Hillary cannot be pardoned even if Obama or Trump wanted to

If someone hasn't yet been charged with a crime, how does the president know what to pardon them for? The long and short answer is 'anything.' I point you to The act of Congress of January 24th, 1865. It is a long read but thankfully it was made clear in point 9 of the 1866 Supreme Court ruling on Ex parte Garland. To speed up this process this is the ruling, 'The power of pardon conferred by the Constitution upon the President is unlimited except in cases of impeachment. It extends to every offence known to the law, and may be exercised at any time after its commission, either before legal proceedings are taken or during their pendency, or after conviction and judgment. The power is not subject to legislative control.' Before you google the word pendency its definition is the state or time of being pending, undecided, or undetermined, as of a lawsuit awaiting settlement. Did you pick up the key word in point 9? The word I picked up on is impeachment. Ah yes the last time you might recall the word is William Jefferson Clinton. In this case I am refering to the former Secretary of State Hillary Rodman Clinton. You might first think that impeachment can only be commited by a President. WRONG!!! Impeachment is a process in which someone is charged with unlawful activity while in office. If convicted in an impeachment trial, it generally leads to their removal from office. Do I need to state the obvious? Hillary was a official as Secretary of State. So it doesn't matter what Obama does! You the citizen decide what happens next.

Is China an Emerging Superpower? What is a "Superpower"?

People have been predicting China’s emergence as a superpower since the days of Napoleon.  He appreciated China’s potential as a world power and cautioned against waking the sleeping dragon. China’s subordination into the Western international system in the 1839-1842 Opium War and its decline as the “sick man” of East Asia for the rest of the nineteenth and for the first half of the twentieth centuries dulled, but never extinguished, the expectation that, sooner or later, China would again dominate the world.

The term “superpower” is often used loosely in popular discourse to describe anything that achieves unmatched dominance from the status achieved in international affairs by the United States since World War II.  The discussion here will be better served by a somewhat more precise definition: a “superpower” is a country that has the capacity to project dominating power and influence anywhere in the world, and sometimes, in more than one region of the globe at a time, and so may plausibly attain the status of global hegemon.  The basic components of superpower stature may be measured along four axes of power: military, economic, political, and cultural (or what political scientist Joseph Nye has termed “soft”).

China is not now a superpower, nor is it likely to emerge as one soon. It is establishing itself as a great power, on par with Great Britain, Russia, Japan, and, perhaps, India. China is today a serious player in the regional politics of Asia, but also is just one of several. At a broader level, in global affairs, its stature and power are growing, but in most respects it remains a regional power, complementing the cast of other great powers under the overarching dominance, however momentary, of the United States. [1]

Will dumping the dollar make a difference?  Not likely!

Bailouts / Ponzi Scheme

As the U.S. government is looking for something or someone to blame for the housing and banking debacle,  finally it seems that they have chosen Bernard Madoff as one of the many scape goat's in a supposed Ponzi like scheme.  

Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté. 

Back in May, four months before it collapsed, American International Group Inc. increased its dividend at the same time it unveiled plans to raise $12.5 billion in capital. Later, when its cash ran out, AIG got a government bailout, the size of which has expanded to about $150 billion.

It might not have been such a bad thing for those shareholders that invested in the last round of $12.5 billion in capital.  It has been shown that entering a Ponzi scheme can be rational even at the last round of the scheme if a government will likely bail out those participating in the Ponzi scheme.  

Fannie Mae, Freddie Mac and Citigroup are just a few firms that have required taxpayer bailouts to the tune of hundreds of billions of dollars.  They were not running a traditional Ponzi scheme but their scheme collapsed under its own weight, as investment slows and the promoters start having problems paying out the promised returns. 

It seems that many companies have a business model that resembled  a Ponzi scheme.  Ponzi hired a publicity agent, James McMasters.  The so called legit companies did too. However, Ponzi's publicity agent quickly became suspicious of Ponzi's endless talk of postal reply coupons, as well as the ongoing investigation against him. He went to the Post, calling Ponzi a "financial idiot." The paper offered him five thousand dollars for his story, and ran a headline on August 2 declaring Ponzi hopelessly insolvent.  We have all heard the world insolvent recently in the news.

When a Ponzi like scheme is exposed, legal authorities begin examining accounting records of the so-called enterprise and they find that many of the "assets" that should exist do not. 

In Michigan a company and A.J. Obie, two firms with the same managers, Sixteen hundred investors lost approximately $50 million.  In what was described as the largest reported 'Ponzi' scheme in the history of the state.  The scheme led to the passage in 1987 of the MBLSA (Mortgage Brokers, Lenders, and Servicers Act)."

Another Ponzi like scheme, Lou Pearlman's scam involved bilking investors out of their savings with a fraudulent savings and loans program claiming it to be FDIC insured though it was not. 

Fast forward today Ponzi’s schemes are very much alive.  Wall Street and its bankers, mortgage lenders, and soon to be automakers were all caught running Ponzi like schemes.  

GM out of options

The UAW's refusal to agree to wage concessions by a specific date in 2009 killed the senate version of H.R. 7321. [1] According to GM's annual report, it paid the UAW workers $73.26 per hour in wages and benefits. [2]  The Senate Majority leader Harry Reid of Nevada spoke shortly after Republicans left a closed-door meeting.  He said that Republicans balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers. [3]   

GM has sought to reduce production costs to about $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.[4] If wages were reduced the vehicle assembly cost would have saved GM about $1,000 per vehicle.  General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5]  Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]

Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts - but not until 2011.  GM built 9,286,000 vehicles last year [7] , if it could have brought wages down to that which the Japanese auto makers pay their hourly workers it would have saved GM $9,286,000,000 last year.  In stead GM's share holders lost $68,450,000 last year.

For now my question on my post, “Who killed GM? Will it rise again?”, looks like it was true when I stated that if anything has killed GM it is its managements lack of vision and the UAW's not looking out for the best interest of its members. 

The BIG 3’s auto bail out is a joke.

As of now.

The house bill H.R. 7321 loans $14 billion at the rate of 5% for each of the first five years, after that the rate will be 9%.  The President shall designate one or more from the Executive branch.  The  designate shall have private expertise in such areas as economic stabilization, financial aid to commerce and industry and financial restructuring, energy efficiency, and environmental protection. Where in the h#$% will the White House find this person? 

Those that take part in the bridge financing will give warrants to the government, these warrants shall give the President’s designee the right to receive nonvoting common stock or preferred stock.  Warrants that are common stock will have value that is equaled to 20 percent of the aggregate amount of all loans provided.  The common stock warrant price of each company shall be the 15 day moving average of the company that is requesting assistance as of December 2, 2008.  Preferred stock Warrants may also be issued.

  

The Secretary of Energy will make $7.1 billion available to the President’s designee.   The Secretary of Energy will also reserve $500 billion.

Congressional Oversight - Troubled Asset Relief Program TARP - Emergency Economic Stabilization Act of 2008

The White House, spokesman Tony Fratto said that, “The Treasury Secretary Henry Paulson said he's working to continue to design and develop programs, and when it's the right time to use them Treasury will announce it. And if it then makes sense to go to Congress, he'll recommend we request to drawdown the second $350 billion,”  Last week the Treasury secretary announced he was abandoning his plan to free up the nation’s credit system by buying up toxic assets from troubled financial institutions.  Paulson wants to take a more direct action on the consumer credit front.  So far, the Treasury Department has pledged $335 billion mostly for banks in return for partial ownership, a measure designed to encourage the institutions to boost lending and stabilize credit markets. 

The Oklahoma U.S. Senator Jim Inhofe told the Tulsa World that, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone,”  Later he learned of the initial $250 billion being allocated, the Treasury has sent out more than $161 billion in checks to 52 banks in exchange for preferred shares and a high dividend.

  

When the bill was enacted a Congressional Oversight Panel was created to review the state of the markets, current regulatory system, and the Treasury Department's management of the Troubled Asset Relief Program. The panel is required to report their findings to Congress every 30 days, counting from the first asset purchase made under the program. The panel must also submit a special report to Congress about regulatory reform on or before January 20, 2009.

The panel consists of five outside experts appointed as follows, one member chosen by the Speaker of the House, Richard H. Neiman, one member chosen by the minority leader of the House, Judd Gregg quit the panel citing his congressional duties, one member chosen by the majority leader of the Senate, Elizabeth Warren, one member chosen by the minority leader of the Senate, Jeb Hensarling, and one member chosen by the Speaker of the House  and the majority leader of the Senate, Damon Silvers, following consultation with the minority leaders of Congress. 

 

The Comptroller General (director of the Government Accountability Office) is required to monitor the performance of the program, and report findings to Congress every 60 days. The Comptroller General is also required to audit the program annually. The bill grants the Comptroller General access to all information, records, reports, data, etc. belonging to or in use by the program.

When Senator Inhofe said, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone.”  Is he not reading the reports from the Comptroller General the director of the Government Accountability Office or the reports of the Congressional Oversight Panel that was created as part of the legislation?  Did they get lost in the mail?  For God’s sake he is a member of the Senate if he is not getting the reports he should do something about it.

The dangers of deflation can be scary not to mention Inflation

The Federal Reserve Chairman Ben Bernanke seems to have his hands full lately.

  

When asked about  General Motors Corp., Ford Motor Co. and Chrysler LLC Bernanke said that Congress should consider a “range of possible policy actions” besides direct aid, including a government-assisted “orderly bankruptcy reorganization” or company mergers. 

General Motors Corp., Ford Motor Co. and Chrysler LLC have asked U.S. lawmakers for as much as $34 billion in aid. Congress is discussing a $15 billion rescue proposal where the Treasury would get warrants for stock equivalent to 20 percent of any government loans.  Stock warrants are issued so that the warrant holder has the option to buy stock at a particular price.

 “Even if the companies have sufficient collateral, lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking,” Bernanke said.  He also said that, “the Federal Reserve would be extremely reluctant to extend credit where Congress has actively considered providing assistance but, after due consideration, has decided not to act.” [1]

As default rates get high enough, banks will simply be unwilling to lend which will severely limit money and credit creation.  Whitney, an analyst and managing director at Oppenheimer & Co. who predicted the current financial-services industry meltdown, now says credit-card issuers will eliminate more than $2 trillion in available credit over the next 18 months. [2]

Pumping up the money supply should melt a credit freeze. The Fed chairman faces huge obstacles in trying to restart the credit engine and get maxed out consumers spending again.  Given the scale of the Fed's interventions, it should be weakening the value of the dollar and setting us on a course toward inflation.  Inflation happens when prices rise. Deflation happens when they fall. In this December's dark economy, falling prices for gasoline, cars, and clothes and just about anything would seem like a silver lining.

Federal Reserve Chairman Ben Bernanke and his colleagues are clearly more concerned with the risk of a deflationary spiral than with inflation right now.  But deflation can be scary. Buyers assume everything will be cheaper in the future, so they wait for bargains. If no one is buying, factories curb production. Workers lose their jobs and shops close.

“The federal funds rate is trading persistently below target,” said Poole, who is a contributor to Bloomberg News. “That can’t be an accident. I personally do not believe the Fed should tie asset purchases to any specific fiscal programs, whatever their merits,” Jeffrey M. Lacker President of the Federal Reserve Bank of Richmond said after a speech in Charlotte, North Carolina, Dec. 3. At the same time, he said he was open to purchasing U.S. government debt for the purpose of fighting the danger of deflation.  

How does the Federal Reserve spend so much?

The Federal Reserve Banks earned $6.9 billion in 1977. How are the Federal Reserve Banks able to “earn” this amount of income? One popular misconception is that the Federal Reserve Banks earn income by investing member bank reserves. In fact, earnings of the Federal Reserve Banks are not the result of the volume of member bank reserves, but that bank reserves and earnings of the Federal Reserve Banks are both by-products of the way a central bank operates. [1]

Assume that there were no legal restrictions that required banks to hold deposits at Federal Reserve Banks.  Would the ability of the Federal Reserve Banks to generate their own earnings be affected? The answer is no.  To implement its monetary policy objectives, the Federal Reserve would still buy and sell Government securities.  Its holdings of Government securities would still represent the primary source of the “base” under bank deposits.  The Federal Reserve would pay for the securities just as it does now, with a check written on itself.  Commercial banks would then be “paid.” [2]

In 2005 the Federal Reserve System had holdings of $753,748,000,000, in 2006 it had $787,872,000,000 and in 2008 it had holdings of $816,115,000,000.[3]

As of September 2008 the holdings of the Federal Reserve System was $476,600,000,000. [4] 

Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the change in excess reserves of $90 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000), e.g.$100/0.10=$1,000. 

Federal Reserve lending crisis lending:

 (TAF) Term Auction Credit (allocated) $900,000

Discount Window Lending $139,256

Banks (other loans primary credit) $92,645

Investment Banks $46,611

(other loans Primary dealer and other broker-dealer credit)

Loans to buy ABCP (other loans Asset-backed $661,923

commercial paper money market mutual fund liquidity facility)

AIG (allocated minus Treasury 40B) $112,500

Bear Stearns (initial loan to JPMorgan) $295,000

(TSLF) Term Securities Lending Facility $225,000

Swap Lines (other federal reserve assets) $601,963

debt issued by government-sponsored mortgage $100,000

financers Fannie Mae (FNM, Fortune 500) and $100,000

Freddie Mac (FRE, Fortune 500).

mortgage-backed securities purchase $500,000

(these amount are in millions of dollars)

Total amount guaranteed by the Federal Reserve is $6,549,398,000,000.

[5][6]

When Reserve requirements are considered the potential from the banking system is $4,766,000,000,000 yet the Federal Reserve has committed spending of about $6.5 trillion.  

Hmmm, what system are they working with now to justify their spending spree?  Earlier in the week Bernanke said that the Fed may buy treasuries to aid economy. [7]  I guess they will just write a check written on themselves to buy them!

The BEG 3 don't forget the foolish UAW

The big day is coming up for the auto industry.  The bailout will affect the Big 3 and their 1,000 parts manufacturers.

General Motors Corp on Tuesday submitted the accelerated restructuring plan demanded by Congress, saying it needed up to $18 billion in loans and credit lines from the government.  Their position is that GM needs to receive $4 billion of that U.S. government financing this month to survive.  GM said that they would offer the government equity warrants in exchange for the financing.  [1]

GM said that it hopes to increased production of fuel-efficient vehicles and energy-saving technologies.  GM also plans rationalization of brands, models and retail outlets.  It also plans to reduce wage and benefit costs, including further reductions in executive compensation.  It plans for further and significant capital restructuring.  Finally it wants to further consolidation in manufacturing operations.[2]

GM is weighed down by heavy "legacy costs" in the pensions and health care of its retirees, while other companies have no pension plan, and its health care costs per vehicle are barely a tenth of GM's.  GM's $1.1 billion loss in the first quarter doesn't begin to tell the whole story. The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits.  [3]

All UAW leaders and the Big 3 automakers need to show up this week together.  The leaders in Congress need to know what the UAW is willing to do to help also.  According to GM's annual report, it paid $73.26 per hour in wages and benefits to its hourly workers last year.[4]  GM will seek to reduce costs to about $48 per hour, which is about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.  [5]

General Motors offered buyouts to all of its 74,000 US hourly employees as the automotive giant continues to downsize operations in response to declining US market share and massive financial losses. [6]  The head of the United Automobile Workers Union said it expected 15,000 to 20,000 workers to leave General Motors during a new round of buyouts, and that G.M. would replace nearly all of them with lower-paid employees.  Including benefits and retiree health care costs, each worker who leaves under the buyout program and is replaced by someone on the lower pay scale would save G.M. about $48 an hour, or nearly $100,000 a year.

  [7] 

Germany has shown their faith in GM and its management since it is ready to guarantee funds for ailing carmaker Opel but any money it provides to the General Motors' unit must stay in Germany, Chancellor Angela Merkel said.    [8]

So how will the bridge loan at GM be used? Cash will support ongoing operations as we continue to restructure the business.  It plans $8.0 billion in payments to parts suppliers and another $1.2 billion for other vendors.  It also plans another $900 million in wages and another $500 million in healthcare and legacy costs.  Last but not least GM plans another $500 million in capital expenditures.[9]

Local United Auto Workers leaders from across the U.S. will hold an emergency meeting in Detroit on Wednesday to discuss concessions the union could make to help auto companies get government loans.[10]

Chrysler LLC, its monthly sales were off more than GM's, says it will need "immediate liquidity support" of $7 billion to reassure customers, encourage dealers and make it into next year.  Cerberus / Chrysler LLC says that it will work with government to provide collateral and secure taxpayer funding.  Cerberus / Chrysler LLC expect to be in a position to begin repaying government loans in 2012.   So how will the bridge loan at Chrysler be used?  Cash will support ongoing operations as they continue to restructure the business, including in the first quarter alone.  It plans $8.0 billion in payments to parts suppliers and another $1.2 billion for other vendors.  It also plans another $900 million in wages and another $500 million in healthcare and legacy costs.  Last but not least Chrysler plans another $500 million in capital expenditures.  [11] 

Ford Motor Co., says it's OK for now. Although it is seeking up to $9 billion in bridge financing, but says it hopes to complete turnaround without accessing the loan should Congress agree to make the funds available.  But it wants the ability to access up to $9 billion in government credit.  They also said that if GM fails it could take the entire domestic auto industry down with it. [12] 

All UAW leaders and the Big 3 automakers need to show up with this week too.  The leaders in Congress need to know what the UAW is willing to do to help also.  According to GM's annual report, it paid $73.26 per hour in wages and benefits to its hourly workers last year.[13] 

 Do you think that U.S. automakers should be allowed to fail?  I do.

I think they should file for Chapter 11 bankruptcy protection under the U.S. courts and reorganize. The reason is that the decline in competitiveness of General Motors, Ford and Chrysler is a long-term problem, going back to the 1970s and 1980s, beginning with lagging physical productivity in assembling automobiles compared to the leading Japanese companies, and then in quality and also in engineering productivity for product development.  "The Machine that Changed the World", which documents the state of the world auto industry circa 1990 and the mounting problems of the U.S. automakers. But things have gone from bad to worse.  

The only question is shall they stay or shall they go now?

Can the mess be cleaned up in time?

According to Keynes, the root cause of an economic downturns is an insufficient aggregate demand. When the total demand for goods and services declines, businesses throughout the economy see their sales fall off. Lower sales induce firms to cut back production and to lay off workers. Rising unemployment and declining profits further depress demand, leading to a feedback loop with a very unhappy ending.[1]

The economy’s output of goods and services is traditionally divided into four components: consumption, investment, net exports and government purchases. Any expansion in demand has to come from one of these four. But in each case, strong forces are working to keep spending down.[2]

Drivers in the U.S. traveled 15 billion miles less in August, or 5.6%, which is about 770 million barrels of oil in reduced consumption. [3][4]  The miles driven per month have been on a decline for many months.  

Since March, the dollar has appreciated 19 percent, a move that will put a crimp in the export boom. [5] 

The U.S. Treasury announced last week that is had invested $290 billion of the $350 billion that remained from the initial Tarp offering.[6] 

The Fed’s decision last week to start buying mortgage debt shows its willingness to act creatively.  Between the Federal Reserve’s and the U.S. Treasury department’s new investments have been promised up to $7.6 trillion.  Of the $7.6 trillion promised $3.7 trillion has been committed for spending. [7]

In normal times, a fall in consumption could be met by an increase in investment, which includes spending by businesses on plant and equipment and by households on new homes. But several factors are keeping investment spending at bay.  One problem seems to be the dropping real estate values, which typically sees people waiting for the floor to be reached.[8] 

In 2003, William White and a colleague, Claudio Borio, attended the annual conference in Jackson Hole, where they argued that policymakers needed to take greater account of asset prices and credit expansion in setting interest rates, and that if a bubble appeared to be developing they ought to “lean against the wind”—raise rates.  “Ben Bernanke really believes that it is impossible to lean against the wind on the way up and that it is possible to clean up the mess afterwards,” White said recently that, “Both of these propositions are unproven.”[9] 

Conditions are different under a credit expansion which first affects the loan market. In this case the inflationary effects are multiplied by the consequences of capital malinvestment and overconsumption.  Ludwig von Mises, warning, “There is no means of avoiding the final collapse of a boom brought about by credit expansion.”[10]

From the tools used today it is likely to be a long road before things get back on track.  For everyone’s sake we hope that Chairman Bernanke was right and that it is possible to clean up the mess afterwards.

Send the money to the people you fools, they can spend it better than you

The Emergency Economic Stabilization Act of 2008 also known as H.R. 1424 cost the American people $850 billion.  The population according to census estimates in the U.S. is 305,747,371. [2]  This means that the government's effort to spend $850 billion is costing $2780 for every man woman and child in the United States.  

  

The Emergency Economic Stabilization Act of 2008 originally was sold to Congress by telling our government that it would allow the treasury to buy troubled assets from struggling financial institutions. It would also establish a program whereby the government would offer insurance to companies for their assets rather than buying them. It would also establish "appropriate standards" for the compensation of executives at companies that sell assets to the government, create a congressional oversight panel and require the government to collect warrants from bailed out companies so they can collect part of any profits that may result from the bailout. The size of bank deposits that the FDIC can insure would also be raised, from $100,000 to $250,000. [3]

The bill has not bought troubled assets from struggling financial institutions.  Although this was the first thing that the bill addressed and we were told that the funds would do just that. 

 

The Treasury Secretary has invested in 53 U.S. banks in the amount of $161,471,163,000. [4] This spending was not part of what we were told.  Yesterday I posted details of the spending of $65 billion and the shares and warrants of each company that was purchased.   

Today Secretary Henry M. Paulson, Jr. discussed this week the announcement of $20 billion to back a lending facility for the consumer asset backed securities market established by the Federal Reserve Bank of New York.  The asset backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards. It is beginning to look like the U.S. Federal Reserve and Treasury Department heads really are lost and that they do not know what to do. [5]

Now the U.S. Federal Reserve and Treasury Department announced November 25, 2008 that it had developed an $800 billion worth of stimulus measures to rev up three primary engines of the U.S. economy – homebuyers, consumers and small businesses.   [6][7] Are they selling us another smoke screen?

Where has the money come from to keep spending like we are?   Why has this global crisis occurred?  They say it was a housing bubble, maybe an oil bubble.  I think it is a masterful magician that holds his audience captive with his illusion.  If they really want to get the economy going the might want to consider giving they average size household a check call it a tax rebate.  The American household has on average 2.69 members. [8]  

If you take the population as a whole and then break it down there are 113,660,733 households.  Then pay each household $13975.64 which is the planned spending.  People that are facing foreclosure will be able to catch up or find a new home, others might buy a set of tires for the car because they need them, some might buy new carpet for their home and many other things.  More jobs producing the products,  people shipping them, more people working, and they all would be spending.  This makes more sense to me but I only write a blog.

Was the bailout as much of a scam as it looked.

Have you heard the Treasury Secretary Henry Paulson lately? If so he has been using the term warrants when he is talking about the governments investment into companies that claim the are in need of capital. 

The holder of a warrant does not have any voting, shareholding or dividend rights. The investor can therefore have no say in the functioning of the company, even though he or she is affected by any decisions made.[1]

If the Fed is indeed taking a 79.9 percent interest in warrants, A.I.G. still needs a sufficient number of authorized shares to make this share issuance. To issue enough shares to support the warrants, A.I.G. shareholders would need to approve an amendment to A.I.G.’s certificate of incorporation to authorize the issuance. [2] 

N.Y.S.E. Rule 312 requires that shareholders approve any common stock issuance when the common stock will have voting power equal to or in excess of 20 percent of the voting power outstanding before the issuance of such stock. [3] 

The Bank of America Corporation received $15 billion from the Troubled Assets Relief Program (TARP). In exchange Bank of America Corporation issued 600,000 shares to the Federal government these shares give the government voting rights during any shareholder process. They also were given 73,075,674 warrants and when converted to shares $30.79 would be their cost. The shares outstanding for Wells Fargo & Company are 3,325,244,000. The market cap for The Bank of America Corporation is $72,754,895,500. The government invested $15,000,000,000 into a failing company and we the tax payer received stock warrants that only give us a 1% stake in the company. When you compare the investment to the market cap you find out that our investment is 20% of the market cap. [4] The share price today is $14.59. 

The Wells Fargo & Company received $25 billion from the TARP. In exchange Wells Fargo & Company issued 600,000 shares to the Federal government. These shares give the government the same voting rights as any shareholder has. They also were given 110,261,688 warrants. To convert these warrants into shares $34.01 would be their cost. The shares outstanding for Wells Fargo & Company are 3,325,244,000. The market cap for the Wells Fargo & Company is $85,658,285,440. The government invests $25,000,000,000 into another failing company and we the tax payer receive overpriced stock warrants, when the warrants are converted into shares they only give the taxpayer a 3% stake in the company although our investment is actually 29% of the market cap. [5] The share price today is $26.98.

The JPMorgan Chase & Co. received $25 billion from the TARP. In exchange JPMorgan Chase & Co. issued 2,500,000 shares to the Federal government. These shares give the government and any other share holder the same voting rights during any shareholder process. They also were given 3,732,357,000 stock warrants to convert the warrants into shares the cost is $42.42 per share. The market cap for the JPMorgan Chase & Co. is $110,477,767,200. The government invested $25,000,000,000 into another failing company and all that we the tax payers have to show for it is some overpriced stock warrants. These warrants only give us a 2% stake in the company although our investment is actually 23% of the market cap. [6] The share price today is $29.63. 

Why did we pay so much for so little?  These figures don’t add up to me.

The new Treasury Secretary, he must know where all of the bodies are hidden.

Timothy F. Geithner is President of the New York Federal Reserve Bank and Vice Chairman of the Federal Open Market Committee.  Geithner was raised and educated in India with frequent visits to China.  The Chinese-speaking Geithner graduated from the International School in Bangkok. The future Fed banker came to Dartmouth and then to Johns Hopkins where he majored in East Asian studies. 

Geithner commands all expansion and contraction conducted by big investment banks either by buying securities from the Fed which shrinks money investment bankers had to invest in big corporations or loan to cities, states and the Federal Government or by selling securities to the Fed which gave the investment bankers more money to invest in corporations in the US or elsewhere.

 

Mr. Geithner served as Assistant Secretary and Senior Deputy Assistant Secretary of the Treasury for International Affairs. He joined the Treasury in 1988, and held a variety of positions, including the assistant attaché at the U.S. Embassy in Tokyo, Japan and the Deputy Assistant Secretary for International Monetary Affairs in the International Affairs Division.  Mr. Geithner worked for Kissinger Associates, Inc. in Washington, D.C. from 1985 to 1988 before joining the Treasury.  Mr. Geithner served as Under Secretary of the Treasury for International Affairs from 1998 to 2001 under Secretaries Robert Rubin and Lawrence Summers. In 2001 Geithner was employed by the International Monetary Fund. In 2003 Paul Volcker was one of those who recommended Geithner for the position of chairman of the New York Federal Reserve Bank, the position that he now holds.  Paul Volcker was the Fed Chairman who played out the last act of the S & L scandal, by tightening the money supply after Fed Chairman Miller had overseen the hyperinflation that forced the S & Ls to invest in junkbonds and forced the banking deregulation that made that possible.

Mr. Obama has reportedly chosen the Federal Reserve Bank of New York's President Timothy Geithner as Treasury Secretary.  

Who killed GM? Will it rise again?

For years now, we've heard General Motors complain that it's being lapped in the United States by Toyota because it's got five retirees in the back seat for every two people actively building its vehicles, while Toyota's U.S. operations are virtually retiree-free.  GM is also weighed down by heavy "legacy costs" for pensions and health care, while Toyota has no pension plan, and its health care costs per vehicle are barely a tenth of GM's.  GM's $1.1 billion loss in the first quarter doesn't begin to tell the whole story. The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits. [1] 

According to GM's annual report, it paid $73.26 per hour in wages and benefits to its hourly workers last year. [2]  GM will seek to reduce costs to about $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.  [3]

This would reduce assembly cost for each vehicle of about $1,000.  In addition if legacy costs were reduced to that which Toyota, Honda and Nissan Motor Co pay it could earn an additional $24 billion each year.  

General Motors offered buyouts to all of its 74,000 US hourly employees as the automotive giant continues to downsize operations in response to declining US market share and massive financial losses. [5]  The head of the United Automobile Workers Union said it is expected 15,000 to 20,000 workers to leave General Motors during a new round of buyouts, and that G.M. would replace nearly all of them with lower-paid employees.  Including benefits and retiree health care costs, each worker who leaves under the buyout program and is replaced by someone on the lower pay scale would save G.M. about $48 an hour, or nearly $100,000 a year.  [6] 

If anything has killed GM it is its managements lack of vision and the UAW's not looking out for the best interest of its members.  GM could rise again if it is able to reduce compensation to its hourly employees.  The only question is wether or not it has the time and money.

  

Germany must have faith in GM and its management since it is ready to guarantee funds for ailing carmaker Opel but any money it provides to the General Motors' unit must stay in Germany, Chancellor Angela Merkel said on Monday[7]

A GM bailout makes no sense

The potential GM bailout doesn’t have a sugar daddy to fall back on like Delphi had, unless the tax payer steps in.  Before we do a little history would help.

GM took on $2.1 billion of unfunded hourly pension liabilities and assumed about $6.8 billion of Delphi’s post-retirement benefit liabilities.  GM, Delphi’s former parent, has taken on billions of dollars in financial obligations for the parts maker. However, in a regulatory filing, GM said Delphi is unlikely to emerge from bankruptcy protection in the short term and may not be able to emerge at all.  Delphi had many suitors during its early bankruptcy.

Delphi's bankruptcy began in 2005.  Its bankruptcy opened the floodgates for the buyout crowd.  Cerberus entered into negotiations with Delphi and in 2007 Cerberus dropped out of the bidding.  Cerberus dropped partly because of the hard stand its workers are taking.  To obtain UAW agreement for the 1999 spinoff, Delphi agreed to match the pay of GM factory workers. This averaged $73.26 per hour in pay and benefits last year. Most longtime Delphi workers have since taken buyouts.  The union has agreed that unskilled workers hired since 2004 will earn $27 an hour and $42 by 2011. Cerberus told the union it wouldn't pay that much, since it's double the pay at other U.S. parts companies.

The UAW needs a little tough love.  It derailed the Cerberus deal at Delphi.  Today GM suffers a loss of about $2,000 per vehicle sold.  On the other hand Toyota whose employees are not part of the UAW earns a profit of about $1,200 per vehicle sold.  If GM was able to operate with labor prices near Toyota’s it would have pocketed an additional $29,715,200,000.

  

If there is going to be a bailout the heads of the UAW, the Big 3, Treasury, the Fed and a few members of congress need to sit in a room and find a way to restructure employees pay to look more like that which Toyota has.  As painful as it might be for me a resident of Michigan where the auto industry began,  a bailout would only buy GM a little more time before it went into bankruptcy anyway.

Congressional Oversight - Troubled Asset Relief Program TARP - Emergency Economic Stabilization Act of 2008

The White House, spokesman Tony Fratto said that, “The Treasury Secretary Henry Paulson said he's working to continue to design and develop programs, and when it's the right time to use them Treasury will announce it. And if it then makes sense to go to Congress, he'll recommend we request to drawdown the second $350 billion,”  Last week the Treasury secretary announced he was abandoning his plan to free up the nation’s credit system by buying up toxic assets from troubled financial institutions.  Paulson wants to take a more direct action on the consumer credit front.  So far, the Treasury Department has pledged $250 billion for banks in return for partial ownership, a measure designed to encourage the institutions to boost lending and stabilize credit markets. 

The Oklahoma U.S. Senator Jim Inhofe told the Tulsa World that, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone,”

  

When the bill was enacted a Congressional Oversight Panel was created to review the state of the markets, current regulatory system, and the Treasury Department's management of the Troubled Asset Relief Program. The panel is required to report their findings to Congress every 30 days, counting from the first asset purchase made under the program. The panel must also submit a special report to Congress about regulatory reform on or before January 20, 2009.

The panel consists of five outside experts appointed as follows, one member chosen by the Speaker of the House (Richard H. Neiman), one member chosen by the minority leader of the House (Judd Gregg), one member chosen by the majority leader of the Senate (Elizabeth Warren Harvard Law proferson) one member chosen by the minority leader of the Senate (Jeb Hensarling) and one member chosen by the Speaker of the House  and the majority leader of the Senate (Damon Silvers), following consultation with the minority leaders of Congress. 

 

The Comptroller General (director of the Government Accountability Office) is required to monitor the performance of the program, and report findings to Congress every 60 days. The Comptroller General is also required to audit the program annually. The bill grants the Comptroller General access to all information, records, reports, data, etc. belonging to or in use by the program.

When Senator Inhofe said, “It is just outrageous that the American people don’t know that Congress doesn’t know how much money the Treasury Secretary Henry Paulson has given away to anyone.”  Is he not reading the reports from the Comptroller General the director of the Government Accountability Office or the reports of the Congressional Oversight Panel that was created as part of the legislation?  Did they get lost in the mail?  For God’s sake he is a member of the Senate if he is not getting the reports he should do something about it.

The Emergency Economic Stabilization Act 2008

  

Reported spent under legislation $158,561,409,000

Fool me once shame on you. Fool me twice shame on me.

In the tax someone else mentality that we in the US find ourselves.  Why should we care about the craziness that we find ourselves in today.

As we all know the Treasury Secretary Henry Paulson announced the government will lend Fannie and Freddie money, will purchase their mortgage-backed securities, and will buy up to $200 billion in preferred stock to keep the companies afloat.  With the Treasury committing up to $200 billion of taxpayers’ money for direct investment in Fannie Mae and billions more for loans to the companies and purchases of their mortgage-backed bonds.  Freddie Mac is now asking for an injection of $13.8 billion in government aid after posting a massive quarterly loss.

    

We were told that TARP was essential if the American economy was to survive.  The US Treasury said that it had hired accounting firms PricewaterhouseCoopers and Ernst & Young to help with its emergency buyouts of toxic assets from troubled financial institutions.  The contracts were awarded as part of the government's new 700-billion-dollar TARP to bail out financial firms saddled with soured assets related to falling US home prices.  The Treasury Secretary announced that he has shelved the original plan to buy troubled mortgage assets via the recently approved $700 Billion TARP.  The Treasury said it had selected PricewaterhouseCoopers and Ernst & Young from a pool of bidding candidates and their contracts end on September 30, 2011.

Paulson is absolutely the most powerful person in the country, maybe the world.  "In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks," Paulson said.  Paulson is considering a new use for the TARP money: trying to resuscitate the market for securities backed by auto, credit card and student loans.  Recently Paulson's erratic behavior led to a 180-degree turn with money approved by Congress under the $700 billion bailout bill. 

Paulson has the ability to do so because once again Congress has failed to use its congressional oversight to protect the American people.  In many ways just like they did on the run up to the Iraq war.  In the aftermath of the 2008 congressional race only 21 incumbent members lost their seats in congress.  

The situation has once again failed us.  Maybe the situation can be summed up by the chinese proverb,  "Fool me once shame on you. Fool me twice shame on me."

If you give AIG a cookie

When the U.S. federal government initially invested in AIG with $85 billion it didn’t require any seats on the Board of Directors.  The AIG members of the Board of Directors retained their seats as members of the board after the bailout.  In effect this means that although the government owns 79.9% of AIG the U.S. federal government has no input as to how the company is ran.  The original investment was made on September 16, 2008.  There was a second bailout October 8, 2008 for another $37.5 billion.  The third bail out occurred November 10, 2008 for another $29.5 billion raising the total bailout to date of $150 billion.

If you give a mouse a cookie. 

He’s going to ask for a glass of milk.

When you give him the milk, he’ll probably ask you for a straw.

When he’s finished, he’ll ask for a napkin.

The childrens story, "If you give a mouse a cookie," goes on and on.  

Maybe the U.S. federal government should demand some resignations on the Board of Directors.  The democrat Rep. Elijah E. Cummings called yesterday for the resignation of American International Group's top executive after news reports of another resort hotel event involving employees from the giant insurance firm.  Notice he only asked for the resignation because of another resort hotel event and not the poor management of the Board of Directors and their incessant need for more.

If you give a politician reelection.

The AIG and Berkshire Hathaway scandal

We now have a government willing to "bailout" every overpaid blundering idiot who over-leveraged their company.  The federal government delved deeper and more intricately into the bondholder bailout business by announcing plans to goose its investment in American International Group (AIG) once again, this time to $150 billion.  Nine of the eleven AIG board members retained their seats after the Governments first intervention.  A former AIG CEO Maurice R. Greenberg of the scandal ridden company was forced out March 28, 2005, after four decades amid an accounting scandal.

The Securities and Exchange Commission and the New York attorney general's office poured over dozens of transactions with scores of reinsurance companies to determine how many transactions A.I.G. might have used to bolster its bottom line.  AIG acknowledged March 30, 2005 that its accounting for a number of transactions, including a deal with a unit of Warren E. Buffett's company, was improper.  Investigators focused on a 2000 transaction between A.I.G. and General Re, a unit of Mr. Buffett's company.  Investigators found that Berkshire Hathaway, artificially inflated A.I.G.'s reserves by $500 million.  Investigators interviewed the Berkshire Hathaway executive Mr. Buffett on April 11, 2005.  Investigators commented that it felt to them that they were only seeing the tip of an iceberg.

  

Billionaire investor Warren Buffett, who owns Berkshire Hathaway, is expected to keep an eye on AIG’s subsidiaries in case they come up for sale to pay off AIG’s debt.    

update --- Berkshire Hathaway owns 13.1% of American Express stock.  The same company that is now looking for a government bailout.

The Fed and irrational fear

The Federal Reserve (Fed) is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.  Ted Forstmann, senior partner of Forstmann Little & Co. in New York said “It's your money; it's not the Federal Reserve's money,” “Of course there should be transparency.”

  

The Fed is transparent in that it is subject to the oversight of Congress.  Periodically Congress reviews the Fed’s activities and can alter its responsibilities by statute.  The intent of Congress in shaping the Federal Reserve Act was to keep politics out of monetary policy.  Legislation requires that the Federal Reserve reports annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. 

 

The recently failed Franklin Bank which is based in Houston, described their founder Lewis Ranieri in a securities filing last year as "the father of the securitized mortgage market," during the 1980’s.  Today, we are in the midst of experiencing the consequences of the failure of a party that got way out of control.  The party was brought on by the geeks bearing formulas.  Their party gave us the credit default swap, mortgage backed securities and other structured investments that have pushed the global banking system into crisis.  One of the greatest of Federal Reserve chairmen, William McChesney Martin, once said that the job of the Fed is “to take away the punch bowl just as the party gets going.”  Washington Irving wrote about the Mississippi Bubble in his paper “Crayon Papers” from 1719 that common sense told him that eventually, the “short but brilliant” phenomenon of irrational exuberance bursts and is most often replaced by irrational fear. What was a sure thing yields to uncertainty; uncertainty undermines decision making; and the confident decision making that is needed to sustain the economy retreats into a defensive crouch. Counterparties come to be viewed with suspicion. No business appears worthy of financing. Cash is hoarded. The economy, starved of the lifeblood of capital, staggers and begins to weaken.

Now that the economy has weakened again the Fed has stretched out the terms with which we lend to bankers; accepted new forms of collateral; broadened access to our lending window to securities dealers and one particular insurance company—AIG—whose failure was deemed by the Federal Reserve Board to present a risk to the financial system; opened a window for financing commercial paper; backstopped money market mutual funds; and, recognizing that we are inextricably interwoven with a global economy, established swap lines to help meet the dollar-funding needs of 14 central banks, ranging from the European Central Bank and the Bank of England to the Banco de México and the Singapore Monetary Authority, the total of which now aggregates to hundreds of billions of dollars. The Fed's staff and policymakers have provided substantial intellectual input into activities of other regulators, such as the FDIC and the Treasury, as they develop innovative means and modes of recapitalizing the banking system, dealing with the mortgage crisis and restoring economic growth.

You can see the size and breadth of the Fed’s efforts to counter the collapse of the credit mechanism in its balance sheet. At the beginning of this year, the assets on the books of the Fed totaled $960 billion. Today the Fed's assets exceed $1.9 trillion. I would not be surprised to see them aggregate to $3 trillion—roughly 20 percent of GDP—by the time we ring in the New Year. The composition of the Fed's holdings has shifted considerably. Previously, almost 100 percent of its holdings were in the form of core holdings of U.S. Treasuries; today, less than a third are. The remainder consists of claims deriving from our new facilities.

The fourth President of the United States James Madison once said, “The circulation of confidence is better than the circulation of money.”  Madison led the unsuccessful attempt to block Hamilton's proposed Bank of the United States, arguing the new Constitution did not explicitly allow the federal government to form a bank.  While President in 1815, he supported the creation of the second National Bank.  James Madison also said, "Union of religious sentiments begets a surprising confidence."