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Michael Gracie

Coming soon to a theatre near you: General Motors bankruptcy #2

They just never learn…via the WSJ:

General Motors Co. said Thursday it will acquire auto-finance company AmeriCredit Corp. in a $3.5 billion deal aimed at increasing availability of vehicle loans and leases.

Good idea!

GM sees the acquisition as a way to drive up sales, which is critical as the company plans a return to the public stock markets as soon as this fall.

Starting to smell funny. Pump and dump?

Auto companies use finance arms to make credit available to boost sales of cars and trucks. Without a finance arm, GM has said it hasn’t been able to reach as many customers with subpar credit scores with lease deals and financing.

There we go…more subprime loans!

In summary the plan is to close the AmeriCredit deal, lend a bunch of money for auto purchases to people who really can’t pay the money back, then shove the resulting shit pile into the public markets.

Can you say Fannie and Freddie?

Stuff you might have missed while searching for your old ‘Thriller’ vinyl – 06/29/09

Technology

  • How Difficult Is It To Post A Bill On The White House Website For Five Days? [Techdirt] – Watch for a new government job listing for, uh, White House Blogger. Primary responsibility: cut and paste.
  • Great Wall of Facebook: The Social Network’s Plan to Dominate the Internet — and Keep Google Out [Wired] – All Google has to do is remove Facebook from their search results, and the fight is over.
  • Indian CEO Says Most US Tech Grads “Unemployable” [Slashdot] – The kingdom of outsourcing may be hedging its bets through the PR channels.
  • Finance

  • Krugman and the Housing Bubble: A Love Story [Reason] – Mr. Krugman is long to get his story straight. Looks like the ‘internet is forever’ mantra is getting the best of him.
  • Goldman Sachs: The Great American Bubble Machine [The Big Picture] – A must read, particularly the final blow on cap-and-trade. I suggest clicking through to the Scribd page and going full screen.
  • Frank Pushes Fannie and Freddie to Take On More Risky Loans [Contrarian Profits] – Along with a plan to refinance homes that are underwater, it looks as though we’ll all soon be in government housing, whether we like it or not.
  • Fly Fishing

  • Is It Time For Rodmakers to Get Out of the Warranty Business? [MidCurrent] – It would certainly force people to rest their rods someplace besides the door jam of their vehicles.
  • Invention Lets Fish Live Without Water [Cutthroat Stalker] – A fly fishing photographer’s dream come true? Heh, nothing can help my photog skills.
  • Elite anglers focused on FKO/IGFA Inshore World Championship [Fishing World] – Coming soon, and on EPSN to boot.
  • Adieu.

    Why don’t Fannie Mae and Freddie Mac set off public bonus rage?

    Fannie Mae and Freddie Mac, those institutions of ‘higher standards’, are preparing to pay up to $210 million in retention bonuses:

    In a compensation program that has drawn angry protests from politicians, Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies’ regulator to Sen. Charles Grassley.

    The maximum retention bonus for any individual executive under the plan will total $1.5 million during the 18 months ending in early 2010, according to the letter, which provides previously undisclosed details about the bonuses. The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in a letter to the Iowa Republican senator that about $51 million of the payouts were made in late 2008 and that the rest are to be made this year and early next year…

    “It is not realistic to expect that experienced and highly skilled employees will indefinitely continue to work as hard as they have if we do not provide reasonable incentives to perform,” Mr. Lockhart wrote. He argued that the companies need “skilled and experienced staff” to manage safely their more than $5 trillion in debt and guarantees of mortgage securities.

    A few weeks ago, the public disclosure of AIG bonuses set off a firestorm – some AIG employees even had their houses vandalized. It would be nice to give credit where credit was due and pat Rep. Barney Frank on the back for denouncing the Fannie/Freddie scheme way back when, but all eyes seemed to be on AIG. They stayed there too, and one has to wonder why. Or at least had to wonder, as this news, including but not limited to the fact that a full 25% of the prospective bonuses have already been paid, was popped on a Friday. By Monday the public will have forgotten all about it, as planned.

    Again, where are these specialists going to go otherwise? Same old excuses, and the same old tactics.

    “For personal privacy and safety reasons,” Mr. Lockhart said, it wouldn’t be appropriate to release the names of all employees receiving bonuses of $100,000 or more.

    Well at least Fannie and Freddie employees’ windows won’t be getting smashed.

    US Government launches bold plan for pensioner genocide

    “Screw you, AARP” – Ben Bernanke and Tim Geithner, March 18, 2009

    The AP wind up:

    With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

    Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most — if not all — of next year.

    The decision to hold rates near zero was widely expected. But the Fed’s plan to buy government bonds and the sheer amount — $1.2 trillion — of the extra money to be pumped into the U.S. economy was a surprise.

    Surprise, surrprise, surrrprise.

    You heard that right, boys and girls – the government is now exchanging its debt for money that it prints, and buying bonds from wholly-owned subsidiaries in exchange for yet more cash. Never has anything struck a resemblance closer to taking money out of the right pocket and sticking it in the left. I guess the Chinese weren’t particularly impressed with the government’s assurances.

    A premonition from Guy Kawasaki that may just be humor, but might not be too far from becoming reality:

    Going down to the casino to eat. May cost me $500.

    The bullishness at the printing press may put a temporary halt to the wealth destruction we’ve become accustomed to, but creating $1.2 trillion out of thin air has a high probability of turning inflation worries into nightmare.

    If you thought you were now retirement-poor as a result of the decimation your IRA/401k endured in the last few quarters, imagine what already retired folks who live on fixed incomes are going to think when a loaf of bread costs $15. What home value they have left, now being extracted in bulk through the magic of reverse-mortgages, is being used to pay jacked-up supplemental insurance premiums and co-pays.

    If universal coverage doesn’t wind up killing them, now starvation will.

    Finance quote of the month – February ’09

    Jeff Matthews:

    In fact, at yesterday’s close of slightly north of $2.50 a share, you could give up your morning Starbucks latte and instead buy a share of Citigroup stock, with enough change left over to buy a share of Fannie Mae, if you really wanted to speculate.

    Rich, and almost makes you feel the same. Particularly if you don’t care for Starbucks coffee.

    From the “We’ll Keep This Mortgage Mess Unrealistically Propped Up Until It Kills Us” Files

    President Barack Obama on fixing the home mortgage crisis (emphasis mine):

    Right now, Fannie Mae and Freddie Mac — the institutions that guarantee home loans for millions of middle-class families — are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home’s worth. So families who are underwater — or close to being underwater — cannot turn to these lending institutions for help.

    My plan changes that by removing this restriction on Fannie and Freddie so that they can refinance mortgages they already own or guarantee. This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.

    Cutting to the chase:

    1) Fannie Mae and Freddie Mac are not just ‘the institutions that guarantee home loans for millions of middle-class families’, they are the the institutions that guarantee home loans for millions of middle-class families, and are wholly-owned by the US Government (i.e. the taxpayers);

    2) Given #1, any losses on guarantees must be absorbed by taxpayers, which means the ‘guarantee’ must now be getting extended to an assurance there will be no losses. Further, anyone wishing to sell their home after receiving assistance (many can’t right now – they’re underwater) would create a loss on someone’s balance sheet (i.e. the government’s) against the original mortgage amount. If some restriction is place on post-assistance transactions, the ‘flexibility’ this government action portends to create is dissipated on receipt;

    3) Assuming #1 and #2 are totally off base, the lackey of last resort would be Fannie Mae and Freddie Mac bondholders. That group consists of institutions, foreign investors, as well as a bunch of little ol’ grandmas living on fixed incomes. Most of the final category don’t pay any taxes, so I guess the statement ‘And the estimated cost to taxpayers would be roughly zero’ has some merit regardless of outcome;

    And finally…

    4) The entire idea hinges on the premise that reductions in cash flow will ‘be balanced out by a reduction in defaults and foreclosures’. It’s a balancing act with emphasis on the acting – the first $200 billion pumped into Fannie and Freddie was followed by an increase in defaults and foreclosures.

    While the last statement isn’t directly causal, what is would be that as long as housing prices are allowed to remain artificially propped up, qualified buyers who can actually afford the mortgages (that the unqualified cannot) remain on the sidelines.

    Wave bye bye to another $200 billion.

    Freddie/Fannie Mortgage Modifications (suck)

    At least that’s what Paul K. and Company surmise regarding the recent announcement of mass mortgage modification by the dynamic duo Fannie Mae and Freddie Mac. Only one segment of commentary in the otherwise fine discussion struck me as odd (emphasis mine)…

    “Heidi” – Lowering the principal amount is unethical. If they lower the principal amount for people who made poor decisions regarding what they can afford to pay for a home then the government would in essence be rewarding moronic behavior. Should I be refunded for all of the losses in my investments?

    My query: when does the government do anything but “reward moronic behaviour?”

    SIDE NOTE: Mass Mortgage Modification will hereafter be referred to simply as MMM or ThreeM, but no rights are reserved. Dynamic Duo is taken by some comic book characters, and we already know the shoe fits.

    First, Let’s Stabilize Home Prices

    You lost me at hello

    R. Glenn Hubbard and Chris Mayer, via WSJ (emphasis mine):

    We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac.

    What a novel approach (notwithstanding the fact that Fannie and Freddie were recently nationalized because they were spiraling down the rabbit hole).

    (h/t Calculated Risk)

    Fannie Mae/Freddie Mac – the weekend attention

    A comprehensive look at coverage of the weekend’s Fannie Mae/Freddie Mac story, compliments of The Big Picture.

    Winners & Losers of the Fannie & Freddie Bailout

    According to The Wall Street Journal the winners are homeowners, Hank Paulson, short-sellers, Bill Gross, and the Republican Party, and the losers are lobbyists, Congress, management, and value investors.

    The short-sellers bit is indisputable, and I think the WSJ missed one loser, taxpayers.