Thursday, November 20, 2008

Where's the money?

In Russia, any reporters or newspapers who put damaging information about their banks will be prosecuted. "Information attacks" versus the "bear raids" we see over here. But who is lying?

Now companies, who have squeezed every penny from their workers in the guise of productivity, are asking Congress to roll pack their contributions required to fix the worker's declining pension plans:

Stung by outsize investment losses, some of the nation’s biggest companies are pushing Congress to roll back rules requiring them to put more money into their pension funds, just two years after President Bush signed a law meant to strengthen the pension system.

The total value of company pension funds is thought to have fallen by more than $250 billion since last winter. With cash now in short supply for companies, they are asking Congress to excuse them from having to replenish the required amounts.

Lawmakers from both parties seem receptive to the idea, and there was talk of adding a pension relief provision to the broad fiscal stimulus package Congress considered for this week’s lame-duck session.

Supposedly companies in the S&P are sitting on $600 billion of cash, and the cash makes up a great portion of many of these companies stock prices. But their derivative exposure to counterparties with supposedly good credit that isn't not known is not reflected in these figures. The parties that made many of these bets with these companies are the hedge funds, who have unrelentlessly sold stocks. Do they worry about counter-party exposure, or do they just want cash at any cost and just plan on starting another hedge fund? With their high -water mark, they cannot get an incentive fee unless they make their losses. So like a homeowner, underwater in their home, who walks away to get out of debt, these hedge funds are doing the same.

Late yesterday, bond insurer commuted $3.5 billion of CDO exposure for $1 billion dollars. Ambac is supposedly still investment grade, yet they paid just .30 cents on the dollar. How about the hedges that these companies made with Investment banks? How good are they?

Yesterday the CPI had it's biggest drop in 60 years, showing that stores and the public don't have any money either. Gas is back to 2004 levels, and we should see prices of $1.79 at the pump. Even CNBC had a poll entitled: Will the recession turn into a depression? 57% of voters said yes.

Today GMAC, whose bonds you can get for 30 cents on the dollar, filed to become a bank holding company, ostensibly to get funds from the TARP. In NY Mayor Bloomberg said he won't send out the $400 homeowner rebate because "we have no money."

Pension plans don't have any money, neither does NYC, and neither does GMAC. All anyone wants is paper from the Fed. And the CPI had it's biggest drop in 60 years, showing that stores and the public don't have any money either. Gas is back to 2004 levels, and we should see prices of $1.79 at the pump.

So the next question to ask is, "Who is actually solvent?"

Banks with a trillion dollars of off-balance sheet exposure? Banks with $100's of billions of derivative exposure, all with other "solvent" counter parties?

It would appear to be easier to identify the solvent banks. But with commercial real estate collapsing, and the run in the real estate credit hedges exploding, the writedowns can only further increase, as banks exposure to real estate cannot be hedged.

And the only bank that the public trusts is their mattress!

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