International Forecaster Weekly

Banks lose billions

Banks losing billions, and replace it with more money, Citigroup and Lynch holding lion share of market risk, local services slashed, Yahoo! bounces back from layoffs by buyout notice

Bob Chapman | February 2, 2008

Banks are losing hundreds of billions of dollars and those in the banking industry tell us only losing $1 billion is considered a good news event these days. This is the kind of sociopathic insanity we have to listen to these days. Then their answer is to give us more money to throw at the problem and we will solve it. They are lying and they simply can't help themselves. They get totally divorced from reality. They are in total denial. We are also told that the infusion of capital from foreign institutions into the banking system to cover up their mistakes is a sign of strength. That is mindless. All the foreigners are doing is dumping dollars, which are the wages of de-industrialization, deregulation, free trade, globalization, offshoring and outsourcing. Better known as the termination of your livelihood. It has made us dependent on capital from the outside world. We have become junk-bond junkies. We are no longer the most productive nation in the world. We have been converted into sniveling, pathetic debtors who have been betrayed by our large transnational conglomerates.

Colleges and universities are concerned about the state of their financial aid programs. Sallie Mae does not deny it has problems, yet its CEO Albert Lord sold 1.2 million of his shares.

Private loans are available but they have variable interest rates that allow for higher rates.

Concerned about amounts of pension money that are being moved to outside managers and into opaque investments such as private equity, two trustees of the Texas teacher retirement system board, want to curb political contributions from investors, who do business with the fund. These trustees, who are both school superintendents and the only educators on the nine-member board, said that the $115 billion fund needs to disclose more information about the firm's it hires to invest its money and how they got the job.

Besides limits on campaign contributions the board will also consider whether the fund should publicly disclose placement fees and other payments made in connection with hiring money managers.

Texas has become only the fourth state with a pension fund that limits campaign contributions. Others are California, New Jersey and Connecticut. They should all do so.

Sometimes with financial dislocation comes tragedy. A high-ranking executive of a collapse subprime lender killed his wife and then jumped off a bridge in New Jersey.

Junk bonds are off to their worst start since 1990, falling 1.8% in January triggering $17 billion in losses.

In case you missed it at the State of the Union address by our president he said, "and tonight I am pleased to announce that, in April, we will host this year's North American Summit of Canada, Mexico and the United States in the great city of New Orleans." You'll get the same message from McCain and Clinton. Only Ron Paul can give us the kind of government we need.

A quarterly survey from Financial Executives International and Baruch College showed its optimism index sinking 6.6 points. CFOs have steadily for three years been expressing less confidence about the economy. They have seen recession coming. Of the 361 polled, 73% were concerned about the recession over the next year. 46% said a weaker dollar would have a negative impact on their business and 26% said it would have a positive impact.

Mortgage applications jumped to a four-year high as activity rose 75%. Remember the average applicant is submitting three applications, so the numbers are misleading.

Refi applications rose 22.1%, the highest since July of 2003, but the application index fell 17.7%. Refi's were 73% of all applications up from 66%. The 30-year fixed rate mortgage rose 11 basis points to 5.6%.

Banks may have to post additional write-downs of $70 billion or more as credit ratings for bonds are further downgraded.

Citigroup and Merrill Lynch hold 45% of the entire market risk. The fate of mono-line insurers is of paramount importance to financial stocks. If MBIA follows Ambac to double A, the game is over. Such an event could take the Dow to 9,000.

Merrill Lynch will no longer underwrite collateralized debt obligations.

Morgan Stanley wrote down $169 million after helping its money market funds by taking on bonds issued by their SIV's. They bought $1.06 billion in SIV's including $160 million since December the first.

Goldman Sachs, Morgan Stanley and Bear Stearns are under investigation by the SEC and the FBI, as well as the states of New York and Connecticut in the default of mortgage-backed bonds. The largest banks and securities firms have posted more than $133 billion in credit losses due to subprime loans. The FBI is pursuing violation of subprime lenders, housing developers and Wall Street banks that packaged loans as securities. They are also looking for criminal activity and insider trading.

Cities, towns, counties and states are slashing municipal services past the point of pain. They are cutting police patrols, laying off teachers and slashing municipal services. It's either do that or go into savings and that usually only lasts a year and the savings are gone. Even the more affluent communities are starting to show signs of strain. Spending by states has fallen precipitously forcing communities to rely more on property tax revenues, or use savings or services. The loss in revenue and inflation are killing these entities. Wait until they have to cut real estate taxes due to falling values. That is when the real problems will begin.

Houghton Mifflin Harcourt Publishing is going to expand layoffs as a result of the recent $4 billion acquisition of Harcourt Education.

A rumor is bouncing around Wall Street, the City of London and in Paris and on Kaiserstrasse in Frankfurt that J.P. Morgan Chase has a $4 billion loss on a derivatives trade coming soon.

Yahoo is preparing to lay off 1000 workers in Sunnyvale, California the largest purge since the dot-com bust seven years ago. Yahoo reported a 23% drop in fourth-quarter earnings.

Yahoo shares then rose 45% when Microsoft offered to buy it.

The Conference Board said the December help-wanted index was 22 versus 21 month on month.