Citi Bank Complaint: U.S. Govt is Too Strict On Us

After running the bank into the ground (see chart at the right for losses incurred over the past 5 quarters), Citi bank executives are complaining that the U.S. government is being too strict on them under the terms of the tax payer funded bailout.

This is like the kid who burns down his parent's home (and the entire block) and then complains when they take the matches away.

Citi's CEO, Mr. Pandit, has apparently met with everyone from
President Obama's National Economic Adviser to U.S. Representative from Manhattan looking for some sympathy.

But there still seems to be some who are having fun at all of this carnage. The Wall Street Journal reports:

" The scrutiny has Citigroup executives second-guessing everything, right down to the fresh-baked cookies offered at a recent corporate retreat in Armonk, N.Y."

Some of these bank executives just don't understand what they've done and how their actions have impacted our lives..

Blue Print for the Future from President Obama

A little detour with this post to talk about President Obama's speech to the country last night.

Last night the President addressed the country and spoke clearly about what ails us and put the economic problems into perspective:

"The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank."

By giving context he helped us all understand that there are multiple challenges and they must be addressed in parallel, not one at at time.

The example that comes to mind is from my college days. All students know that they cannot focus on just one class. No matter how much trouble that once class is giving you, you have to also study and prepare for the others . . . if you want to graduate.

And thinking about the future is important because investors and entrepreneurs will not take risks and resume normal economic activity if they cannot look beyond the immediate crisis.

This is a psychological effect - and it is real. There is nothing worse (or better) about U.S. business today than before we started to hear about sub-prime mortgages and credit default swaps back in October 2008. What's changed is that more information is available and it has spooked all of us.

Another U.S. President showed us once again last night that the only thing we have to fear is fear itself.

He continued, outlining a 3-part plan that will solve 3 big challenges the U.S. has put off for decades. He called it a "blueprint for the future":

1. On Energy - "We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before."
2. On Health Care - "The cost of health care eats up more and more of our savings each year, yet we keep delaying reform."
3. On Education - "Our children will compete for jobs in a global economy that too many of our schools do not prepare them for."

Once again we have a President of the U.S. that is giving some hope that a better future is both possible and is already in the works.

Consumer Confidence All-time Low, Stocks Rise Sharply

American consumer confidence hit a historic low today. Or at least so says a survey.

(Background: The Conference Board reported today that its February consumer confidence index fell to a historic low. The survey is based on a sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS, a very large Dutch media company.)

How low is confidence? The # cited in the survey is 25, in 1985 it was 100.

Another survey of sorts, the stock market, rose sharply this afternoon. The Dow Jones Industrial Average rose 3.5% (and climbing) as of around 3pm Eastern Time (US). Yes, that's a huge turnaround from yesterday.

Was there any other news? Yes, one thing, Fed Reserve Chairman Bernanke said he doesn't think banks should be nationalized even though the biggest among them (Citi and Bank of America) are worth less than the billions the U.S. government gave them as part of the TARP plan.

Mr. Bernanke had no other solution to offer.

So what's going on here? Answer: no one really know. Sure there will be a lot of talking (heads) on CNBC and Bloomberg and headlines in tomorrow's newspapers about the stock market rebound, but there really is no reason for enthusiasm. The insolvent banks are still insolvent and there is no solution on how to make them healthier.

“The measures taken by the Federal Reserve, other U.S. government entities, and foreign governments since September have helped to restore a degree of stability to some financial markets.” - Mr. Bernanke

With what can only be called "irrational exuberance" Mr. Bernanke's comments seems to be following in the footsteps of his predecessor - blind belief in the ability for things to work themselves out.

Still Holding Stocks? Financial Advisers Now Say Selling Not Bad Idea

"But if you see your portfolio shrinking, there comes a point somewhere between comfortable retirement and needing to eat dog food where your circumstances tell you to stop the bleeding."

- Quoted in in SF Chronicle business column

After years and years of telling average investors to stay in the market, the financial advising community has now started to change its tune. It's a little late for that.

DHL Pullout Sends Ohioans to Food Lines

The German global shipper, DHL, is shuttering the Airborne Express operations it purchased in 2003 (source: Wikipedia). The impact to the community is devastating.

The DHL and Wilmington Ohio story was profiled by 60 Minutes.

Other multinational corporations are or will be doing the same in the months ahead. Because of trade pacts such as NAFTA there are limited to no protections for workers.

Here's a quote from a former DHL worker from the 60 Minutes site:

"Most DHL employees are contracted (75-80%) Most of us didnt get sevrence [sic] packages or any help when we got laid off. We didnt get help at having and opppertunity [sic] to have some one come in and help us into another trasition [sic] to another job. We worked for years, like myself, 8+ years with no holiday pay,no insurance,abd [sic] working on a salary. Most people would ask why stay at a job with no benefits,etc?? Because we loved what we did." - Posted by needwork2 Jan 28, 2009

There is a project co-sponsored by Ohio State University and The Times-Gazette that will track the impact of this closing. To share your story contact them at: southernohiovoices@gmail.com.

[Image: Skip Peterson/Associated Press)

Will the Stimulus Bill Create Jobs?

"Technology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant."

- Saul Hansell, Bits columns, New York Times

Saul's quote is from an article he wrote on whether the money going into rural broadband building as part of the $787 billion stimulus package will create jobs.

I think the answer depends on smart industrial policy - something the U.S. does not have and is the only industrial country that does not. It was not always the case.

U.S. industrial policy at one time built the telephone system, Social Security system, interstate highway system and Internet superhighway. It is also what the U.K. recently announced as part of "Digital Britain". And what France announced in bailing out its domestic car makers. The reason the U.S. doesn't have a smart industrial policy is because of almost 3 decades of unbridled free market economics also know as Reaganomics.

Free market economics as practiced by the U.S. is now dead. It has ruined the global economy thrown millions out of work and destroyed prosperity. All hope now rests on the Obama government or more accurately on Obama himself. His job is to convince Americans that a new way must be charted. It will not be easy. He is off to a good start.

As I'm writing this blog the U.S. stock market fell in intra-day trading to the 7200 level today. That's 7,000 points off the 14,165 all time high reached on October 9, 2007. Lot's of people have made money during this fall; their names end with with "Madoff" and "Stanford".

[See chart above.]

Speculators have existed from the days of the Silk Road. But today crooks and their accomplices have caused more harm to the lives of millions of people than any natural disaster. It doesn't have to be this way.

A smart policy about how to spend the $787 billion can direct money into job creation and arrest job loss. Governments as far away as France, China and Singapore know how to do this. Surely we can too.

The stimulus money can create jobs, but it needs a smarter more well-coordinated industrial policy to accompany it.

Obama Gets Real About Money for Homeowners

It's understandable if you were puzzled after reading the stories about the $787 billion stimulus bill signed into law by President Obama. You might have been thinking "where's the beef?"

Simply put, that plan is not for you. And by you I mean middle class Internet readers. The $787 billion plan is for folks who are in dire need of a safety net. They've lost their job, health care insurance and home. The $787 billion plan offers monetary help to the most vulnerable.

But today President Obama announced a new plan which applies to middle class, home-owning America. Today's $75 billion plan is intended to prevent home owners from sliding into foreclosure.

The plan has 3 components:

1) Get your home refinanced. If you are making payments on a home that is worth less than the value of the home, and the load is owned or guaranteed by Fannie Mae or Freddie Mac, you can get it refinanced.

Example: 30-year fixed rate mortgage of $207,000 with an
interest rate of 6.50% on a house worth $260,000 at the time. Today, $200,000 is remaining on the mortgage. But the value of that home has
fallen 15 percent to $221,000. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2) Stay in your home, stay out of foreclosure. The plan helps people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners.

Example: Household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400.

3) Stabilize the residential mortgage market. $200 billion of additional financial backing was announced for Fannie Mae and Freddie Mac so that they remain solvent.

Rubble & Dust Marks the End at Shea, Citi Stands in the Wake

After 45 years Shea Stadium came down in New York City today. In it's place is "Citi Field". . . at least for the time being.

I had a special connection with Shea - I saw my first baseball game there in the early 1980s.

Citi in its current incarnation was created by Sandy Weill in 1999. Who thinks it will be around for another 35 years?

[Image from NYT.com]

Greenspan: Nationalize the Banks . . . US Auto Next?

“I understand that once in a hundred years this is what you do.” (Read more.)

- Alan Greenspan, former U.S. Federal Reserve Chairman

OK, read that one more time.

Folks, we have entered a new era. The problems US banks created are so big that no amount of throwing money at the problem is helping. And we're talking about a lot of money being thrown, $8.5 trillion and counting.

If we're going to nationalize the banks, then why not US car companies who are threatening to layoff 25,000 American workers? I think the French got it right in setting a zero layoff policy in return for government funds. When are American voters going to wise up?

“Renault and PSA have also committed not to close any production sites for the duration of their loan and to do whatever they can to avoid layoffs.”
- French President Nicolas Sarkozy

U.S. Treasury Says Banks Refuse to Increase Lending

Some of the largest recipients of aid from the government's $700 billion financial-rescue plan didn't increase lending to consumers and businesses in the last three months of 2008, the Treasury Department said.

Read more.

The Lost (Bush) Decade

"The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001."

- Paul Krugman, Nobel Laureate

Read more.

"Buy American" is Good for America

I use to think that the "buy American" chant was just uniformed jingoism. But I've come to see the nuance and to see that it might just be the thing to save American jobs.

Some history: I remember all through the 1980s American commentators and so-called economic experts were decrying Japanese auto makers as taking away American jobs. They had worked workers all across the country into a frenzy and in Detroit it led to the death of an Asian-American who happened to be on the wrong street that day.

Japan of course wasn't the problem. Japanese auto makers were taking what they had learned from Americans and were putting it into practice, something Americans themselves weren't doing all through the 1980s. Instead we were practicing Reganomics, now discredited except for some ultra right-wingers.

These commentators were wrong then and they are wrong now to oppose it. "Buy American" wasn't the answer to our problems back then, our lack of productivity and investment was, but "buy American" might just be the right thing today.

I'm of course taking about the "buy American" clause that is part of the economic recovery (or stimulus) package being debated in Congress right now.

What has changed is that our decades-long experiment with free trade has revealed one undeniable truth: the U.S. market is second to none and every country needs to sell to Americans to grow their own economy. Ask any non-U.S. CEO and they'll tell you that in order to be successful today, you have to sell in the U.S. Or just go look at the monthly trade imbalance; we buy more from others than we sell to them.

So why are editorial pages, such as my home town paper the "SF Chronicle" railing against the "buy American" provision in the bill? Because they represent the mouthpiece of American business and American CEOs want access to any and all markets for cheap labor and to sell services. These same CEOs aren't concerned with creating American jobs.

If our own government doesn't "buy American" goods and services then we have no hope of reversing the trend of Amercian CEOs throwing Americans out of work.

BlackBerry Executives Caught with Thumbs in the Till

This just in: CEO fraud from Canada. According to "The Wall Street Journal":

"Research In Motion Ltd.'s co-CEOs and other executives have agreed to pay nearly $75 million to settle charges tied to their role in stock-option backdating at the BlackBerry maker."

Is is any consolation knowing that financial embezzlement is not the exclusive purview of U.S. CEOs?

Treasury Department paid $254 billion for $176 billion of assets

Today Elizabeth Warren, chairwoman of the Congressional Oversight Panel examining the Troubled Asset Relief Program, or TARP, testified with some bad news for taxpayers: “Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value."

But that's good news for Wall Street firms. Now we know how they managed to pay out billions in bonuses.

“In the rush to do something, it isn’t always justified or wise simply to do anything."
- Elizabeth Warren commenting on the $76 billion gone missing.