Not bad not bad. The most significant losses were from the auto industry. Now the question is, what do you do with that money and how do you sell it to the public?

Most of the talk from congressional democrats is to use the new found funds to pay for job creating initiatives. That’s funny, because I thought we already spent $787 billion on that? Its more like we spent billions on left wing pet projects, and only a small fraction to help minimize the jobless rate.

Would for the love of God can we please implement expansionary monetary policies in the real economy?

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

The estimated $42 billion in losses is a net figure that accounts for some profits to offset the losses. The Treasury officials said the government had lost about $60 billion, roughly half to Chrysler and General Motors and the other half to the insurance giant American International Group .

But the government is projecting a $19 billion profit and perhaps more on the $245 billion lent to banks, through interest, dividends and the sale of warrants the government received as collateral.

Now, with the unemployment rate about 2% higher than the administration projected it to be with the help of the stimulus, they are scrambling to do something. We are creeping up on the 2010 elections, and lets be realistic. The dems have blown any chance they had of creating a one party system. No one cares about healthcare, they want a job.

But the main talk in Washington is about abortion and public options…nice try. People aren’t stupid. How would you spend the money? I would love to use it to help pay down the deficit. I think using the funds to stimulate job growth would be more productive, but I don’t trust those “leaders”.

I have a new conclusion, if you are in government, it’s because you either failed in the private sector, or are in there to help your buddies. Either way it’s not in my best interest.

The idea was that it would cleanse balance sheets of the difficult-to-value mortgage-related assets that were holding them back. No one knew exactly how much they were worth, so no one really knew exactly how sick the banks were.

At the Capitol on the night of Friday, Sept. 19 and in conference calls the following day, Paulson and Fed chief Ben Bernanke laid out a nightmare scenario: Say no to the plan and risk an utter collapse on Wall Street and maybe even a worldwide depression.

“When you listen to them describing this,” said New York Sen. Charles Schumer, who was in the room, “you gulp.”

Morning Outlook

September 19, 2008
Will we be looking back at yesterday as a turning point in the biggest financial crisis of our time? U.S. stocks rallied over 410 points, the most in six years when credible sources stated the Fed and Congress are in the works to help solve the credit crisis, not just throw a band aid on the balance sheets of many corporations.

MAJOR ACTIONS TAKEN OVERNIGHT

SEC Halts Short Selling

The SEC this morning banned short selling altogether!! People, this is huge news and has major implications. They temporarily banned investors from short-selling 799 financial companies. The premise itself borderlines on historic. Shorts will be covering their positions, which has been extremely large as the current market conditions have been a perfect opportunity to pounce on the weekend financial sector. This order is effective immediately

Fed Guarantees Money Market Funds

The Treasury Department says it will tap into a Depression-era fund to provide guarantees for the nation’s money market mutual funds while the Federal Reserve says it will expand its emergency lending program to help support the $2 trillion in assets of the funds.

So what are the details being discussed?

A quasi Resolution Trust Corp. (RTC) is one option being discussed, whereby the government would take over all the bad debt on corporate balance sheets and isolate the problems from its continued spiral into the overall macro economy. In turn, the government would slowly sell off these debts down the line when valuations improve. The government did something similar in the early 1990’s after the Savings and Loan crisis. In that scenario, the RTC that had been established actually made the taxpayer money once all the obligations in the trust had been sold off.

A name caught on for the junk clogging bank balance sheets: toxic assets. And if that sounded strange, it was nothing compared with the price tag that surfaced over that weekend: $700 billion.
Twelve digits long, eight times as big as the AIG rescue, a number so big most Americans couldn’t even comprehend it.

President Bush, seeking both to soothe a highly anxious nation and prod Congress into passing the breathtaking bailout, said: “This is a big package because it was a big problem.”

In a bit of theatrics in the White House Cabinet Room, Paulson knelt before House Speaker Nancy Pelosi, begging her to pass the bailout package even if it meant forgoing Republican support. According to other published accounts of the meeting, Bush, speaking of the economy, warned: “If money isn’t loosened up, this sucker could go down.”

In the nation’s banking system, the aftershocks continued.

Stocks rose Thursday after mostly falling for three days as traders scooped up beaten-down financial and retail stocks. The buying was subdued after a worse-than-expected weekly unemployment report added to concerns that the economic recovery might not come as quickly as hoped. The advance came as the market grappled with another reminder of the strained job market. The Labor Department’s weekly data showed more workers filing for unemployment benefits. New claims jumped to 637,000, above what economists had forecast. Some traders had been expecting an increase in weekly unemployment claims because of expected shutdowns among the nation’s automakers. The Dow rose 46.43, or 0.6 %, to 8,331.32. The S&P 500 index rose 9.15, or 1 %, to 893.07, while the Nasdaq rose 25.02, or 1.5 %, to 1,689.21.

Morning Outlook

Stocks soared forward overnight in Asia where investors were encouraged by data showing Japanese machinery orders in March fell less than expected. Japan’s Nikkei 225 stock average gained 171.29 points, or 1.9 %, to 9,265.02, and Hong Kong’s Hang Seng added 249.01, or 1.5 %, to 16,790.70.
The economy of the 16 countries that use the euro shrank by a massive 2.5 % in the first quarter; far more than the consensus expectation of 2%. This is the 4th consecutive quarter the euro zone has seen a decline in GDP.

Germany’s economy shrank 3.8 % as demand for its high value goods, such as cars and machinery diminished. Germany’s DAX was up 0.4 % at 4,755.11. French GDP declined by 1.2 %, however the CAC 40 rose 0.8 % at 3,182.35.

Investors are awaiting premarket data which are expected to show that industrial production fell in April but at the slowest pace in six months. However Wall Street retreated heading into the last trading day of the week as Dow Jones industrial average futures fell 37, or 0.5 %, to 8,249. Standard & Poor’s 500 index futures fell 5.80, or 0.7 %, to 883.70, while Nasdaq 100 index futures fell 8.75, or 0.7 %, to 1,345.

On the Corporate Front

According to a bankruptcy court filing, Chrysler LLC wants to eliminate roughly a quarter of its 3,200 U.S. dealerships by early next month. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010. About 187,000 jobs could be lost from the closing of GM and Chrysler dealerships.

The Treasury Department has agreed to extend billions in taxpayer funds to six major life insurers to sure up their capital positions. Although the amount of TARP money received by each is not known, The Hartford Financial Services Group, Lincoln Financial Group, Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. are insurers who received preliminary investment approval.

Economic Calendar

8:30 AM
Consumer Price Index (CPI): Measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The consensus is for no change month over month from March to April, with a 0.1% gain excluding food and energy.

9:15 AM
Industrial Production: The index of industrial production measures the physical output of the nation’s factories, mines and utilities. The consensus is for a production decline of 0.6% for the month of April as the manufacturing component continues to lag; this would be the 6th straight drop, after declining 1.5% in March.

9:55 AM
Consumer Sentiment: Consumer sentiment is directly related to the strength of consumer spending, by questioning 500 households each month on their financial conditions and attitudes about the economy. The consensus reading for May is 67, up from April’s reading of 65.1; however economic optimism may dissipate as the job market continues to decline.

Stocks traded on heavy volume as options expired on the third Friday of the month. For most of the session there was a pretty tight trading range with no economic or major corporate news to give the market a direction. However, FDIC Chairwoman Sheila Bair stated an emergency fee must be levied upon banks to insure the deposit insurance system is solvent. Late last year, the FDIC raised the amount of guaranteed deposits from $100,000 to $250,000.

The Dow industrials fell 122.42, or 1.7 %, to 7,278.38. The S&P 500 index fell 15.50, or 2 %, to 768.54, and the Nasdaq composite index fell 26.21, or 1.8 %, to 1,457.27. The Russell 2000 index of smaller companies fell 13.15, or 3.2 %, to 400.11. The market still managed its first 2 week gain in almost a year. Despite a positive response in the equity markets in regards to the FOMC decision, the dollar fell 5 % versus the euro and 3 % versus the yen. Crude now stands at over $50 a barrel after a 7% gain sent it to its highest level in 2009.

FOMC’s Decision

The Federal Open Market Committee concluded their 2 day March meeting on Wednesday. In a unanimous decision, the central bank will be shopping for $300 billion in U.S. debt, focusing in on maturities of 2-5 years. The Fed also will buy an additional $750 worth of mortgage-backed securities and debt guaranteed by Fannie Mae and Freddie Mac.

The Fed is no doubt trying to inject enough capital into the markets to prevent a deflationary environment, however the TIPS (Treasury Inflation Protected Securities) spreads barely moved. The market doesn’t see too much of an inflation threat, however that’s all critics warn about.

Mortgage rates across the country will be heading lower as well. The purchase of mortgage backed securities will push prices up, driving yields on rates lower.

Treasury’s Turn Next Week

Secretary of the Treasury Tim Geitner, who didn’t have a good week in the eye of the public with the whole AIG bonus fiasco, will have a chance to redeem himself when he unveils his asset purchase plan. The market tanked on his first announcement last month where his speech was lacking on concrete details. The plan is supposedly including the Term Asset-Backed Securities Loan Facility (TALF) program by the Fed and the FDIC to rid banks of these toxic assets and help normalize lending.

A Two Second Fix In My Opinion SOMEONE LISTEN!

We have injected hundreds of billions of dollars into financial institutions to unfreeze credit and get capital moving again. However as we all know, banks are in most regards, hoarding those funds. With near zero inflation and weak balance sheets, there is no incentive (or this case penalty) for not lending out the tax payers dollars. I would charge high rates of interest on those funds from the TARP that aren’t lent out! It’s obvious and a simple way to speed up the circulation of these funds from deposits to the economy.

Stocks ended lower Friday, pushing the Dow Jones industrial average with a weekly decline of 5.2 %. The Dow fell 82.35, or 1.04 %, to 7,850.41. It was the lowest close since Nov. 20, when the blue-chip index settled at a five-and-a-half month low of 7,552.29.The Standard & Poor’s 500 index lost 8.35, or 1.00 %, to 826.84, and the Nasdaq composite index decreased 7.35, or 0.48 %, to 1,534.36. The S&P 500 ended the week down 4.8 %, and the Nasdaq finished the week down 3.6 %.

It was a very active week in Washington. Treasury Secretary Geitner spoke on Tuesday, a very anticipated speech on the Treasury’s plan to correct the banking system as well as tackle the housing crisis. Unfortunately for the markets, the plans which were not short on money (trillions of dollars between the Fed, Treasury, and FDIC), were short on details. The market was looking to hear about a “bad bank” for non performing assets, and they are still waiting. It is a complicated issue which will take time to get right.

After partisan bickering on Capitol Hill, the House and Senate came together and passes the signature legislation of the Obama Administration’s plan to economic recovery. The $787 billion bill will be shortly signed by the President. However the markets were not too impressed; as passage was expected, the duration to recovery will be the question. If it was this hard to get an economic package passed, how hard will it be for the President to enact housing or other domestic legislation?

Only a few weeks away from President Obama’s first State of the Union, the President will be speaking this week about the White House’s plan to attack the housing market and home foreclosures. On the news, Citi (C) and J.P. Morgan (JPM) have announced a freeze on home foreclosures until the Administration’s national foreclosure prevention and loan modification program is specified.

In addition, Tuesday is the deadline for the big three domestic automakers to report back to Congress to prove that their “new” business models will lead the firms back to financial viability. If not, the money given under the Bush Administration from the TARP will be due, all $17 billion of it. Honestly I don’t know how you can “prove” financial viability based on a report and business plan. I would assume the big three was convinced of financial viability before the company’s were run into the ground.

But hey, it’s Washington and it will be fun to watch none the less!

What will Treasury Secretary Timothy Geitner say on Monday? No one is entirely for sure. The market soared on Friday as investors hope that Washington takes additional steps to aid the financial system and credit markets. He will discuss the administration’s plan for overhauling the TARP (troubled asset relief program), as they have over $300 billion left in funds to use. In addition, new regulatory processes to ensure this type of systemic collapse is prevented will be rolled out soon, alongside a package to deal with the root cause of the economic problems, the housing market.

“The tragic history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis. In a crisis of this magnitude, the most prudent course is the most forceful course.”

How Will They Use it?

There has been speculation that the government would set up a bad bank scenario, where the government would buy up nonperforming assets, hold them until they regain value in the market place, and then sell them off. This capital would free up bank balance sheets and add another incentive to begin normal lending practices. However, since these assets do not really have a market, it has become extremely difficult to give them some monetary value.

A lingering Question…

Do banks need a fresh round of capital injections? After the initial round of relief last fall, we haven’t seen any other bank failures, however Bank of America did go back to the government, and there is news that Fannie Mae and Freddie Mac need additional capital as the value and quality of the mortgages they hold continues to deteriorate.

It will be interesting to see how the markets react in the short term to any announcements the Secretary makes. It is hard to see that a lot is priced in to the market considering details of any plan have been vague outside of the Economic Recovery Plan, which will receive a Senate vote on Tuesday before going to the committee.

Rest assured you right wingers, capitalism isn’t going anywhere, it’s just getting some help to speed up its next move forward.

Supposedly one of the “Big Four” as Cramer likes to call them, Bank of America (BAC) the biggest U.S. bank by assets has seem to collapse under the giant weight of its own expansion. Bank of America’s effort to super-size its operations that got it into a heap of trouble with the market this week. Specifically, its acquisitions of mortgage giant Countrywide and former investment banking giant Merrill Lynch raised the bank’s credit risk profile. That came back to hurt it in a big way as evidenced by Bank of America reporting its first loss in 17 years and needing an additional $20 billion in TARP funds to digest its Merrill Lynch purchase.

The company also reported a quarterly loss after paying preferred dividends of $2.39 billion, or 48 cents per share, down sharply from a profit of $215 million, or 5 cents per share, a year ago. BofA cited rising credit costs, significant writedowns and trading losses in its capital markets businesses amid the deepening economic recession. They also cut their quarterly dividend to one penny, it had been 64 cents earlier last year before being halved to help finance the Merrill Lynch deal.

Merrill Lynch, who had been acquired by BAC late last year, posted a loss of $15.31 billion, or $9.62 per share, for the period.

Before grossly overpaying to acquire the nearly worthless Countrywide Financial and Merrill, both deeply troubled companies; didn’t they recall the similar blue print taken by Citigroup? Where such large operations worked better and more efficiently as independent units.

Bank of America CEO Ken Lewis, who obviously couldn’t manage risk if it slapped him in the face, should be shown the door. However, should the government have stepped in to help BAC again when they basically used TARP money to buy Merrill? Or would an orderly liquidation of assets have sufficed?

Shares of the company closed at $7.18 on Friday, the lowest close for the company in almost 2 decades, and well of its 52 week high of $45.08. Is this s bank on the verse of collapse, or truely at this price, the bank of opportunity?