Friday, July 31, 2009

Note to Congress: GROW SOME BALLS!

My ire level is raised this morning - and if I had ever been able to absorb the color-coded messages of our national security alert system, I'd apply the most stressed-out federal color to my own particular sense of security right now. But in my mind, the colors of our national security alert system remain blended in a melange of beige; thus I'll label my color red.

Not commy red (that's been out of style since The Wall came tumbling down) - not red-state red, though I'm on board, this morning, with their loathing of government.

I'm seeing rage-red today. Flaming hot flickers of red hot rage. Enough to make me want to raise a fling a bunch of verbal pitchforks at people.

My ire level is raised today simply because I made the mistake of perusing the news. Here's a sampling of what I've read:

WaPo's Bonuses beat profits as bank industry imploded. A news story (but didn't we know this already?) informing us that the NY AG has determined that $32.6 billion in bonuses were handed out to bank execs at companies that lost $81 billion.

Remind me again why a bonus is granted to people who lost large amounts of money? And why tax dollars are needed to pay these bonuses?

Another irritation: David Brook's review of David Wessel's new book, In Fed We Trust. Though Wessel recounts a "tale replete with error," apparently, according to Brooks, this book is "not the story of failure. It is the story of effective muddling through."

Muddling through - effectively. Somehow I expect better from our leaders. Why? Good question, given the overwhelming evidence of mediocrity from private and public sector leaders.

And of course my white whale of a whopper - my Moby Dick - the thing I want to harpoon more than anything is Goldman Sachs. The mainstream media seems to accept Goldman's bragging rights as a successful and "profitable" financial institution despite evidence to the contrary (just as it accepted without question that there were WMDs in Iraq.) They seem to believe that the fed's largess to Goldman existed of that measly $10 billion loan that Paulson made them take - and that they paid back (with interest.)

But apparently, that was just a teeny tiny drop in a bottomless bucket of charity they've received from the government. Elliot Spitzer keeps bringing it up - that Goldman had warrants and access to low cost loans and the $29 billion backed by the FDIC's temporary liquidity guarantee program - but no one seems interested in hearing what the disgraced pariah has to say.

And other people write about it too, but we seem intent on ignoring this story in Mother Jones and this story in New York Magazine, both of which paint a picture of Goldman as a rapacious raptor feeding on the carrion kill that was once America.

So if we want to believe that we've turned the corner because our federally subsidized financial system can pay itself outrageous bonuses, that's fine, I guess. It goes with the territory of being American these days. Because we seem to live in a fantasy land these days, a mirage shimmering with deception and lies.

Just as we believed the housing bubble would never burst (just what the hell are they teaching over at Harvard's business school?!), just as we believed loans made to people who couldn't pay them would see fabulous yields forever (and they did bring in fabulous profits - for a time, but when the loans came due and the house of cards tumbled, the people responsible for the disaster got bailed out) - we seem to believe that profit that is the result of a massive federal subsidy - and only the result of a massive federal subsidy - is a sign of good health in the financial sector.

And these fine, upstanding business people who made $3+ billion in the quarter should be allowed without question to set aside $6+ billion in bonuses for that same period.

And I wonder - where the hell are the representatives of the people? Our elected officials? Why don't they make a stand and regulate these institutions in a way that protects the American economy, not destroy it?

I don't have to look to far to find out. Here in Illinois, we've got but one senator, Dick Durbin. Yes, I know Roland Burris will get a pension for life for his lameduck senate term, but he's the modern day equivalent of Ellison's Invisible Man.

So we have one senator in Illinois - the vocal Mr. Durbin and not long ago, he was quoted on a Chicago radio program as saying:

"And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

They frankly own the place, my senator said publicly, without reprisal or even without attempting to take back ownership.

WTF?! DO YOUR F*CKING JOB SENATORS AND REPRESENTATIVES - which is not to take as much money from lobbyists but to represent the will of the people who elected you. And in Illinois and in most states outside of NY, I'll bet you'll be hard pressed to find a large group of people eager to hand over tax dollars to bonus the G-men.

So my message to all of the members of Congress - to ALL the political leaders who represent the voice of the people - not just the lobbyists who shower them with money - GROW SOME BALLS. Take charge. Halt the sale of the government to the lobbyists.

Or the country you preside over will vanish, like all mirages vanish, replaced by the reality of a desert that was once America.

Thursday, July 30, 2009

The Goldman Fleece....

So Mother Jones has an interesting article offering "an insider's view of Wall Street's rebound" written by former Goldman employee Nomi Prins.

What we need to know - according to Prins - is that numbers lie. And if you look past the PR, past Goldman's congratulatory pat on its own back for paying back the $10 billion TARP loan, you'll see that Goldman's profits wouldn't exist (nor would the company) without the massive access to federal subsidies that they've enjoyed for nearly a year.

Becoming a "bank holding company" has been the secret to Goldman's success, letting the company tap into unimaginable amounts of money.

"Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Goldman apparently does not passively accept anything it does not like. So it asked for some special considerations from its old friends at the Fed. Prins explains:

"Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request."

$63 billion in federal subsidies. Special considerations that relieved it of the capital requirements usually mandated for bank holding companies. The ability to continue to risk other people's money in order to bank a remarkable profit for themselves.

Wow. Imagine how successful a year ALL of us could have if we'd received the generous support shown to Goldman. And how criminally wrong it is that they'll be pocketing the profits that the taxpayers enabled them to make....

Full article below...

"How You Finance Goldman Sachs’ Profits

By Nomi Prins | Tue July 28, 2009 12:28 PM PST in MOTHER JONES
This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.

To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.

Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.

But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.

Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.

Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjà vu.

As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.

Additional research by Clark Merrefield."

Wednesday, July 29, 2009

Kansas: There's No Place Like Home....

On August 6, 2009, New York City's Film Society of Lincoln Center will be hosting the New York premiere of What's the Matter with Kansas?, a documentary film by Laura Cohen and Joe Winston, based on the best-selling book of the same name by Thomas Frank.

I chatted recently with director Joe Winston about the film (which will have its Chicago premiere in September.) He shared with me his story of an urban liberal who decided to embed himself in red-state Kansas... and the lessons he learned along the way.

In 2004, when America was hurtling toward the successful re-election of George W. Bush, Winston went to a book reading in Chicago to see three authors read selections from their books. He went specifically to see Studs Terkel and Howard Dean, but came away from the event absolutely fascinated with what the third author, Thomas Frank, had to say.

Frank was reading from his book, What's the Matter with Kansas? - which looks at a key red state to determine why the working-class has turned away from liberal populism to embrace conservative ideology.

So what is Kansas? When I think of Kansas, I think of Frank Baum and Dorothy's adventure in Oz and the MGM musical with Judy Garland.

In The Wizard of Oz, one of the most iconographic American movies ever made, Kansas is a land bleached of all color and beauty - the place Dorothy initially yearns to leave, a place full of toil and hardship - and then, of course, as the film progresses, Kansas represents the place she longs to return to.

In a 1965 New Yorker excerpt of his true-crime book, In Cold Blood, Truman Capote defined Kansas as a place where "the land is flat, and the views are awesomely extensive; horses, herds of cattle, a white cluster of grain elevators rising as gracefully as Greek temples are visible long before a traveller reaches them."

The towns in Kansas are a different thing altogether. Here Capote describes Holcomb, the scene of a brutal murder:

"Down by the depot, the postmistress, a gaunt woman who wears a rawhide jacket and denims and cowboy boots, presides over a falling-apart post office. The depot itself, with its peeling sulphur-colored paint, is equally melancholy; the Chief, the Super-Chief, the El Capitan go by every day, but these celebrated expresses never pause there. No passenger trains do—only an occasional freight. Up on the highway, there are two filling stations, one of which doubles as a meagrely supplied grocery store, while the other does extra duty as a cafe—Hartman’s Cafe, where Mrs. Hartman, the proprietress, dispenses sandwiches, coffee, soft drinks, and 3.2 beer. (Holcomb, like all the rest of Kansas, is “dry.”)

"And that, really, is all."

That really is all to Kansas - unless you live in Kansas, and the place that appears colorless and drab to outsiders is your home.

"Kansas is a place we think we already know," said Joe Winston. "The heart of average middle America. Completely normal."

However, Kansas, as Frank points out in his book, is a state with a radical history.

A state that once had a market for socialist newspapers. A state where John Brown, the violent abolitionist, participated in the massacre of pro-slavery settlers in 1856. A state, where, nearly a century after John Brown, the important legal precedent that paved the way for integrated education was set by the Supreme Court in the Brown vs the Topeka Board of Education case.

Today, we're not in that radical Kansas any more because it has been radicalized in a different direction - to the far right.

"When I went to the book reading in 2004, this was a time when the conservative movement seemed ascendant," said Winston. "Tom Frank had a very coherent notion of what was happening. And you had to go to Kansas to understand what was happening in America."

So that's what Joe Winston did - with his soon-to-be wife, Laura Cohen as his partner in the project - they optioned Frank's book and went to Kansas with a camera in hand.

"In our everyday lives, we get into our own political bubbles. We tend to talk with people who think like we do," said Winston. "Thomas Frank in his book painted a vivid picture of working class conservatives, who were willing to follow the conservative economic program because the liberals pissed them off. We went to Kansas to immerse ourselves in the conservative movement."

Joe and Laura, two liberal Chicagoans, made 11 trips to Kansas over a period of two years to document the story. For Winston, becoming embedded in Kansas as he followed three families around to learn their stories, was fascinating.

"Kansas is very different from Chicago," said Winston. "These are evangelical Christians - I had never met anyone like any of these people. They didn't try to proselytize us - they just wanted to explain their views. Everyone we met in Kansas was extremely friendly, very hospitable toward us. It was a pleasure to learn just how easy it was to relate to them."

And he learned some other unexpected lessons.

"I got a much better sense of why Kansas conservatives think they way they think. To them, it looks like the Democratic party and big city liberals are not their friends."

But as Frank notes in his book, this is a group of people who have lost ground in the last two decades because of conservative economic policies. Middle class salaries have stagnated while prices have risen. Unemployment is on the rise. The cost of college at a private university is nearly equal the median salary in the United States - roughly $50,000.

"The people we met in Kansas are being badly served by government," said Winston. "No matter who is in power in Washington, people in Kansas and other places like that have been sliding toward oblivion for a long time. These are people whose way of life is disappearing - and they fear that their children will not be able to enjoy the same standard of living they experience today.

"Certainly, I felt for these people. I felt I understood where the activists from the religious right are coming from. That was completely foreign to me before."

Abortion is a key issue in the conservative movement, and for several decades, Kansas has been an important battleground in the war over abortion. Just recently, a Wichita doctor, George Tiller, who provided abortion services at his clinic, was murdered by a pro-life activist on his way to pick up goat's milk.

Winston's plunge into the heartland of America gave him an understanding of why abortion became such a hot issue.

"I struggled for a long time about the pro-life activists," said Winston. "There are a lot of single-issue voters focused on the apocalyptic nature of abortion. To me, it seemed that abortion became so important because it can be painted in such vivid terms as the massacre of the helpless.

"In Kansas, I saw a lot of people who felt powerless taking on abortion as something they could do to make the world a better place. Liberals underestimate the appeal that some of the right-wing populist causes have for these people - they offer a way for them to make a difference," Winston said.

In a world where retirement portfolios and jobs seem to vanish with the wind, a cause to believe in and work toward takes on greater importance. And in a country that seems increasingly segregated into red and blue blocks, we are fed news from a segregated mediascape as well. In this environment, people tend to hear only what they want to hear.

By making this film, Joe Winston, a self-described urban liberal, left his liberal comfort zone to go to Kansas, to make the effort to listen to what the conservatives had to say. He found striking kindness in Kansas - and in attempting to learn "what's the matter with Kansas," he realized that in order to find common ground, you have to take people who do not agree with you just as seriously as those who do.

So if you live in NYC and want a glimpse of the red-state world, check out What's the Matter with Kansas on August 6th at the Film Society of Lincoln Center. There is no narration in What's the Matter with Kansas, the filmmakers decided to let the subjects speak for themselves. I have not seen the film myself and look forward to the Chicago premiere this fall.

Afterwards, Joe and Laura will host a panel discussion on “The Future of Conservatism: A debate” with Joe Conason of the NY Observer, Kathryn Lopez of the National Review, Chris Suellentrop of the NY Times, and Ryan Sager, author of “The Elephant in the Room: Evangelicals, Libertarians, and the Battle to Control the Republican Party.” Frances Fox Piven of CUNY will moderate.

For more info on the film and the filmmakers, check out the film's website.

Salon's review of the film.

Variety's review.

Here's a preview of the film...

Tuesday, July 28, 2009

Palin the Poet...

Wife, mother, grandmother, hockey mom, ex-governor of Alaska, fierce fisherwoman, national figure, high-ranking Republican, a voice for all those red-state residents who cannot themselves be heard, Sarah Palin has many titles.

We can now add "poet" to her list of career accomplishments (right after pitbull)...

Thanks to Ezra Klein at WaPo for sharing this....

Monday, July 27, 2009

G-Men Talking! And they appear kinda delusional....

Fascinating story about Goldman Sachs in New York Magazine...

The magazine's story on our new millennial G-men (no Elliot Ness here!) talks about leverage, layoffs and the firm's "essential" position in the American capital markets.

Some key quotes include:

On the tarnish now seen on Goldman's gleam:
"Ever since the bank crossed paths with U.S. taxpayers, getting saved with at least $10 billion in government aid last year and then parlaying that into $5.1 billion in profits in 2009 (so far), the firm has been seen as the ugly essence of capitalism at its most cynical—by Washington, by the public, by the financial press, even by some of its clients. Stalwart voices of Wall Street like the Financial Times and The Wall Street Journal have criticized the firm’s undue influence on government and its ruthless pursuit of risky profits. Venom is flowing from more unlikely quarters as well: A recent Rolling Stone article called Goldman “a great vampire squid wrapped around the face of humanity” and accused it of rigging every major market bubble since the Great Depression.

This is not the kind of attention Wall Street’s most vaunted financial institution is used to. Which is why I am now sitting in its wood-paneled and gold-trimmed executive suite: The famously press-averse firm has consented to a rare audience.

The man Goldman has selected to come to its defense is John Rogers, the firm’s chief of staff. Rogers is typical of the Goldman elite—doubling as a Washington power broker and confidant to James Baker, Jon Corzine, and Hank Paulson. The atmosphere is airless as Rogers sits down, his steady eyes barely blinking: a silver-haired sphinx in a sky-blue shirt. “We don’t live in a vacuum, and we’re very aware of what the general public is thinking,” says Rogers calmly. 'We work in a fiercely competitive global industry, but we can’t afford to be oblivious to public opinion.'

Especially not as Goldman ramps up astronomical profits and prepares to pay its executives $11.4 billion and counting in this of all years. If the amount seems obscene to an outsider, it is justified on the inside by an article of faith: that Goldman employees are the absolute best of the breed, meant to wield the levers of power—and reap its rewards. As John Whitehead, the godfather of Goldman’s modern culture, wrote in a set of guidelines for executives: 'Important people like to deal with other important people. Are you one?'"

On the importance of the AIG bailout to Goldman's survival:

"As it happened, Goldman Sachs was AIG’s biggest banking client, having bought $20 billion in credit-default swaps from the insurer back in 2005. The swaps were meant to offset some real-estate investments Goldman had made, specifically a bunch of mortgage bonds it had on its books. The idea was simple: If the value of the mortgage bonds went down, the value of Goldman’s AIG swaps went up, assuring Goldman was safe from all-out losses on what it feared was an upcoming collapse in real estate. In reality, this was nothing like insurance and much more like an old-fashioned hedge.

By that weekend in September, Goldman Sachs had collected $7.5 billion from its AIG credit-default swaps but had an additional $13 billion at risk—money AIG could no longer pay. In an age in which we’ve become numb to such astronomical figures, it’s easy to forget that $13 billion was a loss that could have destroyed Goldman at that moment."

On the unusual terms granted to Goldman Sachs as a result of the AIG deal:
"Of the $52 billion paid to AIG’s counterparties, Goldman Sachs was the biggest recipient: $13 billion, the entire balance of its claim. The amount was surprising: Banks like Merrill Lynch that had bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar in deals moderated by New York’s insurance regulator. Eric Dinallo, the former New York State insurance commissioner, who was at the AIG meetings, characterizes the decision this way: AIG’s counterparties, Goldman being the most prominent, “got to collect on an insurance policy without having the loss.”

Over time, it would appear to many that Goldman Sachs had received a backdoor bailout from a Treasury Department run by the firm’s former CEO. Why did Paulson bail out the banks that did business with AIG, critics have demanded ever since, and not Lehman Brothers? Certainly executives at Lehman want to know. (As one former Lehman managing director there puts it, “The consensus is that we were deliberately fucked.”)"

AIG leader Hank Greenberg, on the AIG bailout:

"So does former AIG CEO Hank Greenberg, the man who made the insurer into a corporate giant. Greenberg had wanted Paulson to give AIG’s clients a government-backed guarantee on the money owed rather than paying them cash and essentially liquidating AIG. Last November, while in China at a business conference, Greenberg confronted Blankfein about Goldman’s role in the demise of his company. 'I couldn’t understand what went on that AIG was forced into ownership by the government at terms that were outrageous and Goldman was present at that meeting,” he says. “It’s outrageous. This whole thing is disgraceful.'"

Popping the GS bubble about its ability to thrive without government intervention:

"Not a single Wall Street executive I spoke with, including several Goldman Sachs alumni, believe those hedges would have survived an overall collapse of the financial system. A large loss would have been inevitable as lending evaporated, and Goldman Sachs would have struggled to shrink the company to a fraction of its size overnight. But the most glaring argument against Goldman is Goldman’s own: If AIG’s biggest and most important bank customer was hedged against losses in AIG, as it claims, why did the government need to pay Goldman Sachs the full $13 billion?

Lost in the haze of Goldman’s recent record profits is the fact that the firm nearly went under even after the AIG bailout last fall. As the market continued to plunge and Goldman’s stock price nose-dived, people inside the firm “were freaking out,” says a former Goldman executive who maintains close ties to the company.

Many of the partners had borrowed against their Goldman stock in order to afford Park Avenue apartments, Hamptons vacation homes, and other accoutrements of the Goldman lifestyle. Margin calls were hitting staffers up and down the offices. The panic was so intense that when the stock dipped to $47 in intraday trading, Blankfein and Gary Cohn, the chief operating officer, came out of the executive suite to hover over traders on the floor, shocking people who’d rarely seen them there. They didn’t want staffers cashing out of their stock holdings and further destroying the share price. (Even so, many did, with $700 million in employee stock liquidated in the first nine months of the crisis.)

Meanwhile, there were huge losses for Goldman’s clients in souring investments, many of which Goldman executives and their network of alumni were also vested in. Its premier hedge fund, Global Alpha, which had already been crushed in 2007, was getting pummeled again. Its Whitehall real-estate funds suffered $2.4 billion in losses, hammering not only clients but also employees, including COO Jon Winkelried. In a panic, Winkelried put his $55 million estate in Nantucket up for sale and likely would have had to liquidate his stock to raise funds. To avoid that outcome, Goldman agreed to buy Winkelried out of his investment, paying him $19.7 million. Another of the higher-ups, the firm’s general counsel Greg Palm, was covered for $38.3 million. (Winkelried has since resigned. His Nantucket estate is still on the market, at a reduced asking price.)

As more employees were hit, the company started a loan program to bail out more than a thousand staffers. Rogers says very few ended up taking loans from the company. “Only a handful of people had difficulties,” he says. “I wouldn’t describe it as a crisis … It was a stressful time for everyone, and some people might have questioned whether they had made the right career choice.”

The stress was compounded by the fact that the company had laid off 10 percent of its employees, about 3,000 people. A person with close ties to the firm says employees were escorted to the elevators with their belongings by security guards. The company also purged its partnership—the elite circle of about 443 senior executives who share in a special bonus pool. So-called de-partnering is considered a humiliating event at Goldman Sachs. “They were quite harsh,” says a person familiar with Goldman Sachs’s personnel activities. “This was one of the most traumatic by far.” Regardless, Blankfein announced that top executives would receive no bonuses anyway, only their $600,000 base salaries, because the firm had performed poorly. Soon Goldman would report its first quarterly loss as a public company. With the market crash threatening the stock price and compensation, several Goldman alumni discussed with top management the possibility of taking the company private to escape further distress to the firm.

Salvation came on November 25, a few days after Goldman’s stock price plunged to $52 a share, down from the year’s high of $200 and the lowest price the company had seen since it went public. Again, the white knight was the government. It turned out that Goldman’s conversion to a garden-variety bank-holding company offered an amazing advantage: Goldman now had access to incredibly cheap money. Exploiting its new status, Goldman became the first financial institution to sell $5 billion in government-backed bonds through the Federal Deposit Insurance Corporation, which allowed Goldman to start doing deals when the markets were at a near standstill. 'Goldman was desperate for it,' says a prominent Goldman alumnus. 'Everybody knows it. Those FDIC notes they got were lifesaving because they couldn’t issue any debt. If it had gone on another week or two, Goldman would have failed, they would have gone the way of Lehman, and you’d be talking about Lloyd the way you talk about [Lehman CEO] Dick Fuld.'"

Those are just a few of the nuggets exposing the G-men for what they truly are, the biggest and most profitable welfare recipients in the history of the United States....

Sunday, July 26, 2009

A Street Does Not a Nation Make....

Roger Cohen has a brightly optimistic op-ed piece in today's NY Times, carrying the headline "A Nation Hard to Short." He was up early the other morning to see:

"...The rising sun just knotting its tie over the serried high rises of midtown and the Upper East Side.

It was a magnificent sight, the city resplendent. New York has recovered, if not its stride, at least its balance."

On that very same day, Cohen had seen Warren Buffet on MSNBC making the claim that “It’s hard to short America in the long term.”

The beauty of New York at dawn - Warren Buffet's happy optimism on MSNBC - these elements of Cohen's day leave him filled with hope for "the land hardwired for the future," and renewed by the "enduring belief of millions in America as a transforming power."

I read this today in my house in a suburb of a city that is posting an unemployment rate of 11.3 percent.

And I think that there is a certain myopia to much that I read about the crisis - the sense that the recovery of Wall Street is all we need to be recovered from this terrible fiscal catastrophe that has beset our nation.

Goldman declares record profits, so Wall Street is clearly recovering. Never mind that Goldman would have been as bankrupt as Lehman Brothers had the feds not stepped in. A financial system that requires such a huge bailout in order to post profits is a signal that our financial sector is exceptionally damaged - and not even close to recovering.

Unemployment continues to rise - but that's okay - New York is beautiful at dawn. Our belief in the "transforming power of America" is more powerful than our reality.

For those in a particular location - Manhattan or Washington, D.C. - there seems to be a feeling that the crisis is over. We can breathe a sigh of relief.

For those not lucky enough to live in those zip codes, the crisis continues unabated. A jobless recovery does not bode well for the nation. The bonuses fed to a sector propped up by the most extraordinary federal intervention into private business is a terrible business model. That the "too-big-to-fail" institutions have grown only bigger leaves our financial sector in an even more fragile position. The federal government has created a situation where the mistakes of the biggest will always need a bailout - or else collapse will be inevitable.

It may be "hard to short America in the long term," but having to live through the short term catastrophe without employment is something millions are experiencing today. Dawn may be rising on Wall Street, but its shadows continue to darken the rest of the country....

Cohen's op-ed piece to follow....

"July 27, 2009
A Nation Hard to Short

NEW YORK — The other morning, I caught Warren Buffett on MSNBC. The Sage of Omaha was in sprightly form, perhaps buoyed by the market’s summer surge. He was asked where the market was headed in the next few months and he said he had no idea but he knew one thing: “It’s hard to short America in the long term.”

All the debt, personal and national, notwithstanding, I have to second that. As it happened, I’d been up very early that morning to talk to CNN’s excellent John Roberts about Iran. Waiting for the show, I looked east across Central Park to the rising sun just knotting its tie over the serried high rises of midtown and the Upper East Side.

It was a magnificent sight, the city resplendent. New York has recovered, if not its stride, at least its balance.

Ten months ago, when Lehman Brothers went poof in the night, and its spooky chief executive Richard Fuld hustled off to sell his Florida mansion to his wife for $100, the city was shell-shocked. It was intact, but emptied and drained, its density gone, as if a neutron bomb had struck.

The sidewalks seemed too wide for scattered people. You could hail a cab in the rain at 6 p.m. on Fifth Avenue with ease. Waiters stared out from empty restaurants as if trapped suddenly in some Hopper painting. Jobs vanished faster than you could say leverage.

The damage from Fuld’s follies — and that of other 31st-floor types giddied by their ephemeral mastery of the universe — has not stopped giving. Credit appraisal is stuck on stupid. If you couldn’t fend off a loan in the days of mortgage madness, now you can scarcely get one with a perfect credit score.

An executive on the board of a large regional bank told me the other day that 95 percent of time is now spent on compliance, which does not leave a lot for doing business. That’s the world of TARP (Troubled Asset Relief Program), the opposite of the former PRAT (Please Reserve a Table) world of bankers.

Unemployment is still rising, and could hit 10 percent in the fall. Real estate has scarcely stabilized its free fall. Corporate profits, returning, seem based more on inventive cost-cutting than new revenue flows.

If moribund is 1 and feverish is 10 on the New York restaurant-and-taxi gauge, the city is hovering at about 4.

But it’s come back. It’s righted itself in short order. That has something to do with smart governance but more to do with the gritty culture of the city, its work ethic, its inspiring sense of its own grandeur, its shared knowledge of the personal struggle that goes into a day. A Fuld, who never took the subway, never sat in Bryant Park with a sandwich, knew nothing of what makes the city tick.

My dawn moment with the skyline is a moment every New Yorker knows, when the demanding city suddenly gives back, yields beauty from its pounding restlessness, grants some miracle of iron and light, and in so doing summons the energy and civility that has helped set things right.

Frank McCourt, the Pulitzer Prize-winning author who died last week, used to talk about that New York skyline, about the way he would dream of it during his miserable childhood in Limerick, Ireland (the inspiration for his hugely successful “Angela’s Ashes”), and about his fights with his brother Malachy over who should own the right to have such dreams.

He was talking about the summoning power of America, a land hardwired to the future; and, in his way, about the deeper reason why Buffett is right to say, “It’s hard to short America in the long term.” That reason is the enduring belief of millions in America as a transforming power.

The close to my day had a certain symmetry. I found myself in Queens that night, looking at the now glittering towers of midtown from the far side of the East River. Their orange glow was gone but not their beauty. I thought that New York was always surprising.

Some Iranian-Americans had invited me to a wonderful dinner complete with crispy rice (our “vegetarian crackling” as one woman once put it to me in Tehran) and unctuous beef simmered in bitter herbs. Their families had all fled Iran at different times — before the Revolution, in 1979, or in the tumultuous years afterward. Various odysseys had eventually brought them to New York.

Where they had begun again, giving their part to the city’s compact and reserving part of themselves for the memories from which America is only partial deliverance.

The talk of the revolution made me think of Walter Cronkite, the CBS anchorman whose death had immediately preceded McCourt’s. From day 50 of the 1979 U.S. hostage-taking in Tehran, Cronkite always told Americans what day the crisis was in, right up to the 444th day.

Perhaps Buffett has succeeded Cronkite as “the most trusted man in America.” My day of connections was over, a full day in an America that’s hard to short in the long term."

Wednesday, July 22, 2009

The Magnanimity of the Magnificent...

Stop the haggling - we want to be generous!

That's the news coming out of Goldman Sachs' PR office today. They've bought back warrants from the feds for $1.1 billion - the full value as determined by the feds.

Just a few weeks ago, Goldman had wanted to pay just $650 million for the warrants.

Lloyd Blankfein, Goldman CEO, had this to say in the press release:

“This return is reflective of the government’s assistance, which benefitted the financial system, our firm and our shareholders,” said Lloyd C. Blankfein, Chairman and CEO. “We are grateful for the government efforts and are pleased that this additional money can be used by the government to revitalize the economy, a priority in which we all have a common stake.”

He added, “Because Goldman Sachs advises companies with their growth plans and raises capital to support that growth, the best and most sustainable operating environment for us is one where consumer and business confidence and economic growth flourish. We are committed to allocating capital and providing liquidity to our clients to help stimulate growth and job creation.”

Goldman was nice enough to calculate the return on the taxpayers investment in Goldman: 23 percent.

Nice to see TARP making some money for the government. The $500 million difference that Goldman decided to hand back to the feds pales in comparison, however, to the billions and billions that have flowed from Treasury to companies like Goldman (the AIG unwind - the $12.8 billion in AIG money that went to Goldman was all thanks to the feds! And TALF loans that they've used for some nice profits.)

I want the math geniuses at Goldman to calculate the return they've received thanks to the government's investment in them. Billions in profits going toward billions in bonuses. A far bigger return than the extra few millions they paid out (after much haggling) to the feds for the TARP warrants....

Other links to follow...

Zero Hedge's take...

Wall Street Journal story...

WaPo story on Wall Street bonuses...

WaPo story on the buy-back of the warrants...

"What we have here is a failure to communicate..."

In Cool Hand Luke, Paul Newman, in the title role, is serving a jail sentence for chopping the heads off of parking meters (foreshadowing the rage felt today in Chicago for the parking meter mess.)

Luke is a rebel, fond of questioning authority and, as seen in the scene posted above, the authorities don't want to be questioned; they want to be blindly obeyed. "What we have here is a failure to communicate," says the chain gang captain, after beating Luke to the ground.

The American consumer is feeling a little beaten up these days, what with the crushing collapse of their portfolios and job prospects. There are grumblings 'round the fact that Goldman Sachs, JPMorgan Chase, BoA and Citigroup are having such fabulous success at a time when the rest of the nation remains paralyzed by the crash of the economy.

We're puzzled, those of us outside of the Wall Street / Washington, D.C. corridor, by the extreme diversity in luck. All those "too-big-to-fail" firms - the ones that survived the blood bath and have grown even bigger as a result - are posting unbelievable profits. And as they do so, the economy outside of the shadows continues to tank. Hundreds of thousands of people laid off each month. No real job creation in sight.

And I wonder if perhaps we'd be a much more obedient public if only Henry Paulson had communicated his goals and vision for TARP more clearly last fall. So many of us are kind of pissed about the outcome - what with record profits for the too-big-to-fail firms in the financial sector and record unemployment outside of Wall Street. The dichotomy in fortunes between the two is rough to process. Who knew that massive bonuses had to be paid to the financial community in order to jump start the economy elsewhere?

This was an outcome that had not been properly communicated - which made me wonder just what did Paulson communicate last fall? How did he frame this bailout?

So I decided to go back and see just how Paulson explained the situation to the public last fall.

Did he clue us in on the grand plan? My memory was that TARP was needed to save the economy - and thus it was a shock to learn that Paulson's economy was just that fragment of it over on Wall Street.

In August 2008, it was clear our economy was going through a rough patch. Unemployment had increased to 5.7 percent in July, up from 5.5 percent in June. Gas prices were the highest they'd ever been (more than $4 a gallon.) The housing sector was undergoing a painful correction.

The treasury department's Economic Update for August included this quote:

"Today's jobs data reflect the headwinds affecting the U.S. economy--the housing correction, credit market strains, and higher energy prices. Yesterday's GDP data reflect the positive impact and timeliness of the stimulus payments, which will continue to support spending as we work through these headwinds."
Assistant Secretary Phillip Swagel, August 1, 2008"

According to treasury's 08/01/08 update, there appeared to be no swine flu-like economic pandemic threatening to overthrow our nation. Some concern, yes, we were definitely buffeted by headwinds, but seemed like nothing we couldn't handle via the stimulus. The stimulus would support spending and we'd be saved.

Five weeks later, treasury announced the Freddie and Fannie bailout. In a 9/7/08 release, Paulson defined his goals:

"Since this difficult period for the GSEs began, I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure."

I suppose one could argue that in placing "stability to financial markets" first and "protecting the taxpayer" last in his list of priorities, Paulson gave us a big clue to his real intentions.

But then the avalanche began, and we were all very distracted by the catastrophe that followed. Lehman failed and was not bailed out. AIG failed, but was bailed out after some frank discussions, apparently, with Lloyd Blankfein, Goldman Sachs CEO.

On September 19, 2008, Paulson tried to inform consumers of the issues surrounding the crisis:

"The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.

As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods, with 5 million homeowners now delinquent or in foreclosure. What began as a sub-prime lending problem has spread to other, less-risky mortgages, and contributed to excess home inventories that have pushed down home prices for responsible homeowners.

A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them. These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans. The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged."

When I read this, I can only think that the financial community had decided to abandon all the complex business theories and equations they'd learn at the Harvard MBA program - instead falling under the influence of one of the most invidious American cultural evils - the craps table at Vegas. The entire Wall Street community had apparently all turned into Swingers:

Yes, we all want to break even now, like the esteemed older gentleman in the scene, but many Americans seem to be experiencing the downer of the failed "double down" bet - without really having a seat at the table...

Back in September, Paulson's press release continued, with nary a reference to Vince Vaughn or Jon Favreau:

"These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted.

To restore confidence in our markets and our financial institutions, so they can fuel continued growth and prosperity, we must address the underlying problem.

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible. The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars. I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."

So we needed to embark on a plan to remove illiquid assets from the system... which has yet to materialize - the toxic assets remain on the books for someone else to deal with.

When we reach the end of the press release, it becomes clear that Paulson is seeking salvation for the economy by focusing on Wall Street:

"Right now, our focus is restoring the strength of our financial system so it can again finance economic growth. The financial security of all Americans – their retirement savings, their home values, their ability to borrow for college, and the opportunities for more and higher-paying jobs – depends on our ability to restore our financial institutions to a sound footing."

It is also interesting to note that here Paulson recognizes that there is an economy outside of Wall Street - and that the two economies, at least in his mind last September, were interconnected.

Today, however, the profits seen by Wall Street - profits that are heavily subsidized by the federal government - profits that are only possible thanks to the federal bailout of Wall Street - those profits are not at all connected to the economy outside of Wall Street. Goldman is planning to pay out record bonuses to its employees - averaging approximately $700,000 to every person who works there.

The stability sought by Henry Paulson last fall seems to be experienced only by those too-big-to-fail companies that have been the beneficiaries of some of the most extraordinary federal interventions into the free market.

And though we were told that jobs would follow as a result of this extraordinary intervention, we were not told that we had to wait until after Wall Street execs paid themselves exceptional bonuses.

So what we have here is a terrible failure to communicate. Before a penny of TARP funds had been paid out, we should have been told that billions of the tax bailout dollars would be going to fund extraordinary bonuses for those most responsible for the debacle.

Perhaps then it would all make sense - and we'd be docile and obedient. Or perhaps TARP would have been structured in a completely different way, in which the key investors in the economic recovery - the taxpayers - would be receiving the fabulous return on their investment today, instead of the Wall Street swingers.

Tuesday, July 21, 2009

Titans of Welfare Show the Queens How To Do It

Way back in 1976, the Bicentennial year of our nation, when we celebrated 200 years of American independence, Ronald Reagan introduced a very popular character into the national lexicon.

The Welfare Queen.

Reagan was one of the best raconteurs on the American political stage, perhaps rivaled only by Lincoln. When he spun his tale of fraud and waste, Reagan described "a woman in Chicago. She has 80 names, 30 addresses, 12 Social Security cards and is collecting veterans' benefits on four nonexisting deceased husbands.... Her tax-free cash income alone is over $150,000."*

People were outraged! Outraged that one woman could do such harm to the system.

According a February 14, 1976 NY Times article, Reagan's story was a bit of a stretch. The Queen in question was prosecuted by the Cook County State's Attorney's office for defrauding the system of about $8,000.

But never mind. Reagan continued on for years with this story of destructive fraud, painting (at least for me) images of greedy ripoff artists - slick mothers driving fully loaded Caddys through Chicago's poorest neighborhoods, loaded with the 1970s precursor to the new millennial bling, waving around large numbers of $100 bills to the masses who got their welfare the legitimate way.

In the Reagan mythology, welfare fraud was the provenance of women. I don't recall him ever mentioning Welfare Kings in the context of government fraud. For him, such criminals were women - mothers - crooks taking full and terrible advantage of "the system."

Well move over ladies - the Titans of the Universe are here to school you on the ins and outs of welfare fraud in today's pro-business environment.

First, you start by getting the very best university education money can buy - and we all know the Ivies are the only place for this.

Then, ride the swift but safe current over to Wall Street and get a high paying job using numbers to bury the risk of certain investments.

Take note of the fact that large numbers of mortgage brokers are selling mortgages to people who have no hope of ever paying them back. Think to yourself - "this is a fine way to make a living!" Bundle those risky mortgages together - including a couple of sound mortgages to minimize the risk - and then offer those securitized mortgages for sale to all.

Make sure that you sell those risky investments to pension funds for teachers; make sure the retirees stack up these investments in their portfolios - and definitely make sure the college funds are fully loaded with your risk.

Then, knowing that these instruments are risky, buy yourself some insurance from a reputable insurance company. Drive for the best deal - make sure you don't pay nearly what the insurance is worth.

Never ask yourself what will happen when all these loans enter into foreclosure. No need to, because we all know housing prices will continue to skyrocket upward forever.

When suddenly, rumors start swirling that these loans are in reality very bad, and people start wanting their money - know that the fact you've stocked your books with billions in bad debt is not at all relevant.

Leverage is all-American. Leverage is the only pillar of our economy that matters - that we have all that debt should never be a factor in determining the health of our company. (Toxic debt?! So foolish to consider it in that way!)

But oops! Housing prices are tanking! Our business model, which seemed so mathematically sound, is failing for some reason.

Time to look to the source of all solutions - the feds! Work your B-school connections - make your former colleagues include you in meetings about the disposition of an important insurance company.

You'll be well rewarded for your efforts. A massive government entitlement program will be developed to provide you with capital needed to exist - and with the funds to pay for contractually obligated bonuses you so very much deserve.

In a sharp twist from Reagan's world back in the 1980s, government today is the solution to the problems of business - not the problem. The government saved the financial sector last fall - paving the way for the Titans of Welfare to have one of their most fabulous years - ever.

And of course, no financial sector bailout is worth anything without mention of bonuses (auto sector bailout - different story - those contracts needed to be renegotiated prior to the release of funds - but we all know Wall Street is a different universe, subject to different rules.) The fabulous year the financial sector is having in 2009 means the financial sector, which exists solely thanks to the federal bailout, can reward itself extravagantly with some of the best bonuses - ever.

So remember Queens - the Titans know just how to manipulate the system in ways that shower them with money instead of becoming dragged down with a criminal investigation. Make important connections with the power brokers throughout your career - and work them hard when your business acumen has failed you. You'll never be held accountable for any mistake ever - and you'll be richly rewarded with taxpayer loot.

*As quoted in a 2/14/1976 NY Times article - too old for a hot link!

Monday, July 20, 2009

Blinded by the Bling! (Instead of the Light)

Apparently the fabulous profits "earned" by Goldman Sachs this quarter aren't quite enough for the investment banking firm.

According to this story by Allan Sloan in the Washington Post, they're haggling with Treasury over the price of the stock purchase warrants it gave the feds last fall.

Not in the economic biz, so I'll let Sloan explain the warrants:

"The warrants are very valuable, especially with the recent sharp run-up in Goldman's stock price. The warrants carry the right (but not the obligation) to buy 12.2 million Goldman shares at $122.90 each. Goldman's closing price of $160.03 on Monday put the warrants "in the money" by a bit more than $450 million. (That's the $37.13 difference between $160.03 and $122.90, multiplied by 12.2 million.)

Given that the warrants still have more than nine years to run, they're clearly worth more than $450 million because their owner has years of upside. However, because there's no market for such long Goldman warrants, their value is in the eye of the beholder (and the pricing modeler).

Alas, no one would tell me what the government is asking for the warrants or what Goldman is offering for them. "We are in discussions with the Treasury on the buyback of the warrant," said Goldman spokesman Lucas van Praag. "The purchase price has yet to be determined. . . . We believe that taxpayers should get a decent return, and we hope that our discussions with the Treasury will do just that." The Treasury declined to comment.

My estimate is that the Treasury is asking for $1 billion to $1.5 billion and Goldman is offering $500 million or so.

Under the law, Goldman, like other early TARP repayers, has the right to force the Treasury to sell back the warrants after a lengthy set of price arbitrations."

Why should Goldman show gratitude to the feds? It appears that Sloan feels as I do - that Goldman Sachs exists today only because the US government propped up the financial sector last fall.

"When I say that taxpayers kept Goldman alive, I'm not talking about the $10 billion of TARP money or the $12.9 billion of American International Group bailout money that Goldman got. The $10 billion was nice but not necessarily essential to Goldman's survival, and Goldman said it was holding enough assets and collateral to get all or almost all of the $12.9 billion it was owed by AIG had the government not bailed out the troubled insurer.

I'm talking about the way that U.S. and foreign governments -- in other words, taxpayers -- saved the world's financial system, saving Goldman in the process. Had many of the world's biggest institutions collapsed, which would have happened without taxpayer aid, Goldman would have been wiped out because the firms that owed it money would not have been able to meet their obligations.

I'm also talking about the Federal Reserve Board moving with lightning speed last fall to allow Goldman to become a bank holding company. By giving Goldman access to vast amounts of money it was making available to bank companies, the Fed ended panicky demands from Goldman customers that the firm immediately return the cash and securities it was holding for them. That was the equivalent of a run on the bank, which no institution can survive. Stopping it saved Goldman.

Now this is how Goldman shows its gratitude. It could have shelled out a few extra bucks and done the right thing for taxpayers (and ultimately for itself) by exercising good business judgment and looking generous. Instead, it's behaving in a way that brings to mind one of my favorite biblical verses, Deuteronomy 32:15: "So Jeshurun waxed fat and kicked . . . and spurned the Rock of his salvation." In these ultra-political days, filled with economic pain for so many Americans, that's not only the wrong way to act, it's foolish. A word I never thought I'd associate with Goldman."

Foolish seems too kind a word for Goldman's behavior. In "spurning the Rock of their salvation," Goldman has clearly become blinded by the light of all that gold they feel belongs only to them....

Chasing Rahm...

On Sunday, the NY Time reported that Rahm Emanuel, Obama's chief of staff, was going to be attending JP Morgan Chase's board meeting.

Today, he's changed his mind.

In a world where appearances mean so very much, having a key Obama operative hanging out with Jamie Dimon and the others who've profited so very nicely from the collapse of the economy might send a wrong signal.

I'm left wondering what Rahm was going to be doing at the meeting. Perhaps asking for a refund? Suggesting that Chase share its profits with the middle class that's been royally screwed by the crisis? Or cementing the feel-good relationship between Washington and Wall Street?

We'll never know for sure.

Thursday, July 16, 2009

Glen Beck and me... speaking the same language?

Full confession: I'm not a Fox News fan. When I watch the channel, I end up like Krugman's proverbial boiled frog. I watch and watch, then find myself boiling over in rage, hurling curses at the screen, particularly when Hannity is running at the mouth. Since becoming a mother, I've tried to limit the "swears" (as my son calls them) and thus limit my time with Fox News.

But I saw this clip and realized that Glen Beck and I are kindred spirits, at least when it comes to our thoughts on Goldman Sachs.

Beck uses a low-tech blackboard and some signs to show the flow of money from the feds to the now profitable Goldman.

Quite an interesting analysis! Check it out...

This is actually one time I want the Fox News guys agitating the masses over an issue. Keep it up, Glen...

Wednesday, July 15, 2009

The Rodney Dangerfield of Illinois – without the laughs

I never thought I would say this, but Rodney Dangerfield and Roland Burris are like two peas in a pod.

Sort of.

Rodney Dangerfield made a career in comedy out of being the man who couldn't get no respect from anybody.

Roland Burris is retiring from the Senate because he lacks the same thing - respect. It's certainly not news that Roland Burris is declining to seek a public vote of affirmation for the senate position he acquired from disgraced former Governor Blagojevich.

But it was reported in yesterday's Chicago Tribune that Burris has been able to raise hardly any money at all since assuming the position of junior senator from Illinois - just $41,320 from April through June. This figure is clearly a huge improvement from the $845.00 (and no, that's not a typo!) he raised from January through March, but clearly insufficient to continue the charade of his candidacy.

A senate seat is pricey real estate these days (requiring at least $3 million, according to a 2005 release from www.campaign and Roland's inability to attract funding (in an era where lobbyists toss money to candidates like candy at the 4th of July parade!) is a significant clue that he has no support among any constituents in Illinois.

Thus, the man who replaced Obama in the Senate in a cloud of controversy has taken himself out of the running in the 2010 election.

Like Sarah Palin when she resigned, Roland, in his resignation speech, made reference to the fact that "life is full of choices."

Unlike Sarah Palin, he'll serve out the rest of his term. But he forever will remain the Senator who represented the will of just one man, a disgraced former governor named Rod Blagojevich.

Here's his resignation statement in full...

“Serving in public life is not easy, but it is a noble and rewarding calling. Life is about choices. Make no mistake that I love serving in the United States Senate. I love serving the people of Illinois. But in making this decision I was called to choose between spending my time raising funds, or spending my time raising issues for my state. I believe that the business of the people of Illinois should always come first.”

“And so today, I have returned to the place where my political journey began back in 1978, back to the South Side of Chicago, back to my community and my constituency to announce that I will not be a candidate in the 2010 election, and that I will not run for the United States Senate. I have been a member of the Senate for seven months now, and I have seen firsthand that my colleagues are thoughtful, dedicated, and loyal Americans – Democrats and Republicans alike.”

“The Obama Administration and the Democrat-led Congress is bringing transformational change to this nation, and it is an exciting time to be in public service – more exciting and more filled with hope and possibility than at any time I can remember. I made a decision as a young man to get involved in public life, never imagining I would have the great honor to serve this state and this country for as long as I have. Now it is your turn. Now it is your turn to decide how you will serve your community."

The Moral Hazard of Bailing Out Banks...

When reading a WSJ story with the headline "A Tale of Two Bailouts," my mind began thinking of Dickens and his rather famous opening paragraph for A Tale of Two Cities, the Dickensian tale of the French Revolution, when the unwashed masses rose up in violence against the privileged ruling class.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair...."

Interesting, how apt that quote remains today....

For Goldman, the Crash has truly been the cause of some very good times.

However, for CIT, another TARP recipient, the worst of times are possibly approaching. It is a financial institution that still teeters on the verge of bankruptcy.

And it is not yet clear if the feds will bail CIT out.

So what does CIT's possible failure mean? The WSJ explains:

"What the Goldmans of the world have in addition to profits is the widespread belief that they are too big to fail. Both Goldman and CIT converted into bank holding companies at the height of the financial panic last fall, which made them eligible for TARP injections. Goldman also benefited at a crucial moment from the Federal Reserve takeover of AIG, and it received the additional filip of FDIC-guaranteed debt issuance through the Temporary Liquidity Guarantee Program. CIT was excluded from the latter program on grounds that it didn't pose a systemic risk, even as larger competitors like General Electric were allowed in.

CIT's asset quality has since fallen further, and it now faces $2.7 billion in maturing debt this year that investors fear it will not be able to roll over. So it is seeking another taxpayer rescue, and officials at Treasury and Fed are sympathetic.

But if CIT -- a company one-tenth the size of Lehman Brothers -- can be bailed out long after the panic has passed, the word "systemic" has lost all meaning. CIT has long been a lender to subprime corporate borrowers, and this decade it took on even greater risks at precisely the wrong time. It has lost money for eight straight quarters. Its lending supports less than 1% of the total U.S. retail and manufacturing, and plenty of competitors could pick up its market share."

Should the feds bail them out? I am eager for the day when the financial community will have the strength to absorb its own losses. (Perhaps I yearn for a day that will never come.)

However, do I want to know today that only the small banks get pushed off the edge of the cliff without a bailout? Do I really want proof that we've institutionalized "too-big-to-fail" into our bailout/recovery programs?

I do not have an answer for this dilemma. So I'll leave the last word to the WSJ:

"If there is a lesson in this week's tale of two banks, it's that it won't be enough to give the Federal Reserve a mandate to "monitor" systemic risk. Last fall's bailouts are reverberating through the financial system in a way that is already distorting the competition for capital and financial market share. Banks that want to be successful will also want to be more like Goldman Sachs, creating an incentive for both larger size and more risk-taking on the taxpayer's dime.

One policy response to the incentives created by last fall's bailout is simply to restrict the proprietary trading done by the subsidiaries of bank holding companies that enjoy both FDIC deposit insurance and an implicit government subsidy on their cost of capital. This is what Paul Volcker proposed, only to be overruled by Tim Geithner and Larry Summers. Another answer would be an FDIC-style bailout tax, perhaps tied to leverage ratios, for those in the too-big-to-fail camp. Developing a template to facilitate the seizure and orderly winding down of failing financial giants is also an essential element of whatever reform Congress cooks up.

* * *

No one welcomes the pain and dislocation if CIT files for bankruptcy. But U.S. policy toward financial companies cannot avoid all hardship, or the result will be a de facto cartelization of finance, with a resulting loss of competition and dynamism that have long been an American strength. The divergent fortunes of CIT and Goldman Sachs show how much we changed when we stepped in to save certain banks in the name of saving the system."

Tuesday, July 14, 2009

God Bless Goldman!

Goldman Sachs is reporting a "robust turnaround" in performance (says the NY Times.)

That "robustness" translates into net earnings of $3.44 billion just for the second quarter of 2009.

According to their own press release, GS business highlights include:

*Ranking first in worldwide announced M&As for the year-to-date
*Record quarterly net revenues of $736 million in equity underwriting
*Repurchase of their stock form the TARP Capital Purchase Program

It's been a heck of a great year for Henry Paulson's old employer....

According to today's NY Times story:

"Many analysts are likely to welcome the news as another sign that the financial industry is stabilizing, and the Goldman results will probably set a positive tone for a slew of other bank results expected in the coming week. Other banks like JPMorgan Chase have been emerging as strong players since last year’s financial troubles, and analysts also expect them to record strong results, again partly on the back of robust trading revenues.

But Goldman’s performance in particular is raising questions about how its rapid return to making strong profits will be perceived by lawmakers and taxpayers who helped it with the multibillion-dollar cushion last fall after the nation’s financial industry was shaken to its foundations.

Goldman, along with other banks, also benefited from a government program that allows banks to issue debt cheaply with the backing of the Federal Deposit Insurance Corporation. In addition, it received money from the government’s bailout of the American International Group, being paid 100 cents on the dollar for its $13 billion counterparty exposure to the insurer."

There is no doubt that God's grace shines brightly on Goldman this year.

But according to a story by Mortimer Zuckerman in today's WSJ, God's casting a less benevolent eye on the rest of the country:

"The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion."

Zuckerman, who is the editor in chief of US News and World Report, then goes on to give ten gloomy reasons why "we are in even more trouble than the 9.5% unemployment rate indicates," and includes facts like: no wage gains in June for people outside of Goldman's lucky orbit; the average length of unemployment increasing to 24.5 weeks, the longest period since the government started tracking this data in 1948 and factories operating at just 65 percent of capacity. Here's Zuckerman's downer of a top ten list:

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

What we've learned is that sharply focusing the nation's recovery efforts on rescuing the financial community has been highly beneficial to Goldman Sachs.

But not so beneficial for anyone else in America.

Seems that God now blesses just the Goldman among us....

Friday, July 10, 2009

Looks like we'll do anything for a buck these days....

Not even the dead can rest in peace when there's money to be made, apparently. At least not at Burr Oak cemetery, located in the Chicago suburb of Alsip.

Burr Oak cemetery is a historic graveyard, the final resting place of Emmit Till, the young boy who was lynched in Mississippi a half century ago for grinning at a white girl.

It's also a cemetery with a gruesome secret...old, unmarked graves were being dug up, the bodies dumped elsewhere on the grounds of the graveyard, so the plots could be resold for cash.

Apparently, the four workers involved have pocketed more than $300,000 from the horrifying scam.

They're now in jail, awaiting trial.

You can read more on the methods used to make money off of the dead in the Sun-Times and in the Trib.

Just thinking about this scam leaves me feeling shrouded in a black and horrible gloom.

Monday, July 6, 2009

This must be the WORST job EVER!

It's called Governor of one of our 50 states.

How else can you explain the mental breakdowns of so many governors in such a short time? It's an issue that surpasses gender and ideological differences.

Let's just take a look...

*Illinois Governor Rod Blagojevich, forced to resign after quoting Kipling and being caught on tape trying to sell Obama's old senate seat.

*South Carolina Governor Mark Sanford, who decided to head down to Argentina for some cuddles with his girlfriend - on Father's Day weekend, leaving his wife and children to wonder where he was on that day set aside to celebrate paternity. He will not resign from his position as governor, promising to be working on his marriage, even as he misses the Argentinian woman he calls his "soul mate."

*And of course Alaska Governor Sarah Palin, who took advantage of the patriotic feelings stirred up by the 4th of July to announce her resignation. She's apparently been driven mad by the main stream media's silly questions. When she resigned, she mentioned that she's looking at spending a half a million dollars to defend herself from ethics charges that have no grounding in fact. Keeping her head down, plodding along is not an option, though quitting her job is the choice du jour for this governor.

Being a leader in America seems to be a crushing burden for so many these days. For Sarah Palin, her concern for Alaska leaves her to bid adieu to her leadership of that state. A very interesting perspective for a leader to take....

Thursday, July 2, 2009

What Up?! Bank Bonuses for 2009!

On the same day we learned of the bleak June jobs report, with its grim news of nearly a half million lost jobs, the Wall Street Journal is reporting that the firms on Wall Street are on track for one of the biggest bonus payouts ever.

2009 has been particularly good for Goldman Sachs, the Journal reports:

"Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal."

Ahh, the riches that come from having friends in high places! What good would Paulson’s TARP have been if it hadn’t been profitable for his friends and former colleagues at Goldman? He cleared out its competitors, fed it TARP money directly and indirectly through AIG.

They’re well fed, those Goldman guys. In a community that eats what they kill, they’ve feasted extraordinarily well at the banquet known to the rest of us as The Crash…

But there is a stench to the meal that just doesn’t seem right.

If only we all had some friends like Henry Paulson looking out for our interests, instead of the interests of Wall Street. Perhaps then the bonuses expected by bankers would not seem so wildly out of balance with the economic conditions afflicting the rest of the country....

Downer! AKA the June Jobs Report....

Summer is here and the time is right to slash and burn jobs.

At least that's the conclusion we can reach when we see that almost 500,000 people lost their jobs in June, making the jobless rate - 9.5 percent - the highest its been since Reagan was in office. That was back in 1983, when the Rust Belt cleared out all those jobs in steel and other manufacturing industries.

Back in the early 1980s, Reagan promised he would bring "morning in America!" And we got a nasty recession and unemployment and states across the country dumped the mentally ill from asylums they could no longer afford to keep open.

Reagan also promised the benefits of "the trickle down" theory - all those tax cuts for the rich would enhance the lives of everyone else.

That "trickle down" boat seems to have sailed out to sea with just the very rich on board. Since Reagan, with rising prices and stagnant salaries, the middle class seems to be sinking, not rising, as promised, with the tide.

And these days, the middle class keeps losing their jobs. In fact, more people lost jobs in June than in May. The downward trend in job loss that made the experts so very happy last month took a sharp turn up again.

The "recovery" seems limited to Goldman Sachs, actually, which is having a hell of a great year.

No bailout for the middle class, however. The middle class is never "too big to fail."

In two days, we celebrate our nation's birth. 14.7 million people are not celebrating an extra day off of work this weekend - because they're out of a job anyway. That's a number that has doubled since the recession began in 2007.

Here's the info out of the BLS:


Nonfarm payroll employment continued to decline in June (-467,000),
and the unemployment rate was little changed at 9.5 percent, the Bureau
of Labor Statistics of the U.S. Department of Labor reported today.
Job losses were widespread across the major industry sectors, with
large declines occurring in manufacturing, professional and business
services, and construction.

Unemployment (Household Survey Data)

The number of unemployed persons (14.7 million) and the unemployment
rate (9.5 percent) were little changed in June. Since the start of the
recession in December 2007, the number of unemployed persons has increas-
ed by 7.2 million, and the unemployment rate has risen by 4.6 percentage
points. (See table A-1.)

In June, unemployment rates for the major worker groups--adult men
(10.0 percent), adult women (7.6 percent), teenagers (24.0 percent),
whites (8.7 percent), blacks (14.7 percent), and Hispanics (12.2 per-
cent)--showed little change. The unemployment rate for Asians was
8.2 percent, not seasonally adjusted. (See tables A-1, A-2, and A-3.)

Among the unemployed, the number of job losers and persons who com-
pleted temporary jobs (9.6 million) was little changed in June after
increasing by an average of 615,000 per month during the first 5 months
of this year. (See table A-8.)

The number of long-term unemployed (those jobless for 27 weeks or
more) increased by 433,000 over the month to 4.4 million. In June, 3
in 10 unemployed persons were jobless for 27 weeks or more. (See
table A-9.)

- 2 -

Table A. Major indicators of labor market activity, seasonally adjusted
(Numbers in thousands)
| | |
| Quarterly | |
| averages | Monthly data | May -
Category |_________________|__________________________| June
| | | | | | change
| I | II | Apr. | May | June |
| 2009 | 2009 | 2009 | 2009 | 2009 |
HOUSEHOLD DATA | Labor force status
| | | | | |
Civilian labor force ....| 153,993| 154,912| 154,731| 155,081| 154,926| -155
Employment ............| 141,578| 140,591| 141,007| 140,570| 140,196| -374
Unemployment ..........| 12,415| 14,321| 13,724| 14,511| 14,729| 218
Not in labor force ......| 80,920| 80,547| 80,541| 80,371| 80,729| 358
| Unemployment rates
| | | | | |
All workers .............| 8.1| 9.2| 8.9| 9.4| 9.5| 0.1
Adult men .............| 8.2| 9.7| 9.4| 9.8| 10.0| .2
Adult women ...........| 6.7| 7.4| 7.1| 7.5| 7.6| .1
Teenagers .............| 21.3| 22.7| 21.5| 22.7| 24.0| 1.3
White .................| 7.4| 8.4| 8.0| 8.6| 8.7| .1
Black or African | | | | | |
American ............| 13.1| 14.9| 15.0| 14.9| 14.7| -.2
Hispanic or Latino | | | | | |
ethnicity ...........| 10.7| 12.0| 11.3| 12.7| 12.2| -.5
| | | | | |
Nonfarm employment.......| 133,662|p132,111| 132,481|p132,159|p131,692| p-467
Goods-producing (1)....| 19,826| p19,035| 19,253| p19,038| p18,815| p-223
Construction ........| 6,590| p6,309| 6,367| p6,319| p6,240| p-79
Manufacturing .......| 12,468| p11,997| 12,146| p11,990| p11,854| p-136
Service-providing (1)..| 113,835|p113,075| 113,228|p113,121|p112,877| p-244
Retail trade (2)...| 14,933| p14,821| 14,840| p14,822| p14,801| p-21
Professional and | | | | | |
business services .| 17,048| p16,712| 16,783| p16,735| p16,617| p-118
Education and health | | | | | |
services ..........| 19,138| p19,218| 19,175| p19,222| p19,256| p34
Leisure and | | | | | |
hospitality .......| 13,235| p13,174| 13,168| p13,186| p13,168| p-18
Government ..........| 22,543| p22,592| 22,616| p22,606| p22,554| p-52
| Hours of work (3)
| | | | | |
Total private ...........| 33.2| p33.1| 33.1| p33.1| p33.0| p-0.1
Manufacturing .........| 39.6| p39.5| 39.6| p39.4| p39.5| p.1
Overtime ............| 2.7| p2.8| 2.7| p2.8| p2.8| p.0
| Indexes of aggregate weekly hours (2002=100)(3)
| | | | | |
Total private ...........| 101.7| p99.6| 100.1| p99.8| p99.0| p-0.8
| Earnings (3)
Average hourly earnings, | | | | | |
total private .........| $18.46| p$18.52| $18.50| p$18.53| p$18.53| p$0.00
Average weekly earnings, | | | | | |
total private .........| 613.60| p612.39| 612.35| p613.34| p611.49| p-1.85

1 Includes other industries, not shown separately.
2 Quarterly averages and the over-the-month change are calculated using
unrounded data.
3 Data relate to private production and nonsupervisory workers.
p = preliminary.

- 3 -

Total Employment and the Labor Force (Household Survey Data)

The civilian labor force participation rate was little changed in
June at 65.7 percent. The employment-population ratio, at 59.5 per-
cent, continued to trend down over the month. The employment-popula-
tion ratio has declined by 3.2 percentage points since the start of
the recession in December 2007. (See table A-1.)

The number of persons working part time for economic reasons
(sometimes referred to as involuntary part-time workers) was little
changed in June at 9.0 million. Since the start of the recession, the
number of such workers has increased by 4.4 million. (See table A-5.)

Persons Not in the Labor Force (Household Survey Data)

About 2.2 million persons (not seasonally adjusted) were marginally
attached to the labor force in June, 618,000 more than a year earlier.
These individuals wanted and were available for work and had looked
for a job sometime in the past 12 months. They were not counted as
unemployed because they had not searched for work in the 4 weeks
preceding the survey. Among the marginally attached, there were
793,000 discouraged workers in June, up by 373,000 from a year
earlier. Discouraged workers are persons not currently looking for
work because they believe no jobs are available for them. The other
1.4 million persons marginally attached to the labor force in June
had not searched for work in the 4 weeks preceding the survey for
reasons such as school attendance or family responsibilities. (See
table A-13.)

Industry Payroll Employment (Establishment Survey Data)

Total nonfarm payroll employment continued to decline in June
(-467,000). Job losses from April to June averaged 436,000 per month,
compared with losses averaging 670,000 per month from November to
March. Since the recession began in December 2007, payroll employment
has fallen by 6.5 million. In June, job losses continued to be wide-
spread across major industry sectors. (See table B-1.)

Employment in manufacturing fell by 136,000 over the month and has
declined by 1.9 million during the recession. Within the durable
goods industry, motor vehicles and parts (-27,000), fabricated metal
products (-18,000), computer and electronic products (-16,000), and
machinery (-14,000) continued to lose jobs in June. Since the reces-
sion began, employment in motor vehicles and parts has declined by
335,000, or about one-third.

In June, employment in construction fell by 79,000, with losses
spread throughout the industry. Since the start of the recession,
construction employment has fallen by 1.3 million. Mining employ-
ment fell by 8,000 in June, about in line with the average monthly
decline since its recent peak in October 2008.

Employment in the professional and business services industry
declined by 118,000 in June. This industry has shed 1.5 million jobs
since an employment peak in December 2007. Within this sector, employ-
ment in temporary help services fell by 38,000 in June; this industry
has lost 848,000 jobs since the start of the recession.

- 4 -

Retail trade employment edged down in June (-21,000); job losses in
retail trade have moderated in the past 3 months. Over the month, job
losses continued in automobile dealerships (-9,000). Employment con-
tinued to fall in wholesale trade (-16,000).

In June, financial activities employment continued to decline
(-27,000). Since the start of the recession, this industry has lost
489,000 jobs. In June, employment declined in credit intermediation
and related activities (-10,000) and in securities, commodity contracts,
and investments (-6,000).

The information industry lost 21,000 jobs over the month and
187,000 since the start of the recession. Publishing accounted for
about half of the employment decline in the information industry
during the recession.

Health care employment increased by 21,000 in June. Job gains in
health care have averaged 21,000 per month thus far in 2009, down from
an average of 30,000 per month during 2008. Employment in federal
government fell by 49,000 in June, largely due to the layoff of work-
ers temporarily hired to prepare for Census 2010.

The change in total nonfarm employment for April was revised from
-504,000 to -519,000, and the change for May was revised from -345,000
to -322,000.

Weekly Hours (Establishment Survey Data)

In June, the average workweek for production and nonsupervisory
workers on private nonfarm payrolls fell by 0.1 hour to 33.0 hours--the
lowest level on record for the series, which began in 1964. The manu-
facturing workweek rose by 0.1 hour to 39.5 hours, and factory overtime
was unchanged at 2.8 hours. (See table B-2.)

The index of aggregate weekly hours of production and nonsupervisory
workers on private nonfarm payrolls fell by 0.8 percent in June. The
manufacturing index declined by 1.2 percent over the month. (See
table B-5.)

Hourly and Weekly Earnings (Establishment Survey Data)

In June, average hourly earnings of production and nonsupervisory
workers on private nonfarm payrolls were unchanged at $18.53. Over
the past 12 months, average hourly earnings have increased by 2.7 per-
cent, while weekly earnings have risen by only 0.9 percent, reflecting
a decline in the average workweek. (See table B-3.)


The Employment Situation for July 2009 is scheduled to be released
on Friday, August 7, at 8:30 A.M. (EDT).