorganizes under court protection. Bennigan’s, a restaurant chain, filed for Chapter 7 protection; stores owned by its parent company will close their doors. Earlier this year, Linens ‘n Things, a retail chain backed by the giant buyout firm Apollo Management, sought bankruptcy protection after it was unable to service its heavy debt load. One of the year’s biggest bankruptcies so far was SemGroup LP, an oil-marketing firm that Forbes has called the 12th-largest private company in the United States.

The casualties are likely to keep coming. More

Denver Post.com
Colorado consumers can expect the summer pinch from high fuel prices to morph into a winter nip from home energy bills, state energy officials said Wednesday. Local heating bills are anticipated to increase about 20 percent to 30 percent, and that’s causing a wave of conservation to become the best battle plan. “We don’t see any scenario of prices going down and staying down,” Susan Arigoni, Xcel Energy’s vice president of fuels, told the Colorado Public Utilities Commission at a meeting Wednesday. Other gas-company executives said the same. But Colorado isn’t expected to get it as bad as the rest of the country, according to the U.S. Energy Department, which Wednesday issued its own dire predictions.

Natural-gas users on average will spend $1,216 to heat their homes in the upcoming season, which runs from November to April. That’s up 43 percent from last season, the government said. Locally, the average natural-gas bill will heat up to $780, according to Energy Outreach Colorado, which helps low-income families meet energy costs. With electricity, the average Colorado household will pay $1,223 this season, EOC estimates. Worst-hit, though, will be low-income families. Even with aid, their portion of the bill is expected to be 44 percent more this year than last, EOC director Skip Arnold told the PUC.

It’s all prompted consumer advocates and other agencies to begin outreach programs in the dog days of summer rather than the cool breezes of fall. “We’re really worried,” said Jennifer Gremmert, deputy director of EOC. “It’s not just rent and mortgages anymore.” The consensus is nothing new: insulate, conserve and winterize. Unfortunately, many consumers don’t think of doing these things until the first snowflake falls. “People just don’t know enough to get going early,” said Steve Byers of the Energy Efficiency Business Coalition. There are other options for dealing with the costs, including bill averaging, where energy companies charge an average amount each month in order to avoid the sting of a large bill during a cold snap. EOC estimates 370,000 Colorado families could qualify for home energy-bill assistance.

Inflation in the US could hit 6 per cent by the fall, CIBC World Markets’ chief economist said on Wednesday. Consumer prices for June were up 5 percent from the year before, the fastest one-year change since 1991. Jeffrey Rubin, chief economist of Toronto-based investment bank CIBC, predicts a 6 per cent rate for overall inflation, a level last seen in 1982. His reasoning: Increased shipping costs are making goods produced in the United States more competitive with goods shipped from China. High energy prices give American manufacturing workers bargaining power that they have lacked for over a decade, while at the same time encouraging them to ask for larger pay raises to keep pace with the soaring price of gasoline,” Rubin wrote. If workers can bargain for cost of living increases, sparking inflation further, then interest rates will rise too, Rubin predicted. The last time we saw 6 per cent inflation in 1990, the federal funds rate was running at around 7.5 per cent _ over three times today’s setting. And a 10-year Treasury bond was yielding 8.5 per cent _ over double what it yields today.” More

Ventura: America is on the Brink of Fascism

British Gas yesterday increased the pressure on household budgets after announcing the biggest ever increase in gas prices for its 16 million customers. The 35% rise in gas bills was blamed on higher wholesale costs but came just hours before British Gas’s parent company, Centrica, was due to reveal profits of £880m for the first half of the year. Consumer groups reacted with anger to news that will dismay every gas-using household in the country. The move is expected to send another 1 million families into fuel poverty if replicated across the industry. EDF Energy, one of the other five major suppliers, announced a 22% rise in gas prices last week. Adam Scorer, of the consumer group Energywatch, said he was surprised by the increase. “I’m not sure that many consumers will be able to fully take in the news that their gas bills are going up by over a third,” he said. More

Mike “Mish” Shedlock
Businesses do not want to lend, consumers do not want to spend, financing approved projects (even large projects in supposedly “recession-proof” Las Vegas) is difficult. Unemployment is soaring, demand for credit ratings is dropping, there is no driver for jobs, the service sector is shot and that is going to put still more pressure on consumer discretionary spending and business borrowing. The credit crunch is not only pervasive, it has now reached critical mass where it will start feeding on itself. The Fed is powerless to stop it. Expect to see corporate bond yields soar and treasury yields to drop as the credit crunch picks up steam. Those looking for inflation can find it in their rear view mirror. More

MIKE WHITNEY
Monday’s trading on the New York Stock Exchange (NYSE) was a real humdinger. It started off with the White House announcing that this year’s fiscal deficit would soar to a new record of nearly $500 billion. That was followed by news of rising oil prices, weak quarterly earnings and a slowdown in consumer spending. By mid-morning the markets were in full retreat. That’s when investment giant Merrill Lynch announced that it would notch a $4.6 billion second-quarter loss and write-downs of $9.4 billion on collateralized debt obligations (CDOs) and other mortgage-related assets. Stocks quickly went verticle and the rout was on. By the closing bell the Dow was down 240 points. Traders staggered from floor of the exchange slumped-over and bedraggled, looking like they just got a missive from the draft board.

And, yet, on Tuesday, the market staged a valiant comeback, surging 260 points in a matter of hours. It was enough to give the fund managers a bit of a lift and hope that things are finally turning around. But the market’s woes are far from over. The International Monetary Fund summed it up in warning they issued earlier in the week:

“Global financial markets are ‘fragile’ and indicators of systemic risk remain ‘elevated’…Credit quality ‘across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.’ Bank balance sheets are under ‘renewed stress’ and the decline in bank share prices has made it more difficult to raise new capital. (There is an) ‘increased likelihood of a negative interaction between banking system adjustment and the real economy.’ (Financial Times)

The IMF also stuck by its earlier prediction that total losses to financial institutions from the credit crisis would reach $1 trillion ($945 billion) a sum that will have savage consequences for industry, consumers and the global economy. Over at Nouriel Roubini’s blog, Dr. Doom made this observation about the Merrill Lynch’s troubles:

“Merrill Lynch’s decision to ’sell’ a good chunk of its remaining CDOs at 22 cents to the dollar has been widely praised as the firm finally recognizing the full extent of its losses on these toxic instruments. This batch of $30.6 billion of CDOs was already marked down to $11.1 billion. Now with the ’sale’ of it to Lone Star at a price of $6.7 billion Merrill Lynch is taking another $4.4 billion write-down and ’selling’ it at 22% of the original face value. But is this a market-based ’sale’? No way, calling this transaction a ’sale’ is a joke.” (Nouriel Roubini’s Global EconoMonitor)

Indeed. This isn’t a “sale”; it’s more like abandoning a sinking ship. The investment chieftains are getting scorched by their downgraded assets and have started dumping them at any cost. There’s no market for mortgage-backed anything now, and there won’t be until housing finds a bottom.

The Merrill Lynch deal illustrates just how crazy things have gotten. Merrill said it “will provide financing to the purchaser for approximately 75 per cent of the purchase price.” Whoa. In other words, the banks are so anxious to off-load their junk-paper, they’re almost paying people to take it off their hands. Now that’s desperation! The problems haunting the financial markets have cross-pollinated with the real economy and are spreading misery everywhere. Unemployment is rising, growth is slowing, inflation is up, the dollar is down. We’ve heard it many times before, but it’s still jarring to see General Motors stock fall below Bed & Bath, or Starbucks shut down 600 stores, or million dollar McMansions sell for $425,000.

Now that the working stiff is maxed out on his mortgage, worried about losing his job, and trying to keep food on the table; the least congress can do is scatter the oil speculators; right?

Wrong. On Monday, the Financial Times reported that: “A US Senate proposal designed to curb speculation and increase transparency in the energy markets was blocked by Republican legislators on Friday. The move frustrates Democratic efforts to show the party is taking action on record petrol prices. The Stop Excessive Speculation Act, sponsored by Harry Reid, the Senate majority leader, fell 10 votes short of clearing a procedural hurdle.”

The scariest news of the week comes from down-under, where the National Australia Bank (NAB) announced it would “slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless….The decision by National Australia Bank to make drastic provisions on its US mortgage debt could have ramifications in the US itself. It opted for a 100pc write-off on a clutch of “senior strips” of collateralized debt obligations (CDO) worth £450m - even though they were all rated AAA. (Ambrose Evans Pritchard, “Australia faces worse crisis than America”, UK Telegraph.)

The original article appeared in the Business Spectator and was titled “NAB will shock Wall Street”, by Robert Gottliebsen. “Shock” is an understatement. This is more like a meat cleaver crashing down on a butcher block. Schwook! This is a must-read for anyone who is following the meltdown in the financial markets. Here is an extended excerpt from Gottliebsen’s article:

“The National Australia Bank’s decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a ‘meltdown’.

“We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

“It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable.” ( The Business Spectator,”NAB will shock Wall Street”)

The conduits are off-balance sheets operations run by the banks which contain hundreds of billions of dollars of bonds which are now essentially worthless. So far, many of the banks have not accurately reported the losses from these operations hoping that the housing market will stabilize and the value of the bonds will rebound. The action taken by the National Australia Bank is a “game-changer”.

Gottliebsen again:

“The global banks have been marking to market the assets they held on their balance sheet, but the vast amounts held in so called ‘conduit trust accounts’ have not been written down because they were not marketable. NAB wrote them down when they saw the bad mortgages….US banks have written down $450 billion in bad housing loans. The revelation from NAB means that they will now certainly need to take provisions to $1,000 billion. But write-downs of $1,300 billion and perhaps even more are on the cards.” (Business Spectator.)

While the U.S. oil industry want access to more federal lands to help reduce reliance on foreign suppliers, American-based companies are shipping record amounts of gasoline and diesel fuel to other countries. A record 1.6 million barrels a day in U.S. refined petroleum products were exported during the first four months of this year, up 33 percent from 1.2 million barrels a day over the same period in 2007. Shipments this February topped 1.8 million barrels a day for the first time during any month, according to final numbers from the Energy Department. The surge in exports appears to contradict the pleas from the U.S. oil industry and the Bush administration for Congress to open more offshore waters and Alaska’s Arctic National Wildlife Refuge to drilling. More

The £100-a-month fuel bill is to become a reality for millions more families after record energy price rises were announced yesterday. The increases of up to 44 per cent for ten million British Gas customers were branded “indecent” last night as MPs stepped up the pressure for a windfall tax on energy companies. The biggest rises will hit families in London, the Midlands and southern England as the company, which is expected to announce multimillion-pound profits today, introduces a new regional pricing structure. Gas bills rise by an average of 35 per cent and electricity by 9 per cent, pushing the annual energy bill for a British Gas dual-fuel customer up £263 to £1,314, a rise of 25 per cent. More

(Reuters) - U.S. Food and Drug Administration inspectors have found samples of Salmonella bacteria at a farm in Mexico that produces serrano peppers, officials said on Wednesday. They matched the strain that has sickened more than 1,300 people across the United States and parts of Canada, David Acheson, FDA associate commissioner for food protection, told a congressional hearing. “FDA found Salmonella saintpaul in a sample of serrano peppers and a sample of water from a farm in Mexico,” FDA spokeswoman Stephanie Kwisnek confirmed. More

Minyanville.com
For the last twenty years the Federal Reserve has used the banking system to expand the credit base of the economy. They kept interest rates low to encourage borrowing. Beginning in 2001 and 2002 the Federal Reserve went into overdrive, driving real interest rates negative and thus encouraging massive speculation in credit. The result is a money supply six times normal relative to GDP but more importantly one bloated with debt with virtually no relative savings to support it.

The system is now broken as evidenced by the TAF facility: the very definition of this is “the financial system has no more capital left and the TAF is the only way the Federal Reserve can get capital back in the system. So the Federal Reserve has taken bad debts in exchange for capital onto their balance sheet. This makes them very nervous. It’s not a far fetched thought to believe that the new SEC rules were specifically implemented to drive financial stocks up in order to allow them to raise capital through stock offerings. The capital would make it more probable that these banks are eventually able to take the bad debt back from the Fed. This serves as a warning to those who are tempted to fall for this and buy financial stocks on these secondary stock offerings.

Again, we hear from apologists that banks selling stock will “heal” the system. But again that’s not how it works. It only transfers wealth from one part of the system to another because wealth is not being created. There’s no production, only transfer. It’s a hallmark of deflation that companies sell stock. That is deflationary. People have to use cash to buy stock. So cash goes from investors who have less cash to buy things with, to banks who use it to write down debt. But the point is banks selling stocks to investors reduces liquidity, it does not increase it. The government’s strategy is to buy time. It always is. Time allows it to slowly drain wealth from the poor/middle class and re-distribute it to the rich who own the financial system. More

Faced with seemingly never-ending falls in the value of their properties, some American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages. Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes. The trend of people now positively choosing to walk away because it makes financial sense to do so is a worrying new development. “The dangers are extraordinary,” Professor Wachter says. More

The Houston Business Journal reported Franklin Bank received a non-compliance notice from NASDAQ on 2008-07-23 for failing to maintain the required minimum share price of $1 for 30 consecutive days. The bank has 180 days, or until 2009-01-20, to regain compliance. In a press release, Franklin Bank said “This notification will not impact the listing of Franklin’s common stock at this time.” More

Mr. Mortgage
First, most hedge funds I spoke with today had the same fear from the early morning. That was the SEC striking midday with an announcement that the new, temporary specific arrangement short selling rules would be extended to ALL stocks. This could have played a major factor in keeping the financials elevated with sporadic bouts of short-covering throughout the day. But only one of the fears came true. After hours the SEC did extend the rule until Aug 12th but only to the original 19 stocks. By law they can only extend it 10 trading days at a time. Cox sure put those dastardly short seller pirates who created this entire subprime crisis that bled over into a global crisis and looming depression in their place. More

If you saw dark clouds drifting from St. Charles last week, they were probably coming from the dreary mood at the CFA Institute’s annual investment seminar for professional investment managers. Every year, the respected chartered financial analyst investment education group brings money managers from around the world together in the Chicago area and exposes them to provocative thinkers on investment strategy and market conditions. And with most of the world’s stock markets down 20 percent or more from their highs, economies slowing throughout the world, and a credit crisis toying with the flow of money, this year’s speakers were gloomy. “I am officially scared,” GMO investment manager Jeremy Grantham told professionals from as far away as Abu Dhabi and Malaysia. “In 2000, we had a technology bubble. But this is massive, a massive credit crisis and a bubble in global housing, global equity and global land.” More

The world’s financial storm has swept through Australia and New Zealand this week amid mounting signs of contagion across the Pacific region. Financial shares were pummelled in Sydney on Tuesday after investor flight forced National Australia Bank (NAB) to slash a £400m bond sale by two thirds. The retreat comes days after the Melbourne lender shocked the markets by announcing a 90pc write-down on its £550m holdings of US mortgage debt, an admission that it AAA-rated securities are virtually worthless. In New Zealand, Guardian Trust said it was suspending withdrawals from its mortgage fund owing to “liquidity difficulties in the market”. Hanover Finance - the country’ third biggest operator - last week froze repayments to investors. The company said its “industry model has collapsed” as the housing market goes into a nose dive. Some 23 finance companies have gone bankrupt in New Zealand over the last year.

It is now clear that the Antipodes are tipping into a serious downturn. Australia’s NAB business confidence index fell to its lowest level in seventeen years in June. New Zealand’s central bank began to cut interest rates last week on fears that the economy may have contracted in the second quarter, and is now entering recession. Housing starts slumped 20pc in June to the lowest since 1986. More

(Reuters) - Billion-dollar bankruptcies are at their highest in five years only half way through 2008, according to bankruptcy filing tracker BankruptcyData.com. A total of seven U.S. companies with more than a billion dollars in assets have filed for bankruptcy protection so far this year, it said. Fremont General Corp, which was one of the largest U.S. providers of subprime mortgages before regulators ordered it to stop making the loans, was the largest filing of the year with $13 billion in pre-petition assets, BankruptcyData.com said. Fremont filed for Chapter 11 bankruptcy protection in May, after arranging to sell bank branches and deposits to CapitalSource Inc.

SemGroup LP, the energy trader which filed for bankruptcy protection from creditors last week, was the second-largest bankruptcy filing of the year with $6 billion in pre-petition assets. “We seem to be in the midst of a ‘perfect storm’ leading to more bankruptcies: high levels of debt, high energy and raw materials costs and weakness in the U.S. economy,” George Putnam, III of New Generation Research, which publishes BankruptcyData.com said in a statement. More

Source : National News Bureau, Public Relations Department of Thailand
Public Health authority of Pijit province, Doctor Prajak Wattanakul alongside the Contagious Disease Control Unit reported from the Sam Ngam district hospital yesterday that the team were called on to inspect 4 new patients who are suspected of having Avian Flu. The patients comprise of 2 young children ages 6 and 10 and two elderly women ages 62 and 70. Despite the patients being from different Tambon in the district, physicians found that all had come into contact with poultry before falling ill and all exhibited symptoms of coughing, fatigue, shortness of breath and other bird flu related conditions. Doctors have sent off samples of the patients to be analyzed, and are expecting results in 1-2 days. All 4 have been quarantined, as the chickens that they had contacted all experienced unexplained deaths in the past days.

The ongoing process in the United States of the transfer of military and intelligence functions (and much of a US$66 billion budget) to private, often anonymous operatives, has made it easier for enemies to penetrate American intelligence. This has greased the slippery slope to the loss of professionalism within the community of intelligence analysts, in turn heightening the risks of war by accident, or by presidential whim. More

MIKE WHITNEY
The Bush administration is going to be mailing out more “stimulus” checks in the very near future. There’s just no way around it. The Fed is in a pickle and can’t lower interest rates for fear that food and energy prices will shoot into the stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to “prime the pump” and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There’s no other choice.

The daily barrage of bad news is really starting to get on people’s nerves; it’s obvious everywhere you look. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the “impressive powers of the free market” any more. They know things are bad, real bad. That’s why the business news is no longer presented like a happy-go-lucky Bollywood extravaganza with undulating females and exotic music. Now it’s more like B-grade slasher movie where everyone winds up dead at the end of the show.

A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan’s West End. It’s palpable. That same sense of foreboding is creeping like a noxious cloud to every town and city across the country. Everyone is cutting back on non-essentials and trimming the fat from the family budget. The days of extravagant impulse-spending at the mall are over. So are the big ticket purchases and the trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and credit cards are at their limit.

In the last three months bank credit has shrunk faster than any time since 1948. The banks aren’t lending and people aren’t borrowing; that’s a lethal combo. When credit-creation slows, the economy falters, unemployment rises and the misery index soars. That’s why Bush will mail out a new batch of stimulus checks whether he wants to or not; his back is up against the wall.

On Friday, after the market had closed, the FDIC shut down two more banks, First Heritage Bank and First National Bank. Kaboom. Two weeks earlier, regulators seized Indymac Bancorp following a run by depositors. The FDIC now operates like a stealth paramilitary unit, deploying its shock troops on the weekends to do their dirty work out of the public eye and at times when it will least effect the stock market. The reasons for this are obvious; there’s only one thing the government hates more than seeing flag-draped coffins on the evening news, and that’s seeing long lines of frantic people waiting impatiently to get what’s left of their savings out of their now-deceased bank. Lines at the bank signal that the system is broken.

Banks-runs are a shock to the collective psyche. When depositors see a bank run they realize that their money is not safe. People aren’t fools; they can smell a rat. When their confidence wanes, it extends to the whole system. Suddenly they start questioning everything they once took for granted. They become skeptical of the institutions which, just days earlier, seemed rock-solid.

Bank runs are a direct hit on the foundation of the free market system. Unchecked, the tremors can ripple through the entire society and trigger violent political upheaval, even revolution. The public may not grasp their significance, but everyone in Washington is paying attention. They take it seriously, very seriously.

An article in the San Francisco Business Times said that the FDIC is worried about the reporting on Internet blogs. They’d rather keep the information about the troubles in the banking system out of the news. Sheila Bair, chairman of the Federal Deposit Insurance Corp., summed it up like this after the run on Indymac:

“The blogs were a bit out of control. We’re very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it. The misinformation that came out over the weekend fed a lot of depositors’ fears.”

Is that a threat? The cure for a failed banking system is adequate capital and prudent oversight not threats to impartial critics of the system. That’s balderdash. Commissar Blair apparently believes that bloggers should be treated the same way as journalists in Iraq, who, if they veer ever so slightly from the Pentagon’s “the surge is a great triumph” script, find themselves on the smoky end of an M-16 at some unmarked checkpoint outside Baquba.

Last Sunday, sought Treasury Secretary Henry Paulson tried to reassure the public that the banking system is sound, while bracing people for more trouble ahead:

“I think it’s going to be months that we’re working our way through this period — clearly months. But again, it’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”

Paulson is wrong; the banking system is not sound nor is it well capitalized.

If the rate of bank closures continues at the present pace, by the middle of 2009 their will be restrictions on withdrawals. Bet on it.

Journalist Bill Sardi summed it up nicely in an article last week on lewrockwell.com titled “Could Your Bail Fail?”:

So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Don’t think all your investments outside of banks are immune from all this turmoil. For example, money market mutual funds, where Americans have invested $3 trillion, are not covered by FDIC insurance (however, money market accounts offered by banks are covered). Recent losses in some of these money market mutual funds have caused some companies to rush to plug the losses. For example, Legg Mason Inc. and SunTrust Banks Inc., recently pumped $1.4 billion each into its money market funds. Bank of America Corp. has injected $600 million.

As for your checking and savings accounts, recognize you may have five different accounts in the same bank, but the FDIC only insures individuals, not each account, up to $100,000. Putting your money in different accounts in the same bank does not necessarily provide better insurance for your deposits.

Mr. Mortgage
This is infuriating. When will the deception and fraud stop! It is actions like these by the Solon’s that has turned a ‘crisis of confidence’ into something that has brought the global financial markets to their knees. The FASB is being pressured by the lawmakers to delay its time line on the revamped FAS 140 and FIN 46R. This of course will help out the financial institutions by creating less transparency and delaying the inevitable probably due to a new tax payer bailout being drawn up that will channel more dollars to parties other than those who need it, the US citizens. More

The US financial crisis is spreading from subprime borrowers to wealthier consumers, with evidence mounting that more affluent people are failing to pay their mortgages and credit card balances. Growing concerns over the financial health of richer borrowers are prompting banks and card issuers to tighten lending practices in moves that could futher dampen consumer confidence and spending more. Banks such as JPMorgan Chase and credit card groups such as American Express have clamped down on lending to customers that have traditionally been regarded among the safest and most profitable borrowers. “The crisis is just starting to spread beyond the middle class,” said Curtis Arnold, founder of CardRatings.com. “Even folks with good credit-ratings scores are no longer immune from adverse actions from their card issuers.” More

At the campaign stop in Austin, Texas, Nader spoke to an audience of approximately 200 about his campaign’s primary issues in the 2008 presidential election. During the press conference — held in a sweltering classroom at the back of a small, suburban Methodist church — Nader also directly addressed an elderly white woman as a “political bigot.” “What is your answer to people, including myself, who believe that the votes you get will take away from the Democratic party and ensure McCain wins?” asked the woman during Nader’s Q&A with the press. “People who say that a vote for you is a vote for McCain.”

Nader grew tense, and his response to the woman was abrupt. “Madam, do you think I’m a second-class citizen?” he asked. “I’d like for you to answer my question,” said the woman. “No, because that question implies that somehow I am less equal in running for election than two crooked politicians in Washington,” he said. “You are a political bigot, wittingly or unwittingly.” It was during his speech, and after the press conference, that Nader said progressives who will vote for Obama as the “least worst candidate” are actually trapped in “political slavery.” More

(Reuters) - More than 1.6 million U.S. businesses owe the Internal Revenue Service more than $58 billion in unpaid taxes for Social Security, Medicare and unemployment insurance, a government watchdog agency said on Tuesday. In a report to the Senate Homeland Security investigations subcommittee, the Government Accountability Office said the IRS fails to take full advantage of tools available to collect unpaid taxes and to prevent further cheating on payroll taxes. “When businesses do not remit payroll taxes, they are using employees’ money to fund business operations or the personal lifestyle of the businesses’ owners,” GAO Director of Financial Management and Assurance Steven Sebastian said in testimony to the committee. More