Hybrid Blog

Virginia is robbing Peter to pay Paul because it is plain flat out broke. Bankrupt is probably a better word. To pay unemployment benefits, Virginia will borrow $1.26 billion and pay it back plus interest by jacking up unemployment taxes.

Please consider Va. to borrow $1.26 billion for depleted unemployment funds.

As Virginia wrestles with ways to replenish its depleted fund for unemployment benefits, Hampton Roads employers expressed concern about the impact that higher unemployment taxes could have on the health of their businesses.

The sorts of tax increases described by the Virginia Employment Commission earlier this fall may be difficult for some small businesses to absorb without job cuts, said Jim Shirley, owner of Bennett’s Creek Farm Market in Suffolk.

The state’s average unemployment tax per employee will jump from $95 this year to $171 in 2010 and to $263 by 2012, the VEC said in a Sept. 29 presentation to the Commission on Unemployment Compensation.

For small retailers, the financial pressure from weak sales and higher unemployment taxes could be intense, Miller said. “You’ve got to have someone in the store, and if you’re down to one person in the store, you can’t cut any more.”

In addition to boosting unemployment taxes on employers, Virginia will have to borrow more than $1.26 billion from the federal government in coming years to continue paying jobless benefits, the VEC said in its forecast.

That’s because the deficit in its unemployment-benefits fund will hit $194 million by the end of this year and balloon to $561 million by the end of 2010, the VEC said.

Two dozen states, including North Carolina, South Carolina, New York and Texas, have already borrowed about $21 billion from the federal government to pay jobless benefits, according to the Labor Department.

One problem with borrowing to pay jobless benefits, the VEC noted, is that interest payments on this debt cannot come from the unemployment trust fund or from federal money. The interest payments on its $1.26 billion of projected borrowing are likely to total $36.7 million and come from general state funds, the VEC said in its September report.

Yet Another Reason To Not Hire

Borrowing money while jacking up taxes does nothing but give small businesses yet another reason not to hire anyone.

Local governments fork over billions in fees on investments gone bad

Inquiring minds are reading Cities find the fine print is costing millions

Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007.

Against that bleak backdrop, Wall Street is squeezing one of America’s weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city’s credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That’s precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit’s then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. “I figured the [utility] wouldn’t turn out our lights,” says Harris. But there wasn’t enough cash, and in June the city set up a payment plan with the banks.

Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit — and few ways to make up the difference.

Against that bleak backdrop, Wall Street is squeezing one of America’s weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city’s credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That’s precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit’s then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. “I figured the [utility] wouldn’t turn out our lights,” says Harris. But there wasn’t enough cash, and in June the city set up a payment plan with the banks.

Now Detroit must use the revenues from its three casinos — MGM Grand Detroit, Greektown Casino, and MotorCity Casino — to cover a $4.2 million monthly payment to the banks before a single cent can go to schools, transportation, and other critical services. “The economic crisis has forced us to move quickly and redefine what services a city can and should provide,” says Bing. “While we face a tough road ahead, I believe we’re on the right path.” UBS declined to comment.

Detroit isn’t suffering alone. Across the nation, local governments and related public entities, already reeling from the recession, face another fiscal crisis: billions of dollars in fees owed to UBS, Goldman Sachs and other financial giants on investment deals gone wrong.

Now, as many of those deals sour, Wall Street is ramping up its efforts to collect from Main Street.

“The banks stuffed customers with [questionable investments] and then extorted money from the customers to get rid of them,” says Christopher Whalen, managing director at research firm Institutional Risk Analytics.

The New Jersey Transportation Trust Fund Authority, for instance, must pay nearly $1 million a month at least until December 2011 to Goldman Sachs on derivatives deals tied to municipal debt—even though the state retired the debt last year.

The Chicago Transit Authority, having entered into complex arrangements to lease its equipment to outside investors and then lease it back, could face termination fees of $30 million. The investors could collect penalties because American International Group, which backed the arrangement, has seen its credit rating tumble.

Detroit’s Easy Solution

If Detroit Mayor Dave Bing pays UBS one dime over this, he is a complete fool.

The solution is easy. Detroit should declare bankruptcy. In fact, I recommend Houston and any other city in trouble to declare bankruptcy. If they do, they may not be able to go back to the bond markets for a while to raise funds, but so what?

Cities living within their means would be a good thing. Moreover, declaring bankruptcy will allow cities to rework pension benefits and union contracts.

I really do not understand this aversion to bankruptcy by cities.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Virginia is robbing Peter to pay Paul because it is plain flat out broke. Bankrupt is probably a better word. To pay unemployment benefits, Virginia will borrow $1.26 billion and pay it back plus interest by jacking up unemployment taxes.

Please consider Va. to borrow $1.26 billion for depleted unemployment funds.

As Virginia wrestles with ways to replenish its depleted fund for unemployment benefits, Hampton Roads employers expressed concern about the impact that higher unemployment taxes could have on the health of their businesses.

The sorts of tax increases described by the Virginia Employment Commission earlier this fall may be difficult for some small businesses to absorb without job cuts, said Jim Shirley, owner of Bennett’s Creek Farm Market in Suffolk.

The state’s average unemployment tax per employee will jump from $95 this year to $171 in 2010 and to $263 by 2012, the VEC said in a Sept. 29 presentation to the Commission on Unemployment Compensation.

For small retailers, the financial pressure from weak sales and higher unemployment taxes could be intense, Miller said. “You’ve got to have someone in the store, and if you’re down to one person in the store, you can’t cut any more.”

In addition to boosting unemployment taxes on employers, Virginia will have to borrow more than $1.26 billion from the federal government in coming years to continue paying jobless benefits, the VEC said in its forecast.

That’s because the deficit in its unemployment-benefits fund will hit $194 million by the end of this year and balloon to $561 million by the end of 2010, the VEC said.

Two dozen states, including North Carolina, South Carolina, New York and Texas, have already borrowed about $21 billion from the federal government to pay jobless benefits, according to the Labor Department.

One problem with borrowing to pay jobless benefits, the VEC noted, is that interest payments on this debt cannot come from the unemployment trust fund or from federal money. The interest payments on its $1.26 billion of projected borrowing are likely to total $36.7 million and come from general state funds, the VEC said in its September report.

Yet Another Reason To Not Hire

Borrowing money while jacking up taxes does nothing but give small businesses yet another reason not to hire anyone.

Local governments fork over billions in fees on investments gone bad

Inquiring minds are reading Cities find the fine print is costing millions

Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007.

Against that bleak backdrop, Wall Street is squeezing one of America’s weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city’s credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That’s precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit’s then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. “I figured the [utility] wouldn’t turn out our lights,” says Harris. But there wasn’t enough cash, and in June the city set up a payment plan with the banks.

Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit — and few ways to make up the difference.

Against that bleak backdrop, Wall Street is squeezing one of America’s weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city’s credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That’s precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit’s then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. “I figured the [utility] wouldn’t turn out our lights,” says Harris. But there wasn’t enough cash, and in June the city set up a payment plan with the banks.

Now Detroit must use the revenues from its three casinos — MGM Grand Detroit, Greektown Casino, and MotorCity Casino — to cover a $4.2 million monthly payment to the banks before a single cent can go to schools, transportation, and other critical services. “The economic crisis has forced us to move quickly and redefine what services a city can and should provide,” says Bing. “While we face a tough road ahead, I believe we’re on the right path.” UBS declined to comment.

Detroit isn’t suffering alone. Across the nation, local governments and related public entities, already reeling from the recession, face another fiscal crisis: billions of dollars in fees owed to UBS, Goldman Sachs and other financial giants on investment deals gone wrong.

Now, as many of those deals sour, Wall Street is ramping up its efforts to collect from Main Street.

“The banks stuffed customers with [questionable investments] and then extorted money from the customers to get rid of them,” says Christopher Whalen, managing director at research firm Institutional Risk Analytics.

The New Jersey Transportation Trust Fund Authority, for instance, must pay nearly $1 million a month at least until December 2011 to Goldman Sachs on derivatives deals tied to municipal debt—even though the state retired the debt last year.

The Chicago Transit Authority, having entered into complex arrangements to lease its equipment to outside investors and then lease it back, could face termination fees of $30 million. The investors could collect penalties because American International Group, which backed the arrangement, has seen its credit rating tumble.

Detroit’s Easy Solution

If Detroit Mayor Dave Bing pays UBS one dime over this, he is a complete fool.

The solution is easy. Detroit should declare bankruptcy. In fact, I recommend Houston and any other city in trouble to declare bankruptcy. If they do, they may not be able to go back to the bond markets for a while to raise funds, but so what?

Cities living within their means would be a good thing. Moreover, declaring bankruptcy will allow cities to rework pension benefits and union contracts.

I really do not understand this aversion to bankruptcy by cities.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Inquiring minds note a huge shift in consumer attitudes towards credit cards. Please consider Cash is king for holiday shoppers.

Cash was king for consumers who shopped over the Thanksgiving weekend, according to survey results released on Sunday, and that factor could have cost retailers additional sales.

Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America’s Research Group.

“That’s an amazing shift in consumers’ habits,” said Britt Beemer, founder of America’s Research Group.

A total of 39 percent said they used cash, while the remaining shoppers used debit cards, the survey showed.

Consumers shunning credit cards is a bad sign for retailers, since people who buy gifts with a credit card tend to spend anywhere from 20 to 40 percent more on the gift, Beemer said.

Every Retailer Wants To Be A Discounter

The National Retail Federation has this Black Friday Verdict: Number of Shoppers Up, Average Spending Down.

As the closely-watched Black Friday weekend winds down, a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, conducted by BIGresearch, 195 million shoppers visited stores and websites over Black Friday weekend*, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

Shoppers’ destination of choice over the past weekend seemed to be department stores, with nearly half (49.4%) of holiday shoppers visiting at least one, a 12.9 percent increase from last year. Discount retailers took an uncharacteristic back seat, with 43.2 percent of holiday shoppers heading to discount stores over the weekend and another 7.8 percent heading to outlet stores.** Shoppers also visited electronics stores (29.0%), clothing stores (22.9%), and grocery stores (19.6%). As millions of shoppers gear up for Cyber Monday, one-fourth of Americans shopping over the weekend (28.5%) were shopping online.

“In an economy like this one, every retailer wants to be a discounter,” said Tracy Mullin, NRF President and CEO. “Department stores have done an admirable job touting both low prices and good quality, which are important requirements for holiday shoppers on a budget.”

Changing Attitudes Towards Debt

That shift away from Credit Cards usage comes from several primary sources:

1) consumers shunning credit cards over higher interest rates
2) Job losses
3) Boomers headed into retirement scared half to death about a lack of savings
4) Banks curtailing credit and lowering card limits in response to rising defaults

Those four points represent changing consumer attitudes towards debt and borrowing, and banks’ attitudes to credit and landing. Changing attitudes is the key idea.

Now, after the shift is well underway …..

Self-Serving Fed Infomercials

True to form with regulators, they are always too little too late. In an effort to boost its sagging image, you can look forward to Fed Infomercials, playing soon at movie theaters near you.

5 Tips for Getting the Most from Getting the Most from Your Credit Card

1. Pay on Time
2. Stay below your credit limit
3. Avoid unnecessary fees
4. Pay more than the minimum amount
5. Watch for Changes in your account

The Fed is on a publicity campaign to boost its image.

“Get Information You Can Trust”

The above clip is at the end of the Fed’s infomercial on credit card usage.

If you think the Fed is concerned about you, you are sadly mistaken. Although, the Fed is concerned about excessive credit card defaults, that concern is for the banks, not for you.

Moreover, credit card tips is not the real message of the Fed’s infomercial. The no-so-hidden message “Get Information You Can Trust” (from the Fed) is what the Fed really wants to get across.

One thing you can trust is that any infomercial from the Fed will be self-serving propaganda.

I repeat what I said in Ben Bernanke Pleads For His Job; My Response to Bernanke

Bernanke: The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

Mish: Ben, you sound like an arsonist taking credit for helping put out a fire, before the fire is even out, after you lit the match and tossed on the gas in the first place. For all the problems you have caused, don’t you at least have the decency to show a little humility?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Inquiring minds note a huge shift in consumer attitudes towards credit cards. Please consider Cash is king for holiday shoppers.

Cash was king for consumers who shopped over the Thanksgiving weekend, according to survey results released on Sunday, and that factor could have cost retailers additional sales.

Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America’s Research Group.

“That’s an amazing shift in consumers’ habits,” said Britt Beemer, founder of America’s Research Group.

A total of 39 percent said they used cash, while the remaining shoppers used debit cards, the survey showed.

Consumers shunning credit cards is a bad sign for retailers, since people who buy gifts with a credit card tend to spend anywhere from 20 to 40 percent more on the gift, Beemer said.

Every Retailer Wants To Be A Discounter

The National Retail Federation has this Black Friday Verdict: Number of Shoppers Up, Average Spending Down.

As the closely-watched Black Friday weekend winds down, a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, conducted by BIGresearch, 195 million shoppers visited stores and websites over Black Friday weekend*, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

Shoppers’ destination of choice over the past weekend seemed to be department stores, with nearly half (49.4%) of holiday shoppers visiting at least one, a 12.9 percent increase from last year. Discount retailers took an uncharacteristic back seat, with 43.2 percent of holiday shoppers heading to discount stores over the weekend and another 7.8 percent heading to outlet stores.** Shoppers also visited electronics stores (29.0%), clothing stores (22.9%), and grocery stores (19.6%). As millions of shoppers gear up for Cyber Monday, one-fourth of Americans shopping over the weekend (28.5%) were shopping online.

“In an economy like this one, every retailer wants to be a discounter,” said Tracy Mullin, NRF President and CEO. “Department stores have done an admirable job touting both low prices and good quality, which are important requirements for holiday shoppers on a budget.”

Changing Attitudes Towards Debt

That shift away from Credit Cards usage comes from several primary sources:

1) consumers shunning credit cards over higher interest rates
2) Job losses
3) Boomers headed into retirement scared half to death about a lack of savings
4) Banks curtailing credit and lowering card limits in response to rising defaults

Those four points represent changing consumer attitudes towards debt and borrowing, and banks’ attitudes to credit and landing. Changing attitudes is the key idea.

Now, after the shift is well underway …..

Self-Serving Fed Infomercials

True to form with regulators, they are always too little too late. In an effort to boost its sagging image, you can look forward to Fed Infomercials, playing soon at movie theaters near you.

5 Tips for Getting the Most from Getting the Most from Your Credit Card

1. Pay on Time
2. Stay below your credit limit
3. Avoid unnecessary fees
4. Pay more than the minimum amount
5. Watch for Changes in your account

The Fed is on a publicity campaign to boost its image.

“Get Information You Can Trust”

The above clip is at the end of the Fed’s infomercial on credit card usage.

If you think the Fed is concerned about you, you are sadly mistaken. Although, the Fed is concerned about excessive credit card defaults, that concern is for the banks, not for you.

Moreover, credit card tips is not the real message of the Fed’s infomercial. The no-so-hidden message “Get Information You Can Trust” (from the Fed) is what the Fed really wants to get across.

One thing you can trust is that any infomercial from the Fed will be self-serving propaganda.

I repeat what I said in Ben Bernanke Pleads For His Job; My Response to Bernanke

Bernanke: The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

Mish: Ben, you sound like an arsonist taking credit for helping put out a fire, before the fire is even out, after you lit the match and tossed on the gas in the first place. For all the problems you have caused, don’t you at least have the decency to show a little humility?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Here is an email from the Healdsburg Housing Bubble (HHB) about Wells Fargo Chief Economist: “There is no clear, easy way out for housing”.

HHB writes …

Hi Mish,

I saw you linked to an istockanalyst article that quotes extensively from a piece I wrote on Wells Fargo Option ARMs. In his piece, and subsequently in your post, it is hard to tell where his analysis ends and mine begins (due to lack of blockquotes).

For the record the istockanalyst opinion that Option ARMs don’t pose a threat to Wells is not one I agree with, despite the fact he relies on my data to get to this conclusion.

You hit the nail on the head. This is a version of extend and pretend, granted one that was written into the terms of the loans from the start. RECASTS won’t automatically happen until 2014/15.

But the point of my article was simply to point out that that the widely used reset chart by Credit Suisse had a major error by assuming contractual 5 year recasts (when the Golden West 10Ks clearly state 10 year recasts) and most people were not paying attention to how this played out on Wells’ balance sheet.

In fact, I made a point of saying “Of course, none of this is to say that Wells Fargo is out of the woods. They are essentially stashing away on their balance sheet tens of billions of neg-am loans that will recast into 20-year fixed rate mortgages in 2014 and 2015.”

Here is my original piece:

Reset Chart from Credit Suisse has a Major Error

If you click through, I also put together a chart showing that while recasts won’t technically occur until 2014, people will definitely be walking away long beforehand as those yearly 7.5% increases start to stack up. It’s a mess for Wells and they know it.

They are trying to outrun the problem racking up earnings now while short rates are near zero, hoping they’ll be able to absorb these losses down the road. We’ll see how it turns out.

Again, good analysis of the problem. I just wanted to clarify my opinion from the istockanalyst article given you both quoted me at length.

Keep it up the good work…

-HHB

Thanks HHB.

One of the limitations of blogger is that one cannot put a blockquote in a blockquote and layers of referbacks are not easy to represent. I handle it with italics as best I can.

In this case however, I never made it back to the original post because it was clear that istockanalyst missed the boat. Inquiring minds may want to take a look at HHB’s post for a couple nice charts and graphs on the situation with Pay Option ARMs.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

In 2003 Donald Rumsfeld estimated a war with Iraq would cost $60 billion. Five years later, the cost of Iraq war operations is over 10 times that figure.

So what’s behind the ballooning dollar signs? Joseph E. Stiglitz and Linda J. Bilme’s exhaustedly researched book, “The Three Trillion Dollar War: The True Cost of the Iraq Conflict,” breaks down the price tag, from current debts to the unseen costs we’ll pay for years to come.

Obama May Add 30,000 Troops in Afghanistan

Please consider Obama May Add 30,000 Troops in Afghanistan

President Obama said Tuesday that he was determined to “finish the job” in Afghanistan, and his aides signaled to allies that he would send as many as 25,000 to 30,000 additional American troops there even as they cautioned that the final number remained in flux.

The White House said Mr. Obama had completed his consultations with his war council on Monday night and would formally announce his decision in a national address in the next week, probably on Tuesday.

At a news conference in the East Room with Prime Minister Manmohan Singh of India, Mr. Obama suggested that his approach would break from the policies he had inherited from the Bush administration and said that the goals would be to keep Al Qaeda from using the region to launch more attacks against the United States and to bring more stability to Afghanistan.

“After eight years — some of those years in which we did not have, I think, either the resources or the strategy to get the job done — it is my intention to finish the job,” he said.

Ms. Pelosi said she did not want to sacrifice the party’s domestic agenda to the cost of the troop buildup. “The American people believe that if something is in our national security interest, we have to be able to afford it,” she said. “That doesn’t mean that we hold everything else” hostage to that.

Cost Per Soldier = $1 Million

War mongering costs are rising. Please consider High Costs Weigh on Troop Debate for Afghan War.

While President Obama’s decision about sending more troops to Afghanistan is primarily a military one, it also has substantial budget implications that are adding pressure to limit the commitment, senior administration officials say.

The latest internal government estimates place the cost of adding 40,000 American troops and sharply expanding the Afghan security forces, as favored by Gen. Stanley A. McChrystal, the top American and allied commander in Afghanistan, at $40 billion to $54 billion a year, the officials said.

Even if fewer troops are sent, or their mission is modified, the rough formula used by the White House, of about $1 million per soldier a year, appears almost constant.

The estimated $1 million a year it costs per soldier is higher than the $390,000 congressional researchers estimated in 2006.

Military analysts said the increase reflects a surge in costs for mine-resistant troop carriers and surveillance equipment that would apply to troops in both Iraq and Afghanistan. But some costs are unique to Afghanistan, where it can cost as much as $400 a gallon to deliver fuel to the troops through mountainous terrain.

Some administration estimates suggest it could also cost up to $50 billion over five years to more than double the size of the Afghan army and police force, to a total of 400,000. That includes recruiting, training and equipment.

At a stop at a military base in Alaska on Thursday, Mr. Obama told a gathering of soldiers that he would not risk more lives “unless it is necessary to America’s vital interests.”

Double The Idiocy

Any expectations that Obama would show some sense of restraint about military spending have long ago vanished.

“It is my intention to finish the job” translates to “I will blow another $3 trillion war mongering if that is what it takes”. And of course Pelosi does not think war idiocy should be at the expense of domestic idiocy.

War mongers want war but they do not want to pay for it. Sadly, Obama, Bush, Pelosi are all alike. Thus, Congress and the Administration is committed to having military idiocy and domestic idiocy at the same time.

God do we ever need a balanced budget amendment and a sound currency. We should not fund a damn thing unless we are willing to raise taxes to pay for it. Virtually no one but the war mongers and the military beneficiaries would be in support of raising taxes to pay for this monstrosity.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

In light of a weakening Case Shiller housing index, fears rise that Home Prices May Be Nearing a New Dip.

Two price indexes released Tuesday indicated that the momentum the housing market showed over the late spring and summer is faltering, even as the government said the economy grew at a slower pace in the third quarter than previously reported.

The Standard & Poor’s/Case-Shiller home price index, a closely watched measure of the housing markets in 20 metropolitan areas, barely rose in September, rising 0.3 percent from August on a seasonally adjusted basis. Prices fell for the month in nine cities in the index, including Boston, New York, Seattle and Charlotte, N.C.

A report from the Federal Housing Financing Agency showed that prices were flat in September from August.

The housing market is confronting an abundance of inventory, high unemployment, fearful consumers and devastated family balance sheets.

“There is no clear, easy way out for housing,” said John Silvia, chief economist at Wells Fargo. “Contrary to my hopes, housing prices and the housing market in general will weaken again.”

He forecast a new decline in prices of as much as 10 percent, which he expected to shave a half-point off the nation’s economic output just as it emerges from the recession.

The Case-Shiller index, which covers about 45 percent of the United States housing market, is a three-month moving average. Since July and August were relatively strong, the weak September report could indicate a plunge in prices.

The 20-city composite index is off nearly 10 percent in the last year and 29.1 percent since its 2006 peak.

Pay Option Arm Time Bomb

If there is no clear, easy way out for housing, then there is no clear, easy way out for Wells Fargo. Wells is sitting in a huge pile of Pay Option Arms in bubble states like California, where prices still have a long way to correct.

iStockAnalyst comes to a different conclusion and states Wells Fargo’s Option ARM Problem Is Not That Bad.

I’ve been trying to make the point for some time that the Wells’ Option ARMs that it inherited in the purchase of Wachovia (Wachovia came by them via its purchase of World Savings) are not an immediate threat to the bank. The terms of the mortgages were more lenient in the amount of negative equity that would cause an automatic recast of payments and the recast feature does not automatically trigger until the ten-year anniversary as opposed to the five-year featured in most other Option ARMs.

Wells Fargo, who holds more Option-ARMs on its books than any other institution, states in their last 10-Q filing:

Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balances prepay, we would expect the following balance of loans to recast based on reaching the principal cap: $4 million in the remaining three quarters of 2009, $9 million in 2010, $11 million in 2011 and $32 million in 2012…

In addition, we would expect the following balance of ARM loans having a payment change based on the contractual terms of the loan to recast: $20 million in the remaining three quarters of 2009, $51 million in 2010, $70 million in 2011 and $128 million in 2012.

Given that we’re talking about a portfolio of over $100 BILLION of these loans, this means ESSENTIALLY NO LOANS WILL RECAST due to the negative amortization limits or contractual terms before 2012.

Both assumptions seemed suspect, yet, they are in fact true. Looking at page 55 of the Golden West 10-K from 2005 we read:

…most of our loans are scheduled to have a payment change without respect to any annual limit in order to reamortize the loan over its remaining life at the end of the tenth year or when the loan balance reaches 125% of the original amount. We term this reamortization a “recast.” Historically, most loans in our portfolio have paid off before the loan’s payment is recast.

11% Decrease Forecast For 2010

Inquiring minds might be interested in noting Fiserv Case-Shiller Home Price Insights: U.S. Housing Prices Forecast to Decrease 11 Percent over the Next Year.

The Fiserv Case-Shiller Home Price Index forecasts that average single-family home prices will fall another 11 percent over the next twelve months, with declines expected in about 90 percent of the more than 350 metro areas tracked by Fiserv. Steep home price declines are expected to continue in markets that have been hurt most by the housing crisis, including metro areas in California, Nevada, Arizona and Florida.

“Large supplies of foreclosed properties and extremely weak job markets will continue to put downward pressure on home prices,” said David Stiff, chief economist, Fiserv. “Many temporary factors that were partly responsible for strong spring and summer real estate markets, including the first-time homebuyer tax credit and Federal Reserve actions to drive down mortgage interest rates, will no longer be bolstering demand. Consequently, home prices will resume falling again before they stabilize in 2010.”

One-time bubble markets in Florida, California and Arizona, which have already seen home values fall 40 percent to 60 percent since prices peaked in 2006, are showing no sign of moderation in declining prices.

Cumulative Declines

Calculated Risk has this chart that nicely shows cumulative declines.

click on chart for sharper image

Extend And Pretend

Los Angeles, San Francisco, and San Diego are all down over 38% from the peak. The Wells Fargo Chief Economist expects a further 10% decline in prices, essentially the same as Case-Shiller.

Yet out of a portfolio of $100 billion in Option ARMs, Wells Fargo assumes that virtually none of those will recast at 125% of the original mortgage balance. That is a preposterous amount of mark-to-fantasy pricing.

Wells Fargo is simply refusing to recast problem loans, putting off today’s problem hoping it will not be as big a problem later. I have news for Wells Fargo. This problem can only get worse with age. There is no good reason to assume home prices will rebound before 2012, and in fact prices might fall for much longer.

In the meantime, most Option-ARM holders are only making the minimum payment with negative amortization increasing monthly. When those loans do recast, anyone in their right mind will hand over the keys. Given that buyers of high-priced homes are more apt to be in a right mind than buyers of low-priced homes, expect to see Wells Fargo the proud owner of a huge number of homes when those loans do recast.

In the meantime, Wells Fargo is collecting insufficient rent on properties it will own in due time. How long the market let’s Wells get away with this extend and pretend fantasy remains to be seen, but eventually it is guaranteed to sink Wells in due time.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

In light of a weakening Case Shiller housing index, fears rise that Home Prices May Be Nearing a New Dip.

Two price indexes released Tuesday indicated that the momentum the housing market showed over the late spring and summer is faltering, even as the government said the economy grew at a slower pace in the third quarter than previously reported.

The Standard & Poor’s/Case-Shiller home price index, a closely watched measure of the housing markets in 20 metropolitan areas, barely rose in September, rising 0.3 percent from August on a seasonally adjusted basis. Prices fell for the month in nine cities in the index, including Boston, New York, Seattle and Charlotte, N.C.

A report from the Federal Housing Financing Agency showed that prices were flat in September from August.

The housing market is confronting an abundance of inventory, high unemployment, fearful consumers and devastated family balance sheets.

“There is no clear, easy way out for housing,” said John Silvia, chief economist at Wells Fargo. “Contrary to my hopes, housing prices and the housing market in general will weaken again.”

He forecast a new decline in prices of as much as 10 percent, which he expected to shave a half-point off the nation’s economic output just as it emerges from the recession.

The Case-Shiller index, which covers about 45 percent of the United States housing market, is a three-month moving average. Since July and August were relatively strong, the weak September report could indicate a plunge in prices.

The 20-city composite index is off nearly 10 percent in the last year and 29.1 percent since its 2006 peak.

Pay Option Arm Time Bomb

If there is no clear, easy way out for housing, then there is no clear, easy way out for Wells Fargo. Wells is sitting in a huge pile of Pay Option Arms in bubble states like California, where prices still have a long way to correct.

iStockAnalyst comes to a different conclusion and states Wells Fargo’s Option ARM Problem Is Not That Bad.

I’ve been trying to make the point for some time that the Wells’ Option ARMs that it inherited in the purchase of Wachovia (Wachovia came by them via its purchase of World Savings) are not an immediate threat to the bank. The terms of the mortgages were more lenient in the amount of negative equity that would cause an automatic recast of payments and the recast feature does not automatically trigger until the ten-year anniversary as opposed to the five-year featured in most other Option ARMs.

Wells Fargo, who holds more Option-ARMs on its books than any other institution, states in their last 10-Q filing:

Based on assumptions of a flat rate environment, if all eligible customers elect the minimum payment option 100% of the time and no balances prepay, we would expect the following balance of loans to recast based on reaching the principal cap: $4 million in the remaining three quarters of 2009, $9 million in 2010, $11 million in 2011 and $32 million in 2012…

In addition, we would expect the following balance of ARM loans having a payment change based on the contractual terms of the loan to recast: $20 million in the remaining three quarters of 2009, $51 million in 2010, $70 million in 2011 and $128 million in 2012.

Given that we’re talking about a portfolio of over $100 BILLION of these loans, this means ESSENTIALLY NO LOANS WILL RECAST due to the negative amortization limits or contractual terms before 2012.

Both assumptions seemed suspect, yet, they are in fact true. Looking at page 55 of the Golden West 10-K from 2005 we read:

…most of our loans are scheduled to have a payment change without respect to any annual limit in order to reamortize the loan over its remaining life at the end of the tenth year or when the loan balance reaches 125% of the original amount. We term this reamortization a “recast.” Historically, most loans in our portfolio have paid off before the loan’s payment is recast.

11% Decrease Forecast For 2010

Inquiring minds might be interested in noting Fiserv Case-Shiller Home Price Insights: U.S. Housing Prices Forecast to Decrease 11 Percent over the Next Year.

The Fiserv Case-Shiller Home Price Index forecasts that average single-family home prices will fall another 11 percent over the next twelve months, with declines expected in about 90 percent of the more than 350 metro areas tracked by Fiserv. Steep home price declines are expected to continue in markets that have been hurt most by the housing crisis, including metro areas in California, Nevada, Arizona and Florida.

“Large supplies of foreclosed properties and extremely weak job markets will continue to put downward pressure on home prices,” said David Stiff, chief economist, Fiserv. “Many temporary factors that were partly responsible for strong spring and summer real estate markets, including the first-time homebuyer tax credit and Federal Reserve actions to drive down mortgage interest rates, will no longer be bolstering demand. Consequently, home prices will resume falling again before they stabilize in 2010.”

One-time bubble markets in Florida, California and Arizona, which have already seen home values fall 40 percent to 60 percent since prices peaked in 2006, are showing no sign of moderation in declining prices.

Cumulative Declines

Calculated Risk has this chart that nicely shows cumulative declines.

click on chart for sharper image

Extend And Pretend

Los Angeles, San Francisco, and San Diego are all down over 38% from the peak. The Wells Fargo Chief Economist expects a further 10% decline in prices, essentially the same as Case-Shiller.

Yet out of a portfolio of $100 billion in Option ARMs, Wells Fargo assumes that virtually none of those will recast at 125% of the original mortgage balance. That is a preposterous amount of mark-to-fantasy pricing.

Wells Fargo is simply refusing to recast problem loans, putting off today’s problem hoping it will not be as big a problem later. I have news for Wells Fargo. This problem can only get worse with age. There is no good reason to assume home prices will rebound before 2012, and in fact prices might fall for much longer.

In the meantime, most Option-ARM holders are only making the minimum payment with negative amortization increasing monthly. When those loans do recast, anyone in their right mind will hand over the keys. Given that buyers of high-priced homes are more apt to be in a right mind than buyers of low-priced homes, expect to see Wells Fargo the proud owner of a huge number of homes when those loans do recast.

In the meantime, Wells Fargo is collecting insufficient rent on properties it will own in due time. How long the market let’s Wells get away with this extend and pretend fantasy remains to be seen, but eventually it is guaranteed to sink Wells in due time.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Aggressive Bargains Lure Hordes of Shoppers, but They’re Still Slow to Open Wallets says the Wall Street Journal in ‘Black Friday’ Tests Economy

Retailers succeeded in enticing deal-hungry shoppers into their stores on Friday, but at the checkout lines many people were sticking to the most deeply discounted items. That may prove to be a disappointment to executives at the nation’s major chain stores, which have been battered by the recession. Many have been hoping that, once in the stores, consumers would spend a little more freely than they did a year ago.

Brian Dunn, chief executive of Best Buy Co., said Friday that consumers were snapping up lower-priced electronics such as netbook computers, digital cameras and smaller flat-screen televisions. “But this is not a year where wallets are expanding,” Mr. Dunn said. “There will be winners and losers this season in retail, and the differences will be pronounced.”

One bright spot in the retail picture has been online sales — but even there much of the traffic has been driven by deep discounts at mass merchants’ sites and at giant Amazon.com Inc.

The frantic Black Friday promotions, which began well beforehand this year, were driven by a troubling reality for retailers: many shoppers say they plan to spend less this season. “I don’t think there’s a lot of impulse shopping going on,” said James Fielding, president of Walt Disney Co.’s Disney Stores. “People are just being realistic about their personal situation and the economy.”

Frugality Hits Videogames

Game makers are finding that the once insatiable demand for videogames has hit the brick wall of consumer frugality, at least according to pre-event sales.

The Wall Street Journal reports Videogame Sales Running Out of Gas Ahead of Holiday.

Videogame sales—the bright spot in last year’s dismal end-of-year shopping quarter—are showing signs of weakness, foreshadowing a tough holiday. Sales of some of the most anticipated titles have already disappointed and, others won’t be on store shelves in time.

Early sales of what were expected to be big holiday games—specifically Activision Blizzard Inc.’s “Guitar Hero 5″ and MTV Games’ “The Beatles: Rock Band”—have so far been relatively modest. Both games, released in early September, dropped out of the top 10 best-selling games after a month, selling fewer than 100,000 copies each in October, according to NPD Group.

Overall, videogame sales including consoles fell 19% in October to $1.07 billion from a year ago, according to NPD. Software sales alone fell 23%. “October unfortunately is a good predictor of what’s going to happen in November and December,” said Jesse Divnich, a videogame analyst with research firm Electronic Entertainment Design & Research.

Deep Discounts

• Best Buy is offering Electronics Arts Inc.’s “Dragon Age” for $34.99, a $25 discount.
• Wal-Mart is throwing in two free games and a Blu-ray movie disc, a $139 value, on purchases of the $299 Sony Playstation 3 game console.
• Sony Corp. and Microsoft Corp. recently cut the prices on models of their Playstation 3 and Xbox 360 gaming consoles by $100 to $299.99.
• Nintendo cut the price on its Wii console by $50 to $199.99.

Fewer game console sales is good news. Kids need more exercise, more outdoor activities, and when indoors play more educational games instead of videogames. Moreover parents need to stop wasting money they do not have.

Instead of videogames, how about a nice board game like Risk or an educational game such as Scrabble? And if you really want to save money, just get a deck of cards and play Euchre. It’s much more sociable and the cost of a deck of cards is just a couple bucks.

By the way, stores may have lured shoppers with bargains, but the big question is “Did they make any money?”

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.