Normally, I have a lot of respect for Bloomberg.com, but their recent article on the US Government’s pledge of 7.7 trillion to ease frozen credit seems a little absurd all things considered.  Their numbers include some of the following expenses:

$3.18 trillion — Already been tapped by banks and other financial institutions

$2.4 trillion — Set aside to buy short-term notes, or commercial paper, that companies use to pay bills

$1.4 trillion — Used by the FDIC to guarantee bank to bank loans

$29 billion — To help with the Bear Stearns takeover by JP Morgan Chase and Co

If you listen to the media today, the bailout of Citigroup is a huge success and the stock market is being rewarded for effective, decisive action.  If you listen to me, there is no justification for what happened in the market today and buyers and sellers are irrationally grabbing at whatever news they can.  Tomorrow will show that in all reality it’s only a matter of time before something else dips and the market tumbles again.  But, there is good news amidst the gloom and that is the surge in Citi stock up nearly 60% to close at $5.95 – much more realistic for a company the size of Citigroup, even with their problems.

Even with the bailout of Citi on the books now, it doesn’t appear that the auto-makers are any closer to getting their due share, which seems odd to me.  I hope this proves to simply be posturing by the government as this to me still seems bigger and more important than the likes of AIG.  The only difference, of course, being that most politicians don’t care who is in Detroit, but their buddies on Wall Street are a whole different story.

It’s difficult to imagine a world without Citigroup (Citibank, Citi Cards, Citi Mortgage, Primerica, etc.), but with their stock closing down another 26.41% today, to close at $4.71 (C), it’s also difficult, in these troubled financial times, to imagine a scenario that allows Citigroup to continue operations going in the direction that they are.  Once the largest bank in the United States, Citigroup’s assets and market value have fallen over 65% in November alone.  As if that isn’t bad enough, the word on the street is that government intervention or outside investment may be necessary for their survival – which is basically the kiss of death in this market.

The biggest problem here today is that Citigroup has both a liquidity and solvency issue.  Thy’re working to calm their investors, but the market is already so shell-shocked from the other failures to date that these reassurances are falling on deaf ears.  In retrospect, it’s easy to see how big a blow losing the bid for Wachovia was and following that with an announcement announcing the elimaination of 52,000 jobs worldwide compounded the problem from a public relations standpoint.

Fannie Mae and Freddie Mac are offering early holidays gifts to Americans on the brink of foreclosure.  It was announced today that both lenders would put a temporary halt to foreclosure sales and evictions of occupied single-family homes during the holiday season.  Probably makes a lot of sense considering that this is the real estate slow season, anyway.

Is the current debate over whether or not to provide financial aid to the automakers a white-collar/blue-collar argument, because it’s sure looking that way when the government gives billions to help a single company like AIG and yet it won’t help companies like Chrysler, General Motors and Ford with a nearly insignificant $25 billion.  Readers already know that I am against these bailouts on principle with the belief that they are prolonging the problem by smoothing the road and not fixing the problem, which ultimately means a much longer and more painful recession.  My mantra remains, let companies fail, even the big ones – it will hurt more, but generally it’s for a shorter period of time  The net impact on the economy will most certainly be less.

With all the backlash surrounding the Microsoft acquisition of Yahoo, it seemed only a matter of time before Yahoo’s CEO Jerry Yang was foreced out.  There’s also the 60% decrease in Yahoo’s value since Yang took over last year, but It’s questionable what percentage of that is attributable to Yang and what percentage is attributable to the market drop as a whole.  Regardless, I have to imagine that the board and employees of Yahoo are secretly (or maybe publicly) celebrating his departure and hoping that the market sees this as a new hope for the future of Yahoo.

I doubt there will be any tears on Main Street America today.  News is hitting the street that Goldman Sachs top seven executives, including CEO Lloyd Blankfein, are giving up their bonuses for 2008.  According to the Wall Street Journal article today there were “months of debate” about this decision.  Can you imagine how well it would have come out to the millions of people that have lost their homes, 401K investments and even their jobs over companies like this?

Last year Blankfein received a compensation package of roughly $68.5 million, and I suspect that will tide him over fairly well this year – since he’ll only be making $600,000 from his base salary.  Are these people really worth that much more than the average General Motors or DHL employee that will be losing their job this year?  Sure, they know things that the average person doesn’t, but if you look at the Wall Street masses this year it would appear that they make plenty of mistakes too, and the difference is that the impact can tear apart the global economy.  Mess up on a car and it doesn’t sell – doesn’t seem quite so bad.

Ranter

Shoring Up the Economy

Experts are predicting that there will be somewhere between 3 and 5 million foreclosures next year alone. These figures amount to somewhere between 8,000 and 14,000 people evicted from their home every day. This is obviously not a small problem and with the continued acceleration of foreclosures it is very unlikely that it’s going to get better any time soon.  Something has to be done; the situation has gone from bad to worse and the world economy is now free-falling into a global recession unlike anything imagined before.

I’ve already expressed that Henry Paulsen is not able to help the economy and I believe that time will show he prolonged and worsened the problems that he/Goldman Sachs helped create.  I’m hopeful about Barack Obama coming into office because I believe that the world needs change and hope to empower the average citizen to help with improving the economy – to help the consumer believe.  Unfortunately, I don’t think that Barack Obama will be enough and that’s where I believe the United States (and the world as an extension of the US) needs a bailout/stimulus plan that helps stabilize the markets while simultaneously improving consumer confidence.  Some components should include:

Treasure Secretary Henry Paulsen Looks Very Worried ... and well he should.

My position has shifted from being angry about the $700 billion financial rescue program to downright scared.  Every day Treasurey Secretary Henry Paulsen (former CEO of Goldman Sachs) comes out with some new screwball plan to use the remaining dollars, but like Chicken Little, his whining reasoning is becoming less and less believable.  Today, for example, he’s suggesting to relieve pressures on consumer debt, including credit cards, car loans, and student loans, which he believes are “creating a heavy burden on the American people and reducing the number of jobs in our economy.”

Somehow I don’t believe that my student loans, credit card bills, or car payments are creating any undue burden on the American people, and I’m not sure how reducing or changing the terms of my agreements will significantly impact or benefit anyone.  For people that it will impact, I’m not sure that I agree this will be of any help to the long-term improvement of our economy.  Quite the opposite, actually, because the money will be spent and spooked consumers will be unlikely to jump right back into school, a new car, or even additional credit card payments.

Trump International Hotel and Tower slated for completion in mid-2009.

It’s becoming more and more obvious that the problems with the American economy are going to continue for the next several years.  If for no other reason then the knee-jerk reaction that banks and financial institutions are taking to limit their exposure to real estate related investments.  There is no greater example of this then the recent lawsuit filed by Donald Trump against lenders looking to reduce their exposure on the Trump International Hotel and Tower – a 92 story hotel and condominium high-rise architected to be the second-tallest building on United States soil.

Unlike most Trump stories – this isn’t really about Trump or his ego or even about some grandiose plan to expand his empire.  This story is about terminology, bank loans, and whether you believe that the “unprecedented financial crisis in the credit markets” is equivilent to a force majeure equal to an act of war or a natural disaster.  If you believe Trump (or anyone looking at the first page of a foreclosure document), you would consider the financial markets some sort of natural disaster, and that would require an extension and additional funding as provided in the original Trump loan package.