Tuesday, April 1, 2008

Debt Rattle, April 1 2008

Updated 4.35 pm EDT

Ilargi: This is brilliant. Hold that thought, stop the presses, throw out whatever you were doing, and most of all stop reading websites such as this one, if you know what’s good for you.

Then take all your money, borrow 10 times as much on top of it, and invest it in banks that just a few hours ago posted multi-billion dollar losses. It’s all good!! It’s a new world out there, and nothing will ever be the same. We’ve beaten the mold: in the Bulgaria Model, even losers are winners.

U.S. Stocks Rise in S&P 500's Best 2nd Quarter Start Since 1938
The U.S. stock market posted its best start to a second quarter in 70 years after Lehman Brothers Holdings Inc. and UBS AG said they are raising $19 billion to replenish capital, spurring speculation that banks can weather further credit losses.

Lehman rose for the first time in seven days and UBS sparked a rally in Europe on expectations that financial firms will recover from $232 billion in mortgage-related losses. The AMEX Securities Broker/Dealer Index advanced the most since March 18. General Electric Co. and United Technologies Corp. led industrial shares higher after the Institute for Supply Management's manufacturing index contracted less than forecast.

"The market's getting a little more comfortable that the crisis is over," said Henry Herrmann, president and chief executive officer of Waddell & Reed Financial Inc. in Overland Park, Kansas, which manages $65 billion. "It's a rally associated with the presumed elimination of survival risk."

The Standard & Poor's 500 Index added 47.48 points, or 3.6 percent, to 1,370.18, rebounding from the worst quarterly performance since 2002. The index hasn't gained more on the first day of the second quarter since a 4.8 percent rally in 1938. The Dow Jones Industrial Average climbed 391.47, or 3.2 percent, to 12,654.36. The Nasdaq Composite Index gained 83.65, or 3.7 percent, to 2,362.75. Almost 10 stocks advanced for every one that fell on the New York Stock Exchange.

The S&P 500 has risen 7.6 percent from a 19-month low last month on speculation the Federal Reserve's most aggressive reduction of interest rates in two decades will stem credit- market losses and spur banks to lend to businesses and consumers. The benchmark for U.S. equities lost 9.9 percent in the first three months of 2008, the steepest quarterly decline in more than five years, on increased concern that the U.S. economy is in a recession.

Asian stocks rebounded from the worst decline in two weeks and Europe's Dow Jones Stoxx 600 Index advanced 3.3 percent. All 10 industry groups in the S&P 500 gained. Lehman climbed $6.70 to $44.34 for the second-biggest gain in the S&P 500 after raising $4 billion from a stock sale. The firm increased the size of its offering of convertible preferred shares to 4 million from 3 million announced yesterday, saying demand "significantly" outpaced supply.

Ilargi: Excuse, me, but how can Bernanke in Congress be a “grilling”? He’s independent of government, and he’s not under oath either. He can say whatever he wants; who’ll hold him accountable? Certainly no politician has that power.

I don’t believe we are all clear on what the stakes are in this game, or who the players are, for that matter.

Bernanke Faces Grilling On Bear Rescue, Credit Crisis
Federal Reserve Chairman Ben Bernanke will go before Congress on Wednesday in his first public testimony since the rescue of Bear Stearns and the other central bank efforts to stem the credit crisis. Bernanke is scheduled to talk about the U.S. economy's outlook to the congressional Joint Economic Committee starting at 9:30 am New York time. The session will air live on CNBC.com.

The Fed chairman met privately with House Republicans on Tuesday, and participants said he steered clear of saying the country is in a recession. To try to contain the damage from the sickly economy, the Fed has aggressively cut interest rates to spur buying and investing by people and businesses. It also has taken a series of extraordinary steps to prop up the nation's financial system, which has been in danger of seizing up.

On March 16, the Fed backed a multibillion dollar lifeline as part of JP Morgan Chase's deal to buy out the troubled Bear Stearns. The central bank also -- in the broadest use of its credit authority since the 1930s -- agreed to temporarily let big investment firms secure emergency financing from the Fed, a privilege that previously had only been granted to commercial banks.

Those actions have prompted protests from Democrats and other critics, who contend that the Fed is bailing out Wall Street and putting billions of taxpayers' dollars at potential risk. Members of the Senate Finance Committee have asked for details of the Bear Stearns rescue, including a description of the assets the Fed will take on from Bear to allow the deal to happen, in order to judge whether the deal poses any risk to US taxpayers.

But the Fed's recent actions have also brought some praise. Bernanke, who was criticized for being behind the curve of the credit crunch for most if not all of 2007, has won high marks in recent weeks. “The Fed is riding the wave of financial instability and a threatening recession; it’s balance has been superb,” says Robert Brusca, chief economist at Fact And Opinion Economics. 

“Interestingly the Fed is being criticized both for going too slow and for cutting rates too low creating another new bubble,” adds Brusca. “I would point out that when critics say your policies are excessive in two different directions maybe those policies are just right.” “I think they walked the line beautifully,” PIMCO portfolio manager Paul McCulley told CNBC recently. “I thought Ben did a great job.”

Not all are enamored with Bernanke or ready to declare him a genius. “I remain unimpressed,” said economist Ram Bhagavatula, who’s managing director at the hedge fund Combinatorics Capital. Bhagavatula, who has previously said he’s been dumbfounded by the Bernanke Fed since early last fall, adds, “Fundamentally, the Fed is confusing liquidity provision and monetary policy.  The two are not the same.”  As a result he expects weak growth and nasty core inflation in the coming year.

Ilargi: It’s time for first quarter numbers, and the losses that need to be revealed with them. So far, I doubt we’ve seen much reality reflected in the reports. But how surprising is that, when the SEC encourages companies not to mark their assets to market? The truth will have to be uncovered by the marketplace, in the same way that Bear Stearns was exposed.

What stands out for me so far this week are the European banks. UBS is stuck in a deep swamp, as we already knew, and it announces more losses all the time. That Deutsche Bank starts reporting losses and write-downs is new, and comes just days after reports that it escaped the crisis.

The biggest revelation to date in this round may turn out to be coming from HSBC’s US unit HFC. $150 billion of uncovered debt is not pocket change. If it indeed files for Chapter 11, that could cause quite a shock.

Updated 12.45 pm EDT

Ilargi: And shares are up on billions of dollars in write-downs today. If we didn't know better, we'd suspect an April Fools prank, closely linked to Google's Custom Time announcement.

Public bailouts among options listed for G7
Steps as drastic as bank bailouts and mortgage repurchases with public money are among options the Financial Stability Forum could recommend to G7 powers to help stem financial markets crisis, according to a source contacted by Reuters and details revealed in London's Financial Times.

The Financial Stability Forum has yet to determine which of a list of ideas will be included in a final report it is due to submit to finance ministers of the G7 industrialized nations on April 11, an official at the forum's secretariat said. The source who spoke to Reuters, a person who was present at FSF discussions on the issue in Rome last weekend, confirmed that a range of ideas had been aired but that this did not mean they would all be acted upon.

“We are trying to work on specific and operational measures that will be presented to the G7 ministers in Washington,” the source, speaking on condition of anonymity, said. “It is still work in progress and the fact that we are discussing a measure does not necessarily mean we will implement it.”

According to the Financial Times, which said it obtained a copy of an FSF “options paper,” possible recommendations — the bulk of which were confirmed by the source as ideas which were being discussed — included:
• tax-funded recapitalization of banks
• outright public purchase of mortgage-backed securities
• getting a big group of the important banks to disclose simultaneously financial positions based on a “common template.”
• authorities could organize a consortium of long-term private investors to buy mortgage assets from banks, possibly with state “co-investment” or governments could buy assets outright
• supervisors could require that regulated banks “conserve financial resources”
• governments might want to “announce a co-ordinated operation to boost capital simultaneously in a number of institutions” with the help of public funds, to avoid stigma problems
• central banks could further expand their liquidity support operations, including expanding the eligible collateral and providing emergency liquidity support to troubled institutions

At the Swiss-based secretariat of the FSF forum, an official contacted by Reuters said the report was not yet complete and it was not possible to say which of the concrete proposals floated so far would feature in the final version.

Other FSF ideas discussed by envoys to that FSF meeting last Friday and Saturday in Rome, were, as follows, according to the Financial Times and double-checked with the source by Reuters:
• temporary suspension of capital requirements
• temporarily suspending capital and reporting rules that tie prudential requirements to market values of securities.
• regulators could be allowed to temporarily change capital rules under Basel II supervision rules to allow trading assets to be treated as available-for-sale, reducing their impact on capital calculations.
• regulators could temporarily relax regulatory capital minimums wholesale, or suspend accounting rules for some assets

On the last point, the Financial Times said a source it spoke to said the FSF nevertheless feared could “damage market confidence.” The FSF, liaison point for governments, banks, supervisors and regulators, is headed by Bank of Italy governor Mario Draghi and met for discussions last weekend in Rome.

Ilargi: Here's another old joke:
A1: The Financial Stability Forum is nothing but a group of rich guys with one thing in mind only: get richer.
A2: If a "solution" to the current crisis contradicts that, A1 always prevails.

B1: Before ABS CDO’s can end, the existing ones need to be unwound. No word from the boys on how that will be done. But, referring back to A1, rest assured it will cost you.

What a sick joke this is becoming. It's time to wake up from your apathy, or they'll take everything you own away.

Finance experts see end of ABS CDOs, says BIS
Financial market experts expect continued weakness for the structured credit market and think the market for asset-backed security collateralised debt obligations (ABS CDOs) could disappear entirely, a report published by the Bank for International Settlements said on Tuesday.

The Joint Forum of international bank supervisors, securities commissions and insurance supervisors -- which is chaired by U.S. Comptroller of Currency John C. Dugan -- presented this view to the March meeting of the Financial Stability Forum, said the BIS.

"The structured credit market is likely to survive, but will remain weak for a period of time," the BIS said in a summary of the Joint Forum's report. "Their assessment of the prospects for 'multi-layer' securitizations was less optimistic, and a common view was that the market for ABS CDOs would either shrink dramatically or disappear," the BIS said.

The Financial Stability Forum, which is hosted by the BIS and chaired by Bank of Italy chief Mario Draghi, is due to present a report on the recent financial market turmoil later in April.

Ilargi: Meanwhile, moving from Wall Street to the man in the street, no elevated spirits anywhere in sight. Sure, maybe there were less pick-ups sold because of gas prices, and March ‘08 had two less selling days that ‘07.

Still, Ford, GM and Chrysler are far too deep in debt to qualify as “going concerns” under normal circumstances, and the numbers get worse fast. However, ditching them means huge negative -political- publicity, which means losing votes.

If I were a betting man, and I could find a bookie to take the bet, I’d put money on Washington dropping Detroit like a hot cinder, somewhere between Nov 4, 2008, the election of the next president, and Jan 20 2009, when (s)he will be sworn in. How about two days before Christmas? That way, both the old and the new president can claim it didn’t happen “on their watch”.

GM, Toyota, Ford Report Double-Digit Declines in March Sales
The U.S. auto industry, already struggling early in 2008, was hit hard again in March, with General Motors Corp. reporting a 19% skid in U.S. sales of cars and light trucks. Toyota Motor Corp., which is battling GM for the title of world's No. 1 auto maker, reported a 10% decline, while Ford Motor Co. had a 14% drop.

Slumping consumer confidence and persistent turbulence in the economy had set the stage for March to be one of the toughest months in what is expected to be the industry's toughest year in at least a decade. Meanwhile, high gasoline prices continue to cut deeply into demand for traditional sports-utility vehicles and pickups.

"This is a very challenging external environment, reflecting a seismic shift in consumer preferences," said Jim Farley, marketing and communications vice president, in prepared comments. "These conditions will likely persist in the near future."

Shares Surge on Bank Write-Downs
Only on Wall Street can billion-dollar bank losses be a good thing. Stocks started off the second quarter with a rally on Tuesday as investors weighed a fresh round of mortgage-related write-offs at UBS and Deutsche Bank, two of the world’s largest financial institutions. Shares in all three major indexes finished slightly higher on Monday.

But despite the discouraging numbers — $19 billion in write-downs at UBS and nearly $4 billion at Deutsche in the first quarter alone — investors hoped that the bad news could signal the last of Wall Street’s subprime woes.
By early Tuesday afternoon, the Dow Jones industrials had advanced about 300 points. The Nasdaq composite index was up 2.67 percent at 11:50 a.m.

The Standard & Poor’s 500-stock index gained 2.58 percent on the strength of a surge in shares of financial services firms. Lehman Brothers, the bond insurer MBIA and the mortgage giant Fannie Mae — stocks that have suffered painful losses in recent weeks — were among the index’s biggest gainers.Markets in Europe closed higher. The FTSE 100 in London gained 2.64 percent. The CAC 40 in Paris rose 3.38 percent and Germany’s DAX increased 2.84 percent.

“It’s psychological,” said Richard Sparks, a senior analyst at Schaeffer’s Investment Research. “When a company comes out and writes down more, it leads people to believe that they’re being forthright.” “We’re hoping that we are closer to the end than the beginning,” he added.

Adding to the good feelings in the financial sector, Lehman said that it sold $4 billion of preferred stock in a move to dispel a swirl of rumors about its stability. Shares of the brokerage jumped 10 percent. The triple-digit swing in the Dow extends the volatility that has rocked stock markets in recent months, as jumpy investors react quickly, and with extreme, to even incremental developments in the tight credit market.

“Each big move we have is almost all coming out of news from that sector,” Mr. Sparks said. The S.&P. 500 just finished one of its most volatile first quarters since the Great Depression. The Dow has swung more than 100 points in seven of the last 11 sessions.

And though some observers will take Tuesday’s rally as a sign of recovery, this type of investing strategy does not have a good track record. Last fall, as Citigroup became one of the first Wall Street firms to acknowledge its mortgage-related assets had lost billions of dollars in value, markets rallied in the hopes that the worst was over. The Dow has since fallen 11.6 percent from its October high.

Analyst sees 200,000 U.S. banking jobs at risk
Analysts at financial research firm Celent say the U.S. banking industry will lose 200,000 jobs over the next 12 to 18 months.

The head of Celent's financial consultancy unit says the job cuts will occur as the subprime crisis hits other parts of the banking industry.

Octavio Marenzi said Tuesday that staff reductions were inevitable as the U.S. economy weakens further.

Ilargi: When Bear Stearns crashed, the overall impression was that Lehman Bros. would be next in line. I predicted Merrill Lynch and Citigroup to be the weakest links in the feeble chain. Mike Shedlock, with whom I don’t agreed all of the time, just most, points out why Merrill is so weak.

I’m not sure about Morgan Stanley (NOT to be confused with JPMorgan&Chase). I think they have protection from somewhere. As for CIti, they are so big, it takes a dozen elephants, all gathered in one room, to topple it. Still, a sick behemoth is what it is.

Obviously, it’s hard to predict which stone comes down first, even if it’s a game of dominoes; it's not necessarily linear. Mish’ main point stands, no matter what, though: there will be a record demand for a record amount of bail-out private investment capital this spring, and it’s very hard to see where all that money should be coming from. One more thing: the next large one to push daisies might be UBS.

Slow Motion Train Wreck
Bennet Sedacca is asking Who Will Be Next Bear Stearns?
Without naming names quite yet, what would you think of a company that accomplished the following in 2007?
• Wrote down book value from $39 billion to $32 billion or from $41.35 to $29.34 per share.
• Increased shares outstanding from 868 million to 939 million.
• Increased Treasury Stock from 351 million to 418 million.
• Increased long-term borrowings from $147 billion to $201 billion.
• Increased preferred stock issuance from $3.1 to $4.4 billion.
• Increased Total debt to common equity to 2816.81%.

I could cite 20 or more similar financial ratios and they are all stunning.
Who is this firm? Merrill Lynch.

Some statistics on another potential bad bank:
• Wrote down book value from $35 billion to $31 billion or from $32.67 per share to $28.56 per share.
• Increased long term borrowings from $127 billion to $160 billion.
• Increased total debt to common equity to 2496.53%.
• Maintains an $88 billion position in Level 3 assets, or 283% percent of shareholder equity.

Who is this firm? Morgan Stanley.

There are only two solutions in my mind for what can happen to these firms. They can raise capital or sell themselves, perhaps for not very much.

The capital raises I foresee in the second quarter might be something for the record books. Fannie Mae (FNM) and Freddie Mac (FRE) may need to raise up to $20 billion this year through a combination of preferred, convertible preferred stock and equity to get their financial ratios into OFHEO compliance, as they are being asked to pick up the slack of the hundreds of mortgage lenders that have gone bad and the commercial banks that are now backing away from lending.

I just read a news story where UBS may need to raise upwards of $16 billion. Merrill, BankAmerica, Wachovia, Morgan Stanley, HSBC (owner of Household Finance), and many others will not be far behind. How long will market participants be available to buy all of this new paper? My general take is not for long.

Fitch, and Moody's downgrade UBS
Fitch Ratings on Tuesday downgraded the long-term issuer default ratings of UBS (NYSE:UBS) AG and its subsidiary UBS Ltd. to 'AA-' from 'AA'. The outlook remains negative.

The agency also affirmed both issuers' short-term IDRs at 'F1+' and support ratings at '1', and UBS' individual rating at 'B' and support rating floor at 'A-'. Fitch's actions follow the announcement by the financial services giant that it will report write-downs its U.S. real estate positions of a further $19 billion.

'The scale of the Q108 net loss, together with still difficult market conditions, makes it a real possibility that the group may not report a full-year profit for the second consecutive year,' Fitch said in a statement. The negative outlook reflects continued uncertainty over future earnings, together with the challenges faced by a new management team in reshaping the group's investment bank in still-difficult operating conditions, the agency said.

Fitch noted that although the 'additional write-downs reduce downside risk from the group's U.S. real estate related positions, the residual exposures still represent a very high proportion of equity, even after adjusting for the expected capital increase. Of additional concern is the potential damage that may have been done to UBS's core private, wealth and asset management franchises as a result of negative publicity surrounding its U.S. real estate exposures.'

Separately, Moody's Investors Service downgraded UBS' financial strength rating to 'B' from 'B+' and its senior debt and deposit ratings to 'Aa1' from 'Aaa.' The ratings remain under review for possible further downgrade, Moody's said.

UBS to Write Down Another $19 Billion, Chairman Resigns
UBS, the largest Swiss bank, said on Tuesday that it would write down another $19 billion related to "U.S. real estate and related structured credit positions" and said Marcel Ospel, its chairman, would step down.

UBS said the write-down would result in a first-quarter loss of about 12 billion Swiss francs, or $12 billion, and that it would seek new capital of about $15 billion, in the second time it has announced plans to raise new funds since the credit crisis began.

The bank's board proposed that Peter Kurer, currently general counsel for the bank, take over as chairman, pending shareholders' approval at a meeting on April 23. The news came as Deutsche Bank, the biggest German lender, said Tuesday that it expected a first-quarter loss of about $3.9 billion on write-downs of United States real estate loans and assets. Global banks have now written down more than $200 billion of soured loans in the market debacle that began last summer with the implosion of the American subprime mortgage market.

UBS said the $15 billion rights issue was fully underwritten by a syndicate of banks, led by JP Morgan, Morgan Stanley, BNP Paribas and Goldman Sachs. "Based on what we've heard for the last few months, it's no surprise that a bank like UBS, with significant market exposure, is coming out with sizable write-downs," Folkert Jan Van der Veer, a banking analyst at Dresdner Kleinwort in London, said, adding: "If the markets remain difficult, you can't rule out that further write-downs will follow."

Van der Veer said the fact that the rights issue was fully subscribed meant that "capitalization remains relatively strong." UBS said its tier-1 capital ratio, a measure of financial strength, would stand at about 10.6 percent after the new capital infusion. In a statement, Marcel Rohner, the UBS chief executive, said that "the environment remains difficult, and while we are committed to further substantially reducing our exposures, we do not want to undertake sales of positions at severely distressed levels."

UBS has now written off a total of $37.1 billion, including the $18.1 billion in American-housing-related losses that it wrote off in the third and fourth quarters of 2007, Dominik von Arx, a UBS spokesman in Zurich, said.
UBS had a 12.5 billion-franc loss in the fourth quarter of 2007. Its shares are down about 58 percent over the last year but were up about 2.1 percent in early Zurich trading.

UBS said it had remaining exposure to the U.S. subprime market of about $15 billion, down from $27.6 billion on Dec. 31, while its exposure to so-called Alt-A positions declined to $16 billion from $26.6 billion. But it said its exposure to auction-rate certificates, another part of the market that has been hammered of late, had risen to $11 billion from $5.9 billion. Von Arx said that was because the bank had participated in unsuccessful auctions for the securities in January.

UBS and the case of the disappearing Alt-As
Remember that elusive rumour about UBS flogging its Alt-A portfolio. As the story bounced around the markets in March, UBS had supposedly sold more or less the entirety of its Alt-A portfolio to bond investor Pimco. The scary part was that, according to the whispers, the portfolio had been sold at 70 cents on the dollar, well below where it was being valued only a few weeks before.

The first glimpse at how UBS fared in the first quarter suggests that something did indeed happen within its Alt-A book. Subprime-related positions were reduced from $27.6bn to $15bn, a cut of about 55 per cent which could easily have come through straight writedowns. But Alt-A fell from $26.6bn to just $16bn, a 40 per cent drop. As the statement says:
These developments are the result of asset disposals as well as the effects of further writedowns.
With $19bn in total writedowns, it’s fair to say the bulk of the reduction came from the latter rather than the former. Assuming that the subprime writedown totalled close to the full $12.6bn, that leaves another $6.4bn to play with. How much of that could conceivably have hit Alt-A?

We haven’t seen more than token efforts to write down banks’ Alt-A portfolios thus far - Lehman Brothers, for example, actually increased its “prime and Alt-A” holdings from the end of November to the end of February. Deutsche Bank nevertheless on Tuesday ominously suggested that alt-A, among other things, might be the next shoe to drop.

Such a severe markdown by UBS on its Alt-A would be an outlier, suggesting that it has succeeded in shifting some of its exposure which so surprised investors when it was revealed in the 2007 results. The best investors can probably hope for is another relatively heavy writedown on the bank’s second-lien and non-AAA exposure, which amounted to about $5.4bn at the end of the year, and a modest chunk of the better stuff having left via the back door.

Pimco initially dismissed the tale back in March as an “exaggeration” before coming out with something more categoric in the way of a denial. And it always seemed unlikely that the bond house was going to pile a significant chunk of its assets into one trade. Someone though, seems to have been rummaging through UBS’s clearance bin.

HSBC rebel investor says US unit may need Chapter 11
A rebel shareholder in HSBC Holdings again urged Europe's biggest bank to sell its U.S. business, saying if it didn't the unit may have to file for Chapter 11 protection from creditors. Knight Vinke Asset Management (KVAM) has urged HSBC to sell or "ring-fence" its HSBC Finance (HFC) unit, which is largely made up of the Household business it bought for $14.8 billion in 2003.

The investor says HSBC's shares would be 200-300 pence higher if the bank didn't own the business. HSBC shares closed on Friday at 823 pence. KVAM, led by Eric Knight, renewed its criticism before HSBC releases its notice of issues this week for its 2008 annual shareholder meeting, to be held in May.

KVAM published a letter on its Web site on Sunday that it sent to Simon Robertson, HSBC's senior independent director, dated March 14. It said HFC carries too much debt and will require significant additional capital from its parent just to survive. "As of today, selling the business may no longer be possible on acceptable terms but it may still be possible to spin it off or otherwise 'ring fence' it," the letter said.

"If all else fails, then the best course of action may well be for HFC to file for protection from its creditors under Chapter 11. "We believe that HFC has an unsustainable business model and is structurally unable to support its $150 billion of debt," KVAM said in its letter, saying the business creates risk for the whole group. "In effect it adds very high credit risk to very high business risk."

Bad News From Deutsche Bank (But Not UBS Bad)
With struggling Swiss bank UBS taking up a large share of the spotlight Tuesday, Germany's Deutsche Bank picked a relatively good time to announce record write-downs on its loan portfolio.

The bank said Tuesday that it expected to take write-downs of 2.5 billion euros ($3.9 billion) in the first quarter, a figure higher than its write-downs for all of 2007. The write-downs are on leveraged loans, commercial real estate and mortgage-backed securities--all "principally Alt-A," according to Deutsche Bank, which means somewhere between subprime and AAA-rated risk.

Shares in Deutsche Bank rose 91 euro cents ($1.42), or 1.3%, to 72.64 euros ($113.57), during midday trading in Frankfurt on Tuesday. The European banking sector was up 2.5%, after Swiss bank UBS promised to raise $15 billion in new capital and push out its chairman as a result of its woeful performance.

"The size of the write-downs is certainly more than some people probably would have expected," said Dirk Becker, analyst with Landsbanki. He said Deutsche Bank had already prepared investors to some extent last month, when it warned that it might miss pre-tax profit targets of 8.4 billion euros ($13.1 billion) this year. A spokesman for Deutsche Bank refused to comment on whether Tuesday's announcement meant the bank would not meet its targets for 2008.

At a banking conference in London Tuesday morning, Deutsche Bank Chief Executive Josef Ackermann stressed that his firm delivered solid results in challenging market conditions. He said that the bank would continue to invest in acquisitions, maintain cost discipline and diversify geographically.

Taking into account bond insurance and index-based hedges, Deutsche Bank's net exposure to subprime loans is 1.2 billion euros ($1.9 billion); its exposure to "Alt-A" collateral is 500 million euros ($781.5 million). UBS, on the other hand, has around $16 billion worth of Alt-A assets.

Lehman raises US$4-billion of capital to quell rumours
Lehman Brothers Holdings Inc. sold US$4-billion of convertible preferred securities on Tuesday in an effort to dispel questions about the fourth-largest U.S. investment bank's stability. Lehman's shares surged 10.7% in pre-market trading to US$41.65 as the offering was seen as a vote of investor confidence in the firm.

The sale met with strong demand even after rumours of looming writedowns at Lehman have cratered the company's stock for weeks. Lehman has said in the past that it suspects that short sellers, who profit when share prices fall, are spreading rumors about the company to push its stock down.

Questions about potential writedowns at Bear Stearns Cos Inc. were enough to trigger a run on the bank there, forcing what was once the fifth-largest U.S. investment bank to sell itself for a fraction of its former value.

Lehman said the convertible preferred securities were priced with a dividend yield of 7.25%and their principal can be used to buy common shares at US$49.87, or a 32.49% premium to their closing price on Monday.

Citi and Merrill may seek new funds to plug losses
Merrill Lynch and Citigroup could become the latest investment banks to be forced into raising more capital from investors after both Wall Street lenders saw their first quarter profit estimates cut on rising mortgage-backed debt losses.

Citigroup is now forecast to write down $12 billion (£6 billion) in the first three months of 2008 on its portfolio of collateralised debt obligations (CDOs), which are pools of mortgage-backed assets. A further writedown would be in addition to the $18 billion hit the US banking giant took on its assets in the fourth quarter of 2007.

Merrill Lynch is expected to write down $2 billion on its CDO portfolio, adding to the $16 billion write-off already notched up by the bank. These latest writedowns would bring the total loss to the global banking industry from sub-prime related assets to about $210 billion. William Tanona, an analyst for Goldman Sachs, is forecasting that both banks will have to boost their balance sheets further by raising additional capital, despite Merrill Lynch already raising $12.8 billion through the Korean Investment Corporation, the Kuwait Investment Authority and Mizuho Corporate Bank.

Like other investment banks, Citigroup and Merrill Lynch have been able to take advantage of billions of dollars worth of funding made available by the US Federal Reserve as well as the opportunity to swap "toxic" mortgage-backed assets with America's central bank in an effort for US lenders to clean up their balance sheets.

Citigroup's writedown would give the bank a loss of $1.55 a share, up from the $1-a-share loss Mr Tanona had previously forecast. Mr Tanona to lower his first-quarter earnings forecast for Merrill Lynch from a 45 cent-a-share profit to a $2.45 a share loss.

Ilargi: I would say that perhaps the food stamps issue is most shocking for those of you who do not live in the US, for instance in continental Europe. I’m pretty sure that in that part of the world, a program like this would be seen as an indefensible insult.

USA 2008: The Great Depression
Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive – a sure sign the world's richest country faces economic crisis

We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.

Dismal projections by the Congressional Budget Office in Washington suggest that in the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s.

The increase – from 26.5 million in 2007 – is due partly to recent efforts to increase public awareness of the programme and also a switch from paper coupons to electronic debit cards. But above all it is the pressures being exerted on ordinary Americans by an economy that is suddenly beset by troubles. Housing foreclosures, accelerating jobs losses and fast-rising prices all add to the squeeze.

Emblematic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes. But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the country's economic health, food stamp usage may not be perfect, but can certainly tell a story.

Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one in eight residents of the state is on food stamps, double the level in 2000. "We have seen a dramatic increase in recent years, but we have also seen it climbing more in recent months," Maureen Sorbet, a spokeswoman for Michigan's programme, said. "It's been increasing steadily. Without the programme, some families and kids would be going without."

But the trend is not restricted to the rust-belt regions. Forty states are reporting increases in applications for the stamps, actually electronic cards that are filled automatically once a month by the government and are swiped by shoppers at the till, in the 12 months from December 2006. At least six states, including Florida, Arizona and Maryland, have had a 10 per cent increase in the past year.

In Rhode Island, the segment of the population on food stamps has risen by 18 per cent in two years. The food programme started 40 years ago when hunger was still a daily fact of life for many Americans. The recent switch from paper coupons to the plastic card system has helped remove some of the stigma associated with the food stamp programme. The card can be swiped as easily as a bank debit card.

To qualify for the cards, Americans do not have to be exactly on the breadline. The programme is available to people whose earnings are just above the official poverty line.

The US Department of Agriculture says the cost of feeding a low-income family of four has risen 6 per cent in 12 months. "The amount of food stamps per household hasn't gone up with the food costs," says Dayna Ballantyne, who runs a food bank in Des Moines, Iowa. "Our clients are finding they aren't able to purchase food like they used to."

And the next monthly job numbers, to be released this Friday, are likely to show 50,000 more jobs were lost nationwide in March, and the unemployment rate is up to perhaps 5 per cent.

Let the housing chips fall
The economic crisis enters a new and more dangerous phase daily, and Americans of all levels of economic sophistication are scrambling to make sense of the myriad remedies and proposals that are springing from Washington.

The Fed has slashed interest rates -- even in the face of inflation and a crashing dollar -- and conjured new mechanisms to inject cash directly into the financial markets, including the bizarre engineering of the Bear Stearns buyout. In addition, legislators and regulators have enacted, or are pushing through, measures that will place a moratorium on home foreclosures, suspend interest rate adjustments and compel Fannie Mae and Freddie Mac to buy more mortgages.

Further game-changing proposals are working their way through the think tanks and policy proposal pipelines: loan balance reductions, the suspension of "mark to market" accounting, direct federal mortgage purchases and, most bizarre, the suggestion of a Wall Street Journal columnist that the federal government buy and bulldoze the "least wanted" foreclosed homes. When lost in the details of these measures, it is easy to miss their unifying goal: pump cash into the market, encourage lenders to keep lending and, ultimately, stop home prices from falling. But try as they might, it won't work.

The government is worried for good reason. The value of the trillions of dollars of mortgage-backed bonds that course through the American financial system is a function of homeowners' capacity -- and willingness -- to repay their mortgages. To an extent not widely understood, this is all tied to home prices.

When prices rise, everybody can repay loans. Price appreciation builds equity, and that allows even overstretched buyers to refinance or sell at a profit -- so mortgage lending becomes nearly risk free. Defaults are rare, but if they do occur, banks reclaim houses worth more than the loan. When prices are falling, this process is reversed and lending to overstretched buyers becomes a losing proposition, no matter how low interest rates drop or how much money the government drops from helicopters. That's why banks have curtailed lending.

The government is trying in vain to get funds flowing again and put a floor under prices. But it's too late. U.S. home prices are like a beach house supported by eight pillars: lax lending standards, low down payments, "teaser" interest rates, widespread real estate speculation, pliant appraisers, willing lenders, easy refinancing and a market for mortgage-backed securities. Knock out even half of these pillars and the house comes crashing down. We've knocked out all of them. Yet everyone hopes that this allegorical house can defy gravity and that bubble-era prices can be sustained in a post-bubble world.

The voyage of the Economic Enterprise

To get a "feel" for how crazy things got, Ambrose Evans-Pritchard at The Telegraph in London reports that "Bear Stearns had total positions of US$13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in 'notional terms'."

If you are like me, you gulped in horror at the revelation that this one bunch of people had made that kind of a huge, humongous, staggering load of unimaginable, unpayable commitments! More than the total income of everybody in the country!
Mr Evans-Pritchard [..] says that the problem at Bear Stearns was that through using "swaps", "swaptions", "caps", "collars", and "floors", they were able to float $13.4 trillion of this weird financial derivatives crap, and that "this heady edifice of newfangled instruments was built on an asset base of $80 billion at best".

$13,400 billion was what was leveraged on a measly $80 billion? Leveraged 167 times? Bear Stearns had less than 1% in the pot? Hahahaha! This reminds me of Alan Stang at AlanStang.com, who writes, "Banking is one of the few businesses in which crime is rewarded; and the bigger the crime, the greater the reward. The perpetrators take down millions in bonuses and do not go to prison."

He added a nice swipe at Alan Greenspan, whom he describes as "former top Fed swindler", and then went on about how this little Greenspan creep "more than any other man got us into this mess; now he is telling clients in the Middle East to dump the 'dollar' and go to the euro".

And speaking of Greenspan and how I hate his guts for what he has done to my country, Bill Fleckenstein reminds us, "Greenspan bailed out the world's largest equity bubble with the world's largest real-estate bubble. That combination easily equates to the biggest orgy of speculation and debt creation the United States (and the world) has ever seen."

And if you want to see the significance of that, let's take a little tour through interstellar history! In my best "Captain Kirk of the Starship Enterprise" voice, I say, "Computer on! Computer, research the economic history of the planet Earth and all the planets in this galaxy, and find any instance of a healthy economic boom that started after 'the biggest orgy of speculation and debt creation' the planet had ever seen'!"

I will not ask the computer to look for examples of economies that WERE destroyed by such idiocy as engaging in "orgies of speculation" because it is, essentially, all of them. In fact, there are so many idiotic economies that experimented with fiat currencies and wild multiplications of debt by the banking system that merely listing them ties up the computer so long that Mr Spock comes over and tells me, with that damned, dry "logical" voice of his that sets my teeth on edge, that I am hogging all of the computer's time and how he needs it to plot some stupid course to slingshot us through a wormhole or something to get us out of the Neutral Zone that I accidentally wandered into because I was distracted by my duties as captain of this starship.

It could have happened to anybody! And it has nothing to do with the fact that I had ordered all the "good-looking chicks in the quartermaster section to report to the bridge", and now Mr Spock is acting like our predicament is all my fault, and I am really, really getting so sick of his snotty Vulcan attitude and his stupid reports to Starfleet Command.

The point is we are indeed screwed because we engaged in what Mr Fleckenstein calls an "orgy of speculation and debt creation" of world-record proportions, and since the pain is usually proportional to the gain, get ready to say "ouch!" in a really, really loud voice to give Mr Spock's stupid big ears something to listen to!

It's time to rein in the Fed
The important yet subtle point in the current saga is that the "system" has devolved to the point where Bear Stearns, teetering on the edge of bankruptcy, was in effect able to tell the Fed: You can't hurt us anymore, but we can hurt you if the deal collapses, so we demand more money. (Which Bear got a week ago, when JPMorgan Chase raised its takeover bid.) Meanwhile, the bondholders (lenders) were made whole -- as the Fed, through its assumption of debt, coughed up roughly $250 per BSC share.

Obviously, folks are depending on a continuation of the Greenspan put. During the roughly two decades of former Fed Chairman Alan Greenspan's watch, bailouts became bigger and bigger -- as the Fed tried to solve the problems created by too much easy money with more easy money. All of these "lessons" have been absorbed by current Fed chief Ben Bernanke. Perhaps he is even more outrageous, given his apparent intent on taking to the nth-degree a policy "perfected" by his predecessor: trying to target the right interest rate to run the world and then bailing out whatever trouble ensues.

Under the current Fed chairman, the central bank's modus operandi has changed. Not only has the Bernanke Fed strayed far from its long history of supplying liquidity to just AAA government credits, but, via JPMorgan, it is basically setting up an LLC (a limited-liability corporation, similar to a special-purpose investment vehicle) to hold the dreck that almost ruined Bear Stearns.

It's a structure similar to the off-balance-sheet financial instruments that caused so much pain for so many other financial institutions in the first place. All of this proves the old saw that fact is stranger than fiction. Or, said differently, you can't make this stuff up.

The Dollar and the Credit Crunch
In 2007-08, the crash in housing and the implosion of over-leveraged hedge funds, special investment vehicles and so on, has increased counterparty risk in most financial transacting. Illiquid financial institutions cannot effectively bid for funds by putting up suspect private bonds or loans as collateral. Unsurprisingly, there is a "flight to quality" that increases the private domestic demand for Treasurys. But this is happening at a time when the flight from the dollar in the foreign exchanges has greatly reduced their supply.

This increased demand coupled with a fall in supply helps explains why, in the midst of a U.S. credit squeeze with higher interest rates on private financial instruments, nominal interest rates on U.S. Treasury bonds have fallen to surprisingly low levels. Despite substantial ongoing U.S. price inflation of 4.3% in the consumer price index and 6.4% in the producer price index, Treasury yields are less than 1% on a three-month bill, 1.32% on a two-year note, and 3.5% on the benchmark 10-year bonds. There are even reports of effectively negative nominal yields on certain very short-term Treasurys. The real yield on Treasury Inflation Protected Securities has turned negative. (See chart.)

So we have a paradox. Despite the financial turmoil in the U.S. and its government's not-so-strong fiscal position, with huge contingent liabilities for guaranteeing private and public pensions as well as bailing out failing banks, its credit standing has strengthened. The fact that the U.S. government can market Treasury bonds at insultingly low interest rates at least provides an argument for using fiscal stimuli -- such as the $160 billion tax rebate passed in February 2008 -- to prop up the sagging U.S. economy.

Beginning on March 27, the Fed offered to lend banks and bond dealers as much as $200 billion of Treasurys from its own portfolio for up to 28 days, in return for a variety of collateral. The Fed was responding to complaints from dealers of a shortage of Treasurys in the interbank markets, but without recognizing that the root cause was the flight from the dollar in the foreign exchanges.

In the 1970s under the dollar standard, episodes of a weak and depreciating dollar led to monetary explosions in foreign trading partners, with world-wide inflationary consequences. Now, the inflation threat to the U.S. could be aggravated if foreign central banks intervene to prevent their currencies from appreciating too fast and overly expand their money supplies.

Stabilizing the dollar in the foreign exchanges and encouraging the return of flight capital to the U.S. will require two things. The first is to convince the U.S. Federal Reserve that continually cutting interest rates and expanding the U.S. monetary base is not the appropriate response to today's credit crunch; rather it triggers a vicious cycle. The Fed responds to the credit crunch by cutting interest rates, which would be the seemingly correct textbook strategy if the economy were closed and the foreign exchanges could be ignored.

But the economy is open, and capital flies out of the country. Because of the unique position of the U.S. at the center of the world dollar standard, the drain of Treasurys -- the prime collateral in impacted credit markets -- exacerbates the credit crunch, and monetary expansion abroad worsens world-wide inflation. The Fed then further expands in response to the tightening of U.S. credit markets.

The second component of a strong dollar policy is more direct action on exchange rates. At the very least, China bashing as a means to force dollar depreciation against the renminbi should end. The U.S. government should also cooperate with central banks in Europe, Japan, Canada and elsewhere to stabilize the sinking dollar.

The best solution to the current crisis is to stop the flight from the dollar. This would be beneficial beyond relieving the drain of Treasurys and relaxing the crunch in American credit markets. Letting the dollar depreciate without any convincing action to secure its long-term value against other major currencies undermines confidence in the dollar's long-term purchasing power. It also lets the inflation genie out of the bottle, and makes a return to 1970s-style stagflation look imminent.

Lobbyists, Small Banks Attack Paulson Plan
Small banks, state officials and others began an assault on the Bush administration's sweeping plan to overhaul the nation's financial regulatory system. Their criticism presages the long fight between regulators, financial institutions and a host of others if the proposals become legislation.

"It reads like amateur hour and it's because none of those guys ever worked in a regulated, chartered bank," said Camden Fine, president and chief executive of the Independent Community Bankers of America, a Washington trade group representing small banks, referring to the authors at Treasury. "A bunch of guys from Wall Street decided this was going to be their proposal."

Treasury Secretary Henry Paulson on Monday formally announced calls for consolidating bank regulation, creating a new type of insurance charter, improving the oversight of mortgage lending and allowing the Federal Reserve to peek into more corners of finance. The scope of the proposals and lobbying by the industries affected make quick action unlikely. But they come amid widespread concern over the state of financial markets, and some industry observers said that means anything can happen.

Large financial-services companies have had a seat at the table as Treasury crafted its plan, and many welcomed some of its broad principles, such as streamlining regulation. But groups such as Mr. Fine's community bankers, representing the smaller end of the spectrum, hold considerable sway in Washington. With members in nearly every congressional district, they are vital to the success of the plan.

Other groups expressing early opposition include credit unions, which are concerned that a single depository regulator would force them into a structure dominated by traditional banks. Smaller banks fret that creation of a single banking regulator will favor the desires of their bigger competitors. State prosecutors complain that a proposal to create a national insurance regulator would substitute their vigilance with weak federal oversight.

Mr. Paulson said he anticipated criticism but cautioned against describing his proposals -- which he called "the blueprint" -- as either trying to build up or tear down regulation. "Those who want to quickly label the blueprint as advocating more or less regulation are oversimplifying this critical and inevitable debate," he said. "The blueprint is about structure and responsibilities, not the regulations each entity would write."

The proposals come as regulators and lawmakers are considering other measures to tackle the housing mess. Mr. Paulson said Monday's blueprint wasn't meant to solve the housing crisis. The Treasury Department has other short-term initiatives focused on ways to stabilize financial markets.

Almost any of the proposed changes would have to be authorized by Congress, which could be a problem given initial reaction from Democrats. House Financial Services Committee Chairman Barney Frank (D., Mass.) said almost none of them could happen this year because lawmakers need to focus on housing-market problems. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) called the proposals a "wild pitch." Republican lawmakers were more supportive, but the consensus appeared to be that a long process was ahead.

States attorneys general contend that the Paulson proposals will usurp their enforcement powers, particularly over the insurance industry. The proposals include calls for a federal insurance charter that would allow big insurers -- which are currently regulated by the states -- to more easily operate nationally.

A Nervous Wall St. Seems Unsure What’s Next
“A year ago, we were told the problems were in subprime, ” said David Rosenberg, chief North American economist at Merrill Lynch, “and what is becoming increasingly apparent is that the participation in the credit bubble was far greater than just that.”

So while the Fed is easing credit, the markets are reluctant to follow suit. Banks are hoarding cash and are wary about lending money, even to one another. Part of the banks’ unwillingness to lend reflects their own weakened condition, analysts say.

As a result, mortgage rates remain higher than they might be, at around 5.9 percent for a 30-year loan. The rate at which banks borrow money from other banks in the London market, a widely used reference rate for short-term loans, rose to 4.47 percent on Friday, its highest level since December.

Bond investors, the linchpins of the credit markets, are on edge, too. Many want to buy only the safest debt. Investors are demanding a premium of about 1.8 percentage points over United States Treasuries on mortgage bonds guaranteed by Fannie Mae, the giant mortgage business. While that spread — a measure of the risk that investors perceive in the Fannie Mae bonds — has narrowed since early in the month, it is up sharply from a year ago.

“Banks’ appetite for risk has totally disappeared,” said Peter Gumbel, a mortgage broker in Greenwich, Conn. “Regardless of how much the Fed lowers rates, banks just can’t price in enough of a premium to want to take a risk on some loans.” Borrowers with less than stellar credit scores or those trying to finance expensive houses are still struggling to get mortgages, Mr. Gumbel added.

The Fed has reduced the benchmark short-term interest rate seven times since September, lowering it by a total of three percentage points, to 2.25 percent, and has made tens of billions of dollars available to Wall Street banks at low rates.

Yet that has not been enough to spur trading in arcane yet large arenas like collateralized debt obligations, which are pools of loans, and auction-rate securities, which are debt obligations typically issued by municipalities and nonprofit institutions on which the rates are set at regular auctions. Nor have the Fed’s moves squashed market rumors that another Wall Street firm, Lehman Brothers, could face the kind of bank run that toppled Bear Stearns.

Japanese recession closer as optimism wanes
Japan could be forced to further cut its 0.5 per cent interest rate to stave off recession after new figures revealed business sentiment among manufacturing executives is at a four-year low. The Bank of Japan's quarterly Tankan survey of business optimism found that many companies are looking to scale down spending on new equipment and factories, raising fears that Japan’s recovery could stall.

Economists believe that it is now invetiable Japan will experience a mild recession and have forecast that worsening conditions could prompt the BoJ to cut its interest rates, which have been on hold at 0.5 per cent for more than one year. The Tankan survey found that confidence among manufacturers tumbled to 11 in March from 19 in December, slightly worse than market forecasts for a figure of 12.

This was the lowest poll result since a reading of plus 7 in December 2003 and was the second straight quarterly decline. Glenn Maguire, the chief Asia economist for Société Générale, said that there were now no bright spots in the Japanese economy and that investment interest was likely to be muted. Mr Maguire said: "After stoical resistance in the latter half of 2007, Japanese corporate sentiment re-coupled with economic reality."

UK: Millions face threat of new mortgage rise
Millions of households that have so far been protected from the credit crunch could be hit with higher mortgage bills after NatWest and Kent Reliance became the first lenders to increase repayments for existing customers.

NatWest, one of the country’s biggest lenders, will raise rates for thousands of customers with a variable rate offset mortgage from 6.2 per cent to 6.45 per cent tomorrow. The increase also affects customers with the same deal from its parent company, Royal Bank of Scotland.

Borrowers with loans linked to Kent Reliance’s standard variable rate, including those on discount deals, have also learnt that their rates are rising. The building society is putting up its standard variable rate by a quarter of a percentage point from 7.34 per cent to 7.59 per cent today. The increases are the first time this year that mortgage rates have jumped for existing borrowers.

Brokers are worried that more lenders will follow, as the borrowing crisis, which has already resulted in a raft of rate rises for new customers, shows no sign of abating. Although there are hopes that the official Bank rate could come down as early as next week, the cost of borrowing in the money markets, where banks and building societies raise funds, remains high.

David Hollingworth of broker L&C said: “Given that the Bank rate is expected to fall you wouldn’t normally expect rates for existing borrowers to rise. But in these uncertain market conditions you can’t really count anything out.”

RBS launches buy-to-let mortgage cull
Royal Bank of Scotland and Natwest are to increase the minimum size of deposits that landlords must pay from 15 to 25 per cent of a property's value from the end of today. The banks, which previously lent up to 85 per cent of a buy-to-let property's value, said the move was a defensive measure to try and protect the service whilst they are receiving record volumes of mortgage applications.

The decision is the latest in a string of similar moves by lenders who are trying to reduce their exposure to risk in the wake of the credit crunch, and at a time when house prices are falling. However experts said the move is effectively a withdrawal from the buy-to-let market, as the majority of landlords borrow more than 75 per cent. The average loan-to-value for a buy-to-let mortgage is 76 per cent, according to Legal & General.

Landlords have found it increasingly difficult to obtain finance since liquidity problems began to affect lenders in the second half of last year. The number of buy-to-let mortgages on the market has fallen by 63 per cent since the credit squeeze began, from 2990 in April last year to 1116, according to Moneyfacts.co.uk.

Jonathan Moore, of Mortgages for Business, the buy-to-let broker, said: "The credit crunch has meant fewer organisations are lending because securitised lenders are having difficulties securing funds at a competitive enough rate to re-enter the market. This means the lenders remaining are receiving a higher number of applications and as result have been lending in elevated volumes.

We view these measures as a short term mechanism to lessen the volume of applications there are receiving, allowing them to achieve lending volumes they are more comfortable with” The rising costs of buy-to-let investment have already been felt by some landlords. Repossessions of buy-to-let properties have increased by 20 per cent in the last three months of 2007, according to figures from the Council of Mortgage Lenders.

KKR dives after mortgages exit deal
Shares in buyout firm Kohlberg Kravis Roberts plunged 6.2% after the company announced a deal to exit its mortgage-related business. The move comes two weeks after Carlyle Capital hit the wall after lenders called in their loans and seized its mortgage-backed assets.

KKR Financial will hand over collateral in the form of AAA-rated residential mortgagebacked securities to holders of its debt. In exchange, they will cancel about $3.5bn (£1.76bn) of commercial notes. The company will take an additional charge of $5.5m on top of the $243.7m it has already written off on the business.

KKR Financial will also sell 20m shares using the proceeds for general purposes and to repay debt as well as 'opportunistic investments'. KKR - headed by Henry Kravis, one of the most powerful figures on Wall Street - last month delayed payment on millions in loans and opened debt restructuring talks with creditors.

Arabs' Dollar Doldrums Fail to Shake Central Bankers
Central bankers in the Middle East are proving the U.S. dollar's decline to record lows is a small price to pay for the loyalty -- and oil money -- of their biggest Western ally. The governor of the Saudi Arabian Monetary Authority, Hamad Saud al-Sayari, called the dollar a "good buy" when it fell to $1.55 a euro on March 12. The United Arab Emirates, conceding to U.S. pressure, will keep the dirham tied to the currency, a U.A.E. central bank official speaking on condition of anonymity said March 17.

While a booming economy has pushed the average rate of inflation to above 7 percent in Saudi Arabia and the five other Gulf Cooperation Council members, none say they will follow Kuwait and resolve the problem by ending their fixed exchange rates to the dollar. That's because doing so may spark a new dollar crisis, said Simon Williams, the chief Gulf economist at HSBC Holdings Plc in Dubai, a move that would slash the value of their $500 billion of assets denominated in the currency.

"The Gulf states may be decoupled from the U.S. economy, but they are still shackled to the dollar," Williams said. "While they recognize the shortcomings of the status quo, policy makers seem minded to maintain it, at least for now." The survival of the pegs shows how hard it is for major economies to break from the dollar, regardless of its 13.4 percent decline on a trade-weighted basis in the past 12 months. Saudi Arabia keeps the riyal fixed at 3.75 to the dollar by purchasing or selling the greenback with the local currency.

Some homes worth less than their copper pipes
Shards of broken glass outside the basement window of 31 Vine Street hint at the destruction inside the three-story home. Thieves smashed the window to break in and then gutted the property for its copper pipes -- a crime that has spread across the United States as the economy slows and foreclosed homes stand empty and vulnerable.

"They cut it here and then pulled it right out of the wall," real estate broker Marc Charney said, pointing to broken plaster near a wrecked baseboard heating system in the 2,774-sq-ft home in Brockton, Massachusetts, a working-class city of 94,304 people. Similar stories are unfolding nationwide as a glut of home foreclosures coincides with record highs in the price of copper and other metals.

Real estate brokers and local authorities say once-proud homes coast-to-coast are being stripped for copper, aluminum, and brass by thieves. Much of it ends up with scrap metal traders who say nearly all copper gets shipped overseas, much of it to China and India.

In areas hit hardest by foreclosures, such as the Slavic Village neighborhood of Cleveland, Ohio, copper and other metals used in plumbing, heating systems and telephone lines are now more valuable than some homes.

"We're in an incredibly unfortunate time where the nonferrous metals commodities market for scrap is at an all-time high. Houses are getting stripped pretty quickly once they go through the foreclosure process," Cleveland city councilor Tony Brancatelli said.

"We're seeing houses sold for $100 that are distressed houses that should not be recycled," he said. Some boarded-up homes in his Slavic Village community have "No copper, only PVC" painted on the boards to stop would-be thieves. In Brockton, which suffered 400 foreclosures last year, blamed largely on predatory lending, and which is bracing for another 400 this year, Charney said the thieves inflicted about $15,000 of damage on the home on Vine Street.

"I had this property under agreement. We negotiated. The offer was accepted. The buyer came back to the property three weeks later only to find they had gotten in and stolen the copper, so we had to go back to the bank and renegotiate," said Charney, president of CharneyRealEstate.com. After haggling, the bank shaved $5,000 off the $105,000 price.

"The problem is there's almost no security. Does this look like anybody lives here?" he said, gesturing to the boarded-up home with chipped yellow paint and a "notice of foreclosure" letter affixed to its door.
"It's like a big billboard saying 'come and take me,'" he added. "It's an epidemic."

Insurers Faulted as Overloading Social Security
The Social Security system is choking on paperwork and spending millions of dollars a year screening dubious applications for disability benefits, according to lawsuits filed by whistle-blowers. Insurance companies are the source of the problem, the lawsuits say. The insurers are forcing many people who file disability claims with them to also apply to Social Security — even people who clearly do not qualify for the government program.

The Social Security Administration defines “disabled” much more stringently than the insurers generally do, so it rejects most of the applications, at least initially. Often, the insurers then tell their claimants to appeal, the lawsuits say, raising the cost. The insurers say that requiring a Social Security assessment is a standard practice and that there is nothing wrong with it.

The policies they sell allow them to coordinate their benefit payments with others to make sure no one is paid twice. Thus, if a disabled person can get benefits from somewhere else — like workers’ compensation, a disability pension or Social Security — the insurance company can reduce the benefit check by that amount. The flood of referrals, however, is making it hard for Social Security to respond to people who are truly disabled, said Kenneth D. Nibali, the former top administrator of the Social Security disability program.

“Anybody who is forced to come into this system, and who doesn’t need to be there, is affecting someone else,” said Mr. Nibali, who retired in 2002 and is serving as an expert witness for the plaintiffs. “They’re holding up cases for the people who have been waiting for months and years, who in many cases are much worse off.”

Already, the disability program is in much worse shape financially than the old-age portion of Social Security. It is projected to run out of money in 2026, 16 years ahead of the old-age trust fund. The disability caseload is also expected to grow as the work force ages, since recovery time increases with age. The number of people waiting for hearings on their claims by an administrative law judge has more than doubled since 2000, and the average wait has grown to 512 days in that time, from 258 days.

The Social Security Administration is not an active participant in the lawsuits and declined to comment on them. A spokesman, Mark Lassiter, said Social Security does not keep track of how many of its roughly 2.5 million annual applicants for disability are referred by insurance companies. But he cited academic research showing that 18 percent acknowledged privately that they were unqualified, because they could still work. “It is probable that many of these claimants were required to apply,” Mr. Lassiter said.

Fed Up: Foxes Charged With Guarding Financial Coop
President Bush has finally heard those of us who have been railing for financial reform, and putting Wall Street under what the Jamaicans once called “Heavy Manners,” a set of rules and regulations aimed at trying to stabilize the volatile markets and curb avaricious banks who have managed in less than a decade to bring a house of cards down upon themselves and the rest of us.

Suddenly in the run-up to April Fools day, and in rapid order, the ‘Lions of Legislation’ on the Hill, and the warring candidates on the campaign trail have discovered that the financial system is on the verge of collapse. “Do something” is the mantra, as a flurry of new “plans” displace old ones geared to fixing the mess.
In response, despite its obsession with surges and bombing Iraq back to its idea of “normalcy,” the White House says it now feels our pain and has decided to act. Well, at least, to let former Goldman Sachs CEO Hank Paulson, now our Treasury Secretary, (in the tradition of former Goldman Sachs exec Robert Rubin who followed the same career path) impose yet another new pacification plan.

Paulson has studied the crisis, studied it deeply, and realized the culpability of the brokers and the banks in engineering the disaster. His solution: kick the ball over to The Federal Reserve Bank. He’s enlisting the Fed foxes to guard a Wall Street chicken coop at risk from a dangerous form of bird flu. (The technical term is ‘greeditis” enabled by regulatory arthritis.)

He knows that most Americans — and most of the media — think the Fed is a neutral government agency with a public interest mandate. They think it has the expertise and the power to swoop down and save us from our misery, despite the fact that eights months of rate cuts and capital “injections” have failed to stem the contagion of collapse.[..]

The Fed is a private agency with no Constitutional authority run by bankers for bankers. It is a privately owned central banking system. Bankers sit on its many boards. The banks in turn get to borrow money at rates the Fed sets, and tack on interest and fees for loans. The Bank is there to do their bidding, and save them from themselves. When they run into trouble, they are often bailed out.

In fact, in its most recent “unprecedented” intervention to save Bear Stearns with monies leant to JP MorganChase through the NY Fed, it turned out that the President of JPM, Jay Dimon, sat on its board. It also appears that it was JP Morgan Chase really that had to be saved because it was so “entangled” with Bear. If you think this was a conflict of interest, think again. Self-interest seems to be their only interest.

Treasury Official Behind Finance Overhaul
When Assistant Treasury Secretary David Nason started working on a blueprint for overhauling U.S. financial market regulation a year ago, the issue was low on Washington's radar. Now, the plan that Mr. Nason and Treasury Secretary Henry Paulson hammered out over the past year promises to be a centerpiece of the debate on Capitol Hill and in the presidential campaign over how to respond to the financial-market mess.

"We're very excited that people are taking this seriously," said Mr. Nason. "They are recognizing it for what it's intended to be, raising the difficult issues, to start a debate about how to move this forward." Mr. Nason, assistant secretary for financial institutions at the Treasury Department, had kept a relatively low public profile until recently. A 37-year-old lawyer, Mr. Nason stands out in a Treasury hierarchy dominated by Wall Street veterans.

Within the past year, Mr. Nason has become more visible, going to Capitol Hill to plead Treasury's case for overhauls to Fannie Mae and Freddie Mac, the big, quasi-governmental mortgage entities, and negotiating with lawmakers over how to renew government-backed terrorism risk insurance.

About a year ago, Mr. Paulson assigned Mr. Nason and Robert Steel, undersecretary for domestic finance, to a team whose mission was to think about how to modernize U.S. financial regulation, before it was clear how much trouble would be caused by the collapse of the mortgage securities. The goal was to make U.S. financial markets more competitive with London and other overseas markets.

A team of Treasury officials, including Mr. Nason, examined several models, including the United Kingdom's solitary Financial Services Authority, which has oversight of stock, debt and futures markets, among others. Mr. Nason says he often spent Sundays at Mr. Paulson's home, at times with baseball games playing on the television in the background, kicking around ideas and exploring other models.

The blueprint announced Monday proposes five regulatory bodies, rather than the U.K.'s one. The bodies would focus on certain "goals" in areas such as risk management, consumer protection and market stability. Another key aspect of the plan is to enhance the role of the Federal Reserve in overseeing financial institutions. Mr. Nason says the plans aren't much changed from the ideas Treasury officials have been debating for months.

Despite the tumultuous events of the past few weeks, including the government-led rescue of investment bank Bear Stearns, "we didn't have to change it that much," he says. Mr. Paulson called Mr. Nason "a key adviser who is willing to take on tough issues and thoughtfully engage with an eye toward the long-term as we did in the regulatory blueprint."

Dr. Greenspan's Amazing Invisible Thesis
In all likelihood, Alan Greenspan has more honorary Ph.D.s than any living economist, which is no mean feat -- regardless of the chortling chorus of critics who suggest he played midwife to the first great economic crisis of the 21st century and thus is overly lionized as a financial genius.

He has honorary degrees enough to fill a fair-sized wall, including parchment from Yale, Harvard, Notre Dame, Colgate, Wake Forest, Pennsylvania, Edinburgh (Scotland). The Doctor-Doctor also received an honorary knighthood in 2002 at Balmoral from Queen Elizabeth II. Sorry to say, this accolade did not come with a suit of armor.

Greenspan, who left the Fed in 2006 but is still consulted as a genius, might find a metallic exoskeleton exceptionally comforting come May, when the University of Texas Press publishes an unflattering book by Robert Auerbach entitled Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank.

Auerbach, a veteran Fed basher, portrays Greenspan as a real-life Professor Marvel -- who, through double-talk or "garblement," transformed himself into a mighty economic wizard à la Oz. Auerbach strongly implies that Greenspan's 1977 Ph.D. from New York University was obtained in a few months with little more rigor than a matchbook-cover art degree and that Greenspan has kept his Ph.D. thesis secret in order to protect his vaunted academic reputation.

Although Auerbach's evidence is circumstantial, it certainly is provocative. For years, NYU told the public that, at Greenspan's request, the thesis was locked away from public view in a vault at its Bobst Library. Auerbach himself was told this in January 2004 when he tried to obtain a copy.

"Normally," writes Auerbach, "a Ph.D. dissertation in a field such as economics must be in a form sophisticated enough to be usable in research, must make a contribution to the existing body of knowledge, and must be original, unpublished work. When approved, the Ph.D. candidate is normally required to supply a bound copy of the dissertation, which remains in the university's library and is available for future researchers to consult."

Auerbach, who has a Ph.D. in economics from the University of Chicago (Nobel laureate Milton Friedman was his thesis adviser), kept requesting access to the papers until NYU's provost, David McLaughlin, finally admitted in August 2005 that, "I can tell you that it was the practice of the business school, during the 1970s, not to deposit dissertations with the library. Thus, a copy of Greenspan's dissertation is not in the Bobst Library. We suggest that you contact Greenspan directly in order to obtain a copy of his dissertation."

Writes Auerbach: "Evidently, he wanted me to believe that NYU business Ph.D.s just took their dissertations home and put them in a drawer." Auerbach says in a footnote that he made no request to Greenspan for a copy because "the publication of a scholarly addition to existing knowledge is the obligation of the university and the Ph.D. candidate."

Canaccord can't afford to buy out ABCP clients
Canada's leading independent brokerage would be "severely impacted" if it tried to buy back frozen asset-backed commercial paper it sold to retail clients, the chairman said in an e-mail to staff. While many of the other banks and investment firms involved in the market bought out their retail clients, Canaccord Capital Inc. has so far resisted, arguing it can't afford to. It says it is trying to put together a deal under which retail noteholders would see their losses reduced.

"Clearly, we are not in a position to buy our clients out," Peter Brown, Canaccord's chairman and founder, said in an e-mail to employees. "By any measure, we are more than adequately financed to conduct and grow our business. However, if we were to [make our clients whole], this would severely impact the regulatory capital required to do our business."

The note went on to advise staff that as a restructuring of the ABCP market moves into its final phase, Canaccord will likely become "the centre of media attention.... We will have another short period in the eye of the storm." Canaccord clients hold about $269-million of the frozen notes, while the firm has an additional $32-million on its own books. Over the past six months, the company's shares have lost almost half their value, closing yesterday down 25¢ to $9.80 in Toronto.

Investors angered by ABCP plan
Investor dissent has been mounting, with small holders threatening to kill the deal unless their brokers pony up enough cash to limit their losses. They have that ability, as each individual investor has one vote, the same as each of the 17 institutions behind the restructuring that between them own the bulk of the paper.

The anger of clients was palpable as investors -- who would lose their right to sue anyone involved by voting for the deal -- addressed Mr. Crawford and other advisors to a committee of large institutional investors that put together the restructuring without consulting the small investors. During one testy exchange Mr. Crawford said, "I feel I am being cross-examined here."

Hy Bloom, a businessman who is suing National Bank of Canada for selling him ABCP, said "my bank should not be allowed to take advantage under" a court-monitored restructuring process. "Why should my bank be off the hook? How could they sell me these things and how can we sit here and accept this settlement? It seems to me this is wrong. It's a flawed process."

As the Canaccord broker – who has since left the firm to join another investment dealer – listened, he said "these are concerns I've had for my clients as well. When he placed his clients in the ABCP he wasn't aware of the liquidity problem, saying "the way the product was explained to me by our bond desk, it was a Scotia product that was guaranteed by Bank of Nova Scotia's assets. I believe it was not well represented to the brokers, and the ultimately to the retail clients." He says he left in part because Canaccord didn't bail out its clients, as some dealers have.

Canaccord president and chief operating officer Mark Maybank confirmed a plan to compensate the firm's clients for losses is in the works, and "we continue to diligently work toward a solution. We intend to help our clients the best we can and we hope to have more definitive details in the near term."

Crawford feels investors' anger
Individual investors packed rooms in Montreal and Toronto yesterday to tell the committee of big holders that's pitching a restructuring plan for Canada's frozen $32-billion commercial paper market that there's a lot of work yet to be done before the plan will pass a vote that small holders will dominate.

The meetings were sometimes testy, and investors didn't hide their anger, but committee chairman Purdy Crawford said he understands that the ABCP holders aren't just “venting” – they have serious demands and they are willing to use their clout to achieve them. Those demands include being bought out at 100 cents on the dollar, avoiding losses that other, bigger investors may be forced to take.

“If you have a result you want to achieve, you can't sit around and say ‘this is nice,' you have to put the cards on the table,” Mr. Crawford said. He reiterated that he is “optimistic” a deal can be worked out to win the support of small investors and that “we're going to do what we can within reason” to help them.

There are believed to be more than 1,800 individuals stuck holding about $400-million of frozen paper, most of them clients of Canaccord Capital Inc., who can determine the fate of the restructuring plan because they far outnumber the big investors who negotiated the proposal. A vote will be held on April 25, and a majority of those who cast a ballot must be in favour of the plan for it to pass.

Canaccord is working on a plan to aid its clients, but nothing is settled, leaving the committee facing the prospect of heading west to Calgary and Edmonton today to confront yet more angry holders with no answers for their demands.
“I'm looking for a better solution than the one being offered,” Mark Wasserman, who put money into ABCP through Canaccord, said in an interview in Montreal.

Investors also took issue with the committee's presentation, which they said was tough to follow. “I found your presentation interesting but totally incomprehensible,” Sandy Currie, an investor who said he holds about $205,000 of ABCP, told Mr. Crawford's team in Toronto. “Take it home, show it to your wives, see if they understand it.”

Once again, the issue of releases that would absolve all players in the restructuring of any legal liability drew the ire of investors. “I am better off, in my mind, taking my loss today and exercising my legal rights against my bank,” said investor Hy Bloom, who attended both investor meetings yesterday. His two holding companies have filed a $12-million lawsuit against National Bank in Quebec Superior Court, alleging misrepresentation.

The meetings are being closely monitored by Ottawa. Yesterday, Liberal finance critic John McCallum said he had decided to postpone asking the House of Commons finance committee to hold hearings on third-party ABCP because he did not want to interfere in the process. One person at the Toronto meeting, who asked not to be named, suggested it's unfair that individual investors are able to jeopardize the plan.

The company he represents has more than $30-million in third-party ABCP, and most of that is in its pension plans.
“I do have sympathy for these retail investors, but I also think that it is important to note that the institutional investors largely represent pension plans … ,” he said in an e-mail reply to questions. “If the restructuring plan fails and assets are sold at 50 cents on the dollar (if we are lucky), Canadian pension plans stand to lose well over $10-billion. That's in the pension plans of ‘the average Joe,'” he wrote.


Anonymous said...

A friend of mine who follows your wonderful blog told me after the latest batch of news that she feels like she has been "Gang Bankstered" by the Wall St Boyz.

Unknown said...

In the Social Security disability lawsuit story, who is suing who for what? Where's the tort?

Ilargi said...


Whistleblowers, most probably from organizations representing "real" claimants, are suing private insurers for clogging up the system by insisting that those of their clients who file for -mostly temporary- disability, (also) file for Social Security, even when they are not eligible.

The insurers are trying to do what is the latest fad in the banking world: shift liabilities to the public sector. They must have had a certain measure of success, and "smell blood"; they likely think that they can succeed in this tactic, if they try hard enough.

Anonymous said...


I cannot make heads or tails of the sentence below.

"It would be nice if the regulars here would all commit to reading this when it is posted, the meeting an hour later at http://dailykos.com for a diary do by the userid "The Automatic Earth", and pumping the diary until it gets notice."

Commit to reading what?
Which meeting?
What is diary do?

Went to look at Dailykos, very nice, but clearer instructions would be helpful.


perry said...

Reported on CNBC an hour or so ago that Centex, one of the US' biggest homebuilders sold 8,500 pieces of as-yet undeveloped real estate across the country for an average "$0.17 on the dollar" - and was happy to get it!


Ilargi said...



I read through some of the items on Centex, and there's not much news there, in my view. I left a bunch of stuff on homebuilders out in the past few days, because it's all full of happy untruths still.

There's no doubt that ALL US homebuilders have been silently unloading land over the past months, at whatever price they could get.

As we said here last week, new home sales are down 29.8% year over year. I then said: "US HOUSING has COLLAPSED".

I noticed it's hard to see for people why that is so. After all, they think, it might rise up again as Lazarus did, but not even Jesus could resurrect this industry.

Homebuilders, like all other large companies, are leveraged to the hilt. And their assets can't fetch the prices anymore that are required to even just pay the interest on their leveraged loans.

While it will never cease to amaze me that there's still people who buy US real estate, there's not nearly enough of them "where's that one neuron I had left" geniuses remaining out there to support that industry.

Anonymous said...
This comment has been removed by the author.
Anonymous said...

Here are some phone numbers and fax numbers if you are so inclined to state your opinion about how Bernanke is spending tax dollars to bail out Wall St. There are meetings this week in which your opinions would make a difference.

Senate Banking Committee Phone and Fax Numbers

r_first | r_last | r_phone | r_fax | rep_state -------------+----------+--------------+--------------+----------- Richard | Shelby | 202-224-5744 | 202-224-3416 | AL Wayne | Allard | 202-224-5941 | 202-224-6471 | CO Christopher | Dodd | 202-224-2823 | 202-224-1083 | CT Tom | Carper | 202-224-2441 | 202-228-2190 | DE Mel | Martinez | 202-224-3041 | 202-228-5171 | FL Daniel | Akaka | 202-224-6361 | 202-224-2126 | HI Evan | Bayh | 202-224-5623 | 202-228-1377 | IN Jim | Bunning | 202-224-4343 | 202-228-1373 | KY Jon | Tester | 202-224-2644 | 202-224-8594 | MT Elizabeth | Dole | 202-224-6342 | 202-224-1100 | NC Chuck | Hagel | 202-224-4224 | 202-224-5213 | NE Robert | Menendez | 202-224-4744 | 202-228-2197 | NJ Charles | Schumer | 202-224-6542 | 202-228-3027 | NY Sherrod | Brown | 202-224-2315 | 202-228-6321 | OH Tim | Johnson | 202-224-5842 | 202-228-5765 | SD Bob | Corker | 202-224-3344 | 202-228-0566 | TN Robert | Bennett | 202-224-5444 | 202-228-1168 | UT Michael | Enzi | 202-224-3424 | 202-228-0359 | WY

You may also want to consider signing this petition:
Petition to Impeach George Bush

These efforts to maintain sanity in our financial markets are originating at /www.tickerforum.org

Anonymous said...

Maybe this will be formatted better:

r_first | r_last | r_phone | r_fax | rep_state -------------+----------+--------------+--------------+----------- Richard | Shelby | 202-224-5744 | 202-224-3416 | AL
Wayne | Allard | 202-224-5941 | 202-224-6471 | CO
Christopher | Dodd | 202-224-2823 | 202-224-1083 | CT
Tom | Carper | 202-224-2441 | 202-228-2190 | DE
Mel | Martinez | 202-224-3041 | 202-228-5171 | FL
Daniel | Akaka | 202-224-6361 | 202-224-2126 | HI
Evan | Bayh | 202-224-5623 | 202-228-1377 | IN
Jim | Bunning | 202-224-4343 | 202-228-1373 | KY
Jon | Tester | 202-224-2644 | 202-224-8594 | MT
Elizabeth | Dole | 202-224-6342 | 202-224-1100 | NC
Chuck | Hagel | 202-224-4224 | 202-224-5213 | NE
Robert | Menendez | 202-224-4744 | 202-228-2197 | NJ
Charles | Schumer | 202-224-6542 | 202-228-3027 | NY

Sherrod | Brown | 202-224-2315 | 202-228-6321 | OH
Tim | Johnson | 202-224-5842 | 202-228-5765 | SD
Bob | Corker | 202-224-3344 | 202-228-0566 | TN
Robert | Bennett | 202-224-5444 | 202-228-1168 | UT
Michael | Enzi | 202-224-3424 | 202-228-0359 | WY

Anonymous said...

How, how, how on earth did the stock market make such gains today, led by financial stocks?

Anonymous said...

It’s all good!!

I read an article somewhere that said 65-68% of the people who work on Wall St are on 'mood elevating prescription drugs' as opposed to about 25-28% of the general population.

Don't worry be Happy!

Anonymous said...

Hmmm, 65% - 68%, huh? That could explain a lot. Let's see - it takes about two weeks for those good drugs to really take effect - and it's been how long since The Bear died? ;-)

Yeah, it's a mystery why people are still throwing money at the market. I don't understand it, but then I never really did.


Stoneleigh said...


Markets never move only in one direction. Greed and fear alternate, with insiders exploiting the herd in both directions. Bear market rallies are often sharp, partly due to short covering.

I think this rally may be setting up to correct the entire decline from October, which would imply that it could last longer than previous rallies. I'd be surprised if it lasted more than a couple of months though, and when it's over, the decline will begin again with a vengeance. A rally will only act as a stay of execution for vulnerable banks and hedge funds.

Unknown said...


Thank you for collecting this information and presenting it to us. I find it entertaining, informative, and maybe someday if will make me a few bucks. I don't mean to be argumentative here and I realize nobody comes to your blog to read me prattling on.

When I file an automobile accident claim with my insurance company, they require a police report. As far as I know, the police do nothing with these forms. Is that shifting liability to the public sector? Rent seeking probably predates civilization. Any number of economists such as Milton Freeman have warned us about the risks of government involvement in the economy. I don't doubt this sort of activity takes place but I wanted to address the more narrow issue of what's the basis of this lawsuit. A lawsuit can create more burdensome, time consuming, discovery witch hunt than any number of dubious claims.

My wife just recently qualified for social security disability. Frankly, I find the SSA does a great job of creating extra paperwork for themselves without the help of insurance companies.
The whole raison d'etre of bureaucracies is to be bureaucratic. Otherwise they would be out of a job.

I was wonderring if we knew more about who these "whistleblowers" are and apparently we do not.