Obama Warns Against Mountain of Debt

Surfing around the web this morning and I decided to check out the OMB and found this headline :

A New Era of Responsibility
The 2011 Budget

Rather than fight the same tired battles that have dominated Washington for decades, it’s time to try something new. Let’s invest in our people without leaving them a mountain of debt.(Emphasis mine) Let’s meet our responsibility to the citizens who sent us here. Let’s try common sense.
– President Barack Obama

What a chuckle, considering the Democrats have decided punt the decision till after the midterms. Of course the president himself decided to pass the tough choices off to a deficit commission as a means of political cover. Anyway you will be happy to know the President steered us away from a depression and you to can see how much he has done for your state! Oh and by the way last years predictions turned out be farcical. On the bright side I consider this another data point that the tea parties had an impact. Consider this was on the OMB site last year:

A NEW ERA OF
RESPONSIBILITY
the 2010 Budget

"A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another."(Emphasis Mine)
– President Barack Obama

A subtle change compared to 2011 in which obligations to others has now been coupled with warnings about debt. Anyway, here are some charts to help the President understand mountains of Debt:

Total Deficit or Surplus (Percentage of GDP)




Debt Held by the Public, 1965 to 2019 (Percentage of GDP)




And lets not forget Obama's big savings push last year:

State Department Upset Over Zeleya's Accusations

Seriously, did US diplomatic officials think they would earn goodwill with the fascist left?

TEGUCIGALPA, Honduras (AP) -- The U.S. Ambassador to Honduras says accusations by former President Manuel Zelaya that the United States was behind the coup that ousted him are ''absurd.''

Ambassador Hugo Llorens says the United States had nothing to do with the coup on June 28, 2009, when the Honduran army hustled Zelaya out of the country for allegedly violating the constitution. An embassy statement Tuesday said the United States ''had no prior knowledge or participation.'' .

For those who don't remember. Zeleya was ousted after he attempted to become President for life. With the backing of Chavez and the tacit support of the USA Zeleya took his country to the brink of Civil War through a series of tactics that garnered a great deal of attention but ended with his removal anyway. In the end Honduras held elections and the current government doesn't look like its going anywhere.

5th General Strike Hits Greece

What do they expect to happen?

Greek unions staged their fifth general strike of the year, halting ferries, public transport and other state services to protest government plans to cut pension benefits and loosen labor laws.

The General Confederation of Labor, or GSEE, Greece’s largest union group for workers at private companies, and ADEDY, the civil servants’ organization, are holding a rally and march on parliament in Athens. The 24-hour stoppage includes maritime engineers at Piraeus, Greece’s largest port.

“We are faced with almost the totaling of Greece’s social security and labor system,” ADEDY Chairman Spyros Papaspyrou said by telephone. “We want the overturn of the harsh and anti- social measures and remain committed to this struggle.”

Greece is in the midst of its biggest upheaval since joining the euro nine years ago after being forced to take action to avoid a debt default. Reforms to pensions and the way workers are hired and fired are required by the European Union and International Monetary Fund in return for the 110 billion euros ($135 billion) of emergency loans agreed in May.

Greek pensioners on average live on 96 percent of the salary they had when they worked, more than twice the proportion of earnings as Germans, according to the Organization for Economic Cooperation and Development. The Paris-based group called the system a “fiscal time bomb.”

96% of your pension, good work if you can get it!

Ominous Signs for the Economy

Not good, but with 10% unemployment the new norm does anyone believe the recession was over?

(Bloomberg)The percentage of corporate bonds considered in distress is at the highest in six months, a sign debt investors expect the economy to slow and defaults to rise.The number of speculative-grade companies worldwide with yields at least 10 percentage points more than government bonds climbed to 399 this month, or 16.7 percent of the total, the highest share since December, according to Bank of America Merrill Lynch index data. The ratio compares with 9.2 percent on April 30, which was the lowest since November 2007.

Junk bond sales slumped to a 15-month low in June amid concern government efforts to control spiraling budget deficits will hamper global growth and drive up borrowing costs for the neediest borrowers. The 2010 default rate in the U.S. may jump as high as 6 percent by year-end from 1.3 percent currently, according to analysts at Goldman Sachs Group Inc.“The default driver will be a reversal of easy refinancing conditions,” said Charles Himmelberg, the chief credit strategist at Goldman Sachs in New York.

JPMorgan Chase & Co. analysts led by high-yield credit strategist Peter Acciavatti wrote June 25 that the rate will be 2 percent in 2010. The views are diverging as investors weigh the effects of Europe’s sovereign debt crisis and on mounting concern the U.S. economy may tip back into recession.

Even more troubling, it appears the the job market lost ground in June with the end of census workers and continued weakness in the private sector:

The U.S. unemployment rate is forecast to rise to 9.8 percent in June from May's rate of 9.7 percent, according to economists polled by Reuters.Non-farm payrolls are forecast to shed 110,000 jobs in June, according to the U.S. Labor Department's report. Although much of that drop is due to the government laying off half of its temporary Census workers, another weak reading for private-sector hiring will disappoint investors.

"The truth is that without job creation, we're in for a tougher time, and I mean real job creation, not temporary job creation, not part-time job creation -- real job creation," said Kenneth Polcari, a floor trader at the New York Stock Exchange with Icap Corporates.

And the damage of Obamacare or the BP debacle hasn't even hit yet!

Democrats Turn on Unions

Considering the fiscal state of municipalities is this any surprise?

TRENTON — Stephen M. Sweeney, the president of the State Senate here, glowered with disgust as he described how one New Jersey town paid out nearly $1 million to four retiring police officers for their unused sick days and vacation time.Mr. Sweeney, a Democrat, also scowled about the estimated $46 billion New Jersey owes in pension contributions and its $58 billion in liabilities to finance retiree health coverage for government employees.

For years, Republican lawmakers have railed against public employees’ pay and benefits, but now another breed of elected official is demanding labor concessions, too: current and former labor leaders and allies themselves.After 12 years erecting steel beams for office buildings, Mr. Sweeney became a top official in New Jersey’s ironworkers union, now holding that post along with his legislative one. He says the state can no longer afford the benefits won over the years by public sector unions.

“At some point, you reach the limit of your ability to pay,” he said.In Oregon, Gov. Theodore R. Kulongoski, a former lawyer representing the state employees’ union, is insisting upon wage concessions from those very workers. In Los Angeles, Mayor Antonio Villaraigosa, a former teachers’ union organizer, is battling once-friendly unions, demanding $100 million in concessions.

In New York, Gov. David A. Paterson, a longtime union ally whose father is a top adviser to several unions, is threatening large-scale layoffs unless public sector unions agree to a pay freeze and re-open contracts.

Unions can do and have done a great deal of good in this country when they act in a rational manner or or held in check by market forces that curtail their demands. The problem with pubic sector unions is that their demands were not limited by the market, but decided by politicians whose two key demands are donations and votes, something the Unions were able to deliver. Over time, especially since state and local elections tend to have the lowest voter turnout this gave them a disproportionate amount of influence on the state capitals leading to pension plans that would make an actuary scoff.

G-20 Looks to Cutting Deficits

Further evidence that the Tea Parties were ahead of the curve:

TORONTO — Despite President Obama’s pitch at the summit meeting for developed nations here for continued stimulus measures to prevent another global economic downturn, the United States will go along with other leaders who are more concerned about rising debt and join in a commitment to cut their governments’ deficits in half by 2013, administration officials said on Saturday.

That goal is the proposal of Stephen Harper, the prime minister of Canada and the host of the two-day Group of 20 conference of developed nations. Mr. Harper wanted it to be part of the communiqué on global economic policy that the group adopts before concluding on Sunday, and he had the support of European leaders, including David Cameron, the new prime minister of Britain, who has proposed the most ambitious austerity plan of spending cuts and tax increases in his country in a half-century.

Mr. Cameron and Mr. Obama, in their first private meeting since Mr. Cameron took office, acknowledged their different approaches toward balancing the need to promote greater economic growth and job creation in the short term with the long-term desire to reduce national debts, which reached dangerous heights during the downturn. But they played down those differences.

Of course the tax increases will suck much needed money out of the economy preventing what is truly needed, growth. Of course, one doesn't have to look far to see why cutting the budgets is key.

Gitmo to Stay Open the Remainder of Obama's Term

Since the Obama admin has decided to punt on the issue this really isn't much of a surprise:

WASHINGTON — Stymied by political opposition and focused on competing priorities, the Obama administration has sidelined efforts to close the Guantánamo prison, making it unlikely that President Obama will fulfill his promise to close it before his term ends in 2013.

When the White House acknowledged last year that it would miss Mr. Obama’s initial January 2010 deadline for shutting the prison, it also declared that the detainees would eventually be moved to one in Illinois. But impediments to that plan have mounted in Congress, and the administration is doing little to overcome them.

“There is a lot of inertia” against closing the prison, “and the administration is not putting a lot of energy behind their position that I can see,” said Senator Carl Levin, the Michigan Democrat who is chairman of the Senate Armed Services Committee and supports the Illinois plan. He added that “the odds are that it will still be open” by the next presidential inauguration.

There really is no logic behind closing the place besides throwing a bone to the domestic left and the talking point that it provides a propaganda tool to our enemies. To be frank we have seen a complete abdication on bringing justice to KSM and Al Qaeda as the president and his team have just given up on the issue. Just for the heck of it, here the one in action:

State Governments in Fiscal Quagmire

The problems have existed for some time now and the the so called stimulus, which was in reality a bailout for the states only papered over existing problems.

Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end.

Unemployment was 12.4 percent in May, 2.7 percentage points higher than the national rate. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend -- gross domestic product has climbed three straight quarters -- finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.

“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” says Dean Baker, co- director of the Center for Economic and Policy Research in Washington. “That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

Stimulus Dries Up

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

Of course the solution would be increased growth while holding down spending, this would generate revenues without raising taxes and go a long way to easing the countries problems.

West Virginia Launches Investigation into Financial Houses and CDR Financial Products

The fact that numerous states have piled on with the investigations and lawsuits considering the widespread accusations of bid rigging along with the significant financial damage these deals have inflicted.

(Insurancenewsnet) Attorney General Darrell McGraw named an additional 21 banks and insurance companies Monday in federal court in the State's lawsuit claiming bid rigging among the companies and others cheated the State out of untold amounts of money. McGraw previously sued Bank of America claiming financial instruments sold to the State carried artificially low interest rates due to the rigged bids. The lawsuit is now pending in the Southern District of New York. In addition, Attorney General McGraw sued three brokers involved in the antitrust conspiracy to defraud the State..........

The banks being sued include the usual suspects

(Legal Newsline) Financial institutions added are UBS AG and subsidiaries UBS Financial Services and UBS Securities; JP Morgan Chase and subsidiary JP Morgan Securities; MBIA; Morgan Stanley; Rabobank Group; Bayerische Landesbank Girozentrale; Transamerica Occidental Life Insurance; AIG Financial Products; AIG Matched Funding; Financial Security Assurance; Assured Guaranty US Holdings; Dexia; GE Funding Capital Market Services; Natixis Funding; Royal Bank of Canada; and Financial Guarantee Insurance.

Of course CDR was hit as well:

(Insurancenewsnet) The brokers sued by the State include CDR Financial Products, Inc., headquartered in Beverly Hills, California; George K. Baum & Co., headquartered in Kansas City, Missouri and Investment Management Advisory Group, Inc., headquartered in Pottstown, Pennsylvania.The State had previously sued Bank of America for its role in the bid rigging conspiracy. Bank of America has been cooperating with federal prosecutors with regard to how the conspiracy worked. The conspiracy affected the sale of financial contracts by state agencies and local municipalities paid for with the proceeds of bond sales.

To finance construction projects, state agencies and municipalities sell bonds. When state agencies or municipalities issue bonds, all of the money raised is not needed immediately for the capital project such as building roads, hospitals or schools. Therefore, the state agencies and municipalities use the bond proceeds to buy short term investment contracts until the money is needed. Companies selling the financial products guarantee a certain rate of interest paid to the bond issuer along with part of the principal to pay for the projects as they are completed in stages. In his lawsuit Attorney General McGraw alleges that the State was shorted substantial interest payments because the bid rigging allowed the companies to sell the financial products to the state agencies at lower rates of interest than normally would have been obtained.

"Whether it involves the sale of two-by-fours or sophisticated financial products, bid rigging will not be tolerated in West Virginia," said Attorney General McGraw. "The State lost scarce dollars which could have been used for building new schools or hospitals."

Bank of America of course has cut the deal and is the location for the informant who has played a key role in aiding and assiting the Federal government.

Illinois Looks to Europe for Funding

The great irony of the year continues:

(Bond Buyer) Market participants attribute the fresh foreign interest to the perception that U.S. government credits are relatively safe and have value, especially following this year’s European sovereign debt crisis. Also helping is better marketing by broker-dealers with foreign trading desks like Citi and the generally improving view of BABs as an asset class with federal legislation pending to extend the stimulus program.

For Illinois, the need to expand its universe of buyers is all the more urgent as it has asked domestic buyers to digest a steady flow of paper amid an ongoing deluge of negative fiscal news from rating downgrades to columnists raising the specter of insolvency.

Bloomberg LP reported last week that the price of a five-year credit-default swap to insure state debt hit a record high and surpassed California. The state’s CDS spread mid last week was about 60% higher than last month, according to Municipal Market Data......

“It’s unceasing on both the BAB and tax-exempt sides. Every week there’s another deal. Everybody is up to their eyeballs in it,” said Thomas Spalding, portfolio manager at Nuveen Investments. Nuveen placed an order on the state’s sales tax-backed refunding last week.

The BAB program really looks like the gift that just keeps on giving. One part that does seem a little interesting is the use of Morgan Keegan in the transactions:

Citi, with Morgan Keegan as a co-manager, won the $300 million BAB sale last week with a true interest cost of 4.39%. The taxable bonds mature from 2011 through 2019, with term bonds in 2021, 2025, and 2035. Yields ranged from 3.40% priced at par in 2013, or 2.12% after the 35% federal subsidy, to 7.10% priced at par in 2035, or 4.62% after the subsidy. The 7.10% rate was 297 basis points over Treasuries, more than 80 basis points higher than the spread on the state’s April competitive BAB sale.

Morgan Keegan is the company that the NY Times took down in a scathing piece about abuses in the muni-bond industry:

LEWISBURG, Tenn. — Five years ago, this small factory town was struggling to pay the interest on a bond for new sewers. Bob Phillips, Lewisburg’s part-time mayor and full-time pharmacist, was urged by the town’s financial adviser, an investment bank named Morgan Keegan & Company, to engage in a complex financial transaction to lower interest rates.

When a Lewisburg official attended a state-sponsored seminar intended to lay out the transaction’s benefits and risks, he was taught by investment bankers from Morgan Keegan.And when Lewisburg decided to go ahead with the transaction, who was there to make the deal? Morgan Keegan.

In January, local officials were shocked to discover that annual interest payments on the bond had quadrupled to $1 million. Morgan Keegan, they said, did not serve them well in any of its roles.

And to think there is now an SEC task force!

Massive Fees and Fines in Jefferson County Muni- Scandal

Almost forgotten in the Jefferson County disaster was the actual sewer project deals they were designed to finance. In a perfect compliment to the corruption that destroyed the county, the actual construction and ensuing scandals ended up being disasters in their own right:

The people and companies convicted in long-running probes of the construction and financing of Jefferson County's sewer system project have forked over nearly $30 million in fines or fees to the federal government, including more than $800,000 in restitution that went to the county, according to federal prosecutor records.

Overall, about $18 million is still owed by defendants in the probes. That includes $981,962 in restitution still owed Jefferson County, according to figures from the U.S. Attorney's Office.The criminal probe into the $3.2 billion sewer construction and repair project between 1996 to 2003 resulted in the conviction of 17 people and five companies, many on bribery and conspiracy charges. Judges ordered 21 defendants to pay $46.1 million in combined restitution, fines and fees. One other defendant has not been sentenced yet.

Four others, including former Birmingham Mayor Larry Langford, convicted as the result of an investigation of how the county refinanced the county's large sewer debt, have been ordered to pay another $1.8 million in fines, restitution to the IRS, forfeitures, and fees.

"People know that the U.S. Attorney's Office prosecutes criminals," U.S. Attorney Joyce White Vance said. "What they may not know is that the office's Financial Litigation Unit and its Asset Forfeiture Unit bring in millions of dollars every year to compensate victims of crime and help boost law enforcement capabilities. Through the hard work of those units, this office brings in at least double its annual budget every year."

Last fall former Birmingham Mayor Larry Langford was convicted of corruption charges involving the refinancing of sewer bonds while he was a Jefferson County commissioner. Montgomery investment banker Bill Blount and former lobbyist Al LaPierre also pleaded guilty as part of a scheme to bribe Langford to get the bond business for Blount's firm.

Birds of a Feather.

Fannie and Freddie to Suck in 389 Billion Dollars

Really, its not like warning, after warning, after warning after warning existed:

For all the focus on the historic federal rescue of the banking industry, it is the government’s decision to seize Fannie Mae and Freddie Mac in September 2008 that is likely to cost taxpayers the most money. So far the tab stands at $145.9 billion, and it grows with every foreclosure of a three-bedroom home with a two-car garage one hour from Phoenix. The Congressional Budget Office predicts that the final bill could reach $389 billion.

Fannie and Freddie increased American home ownership over the last half-century by persuading investors to provide money for mortgage loans. The sales pitch amounted to a money-back guarantee: If borrowers defaulted, the companies promised to repay the investors.

Rather than actually making loans, the two companies — Fannie older and larger, Freddie created to provide competition — bought loans from banks and other originators, providing money for more lending and helping to hold down interest rates.

“Our business is the American dream of home ownership,” Fannie Mae declared in its mission statement, and in 2001 the company set a target of helping to create six million new homeowners by 2014. Here in Arizona, during a housing boom fueled by cheap land, cheap money and population growth, Fannie Mae executives trumpeted that the company would invest $15 billion to help families buy homes.

As it turns out, Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid.

When in doubt, lets just listen to what democrats have to say about how well these programs are doing!

What We Do: US Military Provides Aid in Kyrgyzstan

Considering the violence, someone has to provide assistance:

TRANSIT CENTER AT MANAS, Kyrgyzstan (June 13, 2010) – Answering a call for aid for the people of Osh, Kyrgyzstan, the Transit Center at Manas is working with the Ministry of the Protection of Youth and the U.S. Department of State to obtain and deliver humanitarian assistance supplies, including food, for victims of the recent violence in the south. Operations at the Transit Center have not been impacted by the recent violence in the region, as a result we are able to provide humanitarian assistance to the people of Osh.


We hope that the situation will be resolved in a peaceful manner.

Good work.

Vladamir Obama: Economist "Shocked" by Obama's Anti-British\Business Vitriol

Add this to the damage Obama is doing and you have a full frontal assault on the prosperity of this nation:

Vladimir Obama

For several reasons. The vitriol has a xenophobic edge: witness the venomous references to “British Petroleum”, a name BP dropped in 1998 (just as well that it dispensed with the name Anglo-Iranian Oil Company even longer ago). Vilifying BP also gets in the way of identifying other culprits, one of which is the government. BP operates in one of the most regulated industries on earth with some of the most perverse rules, subsidies and incentives. Shoddy oversight clearly contributed to the spill, and an energy policy which reduced the demand for oil would do more to avert future environmental horrors than fierce retribution.

Mr Obama is not the socialist the right claims he is (see article). He went out of his way, meeting BP executives on June 16th, to insist that he has no interest in undermining the company’s financial stability. But his reaction is cementing business leaders’ impression that he is indifferent to their concerns. If he sees any impropriety in politicians ordering executives about, upstaging the courts and threatening confiscation, he has not said so. The collapse in BP’s share price suggests that he has convinced the markets that he is an American version of Vladimir Putin, willing to harry firms into doing his bidding.

Nobody should underestimate the scale of BP’s mistake, nor the damage that it has caused. But if the president does not stand up for due process, he will frighten investors across the board. The damage to America’s environment is bad enough. The president risks damaging its economy too.

What did they expect?

Obama Doubles the Damage of the Oil Spill

The WSJ did call this the second disaster:

NYTIMES:In addition to the fishermen and hoteliers whose livelihoods have been devastated by BP’s hemorrhaging undersea oil well, another group of Gulf Coast residents is beginning to suffer: the tens of thousands of workers like Ronald Brown who run the equipment or serve in support roles on deepwater oil rigs in the Gulf of Mexico.

Mr. Brown, known as Rusty to his friends, is a “shakerhand.” In the rugged vernacular of offshore drilling, that means he monitors the mud flowing back from the drill hole thousands of feet below.

He works aboard the Ocean Monarch, which was idled along with 32 other oil rigs when the Obama administration ordered a six-month moratorium on all deepwater drilling after the April 20 Deepwater Horizon disaster. The rig’s owner is now seeking customers in other parts of the world. If the rig moves, Mr. Brown and his fellow motormen, roughnecks and roustabouts will be left behind, jobless, with few alternatives that would pay anything close to the $3,500 to $4,000 a month typical for such jobs.

For a better take on Obama's inane energy policy, read Krauthammer. Either way the Gulf is now being further devastated because of the knee jerk reaction of an admin that is more concerned about short term political ramifications rather then the long term health of the United States of America.

SEC To Establish Pension and Muni- Bond Task Force

Gee I wonder what it could be about muni-bonds and pensions that would make the SEC set up a task force solely to deal with these issues? Seriously though, considering pensions funds have been turned into slush funds and the massive damage the muni-bond scandal has done to the country, I would say its about time :

(Bond Buyer) WASHINGTON — The Securities and Exchange Commission is stepping up its enforcement efforts in the municipal securities market for the first time in more than a decade, with a staff of roughly 30 attorneys charged with investigating and trying muni and public pension fund cases.

The first of the enforcement actions may become public by as early as this summer, Elaine Greenberg, associate regional director of the SEC’s Philadelphia office who is heading the unit with her deputy, Mark Zehner, said in an interview with The Bond Buyer earlier this month.“There’s a recognition that investors in this particular market need the protection of the SEC,” she said.

As the new unit moves forward, its roughly 30 attorneys are meeting at the Philadelphia office this week for an intensive boot camp on tax, accounting and other issues unique to the municipal market and public pensions. Greenberg and Zehner characterized the week-long session as a way of ensuring the same basic level of understanding about munis and pensions.

They include a formal presence in 10 of the 12 regional SEC offices — all except Denver and Salt Lake City, which may still pursue muni cases on their own, in consultation with the unit.In addition to the 30 attorneys selected from within the SEC to work on municipal and public pension fund cases, the enforcement unit plans to hire two outside individuals who have muni banking or trading experience, Greenberg said.

While the scope of the unit is broad, she said it would significantly expand on the relatively limited case law in the muni area by bringing enforcement actions in five specific areas of misconduct. These are: offering and disclosure fraud; tax or arbitrage-driven fraud; pay-to-play practices and public corruption; fraud involving valuation and pricing; and public pension accounting and disclosure violations.

Between "Chooch" and the NY pensions scandal, Larry Langford and the Jefferson County Disaster, the trial of top executives from CDR Financial Products, and the vast scope of the muni-bond business its clear some type of task force was clearly wanting. Interestingly enough, just as questions have begun to arise on the Build America Bonds program, there may be some looking into that subject as well:

Build America Bonds

Greenberg declined to comment on whether the SEC is conducting a broad investigation of Build America Bonds. It is examining a $600 million Build America Bond deal sold by the Metropolitan Water Reclamation District of Greater Chicago last year, Bloomberg News recently reported.

However, she said that as the municipal market shifts to greater issuance of taxable bonds, “I would not assume ... that we would not have an enforcement interest and want to be sure that disclosures being made in connection with any bonds ... are being made adequately.”

“I don’t want to give the impression that these BABs are somehow inherently problematic,” Greenberg said. “But it is a new product, the volume has been very high … and they’ve really taken off. We just want to make sure that there is full and fair disclosure being made to investors or municipalities.”

We shall see.

Spain Looks to Restructure Debt

I wish I could re-finance as easily as these governments do!

MADRID (Reuters) - Spain may use as much as 30 billion euros of its Fund for Orderly Bank Restructuring (FROB) to cover the financing needs of its banks, the Economy Minister Elena Salgado said on Thursday. The FROB, created to help the banking sector, can issue up to 99 billion euros to aid credit institutions.

Considering the state of Spain, no one should be surprised this has come to pass. Green Jobs save them!

A Closer Look at The Build America Bonds Program

A program to boost Muni's has been in the works for some time now and was originally part of the stimulus plan. So far it has been wildly successful, perhaps too much so:

NY Times----But Build America Bonds, part of President Obama’s economic stimulus plan, are also building something else: controversy.States and cities have embraced these taxable bonds to borrow money at what they assume are favorable interest rates. The federal government pays 35 percent of the interest costs on the bonds, a huge potential saving.

But questions about this multibillion-dollar program are piling up.

For one, Wall Street banks are charging larger commissions for selling Build America Bonds than they do for normal municipal bonds, increasing the costs to the states and cities. For another, the new bonds may be priced too cheaply, enabling quick-footed investors to turn a fast profit as the prices climb, but raising interest costs for taxpayers.

Those imbalances have caught the eye of the Internal Revenue Service, which is asking municipalities whether the bonds are being priced and sold correctly. Alarmed by the uncertainty, Florida, which has sold more than $1.6 billion of Build America Bonds, has retreated from the market.

As if all this were not enough, Wall Street banks — which have pocketed hundreds of millions of dollars in fees from the program — are now releasing research reports warning that states’ financial woes may make the bonds less attractive. Some banks are even telling investors how to bet against Build America Bonds.

While most states have embraced the program, two, California and New York, account for a third of the money raised through it, said Senator Charles E. Grassley, a Republican from Iowa and a critic of Build America Bonds. “The program might be better named the Build California and New York Bonds Program,” Mr. Grassley said.

The Obama administration wants to make the program permanent, but Senate Republicans last week introduced a bill that would let it expire as scheduled at the end of this year.

It should be noted that Financial houses among others would reap massive fees from the black box deals they were orchestrating. It should also be noted the Justice Department is tackling a massive case about bid rigging in the bond market, so its not like abuse hasn't happened before. The other question is whether good deal or not, should Municipalities be taking on this much debt?

Greece Cut to Junk Status

Is anyone surprised?

ATHENS, Greece — Moody's Investors Service on Monday slashed Greece's credit rating to junk status, as a delegation from the International Monetary Fund and the European Union started an interim review of the country's efforts to pull itself out of a major debt crisis.

A Moody's statement said it was cutting Greece's government bond ratings by four notches to Ba1 from A3, with a stable outlook for the next 12-18 months. It was the second of the three major agencies to accord Greek bonds junk status since Standard & Poor's did the same in late April.

The downgrades reflects concern that the country could fail to meet its obligations to cut its deficit and pay down its debt.After amassing a vast public debt and overspending that sent its budget deficit spiraling to 13.6 percent of gross domestic product in 2009, Greece was saved from defaulting on its loans in May by the first installment of a joint EU and IMF euro110 billion bailout. It is to receive the second in September.

"The Ba1 rating reflects our analysis of the balance of the strengths and risks associated with the Eurozone/IMF support package," said Moody's lead analyst for Greece Sarah Carlson.

"The package effectively eliminates any near-term risk of a liquidity-driven default and encourages the implementation of a credible, feasible, and incentive-compatible set of structural reforms, which have a high likelihood of stabilizing debt service requirements at manageable levels.""Nevertheless, the macroeconomic and implementation risks associated with the program are substantial and more consistent with a Ba1 rating."

I guess the positive spin from Moody's is that as bad as Greece has gotten, the austerity package will make it a somewhat stable situation for the next year or two.

Trillion Dollar Bailout for Fannie and Freddie?

I wish I had the smoking gun to prove it but I swear much of this money must be disappearing in theft, fraud, and waste.

June 14 (Bloomberg) -- The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.

‘Worst-Case Scenario’

The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

While are on the subject how about some words from the Democrats on the state of these programs:

By the way, Mazine Waters talking about how everything worked fine is just precious! (About 5:30 seconds in)

Fed Turns Up Heat in State Department Cable Case

The hacker who turned in Army Specialist Bradley Manning has had his hard drive taken by the Fed:

Lamo said in an interview Saturday night that he had voluntarily turned over his computer records, including contents of one of his hard drives, to the Pentagon earlier in the day. He said criminal investigators from the Defense Department were scheduled to interview him again on Sunday near his home in California.

Lamo said he first learned that Manning might face espionage charges, a crime that could carry the death penalty, when the word “espionage” appeared on a formal release form that he was asked to sign by the Pentagon criminal investigators who took custody of his electronic records. “It’s one of the statutes that was written down on a piece of paper that I signed to authorize the search,” Lamo said. Calls to the Pentagon press office were not immediately returned Saturday night.

Lamo said he understood that the Defense Department and the State Department were alarmed by the damage that might be done to national security if Wikileaks, which is based nominally on a server in Sweden and bills itself as a whistleblowers’ website, posts all of the information that it had received from Manning in recent weeks. Manning, who had been based in Iraq, is reported to be under arrest in neighboring Kuwait.

Logs of an internet chat that began in May between Lamo and Manning, first made public by Wired magazine, show that Manning bragged of having provided Wikileaks with an explosive video of a American helicopter attack in Baghdad in 2007 in which a dozen people were killed, including two employees of the news agency Reuters; the video appeared on Wikileaks in April. Manning also boasts in the logs of having downloaded 260,000 State Department cables and turned them over to Wikileaks. Among them: classified material prepared by department officials in the Middle East regarding the workings of Arab governments and their leaders, according to an American diplomat.

I am not opposed to the Fed trying to limit the leaks of self important fools who risk lives and national security, but wouldn't it be nice to see the sense of urgency that the government is now showing over these cables in regards to all matters under its jurisdiction.

The Lords of Transparency: Pelosi Looks to Limit Info on Ethics Violations

They want to make the process less transparent so if they get cleared it could be like it never happened:

Pelosi spokesman Nadeam Elshami said, “The Speaker listened to concerns of members and stated that all House rules are reviewed at the beginning of every Congress.”The House reconsiders its rules for the chamber every two years. Aides and legislators stressed that no decisions have been made on the new rules for the 112th Congress.

Some legislators have complained that when the House ethics committee rejects an OCE recommendation to investigate a member, the OCE findings are sometimes made public and tarnish the lawmaker’s reputation.While amending the OCE is being considered, making such changes now would be politically difficult because Republicans are citing Democratic ethics scandals in their effort to retake control of the House.

CBC members and Pelosi discussed a plan to begin a dialogue over the next few months about changing the OCE’s rules following the midterm elections. Rep. Marcia Fudge (D-Ohio), a former prosecutor who was elected in a 2009 special election after the death of then-ethics committee Chairwoman Stephanie Tubbs Jones (D-Ohio), volunteered to lead the effort.

Sources say Fudge was expected to craft proposed changes to the OCE and circulate them among like-minded lawmakers on both sides of aisle. But in a move that has irritated some House Democrats, Fudge quietly introduced the legislation on May 28 with 19 CBC co-sponsors. Days later, government watchdogs and the editorial pages of The Washington Post and The New York Times blasted Fudge’s resolution. Fudge’s handling of the matter has been described as clumsy and hampered the effort to make changes to the ethics process.

I love the fact that they are upset the plan became public knowledge and put up a roadblock to their plans. Lets be clear, a politician may be cleared a narrow guidelines, but still have done something questionable and smarmy. Why wouldn't all the information be allowed to get out? Shouldn't the pols constituents know what happened, and if that person was cleared shouldn't that be enough?

Nightmare State: A Glimpse Into North Korea

Its called communism:

It hardly seemed that life could get worse. And then, one Saturday afternoon last November, his sister burst into his apartment in Chongjin with shocking news: the North Korean government had decided to drastically devalue the nation’s currency. The family’s life savings, about $1,560, had been reduced to about $30.

Last month the construction worker sat in a safe house in this bustling northern Chinese city, lamenting years of useless sacrifice. Vegetables for his parents, his wife’s asthma medicine, the navy track suit his 15-year-old daughter craved — all were forsworn on the theory that, even in North Korea, the future was worth saving for.“Ai!” he exclaimed, cursing between sobs. “How we worked to save that money! Thinking about it makes me go crazy.”

North Koreans are used to struggle and heartbreak. But the Nov. 30 currency devaluation, apparently an attempt to prop up a foundering state-run economy, was for some the worst disaster since a famine that killed hundreds of thousands in the mid-1990s.Interviews in the past month with eight North Koreans who recently left their country — a prison escapee, illegal traders, people in temporary exile to find work in China, the traveling wife of an official in the ruling Workers’ Party — paint a haunting portrait of desperation inside North Korea, a nation of 24 million people, and of growing resentment toward its erratic leader, Kim Jong-il.

The regime is evil, ignoring economic reality and substituting it with terror tactics and a police state that Stalin would be proud of. Basically its a gangster state where rule of law has been replaced by the whims of whoever has authority at any given time.

State Department Disaster as Internal Cables May Become Public

The tool who released this information to show how important he is should have the book thrown at him:

The State Department and American embassies around the world are bracing for what officials fear could be the massive, unauthorized release of secret diplomatic cables in which U.S. diplomats harshly evaluate foreign leaders and reveal the inner-workings of American foreign policy.Diplomatic and law-enforcement officials tell the Daily Beast their alarm stems from the arrest of a 22-year-old Army intelligence analyst based in Iraq who has reportedly admitted that he downloaded 260,000 diplomatic cables from government computer networks and was prepared to make them public.


Specialist Bradley Manning of Potomac, Md., who is now under arrest in Kuwait, is also accused of having leaked—to Wikileaks, a secretive internet site based in Sweden—an explosive video of an American helicopter attack in Baghdad in 2007 that left 12 people dead, including two employees of the news agency Reuters. The website released the video in April.
"If he really had access to these cables, we've got a terrible situation on our hands," said an American diplomat. "We're still trying to figure out what he had access to. A lot of my colleagues overseas are sweating this out, given what those cables may contain."

I know the wikileaks video was something of a sensation on the left, but I would like to see how releasing diplomatic cables benefits is releasing "truth to power". So how could it end up being:

“These are classified documents,” he said. “We take their release seriously.” He said the public release of diplomatic cables could do damage to national security since they could reveal the "source and methods" used by the United States to gather intelligence overseas.Even more alarming, diplomats say, is the idea that foreign leaders will now read what American diplomats have written about them in secret cables sent to Washington—evaluations of the leaders’ personalities, intelligence and honesty, among other things.

Alan K. Henrikson, a professor of diplomatic history at the Fletcher School at Tufts University, said the State Department should be “very nervous” at the prospect of the release of such a huge library of internal cables.He said he would urge the department to try to comment as little as possible about the situation in hopes that, if the cables do become public, the aftermath can be dealt with foreign governments behind closed doors. “That’s diplomacy,” he said.

The State Department has suggested that, even if Wikileaks does not have the cables at the moment, the government still believes Manning had downloaded a huge library of the department’s cables and stored them somewhere.

A disaster waiting to happen.

Spain Hit By Massive Strikes

Oh well, now that austerity is the sexiest word of the year our poor socialist friends need to contend with the implications of trying to govern as if resources are limited.

June 8 (Bloomberg) -- Spanish civil servants went on strike in the largest walkout since Prime Minister Jose Luis Rodriguez Zapatero came to power as efforts to tame the euro area’s third- largest deficit rile the Socialist premier’s core supporters.

On average 75 percent of the 2.5 million public workers backed the strike, said Comisiones Obreras, one of Spain’s two biggest unions. The walkout may be a prelude to a general strike that unions have threatened over the government’s plan to overhaul labor rules that may make it easier to fire workers in a country where the unemployment rate has reached 20 percent.

“The margin to avoid a general strike is very narrow as a profound labor reform is needed,” said Jose Luis Martinez, a strategist for Spain at Citigroup in Madrid.Zapatero, who said in 2005 he slept with his union card by his bed and pledged full employment before his 2008 reelection, has been forced to cut wages and freeze pensions to convince investors and European allies he can reduce a budget deficit of 11.2 percent of gross domestic product. The risk premium on Spanish debt is at a 13-year high as the domestic backlash fuels concerns he won’t be able to make good on the deficit controls.

Its not like he has a choice.

Profiles in Courage: Democrats Duck Meeting Voters and Questions

I suppose they are just taking a cue from the President who has gone at great lengths to dodge questions and show up for stage managed photo-ops about tar balls:

With images of overheated, finger-waving crowds still seared into their minds from the discontent of last August, many Democrats heeded the advice of party leaders and tried to avoid unscripted question-and-answer sessions. The recommendations were clear: hold events in controlled settings — a bank or credit union, for example — or tour local businesses or participate in community service projects.

And to reach thousands of constituents at a time, without the worry of being snared in an angry confrontation with voters, more lawmakers are also taking part in a fast-growing trend: the telephone town meeting, where chances are remote that a testy exchange will wind up on YouTube.

For incumbents of both parties facing challenging re-election bids, few things receive more scrutiny than how, when and where they interact with voters. Many members of Congress err on the side of being visible, but not too visible, and make only a few public appearances while they are back in their districts.

In New Hampshire, where open political meetings are deeply ingrained in the state’s traditions, Representative Carol Shea-Porter’s campaign Web site had this message for visitors: “No upcoming events scheduled. Please visit us again soon!”

Ms. Shea-Porter, a Democrat, attended a state convention of letter carriers on Saturday, but she did not hold a town-hall-style meeting during the Congressional recess. In 2006, when she was an underdog candidate for the House, she often showed up at the meetings of her Republican rival, Representative Jeb Bradley, to question him about Iraq.

That would make Porter a hypocrite.

June 6th: Remember

Speaks for itself:

Obama Admin Set to Put US Debt Into "Super Cycle"

Oh Goodie!

June 4 (Bloomberg) -- President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”

Click on the chart of the day then choose the graphic if you wish to see the ugly truth.

Taliban Shadow Governor Captured

A positive story amidst the ongoing war:

KABUL, Afghanistan (June 2, 2010) – The newly appointed Taliban shadow governor of Baghlan province was captured May 31 by an Afghan-international force as he prepared to leave for Pakistan.His predecessor was killed in a coalition airstrike the previous day, and this capture marks the third time in as many weeks that the Taliban have had to replace named shadow governors for Baghlan province because of coalition operations.

An insurgent was killed and several other suspects also were detained by the assault force during the operation in Baghlan-e Jadid district after intelligence information revealed insurgent activity.

As the joint force prepared to transport troops from the completed operation, it was discovered that a helicopter's transmission and engines were irreparably damaged and it could not return to its base. Troops left using another helicopter after maintenance experts inspected the aircraft and decided to destroy it on site. The helicopter did not receive any enemy fire.

In another operation, Afghan National Army soldiers of the 207th Corps, supported by troops with the NATO International Security Assistance Force, discovered a weapons cache in Bala Murghab, Badghis province, May 31 after receiving a tip from civilians.The cache contained 11 mortar rounds, eight heavy artillery rounds, a mine, 100 steel projectiles and several items suitable for the production of improvised explosive devices.

Good work.

CBO: Obamacare Will Increase the Deficit

What a surprise! CBO: Obamacare Will Increase the Deficit

In CBO’s judgment, the health legislation enacted earlier this year does not substantially diminish that pressure. In fact, CBO estimated that the health legislation will increase the federal budgetary commitment to health care (which CBO defines as the sum of net federal outlays for health programs and tax preferences for health care) by nearly $400 billion during the 2010-2019 period. Looking further ahead, CBO estimated that the legislation would reduce the federal budgetary commitment to health care in the following decade—if the provisions of the legislation remain unchanged throughout that entire period. CBO also estimated that the legislation will reduce budget deficits by about $140 billion during the 2010-2019 period and by an amount in a broad range around one-half percent of gross domestic product (GDP) during the following decade—again, under the assumption that the legislation remains in force as enacted.

As for provisions being unchanged, don't count on it. The doctor fix alone will bust any hope of reducing the deficit.

US Iraq Footprint Shrinks Further

We have seen shock and awe, and every possible twist turn and brutality in between, and just like that, poof landmarks we think will last for ever just vanish, from the NY TIMES:

Perhaps it is inevitable, the way momentous beginnings have small endings.The destruction of the Salam Palace was big, wrecked by the Americans as they invaded in 2003 and established the Green Zone. With the yet-to-be-rebuilt palace as its backdrop, the ceremony Tuesday to mark the formal American withdrawal from the last checkpoints it helped staff in the zone was a subdued affair.

“I promise to be short because of the heat,” Brig. Gen. Joseph DiSalvo, the deputy chief of staff for United States forces here, told the troops gathered before him. The words that followed were familiar these days: freedom, democracy and praise for their work with Iraqi forces. So was the farewell.“Say, ‘Job well done,’ ” he concluded.

On another note, this highlights a trend where the Afghan conflict has finally overtaken the Iraq war in size and deployment of US and allied troops. As of today there US 95,000 troops stationed in Iraq and over 127,000 US and Nato forces in Afghanistan.

Euro Drops Again

Considering the further downgrade of Spain that occurred last week, the fact that the Euro has once again dropped isn't much of a surprise. What seems to be occuring is that people are catching on to the fact that printing up trillions in currency can be only so effective when your societies are generating only a modest amount of actual wealth

June 1 (Bloomberg) -- The euro extended its longest monthly decline versus the dollar in 10 years amid concern mounting writedowns at Europe’s banks and efforts to reduce budget deficits will hamper the region’s economic recovery.

The 16-nation currency fell before a report forecast to show Italy’s unemployment rose and after an index of executive and consumer sentiment tumbled. The European Central Bank warned yesterday of more bank losses as the credit crisis spreads. Australia’s dollar weakened after its central bank kept borrowing costs unchanged and amid concern slowing manufacturing growth in China will temper export demand.

“There are some complications in the euro area which have stopped us from jumping in until the euro gets closer to what we see as a fair value,” said Gareth Fielding, chief investment strategist at Zug, Switzerland-based Quantum Global Wealth Management, which oversees $2.5 billion for sovereign-wealth funds and central banks. “Although we are still convinced that, on a longer-term basis, the euro is very good value, it’s difficult to buy at the moment given market sentiment is very negative.”

Will the Euro survive is much better question then wether it will be a great long term investment.