Sun-Times files bankruptcy

Reuters Staff
Mar 31, 2009 13:21 UTC

Chicago’s #2 paper is aiming to keep its print and online operations going, but it has one problematic creditor (Sun-Times):

[Chairman Jeremy Halbreich's] overriding goals are to sustain the company’s print and online news operations while “preserving as many jobs as possible,” he said.

The company has one significant creditor — the Internal Revenue Service. The IRS has said Sun-Times Media Group owes up to $608 million in back taxes and penalties from past business practices by its former controlling owner, Conrad Black, now imprisoned for theft from corporate coffers.

Unlike other newspaper owners that have filed for bankruptcy amid steep dropoffs in advertising, including Chicago-based Tribune Co., Sun-Times Media Group has no bank debt. But its IRS debt thwarted efforts to raise new capital.

Black was a notorious looter.

Lunchtime Links 3-30

Reuters Staff
Mar 30, 2009 16:22 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link”)

Obama Says GM/Chrysler have last chance to survive (Bloomberg)  The administration will continue funding GM for 60 days and Chrysler for 30 days to give them one last chance to cut costs.  Debts have to be restructured; unfunded pension/benefit promises have to be abrogated; dealer networks have to be drastically reduced.  If these various constituencies can’t come to an agreement, the administration will force them into a bankruptcy restructuring.  Obama made clear in his speech that if bankruptcy happens, the government will provide debtor-in-possession financing in order to prevent a disorderly liquidation of auto assets.

With regard to this story comes the OA quote of the day, from reader AK: “Wagoner gets fired; Pandit, Dimon, Mack, Lewis and Blankfein still have jobs. Amazing.”

Defaults, Delinquencies Rise for FHA-insured mortgages (WSJ)  No surprise here, a government guarantee subsidizing bad lending decisions is leading to big losses for taxpayers.  Speaking of which….

New Task Seen for Fannie, Freddie (WSJ)  The government is looking to expand its housing slush fund, using Fannie and Freddie to finance small mortgage bankers who are going out of business.  Small lenders are failing because they can’t get credit to fund loans.  This should be considered a good thing.  Pumping more credit into housing in order to artificially inflate prices won’t lead to recovery; it will lead to stagnation.  Better to let credit dry up so that house prices can fall to levels more closely related to actual incomes.

Russia Backs (Partial) Return to Gold Standard (Telegraph)  The article notes that Russia is a major gold producer with “large untapped reserves.”

Did Goldman Goose Oil? (Forbes)  Was last summer’s spike in oil prices just a massive short squeeze?

Why Are These Renters Smiling? (NYT)  From the good news file: rents are falling!  Policy-makers are panicked that runaway deflation will lead to Depression.  And they’re right, it probably will.  But at this point, it’s really too late to stop.  We’ve gone into so much debt, a debt deflationary depression is probably inevitable.  Perhaps the government can delay it via borrowing/printing.  But that’s all it can do: delay it.  The good news is that, when it comes, deflation will drastically reduce prices for things people buy.  Employment would eventually come back, and at that point, people might actually be able to afford stuff without having to go into debt to buy it.

The Vanishing Shopping Mall (The Week)  According to the article: “more than 400 of the 2,000 largest malls in the U.S. have closed in the past two years.”

Today’s Must Read: Understanding Fed “printing” (Kasriel)  The Northern Trust economist explains how the Fed prints money and what is meant by the term “monetization,” as in “monetizing debt.”

Goldman bails out two execs (NYT)  This news is actually old.  The bailout came last fall, when Goldman bought out a portion of the execs’ holdings of internal investment funds.  I saw this in the proxy (page 30), but the NYT has the goods on why Goldman made the move.  The two partners were short on cash and were planning to sell Goldman stock.  The firm wanted to avoid a large insider sale so they bought out a portion their stakes in the investment funds instead.

America the Tarnished (Krugman)  The columnist borrows OA’s magazine cover curse.  And he continues to peddle the line that governments need to pull their weight if we are to emerge from this crisis.  That’s code for debt-financed stimulus, and Krugman remains dangerously wrong on that score.  More debt compounds our problem.  Luckily Angela Merkel will be at the G-20 to put a stop to public spending foolishness.

Funny Animal Signs…

Letter to FASB: Don’t Change Mark-to-Market!

Reuters Staff
Mar 29, 2009 19:49 UTC

John Gavin of Disclosure Insight has written a letter to FASB opposing its proposal to refine mark-to-market rules.  Like John, I hope FASB sees the light.

It has been said that changing MTM rules would be like giving inmates keys to their own prison.  Seems to me banks already have keys—to their own cells certainly, and to every other door inside the prison.  After all, they have wide latitude to mark most assets to model (level 2) or to myth (level 3).  Modifying mark-to-market gives them the key to the front gate as well.

From John:

Our letter includes…a study we published only about 10 days ago entitled, “Bank Goodwill Impairment Study.”  Using goodwill as a proxy for overall balance sheet integrity, we found reason to question the…balance sheets for at least 70% of 50 of the largest banks trading in the US.  That’s largely because a full 70% did not impair goodwill (at all) at year-end despite a significant percentage of them trading below book and even tangible book values (we called Bank of America the poster child in that regard and provide analysis of why their $80+ billion in goodwill is desperately in need of impairment).

This is the list of all the people/entities that have submitted comments to the FASB thus far.  No surprise here, the majority are from the banks who have clearly organized themselves to keep the heat on the FASB.

Ours is letter #38. It appears we are the only independent investment research firm taking a stand on this.

The study attached to the letter (pages 4-15) includes some great data tables.  I highly recommend it.  The pdf format is easier to read than Scribd’s version, a link to it here.

Letter to FASB: Don’t Change Mark-to-Market!

Lunchtime Links 3-29

Reuters Staff
Mar 29, 2009 17:20 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link” … Thanks to Kay B.—$20—for her donation!)

Today’s Must-Read: Welcome to America, The World’s Scariest Emerging Market (WaPo)  One of the best op-eds I’ve read recently.  Back in September, OA published an op-ed in the Baltimore Sun comparing the U.S. to Argentina.  The comparison grows more apt with each passing month…

A Second Must-Read: How FDR promoted Price-Gouging (Jim Powell)  The CATO Institute Scholar notes how many of FDR’s New Deal policies were price-fixing schemes designed to protect existing business/investor interests at the expense of consumers.  Obama (and Bush before him of course) is doing the same, with an assist from Ben Bernanke: artificially suppressing the price of credit in order to support asset prices while pumping billions of taxpayer dollars to favored industries.  Obama would do better to emulate the other Roosevelt—trust-busting Teddy…

Merkel Stops Global New-Deal (Times UK)  The German Chancellor is emerging as the most sensible voice among the world’s leaders.

Tumbling Tower of Babel: Subprime Securitization and the Credit Crisis (Financial Analysts Journal)  A comprehensive view of how securitization contributed to the housing bubble and bust.  Long, wonkish and dry, but has LOTS of really good data.

Is There Any Gold Inside Fort Knox? (Times UK)  It’s been awhile since the facility was audited.

Newspapers last bastion against political corruption (Guardian)  An interview with David Simon, former Baltimore Sun reporter and creator of the greatest show I’ve ever seen on TV: The Wire.  He’s right to bemoan the fall of journalism.  Who will guard the guardians?  My hope is that a new model will emerge, perhaps along the lines suggested by reader Tony R.  I’ve reprinted his idea in full below today’s video.

HuffPo launches journalism venture (Breitbart)  Arianna Huffington says she’s now bankrolling a group of investigative journalists.

A video short to brighten any day (

A fine piece (from Al Jazeera) about the impact of the economic crisis on Chinese workers:


How’s this for a Hail Mary for the newspaper industry?

What if Amazon’s Kindle really takes off? If it does, then is it possible newspaper readers would be willing to pay for their subcriptions to be delivered electronically via the Kindle? What’s more, could the newspapers even subsidize the cost of a Kindle in exchange for a 2-3 year subscription? Some of the major newspapers (WSJ, NYT, WaPo, et al) might have a 10% chance of making this work, as opposed to a 0% chance of making their existing business models work long-term.

I know news is free online, but if readers could be conditioned to pay for newspaper subscriptions via Kindle then a new market for news content could develop. Why do we pay for text messages but not for e-mails? Because the wireless companies set up the text messaging market in a way that benefits them and to which we are now conditioned. It’s possible Amazon and the newspapers could do the same with Kindle. Newspaper subscriptions via Kindle currently cost about $10/month, or ~$120 per year. IF the newspapers could eventually ditch their newsprint and distribution costs and go exclusively via Kindle they could run profitable businesses off a much smaller revenue base. They could even potentially get rid of most advertising.

It’s a complete Hail Mary and the fact that readers are now conditioned to seek free news via the Internet is a major impediment, but this is still probably the most interesting idea I’ve heard in years for how the newspapers could survive. The Economist ran an article positing a somewhat similar idea just a few weeks ago and I’ve talked to a few ther people who have added helpful ideas to that concept. Just a crazy ass idea to chew on.

As an aside, I’d note that I’ve heard Amazon’s true target market for the Kindle has nothing to do with newspapers and everything to do with schools and the broader education/educational book publishing industry. Interesting. We’ll see if they can get anywhere before Apple potentially comes in a steels the market.


Lunchtime Links 3-28

Reuters Staff
Mar 28, 2009 17:42 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link” … Thanks to Toby—$15—and Edgar P.—$5—for their donations!)

German Chancellor Counsels Against More Stimulus (FT)  “This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” said Ms Merkel. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”  The article notes that Germany has higher public debt relative to GDP than the U.S.

Do New Bulbs Save Energy if They Don’t Work (NYT)  Anyone else having problems with their compact fluorescents?  I thought it was weird when one I bought crapped out after a couple months…

Bank Failure #21 … Omni National of Atlanta … a medium-sized bank with $956m of assets and $797m of deposits.  FDIC estimates $290m cost to Deposit Insurance Fund.

Keep Up the Good Work (Jack Ciesielski)  FASB is hardly acting like an independent standard-setter…

NY State May Hike Income Taxes as Budget Gap Grows (Bloomberg)  “We are right now on the verge of cuts and service reductions that I would have to describe as life threatening,” Paterson said. “With situations like that, everything is on the table.”

U.S. Expected to Give More Money to Automakers (NYT)  “The administration is expected to set a short deadline — weeks rather than months — to compel the automakers, their lenders and the U.A.W. to reach agreement.”

Can your faucet do this?

Gaming the Geithner Plan, a video tutorial

Reuters Staff
Mar 28, 2009 00:55 UTC

The tutorial below is from Salman Khan.  It walks through one reason—outlined in OA’s pop quiz earlier this week—that the Geithner plan is such a disaster: because of the huge incentive it gives banks to buy their own assets in order to transfer the risk of further writedowns from themselves to taxpayers.

BTW, Khan Academy has literally hundreds of fascinating tutorials just like this one.  I highly recommend it.

One quibble: it’s FDIC, not the Federal Reserve, providing the non-recourse loans that make his example transaction possible.


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Big Banks Pull off The Ultimate Bait & Switch

Reuters Staff
Mar 27, 2009 20:09 UTC

We’re not quite as healthy as we thought we were.  Oops.  (WSJ)

J.P. Morgan Chase Chief Executive James Dimon said…that March was a little tougher than the first two months of the year….Bank of America…CEO Kenneth Lewis also said that March had been a tougher month for his bank. [Convenient that they dumped this on Friday afternoon, and at the close of a very good week.]

Readers may recall that a few weeks ago, those two CEOs—along with Citi’s Vikram Pandit—said the first two months of the year had been very good:

Pandit, March 10th: “We are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

Dimon, March 11th: “Jamie Dimon, the chief executive of JPMorgan Chase, said Wednesday that the bank was profitable in January and February…”

Lewis, March 12th: “We have been profitable for the first two months of the year,” Lewis told reporters after a speech in Boston today.

This was possibly the most nakedly self-serving bullshit the big bank CEOs have offered to date. (“bullshit” being a technical term of course, see Harry Frankfurt)

By February, it was understood that their firms are all insolvent.  None could stand on its own; certainly not without the trillions of dollars committed by the public to backstop the banking sector. To deal with them, consensus among the cognoscenti was finally tending to a proper recapitalization: wiping out shareholders and forcing losses onto creditors via debt-for-equity swaps. Call it nationalization, call it preprivatization, call it FDIC receivership, it was clear that losses had to be recognized and by those to whom they properly belong: investors across the banks’ capital structure.

But no one really wanted to do this, not in Congress and certainly not in the Obama administration, where Timmy Geithner has made clear that his priority isn’t a cleansed banking sector, it’s a privately-owned one. For obvious reasons the banks don’t like this solution either. So they offered up their self-serving b.s. regarding January and February, buying just enough time for Congress/Bernanke to badger FASB into changing mark-to-market rules and for Geithner to roll out his private-public partnership plan.

Now whatever losses the banks can’t hide with revised accounting treatments, they can simply fob off on taxpayers via the partnerships. They got what they always wanted: A bad bank! An entity that will actually absorb losses from the asset side of the balance sheet! Shareholders and creditors don’t have to worry about further writedowns, not the ones that can’t be hidden anyway. Taxpayers will pick up the check!

Even better, the Geithner plan is so ridiculously complex—and public disclosure is likely to be so minimal—that toxic asset transfers are likely to happen largely out of view. Maybe Treasury will have to increase its borrowing substantially in order to fund the losses, but by that point everyone will be celebrating that banks have started lending again. Hooray!

Speaking of which, there are no substantial protections to prevent banks from gaming this plan.*  What’s to stop them from paying an investor to put up the equity for one of Geithner’s partnerships in order to effect a transfer of toxic assets from their own balance sheets to the public’s?

And of course other credit investors love this plan because it takes them out of the line of fire.  It’s no wonder PIMCO’s Bill Gross threw his support behind the plan so early.  As one of the world’s largest credit investors, he’d be next in line after shareholders to absorb losses on “toxic assets” if they were properly handled, that is, written down.  That’s why Gross has argued so vociferously that we must “support asset prices.”  Now he can do so himself at little cost, putting up a sliver of equity to fund a Geithner partnership in order to remove risk from his own balance sheet.  This gets him a free lunch courtesy of taxpayers.

This is all of a piece. The longer CEO/policy-maker collusion can delay loss recognition, the more time they have to invent ridiculous leverage schemes (more money printing! more government borrowing to fund “stimulus”! more FDIC “guarantees”!) to inflate those losses away…and to continue looting the public’s wealth.

But losses aren’t going away. Trading smaller private liabilities for larger public liabilities in order to artificially inflate asset prices does nothing to repair the economy’s aggregate balance sheet. At the end of the day, we’re still just lending more and more against a dwindling pool of real equity. The unwind is coming. Adding more leverage to delay it will only increase the pain.


*A reader points me to the following from FDIC’s legacy loan term sheet: “Private Investors may not participate in any PPIF that purchases assets from sellers that are affiliates of such investors or that represent 10% or more of the aggregate private capital in the PPIF.”  That’s something at least.  Though what’s to stop mutual back-scratching?  “I’ll vacuum up your legacy loans in my partnership if you deal with mine in yours…”

BTW, the following bit I found in the WSJ is quite worrisome:

“Federal Deposit Insurance Corp. Chairman Sheila Bair said Thursday she would be open to letting banks see some of the profits if they dump problem loans that ultimately recover some value….

Ms. Bair said banks might be able to take an equity stake in those funds as partial payment for their loans, which would give them a payoff if the loans ultimately rise in value and would provide bankers with more incentive to sell troubled assets.

“We’d be open to comments on that,” Ms. Bair said.”

Nothing about this smells good.

Lunchtime Links 3-27

Reuters Staff
Mar 27, 2009 17:25 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link” … Thanks to Bobby S.—$8—for his donation!)

Today’s Must-Read: The Quiet Coup (The Atlantic)  Baseline Scenario’s Simon Johnson, former Chief Economist of the World Bank, explains why our crisis is so similar to emerging market implosions of the past:  “to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess.”  Johnson also argues that financial elites need to be removed from the equation as they are a chief impediment to successful economic restructuring.

Facebook is hunting for money (Business Week)  Eventually, Web 2.0 companies will have no choice but to start charging for their services.  Ads on your Facebook page don’t generate enough revenue to support the page’s continued existence.

China vs. U.S. Money Market Funds (Setser)  Fascinating data as always from Brad.  Guess who’s not buying all of the excess debt being dropped on the market?

Treasurys Climb After Solid Auction (WSJ)  On the heels of a poor auction, Treasury proves that it can still find buyers for its paper.  Truth is, more panic will probably cause more flight to Treasurys in the short run, keeping a lid on yields.  Even if the market can absorb this year’s supply, continued budget deficits will keep supply rising year after year.  This will keep a lid on growth even if the economy returns to “normal:”  By that point, Treasury will have accumulated trillions more in debt, all of which will have to be rolled over at higher interest rates, making debt service even more oppressive.

FDIC request for comments on Geithner plan (FDIC)  FDIC will be providing non-recourse financing to enable private investors to leverage up their positions in toxic loans  (see the example for legacy loans at this OA post).  Anyway, this is a place to share your views on what you think of the plan.

Learning How to Think (Kristof)  The NYT columnist on why “experts” are often “a stunningly poor source of expertise.”

AIG Exec whines about public anger, expects pity. Yeah, right (Matt Taibbi)  Some of you might have seen the NYT op-ed that was a resignation letter from Jake DeSantis, formerly an employee of AIG’s Financial Products unit.  Taibbi, who wrote the scathing critique of AIG in Rolling Stone, has some choice words for Mr. DeSantis.

Aaron Spelling’s House put on market for $150 million (LA Times)  What’s a “winding motor court?”

“South Park” on the Bank Crisis (Comedy Central)  They actually cover a lot in this episode, and fairly accurately.

Financial Conduits: A $700 billion time bomb?

Reuters Staff
Mar 27, 2009 05:33 UTC

[Reader Note: Allow me to introduce a guest writer: Keith Allman.  Formerly in the quantitative analytics group at MBIA and the principal financial group at Citi, Keith now runs the training and consulting firm Enstruct.  He literally wrote the book on modeling structured finance cash flows.  Recently he wrote his second book and is now planning a third.  With all the talk of increased financial regulation, Keith wrote a post about one corner of the structured finance world he hopes won't be overlooked.  He can be contacted at keith.allman at]

Transparency is key to helping us climb out of the credit crisis.  Transparency of investments, risk assessment methodologies, parties, counterparties, and so on.  However, financial vehicles allowing billions of dollars to pass through them—but that do not release information regarding their underlying assets—still exist.  I’m speaking of multi-seller conduits, the commercial paper variety of which have about $730 billion outstanding in the U.S.  Their accounting statements offer us generalities, such as asset allocation percentages in mortgages, auto loans, leases, credit cards, student loans, and other consumer-based asset classes, but none report data relating to their exact underlying exposures.  If you thought CDOs were toxic, read on….


Weekly Update: U.S. Debt/Fed Assets

Reuters Staff
Mar 26, 2009 20:51 UTC

I will be updating this info each week in order to track fiscal and monetary policy from a bird’s eye view.  (For those interested, a tutorial regarding this data from last week’s post.)

According to the Treasury Dept., Total U.S. Public Debt Outstanding increased $12.7 billion since last week.

(Click charts to enlarge)

According to the Fed, the assets on its balance sheet increased $9.6 billion last week.  The increase was primarily due to purchases of mortgage-backed securities.

Fed assets (i.e. securities bought with newly printed money) and the public debt are both likely to expand significantly this year.

Lunchtime Links 3-26

Reuters Staff
Mar 26, 2009 15:09 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link”)

Today’s Must Read: Pension Glut Lies at Heart of Crisis Wracking Hungary (WSJ)  Charles Forelle has been leading the paper’s coverage of Iceland; this is a fantastic story about how pensions have bankrupted Hungary.  Nothing destroys economies quite like entitlement…

A comment on Geithner’s Plan (Solari)  Thoughts from a former RTC lawyer, who obviously knows something about dealing with “toxic assets.”  (hat tip Michael W)

Obama’s Bank Plan Could Rob Taxpayers (Jeffrey Sachs)  “Could rob” is the wrong conjugation of the verb.  “Will rob” is more like it.  That said, Sachs uses some great examples to demonstrate how cheap, non-recourse government financing will artificially inflate asset prices.

Rahm Emanuel’s profitable stint on Freddie’s board (Chicago Trib)  Obama’s chief of staff made $320k for 16 months of, well, not doing much…

As credit markets froze, banks loaned millions to insiders (McClatchy)

Signs of Stress, Fraud on Roadside (WSJ)  “More vehicles burned, ditched” in insurance payout schemes.  Some end up badly burned when they try to torch their own cars…

Fitch Raises Prime RMBS Loss Estimates Sharply (Research Recap)

Japan Caught in Deflationary Spiral: Exports Plunge, Prices to Follow (Mish)  I also recommend Mish’s post on “Krugman’s $200 billion lunch.”  The bottom line: even as the Japanese economy collapses, after YEARS of stimulus and quantitative easing, American policy-makers delude themselves into thinking such solutions can work for the U.S.

R.I.P. MBA (Slate)  The writer argues that MBA degrees are ridiculously overvalued.  I think he doesn’t go far enough.  Like all products/services that are purchased on credit these days, the price of higher education (college/grad school) is VASTLY over-inflated relative to its utility.

Man dies after bottle mishap (Singapore Times)  We have a Darwin award winner….kind of.

For Star Wars Fans:

WSJ: Poor Treasury Auction Rattles Investors

Reuters Staff
Mar 25, 2009 21:15 UTC

On the heels of Britain’s failed debt auction today, our Treasury had its own trouble selling bonds.  WSJ:

The indirect bid — demand from domestic and foreign institutions, including foreign central banks — for the $34 billion five-year Treasury note auction was 30%, compared to 48.9% from the previous auction in February and an average of 30.1% for the last 10 auctions.

The 10-year note declined 18/32, pushing its yield back up to 2.77%. The yield had fallen to around 2.50% last week after the Federal Reserve unveiled its plan to buy longer-term government debt.

Bloomberg noted the following:

U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent.

“This caught a lot of people unaware,” said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., one of the 16 primary dealers that are required to bid at Treasury auctions. “Prior to the auction the Fed conducted its purchases of Treasuries, which may have compressed interest rates below where they would have been otherwise.”

Reader Ted asked in the comments earlier today why I have such a big problem with budget deficits and with debt.  It’s a good question, in light of all the posting I’ve done on the subject recently.  Problem 1: it’s a matter of national security.  To the degree our government isn’t able to fund itself, that may compromise our national interests.  Problem 2: Crowding Out.  The more debt Treasury dumps onto the market, the more upward pressure will be placed onto interest rates across the credit spectrum.  As painful as it would be, letting the system de-leverage now would be preferable to racking up yet more debt to be worked off later.

Will the market be able to absorb the $2.5 trillion worth of Treasurys that Goldman says we’re on pace to sell in 2009?

Lunchtime Links 3-25

Reuters Staff
Mar 25, 2009 18:34 UTC

(Send links, videos, pics to optionarmageddon at gmail with subject “link” … Thanks to Mark K.—$9—for his donation!)

Successful Bank Rescue Still Far Away (Martin Wolf)  “the government has ruled out the only way of restructuring the banks’ finances that would not cost any extra government money: debt for equity swaps, or a true bankruptcy.”  Good article, though Wolf doesn’t go far enough in his criticism of the plan; he doesn’t note the perverse incentive that those who stand to lose from debt-to-equity swaps—i.e. existing bank creditors—have a perverse incentive to game Geithner’s plan, to put up a sliver of equity to move assets from bank balance sheets to the public’s.

Today’s Must-Read: Ways to Play the Rescue Game (Breaking Views)  Speaking of gaming the Geithner plan, this article outlines some trades we might see…

U.K. Bond Auction Falls Short (Bloomberg)  Interesting, especially in light of last night’s post.  “The risk of failed auctions is increasing as governments around the world boost spending to revive their economies….Germany said today it plans to sell a record 346 billion euros ($470 billion) of bonds this year. U.S. sales will almost triple to a record $2.5 trillion this year, according to Goldman Sachs Group Inc”

Japan Suffers Record Export Drop (FT)  We’ve effectively adopted the “Japanese solution” to deal with our financial crisis—hiding losses instead of recognizing them and spending on stimulus in order to prop up the economy.  For Japan, all that did was delay the day of reckoning, which seems to have arrived.

The Hunt for the Last Nazis (BBC)  Great story.  Hat tip JL.

A time for muscle flexing (Economist)  As Western economies flounder, China sees a chance to assert itself—carefully.

New Home Sales, up a bit from record low (CR)  Prices are still well-above the point of equilibrium between supply and demand.  They must be allowed to fall in order to clear excess inventory.

Geithner “open” to China’s currency idea (Bloomberg)  The Treasury secretary later backtracked on the remark.

Double Dippers: Citi/BofA buying back toxic assets (NY Post)  “The banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders….One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.”  The banks’ bids hit the market just as the Geithner plan was released.  Interesting…

We Need Honest Accounting (WSJ)  Hedgie James Chanos with a great op-ed in defense of mark-to-market accounting.  Chanos includes some very interesting stats I’d not seen before.

Testimony in favor of the Consitutional Tender Act (Aaron Krowne)  Are Federal Reserve Notes unconstitutional?  From Article 1, Section 10: “No state shall…make anything but gold and silver coin a tender in payment of debts.”

Italian Brain Surgeon suffers heart attack during surgery, powers through (ABC)

Gotta love this cat:

MBA fires 20, plans furlough

Reuters Staff
Mar 25, 2009 16:26 UTC

The Mortgage Bankers Association continues its downward spiral.  Last summer OA wrote about the association’s albatross: brand new HQs constructed, at the top of the market, by former President and CEO Jonathan Kempner.  Not helping matters was MBA’s trouble finding tenants to fill the 60% of the building they don’t occupy.  An MBA spokeswoman wouldn’t comment on how much of the space has been filled.

To cut costs, MBA reduced headcount by 20 this week, including four vice presidents.  From a statement sent to employees:

The real estate finance industry and MBA member firms have been facing tough economic challenges. Over the course of the past year, MBA has aggressively implemented rigorous cost cutting measures, from streamlining program expenses to eliminating lower priority product offerings.. The goal has been, and continues to be, ensuring that MBA is properly structured to deliver value to our member firms. We deeply regret the need for today’s reduction in force and the resulting departure of so many of our talented and dedicated employees.

For remaining employees, 401K match contributions have been eliminated.  Also, the spokeswoman confirmed that all employees will be furloughed one week without pay as a cost saving measure.

The statement above must ring a little hollow, considering all the money wasted building 1331 L, not to mention Kempner’s raise in fiscal 2007.  The spokeswoman wouldn’t comment on whatever exit package he might have received.

MBA is required to make public financial disclosures on form 990 with the IRS.

The most recent form 990 is for the year ending September 30th, 2007.  According to the filing, that year Kempner received “compensation” of $1.18m, pension benefits of $251k as well as reimbursed expenses of $18k.  That compares with 2006 comp of $1.05m, pension benefits of $73k, and reimbursed expenses of $26k.

Asked how MBA justifies giving Kempner a raise in 2007—the fiscal year that began just after he merged MBA with the trade group that represented subprime lenders—the spokeswoman also wouldn’t comment.

She said his exit package will be revealed in the association’s forthcoming form 990, to be released this summer.

Frontline: $10 Trillion and Counting

Reuters Staff
Mar 25, 2009 05:54 UTC

A good special from Frontline on runaway deficits.

There are lots of other goodies at Frontline’s website.