New Order, “Run” (1989)
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It is official: Goldman Sachs is more important than you are.

At least that is the way that the public may perceive a WSJ story today that Goldman was one of several Wall Street firms that received large dosages of swine flue vaccines, while some New York City hospitals and clinics are running out of the vaccine…

The flu vaccine flap caps a week of PR nightmares for Wall Street.

First, there was news that Goldman was attempting to purchase low income housing tax credits, likely at a steep discount, from Fannie Mae. The deal could help Goldman offset its tax bill and satisfy its Community Reinvestment Act requirements, without creating any new affordable housing.

Later, we learned that Warren Buffett (who has advocated for higher income taxes) is also trying to snap up some of the credits that could allow him to reduce his corporate tax bill.

Yesterday the PR problems spread to the venerable Wall Street law firm, Ropes & Gray, where lawyer Arthur “Artie” Cutillo was charged as a ring leader in the burgeoning insider trading scheme. Cutillo is accused of leaking information about private equity buy out deals that Ropes & Gray was working on.

Last month, Ropes & Gray was criticized for stockpiling the antiviral medicine Tamiflu to help protect its employees from swine flu, despite the CDC’s request that the medicine be reserved for at-risk people.

Former federal prosecutor Robert Mintz says the zeal with which NY prosecutors and the FBI are pursuing the insider trading case is motivated by public angst about the financial crisis.

“People don’t trust Wall Street,” Mintz, who is now a white collar defense lawyer, told Deal Journal.

Weeks like this one aren’t exactly helping bridge the Main Street-Wall Street divide.

If there was a bridge, it was blown to smithereens a long time ago…

Source:

“You’re Not Worthy, But Goldman Is”
Wall Street Journal (Deal Journal blog), November 6, 2009

At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets, according to a report released Friday by the Congressional Oversight Panel. “The Panel found that Treasury took an aggressive stance in protecting taxpayer interests, and the Panel did not identify any major flaws with their implementation of the guarantee programs. Even so, these programs carried significant risk. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions,” the report said.

From the Congressional Oversight Panel’s website:

The Congressional Oversight Panel’s November oversight report, “Guarantees and Contingent Payments in TARP and Related Programs,” finds that the income of several government-backed guarantee programs will likely exceed their direct expenditures, and that guarantees played a major role in calming financial markets. These same programs, however, exposed American taxpayers to trillions of dollars in guarantees and created significant moral hazard that distorts the marketplace.

The extraordinary scale of these guarantees, the significant risk to taxpayers, and the corresponding moral hazard leads the Panel to conclude that these programs should be subject to extraordinary transparency. The Panel specifically identified the guarantee of Citigroup assets under AGP — the largest single guarantee offered to date — and strongly urges Treasury to provide regular, detailed disclosures about the status of the assets backing up this guarantee. Treasury should disclose greater detail about the rationale behind guarantee programs, the alternatives that may have been available and why they were not chosen, and whether these programs have achieved their objectives. This should include an analysis of why Citigroup and Bank of America.

You can read the entire November oversight report here.

“Elizabeth Warren on COP November oversight report”
(Fast forward to 3:17 to discussion about risks)
YouTube Video Link

Source:

“U.S. backed $4.3 trillion in assets, report says”
MarketWatch, November 6, 2009

Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.

The government-controlled company, through its “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.

The program will “eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.

But the effort is likely to affect a relatively small number of homeowners. In the first half of the year, Fannie Mae took back about 1,200 properties through this process, known as a deed-in-lieu of foreclosure. That pales in comparison to the 57,000 foreclosed properties the company repossessed in the period…

The rental program is designed to help homeowners who don’t qualify for a loan modification under the Obama administration’s plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

Source:

“Fannie Mae to rent out homes instead of foreclosing”
Associated Press, November 5, 2009

Fannie Mae, the mortgage buyer seized by regulators, plans to tap emergency U.S. capital for a fourth time this year, bringing its draws of taxpayer money to $60 billion as the company sees no immediate end to its losses.

Fannie Mae will seek $15 billion in Treasury Department financing after posting an $18.9 billion third-quarter net loss, according to a Securities and Exchange Commission filing late yesterday. The Washington-based company, which posted $101.6 billion in losses over the previous eight quarters, has already tapped $44.9 billion from the $200 billion emergency lifeline.

Source:

“Fannie’s Draws From Emergency Treasury Fund Reach $60 Billion”
Dawn Kopecki
Bloomberg, November 6, 2009

The U.S. jobless rate jumped up 0.4 percentage point to 10.2% in October, the highest level since April 1983. The government’s broader measure of unemployment shot up even more, rising half a point to 17.5%.

The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Its continuing divergence from the official rate (the “U-3″ unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers…

The U-6 figure includes everyone in the official rate plus “marginally attached workers” — those who are neither working nor looking for work, but say they want a job and have looked for work recently; and people who are employed part-time for economic reasons, meaning they want full-time work but took a part-time schedule instead because that’s all they could find…

Izzo and Reddy noted:

The U-6 rate is now the highest since the Labor Department started this particular data series in 1994.

Source:

“Broader Unemployment Rate Hits 17.5%”
Phil Izzo, Sudeep Reddy
Wall Street Journal (Real Time Economics blog), November 6, 2009

1 Forecasts of the unemployment rate without the recovery plan vary substantially. Some private forecasters anticipate unemployment rates as high as 11% in the absence of action.”

-“The Job Impact Of The American Recovery And Reinvestment Plan,” written
by Christina Romer and Jared Bernstein, dated January 9, 2009, to support the Obama administration’s $787 billion economic stimulus plan.

“One of President-elect Barack Obama’s leading economic advisers said on Sunday he does not see unemployment topping 10 percent… [Lawrence] Summers said he expected further job losses but Obama’s economic stimulus package should help limit the rise in unemployment. Asked if he thought the unemployment rate could top 10 percent, he said, ‘I don’t think so.’“

-Reuters, January 18, 2009

“The American unemployment rate surged to 10.2 percent in October, its highest level in 26 years, as the economy lost another 190,000 jobs, the
Labor Department reported Friday.”

-New York Times, November 6, 2009

Source: Romer/Bernstein piece “The Job Impact Of The
American Recovery And Reinvestment Plan”

-Senator Carl Levin (D-MI), July 17, 2008

So then, is Delaware, and by extension, the United States, engaged in economic warfare against the rest of the world and honest, hardworking taxpayers around the globe?

Other nations might argue this is indeed the case, based on the findings of a new study.

From Reuters’ Kim Dixon earlier this week:

Move over Switzerland. The tiny state of Delaware beats the Alpine country in a contest for the most secretive financial jurisdiction, a tax justice rights group said on Saturday.

The United States, led by the eastern seaboard state, took in $2.6 trillion in deposits from non-resident corporations and individuals in 2007, according to a survey of financial jurisdictions analyzed by the Tax Justice Network.

The survey of laws, practices and size of inflows in 60 jurisdictions found Delaware coming in first, followed by Luxembourg and then Switzerland. The Cayman Islands and the United Kingdom round out the top five.

“While the U.S. has been jumping up and down and saying ‘Aha, bad, wicked Swiss banks,’ the U.S. is doing exactly the same things as far as non-resident bank account holders,” said Sarah Lewis, executive director of the group, based in the U.K.

I know what you’re wondering— why Delaware? Dixon explained:

Delaware is attractive because it does not tax profits realized outside the state and does not require companies to be physically present, according to the Tax Justice Network.

UBS and Credit Suisse have about 200 entities in the state, according to the group.

There are nearly 700,000 active entities registered in Delaware — and about half of those publicly traded in the United States, according to the group.

You can access the “Financial Secrecy Index” here.

Source:

“Delaware beats Switzerland as most secretive financial center”
Kim Dixon
Reuters, November 2, 2009

With the economy and the markets showing tentative signs of a rebound, millions of Americans are focusing on their 401k plans with fingers crossed, hoping to make up the estimated $3.7 trillion that employee retirement accounts lost during the crash. But at all except the biggest companies, the men and women watching over those funds need no special qualifications, no investing expertise and no investment experience.

In practice, the job often falls to the company president, a human-resources manager or a committee of employees — in other words, people who are experts at something else. At one $54 million construction company in Idaho, the company’s founder runs the plan. His main qualification? Four decades in construction.

Ultimately, these people have authority over which funds will be offered, what fees employees will pay and how much education and advice workers will get. “Your performance depends on the decisions they make,” says Mike Alfred, the CEO of BrightScope, a California company that rates 401k plans.

Of course, few managers are truly flying solo. Nearly all hire brokers or consultants to suggest funds and make sure their plans comply with the law. Some administrators devote long hours and take courses to bone up.

But critics say that retirement planning has become too complex to be left to amateurs and that even hired help needs oversight. Brokers, for example, are not legally required to pick funds with low fees, so 401k plan managers who sign off on pricey funds could cost their workers tens of thousands of dollars over the long haul.

“They’re trying to do the right thing,” says Teresa Ghilarducci, the director of the Schwartz Center for Economic Policy Analysis at New York City’s New School. “But they’re not as competent as investment advisers.”

And even that’s not a given these days…

FREE FINANCE/INVESTING PUBLICATIONS for qualified individuals

Source:

Are amateurs running your 401k?”
Janet Paskin
MSN Money (via SmartMoney), November 3, 2009

The number of Americans receiving food stamp assistance soared above 36 million for the first time in August, the eighth month in a row that enrollment set a record, the U.S. Agriculture Department said on Wednesday.

USDA said 36.492 million people were receiving food stamps, also known as the Supplemental Nutrition Assistance Program. In July, enrollment stood at 35.851 million. At the current rate, an estimated one in eight Americans receive benefits.

The program, which helps poor people buy food, has seen enrollment jump by 4.707 million during 2009 amid a lingering economic downturn in the United States. Participation grew by 2 million people from May to August.

Source:

“Americans on food stamps tops 36 million, new record”
Christopher Doering
Reuters, November 4, 2009

What Wall Street wants, Wall Street gets.

Even at the expense of your own health, according to some reports. 

From Reuters’ Bill Berkot this evening:

New York City health officials scrambled to explain themselves on Thursday in the wake of media reports about bankers who got scarce H1N1 flu vaccines through their employers.

Members of Congress fired off letters demanding immediate explanations and the U.S. Centers for Disease Control and Prevention reminded state and city health officers of the need to make sure the most vulnerable people get shots first.

“I am concerned that the distribution of the vaccine is resulting in favored treatment for the privileged,” New Jersey Democratic Representative Frank Pallone said…

Connecticut Sen. Chris Dodd, a Democrat, released a letter to Health and Human Services Secretary Kathleen Sebelius saying he was “stunned” at the reports.

“I implore you to use whatever authorities you have to ensure that H1N1 vaccines already distributed but not yet used are promptly redirected to hospitals, schools, community health clinics, school-based health clinics, and pediatricians so that they can be made immediately available to at-risk members of the public as identified by the Department,” Dodd wrote.

Is it me, or does it seem like Chris Dodd is forever getting “stunned”?

Source:

“UPDATE 2-Flu shots for Wall Street stirs ire in New York”
Bill Berkrot
Reuters, November 5, 2009

Boone Pickens: U.S. Natural Gas Supply Will Dry Up In 25, 30 Years

“Twenty-five, 30 years is what we’re going to get out of it. Then you’ll have to get over to either fuel cells or battery. You’ll have to be on to some other transportation fuel by then,” he said.

Marc Faber Talks About Final Financial Crisis

“Nothing has been solved. The Fed wants to have more credit growth and again more leverage. That’s why I believe the final crisis will only occur when everything breaks down,” he said.

In a year of job losses, foreclosures and bag lunches, Americans have spent record-breaking amounts of money on guns and ammunition. The most obvious sign of their demand: empty ammunition shelves.

At points during the past year, bullets have been selling faster than factories could make them.

Gun owners have bought about 12 billion rounds of ammunition in the past year, industry officials estimate. That’s up from 7 billion to 10 billion in a normal year.

It has happened, oddly, at a time when the two concerns that usually make people buy guns and bullets — crime and increased gun control — seem less threatening than usual.

The explanation for the run on bullets lies partly in economics: Once rounds were scarce, people hoarded them, which made them scarcer.

But the rush for bullets, like this year’s increase in gun sales, also says something about how suspicious the two sides in the gun-control debate are of each other, even at a time when the issue is on Washington’s back burner.

The run started, observers say, as people heeded warnings from the gun-rights lobby that a new Democratic administration would make bullets more expensive or harder to get. Now that the shortage is starting to ease, gun-control groups are voicing their own dark worries about stockpiled ammunition…

And what exactly are these worries? From the piece:

The high sales have alarmed some anti-gun groups. Josh Sugarmann of the Violence Policy Center said he worries about a revival of the anti-government militia movement of the Clinton era.

“This is a pattern that is repeating itself, and it is a pattern that has tremendous risk attached to it,” Sugarmann said.

Anyway, the boom in firearm and ammunition sales has been a boon for the federal government concerning revenues. Farenthold and Kunkle pointed out:

It was already a political truism that Democrats prompt sales of both guns and ammo. The U.S. government taxes both to support wildlife conservation, and those receipts jumped after Bill Clinton was elected in 1992 and after Democrats retook Congress in 2006.

But the spike under Obama seems to be on a different scale: The receipts are on pace to set a record in 2009, according to Treasury Department data, with tax revenue due from guns up 42 percent and revenue due from ammunition at 49 percent. Recently, analysts have said earnings reports from gunmakers seem to show demand for weapons slackening.

The increase in gun buying during the past year explains a large part of the increase in ammunition sales to the private market, experts on the industry say — but probably not all of it.

They say that bullets were bought not just by new gun owners but also by those who already owned weapons. And they say bullet sales might have increased even faster if supply had kept up with demand.

Bullet makers say the reasons for these shortages include the wars in Iraq and Afghanistan, which have made bullet components such as copper and brass more expensive.

Hoarding to blame for ammo shortage?
Jim Scoutten, shooting sports reporter/host of “Shooting USA”
YouTube Video Link

Source:

“Bullets are speeding faster out of gun shops in U.S.”
David A. Fahrenthold, Fredrick Kunkle
Washington Post, November 3, 2009

Eight major banks which were at the front of the line for government bailouts have already set aside $117.6 billion this year to pay employees, almost as much as they paid in all of 2008, a Reuters analysis has found.

If the banks continued that pace, they would far surpass what they paid in 2008 though fall short of the watershed paydays of 2007, when the financial sector was still booming, the analysis found.

The pay offered by top banks reflects the dramatic rebound at some of them, but also shows that industry conditions have not quite been restored to 2007 levels —before the collapse of Lehman Brothers and the fire sale of Bear Stearns, industry analysts said.

Critics say it is also a sign that banks have learned few lessons from last year’s financial crisis, which has been widely blamed on Wall Street’s pursuit of short-term profits that pumped up pay.

“Banks don’t appear to have learned much, at least on the compensation side, from what we’ve been through,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University. “Don’t tell me you are bringing me back to the good old days of yesterday. Getting back to pre-Bear Stearns or Lehman is not fixing it. It is setting us up for another fall.”

Reuters identified the banks in question. From the piece:

The eight major banks that took a total of $165 billion in bailout funds were Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America, Bank of New York Mellon, State Street and Wells Fargo…

Goldman, JPMorgan, Morgan Stanley, Bank of New York Mellon and State Street have repaid the billions they received.

If that’s the case, why then is Citigroup, Bank of America, and Wells Fargo preparing to give out bonuses?

We’ll just have to hope more harsh language directed at the banks from Washington will do the trick this time, right?

Source:

“Bailed-Out US Banks Preparing Pay Bonanza This Year: Study”
Reuters, November 3, 2009