Geithner's Gift To Pimco

Geithner's Heist America Plan is receiving words of self-serving praise from Pimco's Bill Gross. Indeed, Geithner�s Non-Recourse Gift Keeps on Giving to Bill Gross.

Treasury Secretary Timothy Geithner�s plan to rid banks and markets of devalued assets may be a boon for Pacific Investment Management Co.�s Bill Gross.

The plan may reward investors with 20 percent annual returns on �really toxic� mortgages bought at 45 cents on the dollar by allowing them to borrow six times their money with �non-recourse� government-backed debt, New York-based Credit Suisse Group AG analysts Carl Lantz and Dominic Konstam wrote in a March 27 report. That loan would be worth 15 cents to an investor seeking the same return who can�t use borrowed money.

�This is perhaps the first win/win/win policy to be put on the table,� Gross, co-chief investment officer of Newport Beach, California-based Pimco, said in an e-mailed statement last week.

Geithner�s plan may already be working. Top-rated commercial-mortgage bonds rose 5.6 percent since March 20 to about 79 cents on the dollar on average, according to Merrill Lynch & Co. indexes. The most-senior class of benchmark 2005 securities backed by fixed-rate Alt-A home loans, or those ranked between prime and subprime, increased about 12 percent to 54 cents as of March 31, according to Deutsche Bank AG.

Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, said in an April 1 interview that the distribution of half of the profits to the investor �does bother me.�

�But even beyond that, what bothers me even more is it�s taxpayer money,� Bachus said. �What you are doing is artificially inflating the price of those assets because at the present prices the financial institutions won�t sell them.�

�Taxpayer Loses�

Nobel prize-winning economists Paul Krugman, a professor at Princeton University in Princeton, New Jersey, and Joseph Stiglitz, a professor at the Business School of Columbia University in New York, blasted Geithner�s plan for putting the taxpayer on the hook for losses with what they say is little likelihood of success.

�The Geithner plan works only if and when the taxpayer loses big time,� Stiglitz wrote in the New York Times this week. �With the government absorbing the losses, the market doesn�t care if the banks are �cheating� them by selling their lousiest assets, because the government bears the cost.�

Krugman wrote in the Times last month that �Obama is squandering his credibility� with the plan.

�We intend to participate and do our part to serve clients as well as promote economic recovery,�� Pimco�s Gross said in the e-mail.

I seldom agree with Krugman but Obama is indeed "squandering his credibility�. And Stiglitz certainly nails it with �The Geithner plan works only if and when the taxpayer loses big time.�

Thus we must be careful to evaluate what Gross means when he says �This is perhaps the first win/win/win policy to be put on the table.�

Previously I proclaimed Geithner's Plan Can Succeed. However, "success" must be defined in terms of the plan's goals.

The Plan: Dump $500 billion of toxic assets on to unsuspecting taxpayers via a public-private partnership in which 93% of the losses are born by the taxpayer so that bondholders are made whole.

Yesterday, More Ugly Details Emerge On "Geithner's Heist America Plan"

The whole scheme is not really a bidding process at all but rather backroom political dealing by the "Good Ole Boys" on how to split the pie.

Pie Splitting Rules

1) Bail out the banks at taxpayer expense
2) Do so at the least possible cost to the major bondholders (not the taxpayer)

The more players (hedge funds, etc.) one ads to the backroom poker game, the harder it is to accomplish rule number 2. This explains Geithner's steep rules for entry into the club.

Exclusive Invitation Only Club

And it's not just the small players excluded from the poker game.

I have it from a reliable source "They are excluding large (over $25 billion) hedge funds, who would have the sophistication and resources to look under the Kimono and declare with vicious authority that the emperor has no clothes."

They are very emphatically not letting in big boys who had not previously been foolish enough invest in this crap. They only want big boys with a vested interest in propping up bank bondholders.

The only way into the "club" is to have demonstrated prior foolishness in a major way, somewhere along the line.

Pimco Needs A New Name

�We intend to participate and do our part to serve clients as well as promote economic recovery,�� Pimco�s Gross said in the e-mail.

I think Pimco needs a name change. Does PimpCo work?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Subprime Financing Resumes at GMAC

GM sales are down 51%. GM is sitting on tons of inventory it cannot get rid of. What to do?

Please consider GMAC to resume car loans to subprime borrowers.

GMAC Financial Services said it will resume making car and truck loans to subprime borrowers and will lower inventory financing costs for cash-strapped auto dealers, part of a series of moves intended to spur sales at General Motors Corp.

The moves announced Wednesday come as the embattled automaker races to restructure and get customers back into its showrooms amid growing risk that it will be pushed into bankruptcy by the Obama administration.

GM, whose U.S. sales plunged 51 percent in the first two months of this year, also began rolling out a program that will cover some payments for customers who lose their jobs after buying a car, an incentive intended to bring back shoppers worried about job security amid the recession.

GMAC, which provides financing to many GM vehicle buyers, said it would make at least $5 billion of credit available to customers over the next 60 days, a period during which GM has to prove to U.S. officials it can win sweeping concessions from bondholders and its major union.

The finance company plans to resume accepting finance applications from car and truck buyers who have credit scores below 620, a line dividing prime borrowers from less creditworthy subprime borrowers. The median U.S. credit score is 723, according to Fair Isaac Corp's myFICO unit.

Zombies Continues To Haunt

GMAC is a failed corporation. It should have gone under. Instead, the Bush administration kept this zombie corporation alive long enough to haunt taxpayers under the Obama's regime.

Flashback Monday, December 29, 2008: Paulson's $6 Billion Foot In The Door Play

The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., the latest step in the government�s widening effort to keep the largest U.S. automaker out of bankruptcy.

Treasury said it will purchase a $5 billion stake in GMAC, and lend $1 billion to GM so the automaker can participate in a rights offering at GMAC to support the lender�s reorganization as a bank holding company. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

U.S. plans to ease GM into bankruptcy

Inquiring minds are reading U.S. plans to ease GM into bankruptcy.

The Obama administration is seeking to ease General Motors Corp into a "controlled" bankruptcy by persuading some creditors to agree to a plan that would divide the company into two pieces, the New York Times reported on Wednesday.

Citing people briefed on the matter, the Times said the plan is to push GM into a structured bankruptcy "somewhere between a prepackaged bankruptcy and court chaos," using taxpayer financing for leverage.

Plans are still under discussion and details are subject to change, the report said.

Desperation At GMAC

As long as "plans are still under discussion and details are subject to change" GMAC has nothing to lose and everything to gain by resuming subprime financing. Taxpayers are going to foot the bill for this complete nonsense, but from the point of view of GM and GMAC, subprime financing makes perfect sense.

This is exactly the kind of economic stupidity one should expect to see when government interferes in the market.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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The transformation of a room.

This post could also be titled:

How to work with 25-foot ceilings.
OR
How to work with a paint color on 25-foot ceilings that you now hate.

OR

How to work with a sofa you bought waaaay too fast you now can't stand.

OK, so let's move on. Remember when I showed you how to cut and install molding here? Well, this is what I was working on:

This wall goes up reeeeeally high, and when we moved in, I knew I had to do something economical to decorate it. I didn't want to spend one meeeeeellion dollars (thanks Jennifer!) on a massive art piece, so I ended up painting a huge rectangle on the wall and hung some vases in it.

We loved it at first and then the room was just blah. Big massive sofa that didn't work with the wall color. Big massive wall that didn't work with the sofa color:
So I got a bunch of brilliant ideas and spent just $3o to do a mini-transformation in the room. I added a little bit of molding to the rectangle and moved the vases around. I knew I needed something else to give the furniture more height. So I made a sofa table out of planks of wood. (It was incredibly easy, I'll show you how to do it soon!) It was just what the room needed:

I covered the "sofa table" in fabric and found accessories from the basement. Later I made new curtains and added the pillows, pulling in some more color. Pulled the ficus tree from the dining room for some more height:

Well, the ficus tree would practically devour anyone who sat near it. I have Christmas party pics of our friends shooing it out of their hair. It had to go. And all the sudden, EVERY TIME I saw those vases and flowers, I wanted to rip them off. the. wall. They were driving me mad.

So what's a girl to do on the cheap?? Add more molding!:

For just a few bucks, it created a whole new look in the room. I also removed the fabric covering the sofa table and just painted the wood instead. Again, I pulled from around the house and the basement to make the accessories work better: Before: After:

The wall color is still driving me nutzo and the sofa is OH-so-comfortable but a couch cover is calling my name. But we really, really love this room now.

This is something I cannot stress enough -- I think making a room you absolutely love can take a lot of time. This transformation has taken five years and I'm sure I'm not done yet. You have to live with it, see what works, what doesn't -- before you find the happy ending.

How To draw Manga Character in comics panel quick process

How To draw Manga Character in Panel Frame. This video show you how to quickly sketch, then paint or color over, and finish color Manga sequent panel in no time. This is part of my sequential panel of the comics project I am making. :)

A few key points in making comics panel works well.
-Drawing & Composition (of course, does it reads well)
-Action (what is the character doing or what's happening?)
-Expression & Emotion (if there are dialogue or interaction going on)

Quote of the day:
�Color is an inborn gift, but appreciation of value is merely training of the eye, which everyone ought to be able to acquire.� John Singer Sargent

Here is a final color sketch:

Here is Step by Step process how to draw Manga Character quick comic panel
1)


2)


3)


4)


5) Done sketching



Watch video tutorial: drawing Manga character in comics panel


New Drawing Video tutorials:
-How to draw comics background forest
-Environmental Concept Granite Beach
-Transformers 2 Meagan Fox Speedpainting
-Drawing Watchmen Character Silk Spectre
-Learn how to draw Watchmen character: Nite Owl
-Drawing Wolverine basic comics style

FEATURE TUTORIALS:



-Draw and Paint Women Body Tutorial I: Female Manga Fusion I
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-Character Design Tutorial: Dark Valkyrie

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ADP Reports March Nonfarm Private Employment Decreased 742,000

Nonfarm Private Employment Decreased 742,000 according to the March ADP National Employment Report�.

Nonfarm private employment decreased 742,000 from February to March 2009 on a seasonally adjusted basis, according to the ADP National Employment Report�. The estimated change of employment from January to February was revised down by 9,000, from a decline of 697,000 to a decline of 706,000.



Highlights

• Total Nonfarm employment fell by 742,000
  
• Service sector employment fell by 415,000.
• Employment in the goods-producing sector declined 327,000, the twenty-seventh consecutive monthly decline.
• Employment in the manufacturing sector declined 206,000, its thirty-seventh consecutive decline.
• Construction employment dropped 118,000. This was its twenty-sixth consecutivemonthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,135,000.

Sharply falling employment at medium and small-size businesses clearly indicates that the recession is spreading aggressively beyond manufacturing and housing related activities.

Medium Businesses Leading The Decline



The above chart, 4th in a series of 5 interesting charts (click on the first link above to see all the charts) shows that medium sized businesses, defined as 50-499 employees are now leading the decline in jobs lost as of summer 2008. Small sized companies (1-49) employees were hanging very tough until July 2008. That is no longer the case.

ADP vs. BLS

Here is an interesting chart showing ADP vs. the official BLS statistics.



click on chart for sharper image

The chart can be customized for date ranges and type of employment, at least in theory. I cannot get any parameters to work other than what shows on the link above.

ADP was tracking the BLS numbers very close until July 2008. Since then ADP reported losses have been way larger than the BLS numbers. However, that does not seem to be reflected in the chart. This could be due to back revisions. I am attempting to get an answer from ADP.

Small Business Report

The ADP Small Business Report notes the following breakdowns.

� Total small business employment: -284,000
� Total medium business employment: -330,000
� Total large business employment: -128,000

�Large businesses, defined as those with 500 or more workers, saw employment decline by 128,000, while medium-size businesses with between 50 and 499 workers declined 330,000. Employment among small-size businesses, defined as those with fewer than 50 workers, declined 284,000. The sharp employment declines among medium and small-size businesses indicate that the recession continues to spread aggressively beyond manufacturing and housing-related activities to almost every area of the economy.�

Look for another grim employment report on Friday, perhaps in the range of 600,000 to 800,000 jobs lost. This will be the 15th consecutive months of jobs lost with no end in sight.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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More Ugly Details Emerge On "Geithner's Heist America Plan"

The Wall Street Journal has more details on Geithner's Heist America Plan (GHAP). Please consider Treasury's Very Private Asset Fund.

The Obama Administration insists it wants to "partner" with private investors for its new toxic-asset purchase plan. But the more details that emerge, the more it seems Treasury wants to work with only a select few companies. This is no way to conduct a bank clean-up.

The investment community was already suspicious last week when Secretary Timothy Geithner unveiled his plan, announcing that Treasury would select four or five companies as "fund managers" to purchase toxic securities. Given that the whole idea is to create a liquid market for these assets, we'd have thought Treasury would encourage as many players as possible.

But the bigger shock was when Treasury released its application to become a fund manager, a main rule of which is that only firms that already have a minimum of $10 billion in toxic securities under management can apply. Few hedge funds, private equity players or sovereign wealth funds come near this number. The hurdle would bar many who specialize in the very distressed assets that the Obama Administration is trying to offload from banks.

Hedge Fund Intelligence recently estimated total assets under management at Avenue Capital Group at $16.4 billion, King Street Capital at $15.8 billion, Fortress Investment Group at $13.7 billion, and Elliott Associates at $12.8 billion. Presumably, the portion of these portfolios devoted to toxic assets is significantly smaller. "It's difficult to imagine why most firms would even bother to apply now," one hedge fund manager told us.

Treasury rules also say the $10 billion limit must be comprised of commercial and residential mortgage-backed securities that are "secured directly by the actual mortgage loans, leases or other assets and not other securities." This is another way of saying that they must be "first tier" assets, for instance collateralized debt obligations (CDOs). But what many private players instead deal in are "CDOs squared" or CDOs secured by other CDOs, which would not count toward the requirement. This, too, will make it harder to take part in the program.

While dozens of banks and insurance companies today hold more than $10 billion in toxic securities, the vast majority are trying to get these assets off their books -- not lining up to buy more. As for asset management firms that hold such a big portfolio -- and are also healthy enough to serve as fund managers -- there is only a small pool, such as Black Rock, Pimco, Goldman Sachs or Legg Mason, as well as a titan or two of the hedge fund industry, such as Bridgewater.

"This is ugly," says Joshua Rosner, the managing director of Graham, Fisher & Co., an independent research firm.

Ugly Indeed

Let's review the nature of the plan. If you have not yet done so, please read Geithner's Plan Can Succeed.

Geithner does not want a fair bidding process, nor does he want to arrive at a fair market value of assets. Rather, Geithner does want to avoid a hit to bondholders, at seemingly any taxpayer cost.

The Real Plan
Here is the real plan that now seems odds on to succeed.

The Plan: Dump $500 billion of toxic assets on to unsuspecting taxpayers via a public-private partnership in which 93% of the losses are born by the taxpayer.

Blatant Lies From Geithner

Geithner's two statements below are blatant lies.

1) �The investors are taking risk, their money is at risk and at stake�

1R) The reality is the investors at "PIMROCK" who participate in this plan will be reducing risk. They are willing to take a 7% hit by overbidding on toxic assets in order to guarantee payout on $trillions of bonds.

2) Allowing investors to leverage their money with government contributions and guarantees �is a relatively conservative structure,� similar to when an individual obtains a mortgage to buy a house.

2R) The reality is that Geithner's plan is NOT a "relatively conservative structure". Geithner's plan is a purposeful attempt to dump trillions of dollars worth of toxic assets right into taxpayers' laps, just to bail out the banks that got us into this mess.

The new details simply suggest that Geithner wants to avoid a bidding war between "PIMROCK" and other hedge funds. This clearly helps "PIMROCK".

Ironically, this helps taxpayers too as the smaller number of bidders, the less taxpayer risk there is.

The Big Boy's Club

Remember that banks can refuse the bids. And remember that the big boys involved are all aligned in one goal: To dump $500 billion of toxic assets on to unsuspecting taxpayers to bailout both the banks and the bondholders.

The whole scheme is not really a bidding process at all but rather backroom political dealing by the "Good Ole Boys" on how to split the pie.

Pie Splitting Rules

1) Bail out the banks at taxpayer expense
2) Do so at the least possible cost to the major bondholders (not the taxpayer)

The more players (hedge funds, etc.) one ads to the backroom poker game, the harder it is to accomplish rule number 2. This explains Geithner's steep rules for entry into the club.

That the backroom process is actually better for taxpayers than a full bidding war would be, is just a happenstance side artifact of the plan.

Addendum

Here is an anonymous comment that came in that I happen to agree with.

"I have a theory why they're limiting the number of players and it's NOT to help the taxpayers. Its to prevent non-bank bondholders from looking under the Kimono. Imagine if they allowed smaller investors to bid. They'd want to take a look at the quality of the assets. What happens if they take a look and scream bloody murder? The bad bank's credibility would be shot.

So by limiting it to the big boys club, you keep the illusion that the assets are worth something (since the big boys have all the incentive to trump up the value to rescue their bond positions)."


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Commercial Real Estate Limbo; Lenders Ignore Defaults

There is a new twist in commercial real estate action today. Lenders are ignoring defaults of $billions on commercial real estate as if nothing happened, praying that credit conditions will improve.

Please consider General Growth Avoids Chapter 11.

General Growth Properties Inc., struggling under a mountain of debt, said Monday that its latest effort to win a reprieve from bondholders had fallen short.

Under normal circumstances a company with as much past-due debt as General Growth would have been forced into Chapter 11 bankruptcy protection by now. Creditors so far have been willing to let deadlines pass because they believe there is little to be gained and much to be lost through a bankruptcy.

"This is really rare," said Kevin Starke, an analyst at CRT Capital Group LLC, a research company that tracks distressed securities. "It is corporate-bond limbo like I've never seen before."

Many creditors say that General Growth's management is doing a good job running the company. Its 200 U.S. malls, a portfolio second in size only to Simon Property Group Inc., generate enough cash to cover interest on the debt. But its properties are overleveraged and it lacks the borrowing capacity to retire those debts as their principal comes due.

"There's no question that General Growth is a liquidity issue," said Jeff Spector, an analyst with UBS AG. "The properties, for the most part, aren't broken."

My Comment: Jeff Spector, UBS AG analyst is dead wrong. This is not a liquidity issue. This is solvency issue. The properties are indeed broken. They are broken by debt.

There is more debt on those properties than can possibly be paid back. No one will possibly buy them for the amount owed. And every day that passes the value of those commercial properties sinks. Bondholders are only delaying the inevitable.

General Growth, based in Chicago, isn't the only real-estate borrower that is getting a reprieve from its lenders these days. Hundreds of property owners have had loans come due without a repayment made in recent months. But most lenders have agreed to extend loan terms, hoping that the credit market will improve.

Australian shopping-center owner Centro Properties Group, which owns 650 U.S. open-air shopping centers, last year sought one short-term extension after another.

Finally, in December, after nine extensions, it averted a liquidation by agreeing to eventually grant its lenders 90% of its stock in exchange for two and three-year payment extensions on $7 billion of debt.

My Comment: Boom, just like that, Centro lost 90% just to get a debt extension of 3 years.

To be sure, General Growth may still be forced to seek bankruptcy protection soon. Trying to dig out from under $27 billion in debt, the company until this month has had the relative luxury of negotiating primarily with dozens of banks on more than $4 billion of past-due debt and debt that could become due because of other defaults.

General Growth became even more vulnerable after a March 16 deadline passed for repaying $395 million in bonds. Now, rather than dealing only with several dozen banks holding past-due debt, General Growth must negotiate with hundreds of bondholders. Some holders bought the bonds at face value and are hoping for a recovery. Others bought the bonds at depressed prices and might want to force a liquidation to receive a quicker payout.

My Comment: Any bondholder hoping for recovery is delusional.

On Monday, General Growth said that it concluded efforts to get holders of $2.25 billion of bonds to grant it a nine-month reprieve from paying principal and interest on those bonds. It had three times extended the deadline on its so-called "consent solicitation" because not enough bond holders signed up.

In exchange, General Growth offered the bondholders quarterly payments of 62.5 cents for every $1,000 of bonds, with interest accruing. But that offer wasn't accepted because many bondholders were unwilling to forfeit their ability to demand immediate payment for nine months, these people said.

The result is an unusual situation in which borrowers have allowed the due date for corporate bonds to pass without the issuer either paying them or filing for bankruptcy protection. Often when a company defaults on corporate bonds, bondholders will force an involuntary bankruptcy petition.

A person familiar with the bondholder talks said that, while some creditors are angry, none appears ready to insist on an involuntary bankruptcy petition yet. It is possible that bondholders didn't go along with the consent solicitation primarily because they feared that making such a pledge would reduce the value of their bonds.

Credit Market Hope Is Moot

The lenders are hoping that the credit market will improve. I have news for them: It won't.

Moreover, even if credit does free up, what is the likelihood that General Growth Properties can meet their debt schedule?

The value of that property is sinking every day while debt due and interest on the debt due is rising every day. No lenders will refinance if the debt exceeds the value of the property. Therefore, bondholder hope for improved credit conditions is moot.

A forced bankruptcy is coming either sooner or later.

Time Limit On Limbo

Many regional banks are at risk over ludicrous deals like this. Indeed, huge writeoffs are coming, not just on this property but on countless commercial real estate properties.

What ridiculous mark-to-fantasy values are the creditors placing on this debt anyway? Creditors' reluctance to force bankruptcy suggests far too much.

However, the debt clock is ticking and creditor patience is not unlimited. There is a time limit on limbo. I suspect we are going to find out what that limbo time limit is sooner, rather than later.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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