The Titans Of Finance

All your stuff are belong to us. The Fed (09.16.08), via Calculated Risk:

"The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers."

FRB: Press Release

"The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders."

See Ya

NYTimes (02.29.08):

"When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford."

Facing Default, Some Walk Out on New Homes

Free enterprise. Gotta love it. "Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure."

"Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem."

Free Enterprise

Hey all you taxpayers!! Your help in bailing out the Jolly Bankers is greatly appreciated. And no, this isn't socialism. Portfolio.com (03/2008), via The Big Picture:

"Since the onset of the subprime crisis last summer, the White House has repeatedly rejected the notion of a government bailout, either for homeowners facing foreclosure or for the banks and mortgage companies that made the now souring loans.

'There's no bailout with government money, none whatsoever,' Treasury Secretary Hank Paulson emphasized."

Massive Bailout Planned for Banks

"But even as the administration has stuck to its laissez-faire stance in public, behind the scenes a covert bailout has been under way, with a number of public and quasi-public agencies quietly dispensing vast sums to financial institutions saddled with worthless or near worthless mortgage securities."

And while you're at it, buy your own damned health insurance, you ingrate.

No

Our friends, the jolly bankers. Now they won't loan anything to anyone. Bloomberg (02.13.08):

"The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co."

Bernanke Stymied as Rate Cuts Fail to Lower Borrowing Costs

After throwing money at anything that breathed over the last five years, "(b)anks and investors are [now] demanding greater compensation for offering credit as losses mount on subprime-mortgage securities and concerns grow that ratings of bond insurers will be cut."

Speaking of the bond insurers, Warren's really turning the screws on 'em. NYTimes (02.13.08):

"Warren E. Buffett volunteered on Tuesday to rescue Wall Street from its latest looming crisis.

But Mr. Buffett, the billionaire investor known as the Oracle of Omaha, made clear that his offer would not come cheap. And even then, jittery investors were unsure that his plan would work."

Buffett Offers Aid on Bonds, but at a Price

Warren promised to "stand behind, or reinsure, policies that [MBIA, the Ambac Financial Group and the Financial Guaranty Insurance Company] had written on $800 billion of municipal bonds, a move analysts called a shrewd attempt to take advantage of the companies’ problems. His holding company, Berkshire Hathaway, is willing to commit $5 billion to the task but wants the insurers to pay it a steep premium. Berkshire will refuse to take any risks associated with mortgage-related securities, the riskiest debt that the companies insure."

The insurers don't have the financial wherewithal to even guarantee the safe stuff. WSJ (02.13.08):

"Current upshot: If the rating agencies downgrade the bond insurers, they effectively downgrade thousands of municipal bonds, meaning many holders no longer would be legally eligible to hold them. That's where we are today.

We're not so sure the result would be the financial catastrophe that some forecast. The market might well recognize the value of the downgraded bonds despite any downgrades. But some believe a downgrading of the insurers would beget forced selling, a collapse in muni prices, and insolvency for many institutions and perhaps for towns and cities that couldn't roll over their outstanding debts."

Warren the Munificent

If the alternative doesn't pan out because our jolly bankers are just too freaked, Warren's proposal begins to look very much like an offer they can't refuse.

And what an offer it is! "In a letter dated Feb. 6 to Lazard, the investment bank that is advising MBIA, Ajit B. Jain, president of reinsurance for Berkshire Hathaway, proposed that MBIA pay Mr. Buffett’s company 150 percent of the premium it earns for insuring its municipal bond portfolio. Typically, insurers cede a share of their premiums, not more than they earn."

Warren lays it on the line: "'When I go to St. Peter I will not present this as some act that will entitle me to get in. We're doing this to make money.'"

We Scream, You Scream

Free enterprise. In your dairy section today. AP (02.04.08), via BeatThePress:

"Ben & Jerry's Homemade Inc., one of the first companies to label its ice cream as free of a synthetic hormone, is protesting a move by some states to restrict such labeling.

The South Burlington ice-cream maker has joined a national campaign to block what critics say is an effort driven by Monsanto Co., which markets recombinant bovine somatotropin, or rBST, also known as recombinant bovine growth hormone, or rBGH.

Ben & Jerry's in Fight Over Labeling

Monsanto claims that labeling your ice cream like this is inaccurate and misleading.

We hesitate to wonder how inaccurate and misleading Monsanto would think it if ice cream makers were required to disclose whether or not the milk in their ice cream came from hormone-treated cows.

Wall Street Welfare

Free market capitalism at its finest. This is not rewarding greed and stupidity, but rather an example of the ingenuity of the markets (h/t AmericaBlog). Bloomberg (01.23.08):

"MBIA Inc. and Ambac Financial Group Inc., the biggest bond insurers, are likely to be bailed out to avert worsening credit-market turmoil, according to analysts at UniCredit SpA.

'A kind of bailout supported by monetary authorities or governments is the only chance for the industry to survive,' Jochen Felsenheimer, the Munich-based head of credit derivatives research at UniCredit, Italy's biggest bank, wrote in a note to investors today.

MBIA, Ambac Likely to Get Bailout, UniCredit Says

"'This bailout seems to be highly likely given the important role of bond insurers in the current market environment.'"

They're hammering out the deal as we speak. WSJ (01.23.08), via Calculated Risk:

"Regulators at the New York Insurance Department met Wednesday with banks that are parties to contracts with bond insurers to discuss ways of stabilizing the business and bringing in additional capital and capacity."

New York Meets With Banks On Stabilizing Bond Insurers

Gee. Wonder who'll pick up the tab for all of this?

Also from Calculated Risk, this is priceless.

Good Luck

Yeah, this ought to go over just huge in the US. A more rugged and cool Hello Kitty for guys. AP (12.28.07):

"The cute cuddly white cat from Japan's Sanrio Co., usually seen on toys and jewelry for girls and young women, will soon don T-shirts, bags, watches and other products targeting young men, company spokesman Kazuo Tohmatsu said Friday."

Hello Kitty Products Target Young Males

Sanrio changed the "usual bubble-headed shape of Hello Kitty" to a "more rugged, cool look to appeal to men in their teens and early 20s."

They then "tried a 'limited edition' collaboration in men's clothing with designers in Tokyo's chic Harajuku section earlier this year" which "proved popular", prompting Sanrio to conclude that "'(t)hat generation feels no embarrassment about wearing Hello Kitty.'"

No embarrassment about anything, it would appear. Some are not amused.

According to the "official online community of Sanrio," the idea is that "Hello Kitty’s female fans will definitely have a good shopping day, getting their boyfriends and husbands to wear Hello Kitty!"

They're not kidding, either.

What Are Friends For?

AP (10.09.07):

"Investor lawsuits in the Enron scandal and other corporate wrongdoing hinge on a case before the Supreme Court that poses this question: Can banks, lawyers, accountants and suppliers be held liable for scheming with publicly held companies that deceive their stockholders?

The justices were to hear arguments Tuesday in the securities fraud case investors brought against Motorola Inc. and Scientific-Atlanta Inc. over their deals with one of the largest cable TV providers in the country, Charter Communications, Inc."

Supreme Court Considers Securities Case

What happened was back in the late 1990s, some of Charter's executives cooked up a rather tawdry little scheme to inflate Charter's revenues. They began to pay Motorola and Scientific-Atlanta (the manufacturers of Charter's cable TV boxes) $20.00 more per box than they had been paying. In turn, Motorola and Scientific-Atlanta turned around and used the premium payments to buy advertising from Charter.

"Charter reported the advertising payments as revenue, a step that helped Charter paint a rosy financial picture for the fourth quarter of 2000, a move designed to artificially inflate the price of the stock." For obvious reasons, Charter didn't inform investors.

Motorola and Scientific-Atlanta are using the "not our fault; not our problem" defense. Like they didn't know full well what was going on. Bloomberg (10.08.07):

"Motorola and Scientific-Atlanta say they should be shielded from fraud claims even if investors can prove the allegations are true. The companies say it was Charter that decided how to account for the transactions in the financial statements it made public.

'It would open up the Motorolas and Scientific-Atlantas of the world to a situation where they could be liable for securities fraud because someone else booked these transactions in a false matter,' said Andrew McBride, a corporate litigator at Wiley Rein in Washington."

U.S. Supreme Court Case May Be 'Securities Law's Roe v. Wade'

On the other hand, there's that pesky little issue of backdated contracts. "The lawsuit says the set-top box contracts were backdated to make the two sets of transactions appear unrelated."

"Shareholder advocates say the alleged backdating is damning evidence that Motorola and Scientific-Atlanta played central roles in a scheme of deception and weren't simply innocent business partners."

The Administration's position? "The companies have the support of the Bush administration's top courtroom advocate, Solicitor General Paul Clement. In a court filing, Clement argued that letting the lawsuit go forward would 'constitute a sweeping expansion' of investor rights."

And we certainly can't allow that now, can we.

Jesus. And we thought we were cynical.