Better Revise that “95 Cents on the Dollar” Estimate Congressman

Remember when Mark Souder supported the $750 Billion bailout because the toxic assets were worth 95 cents on the dollar? We all mocked him for such ignorance but now data is finally being collected on some of these assets and guess how much they are going for? (Hint: It ain’t 95 cents on the dollar):

Just how much should a debt vehicle backed by subprime mortgage bonds be worth these days? Two years ago, most banks and insurance companies assumed the answer was close to 100 per cent of face value – or more.
[...]
But now, at long last, one shard of reality has just emerged to piece this gloom. In recent weeks, bankers at places such as JPMorgan Chase and Wachovia have been quietly sifting data trying to ascertain what has happened to those swathes of troubled CDO of ABS.

The conclusions are stunning. From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)

Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

5 cents for the dreg and 32 cents for the cream of the crop. Nice call Congressman Souder…

Souder’s Failing Memory

There’s nothing quite like a politician who says one thing and then turns around and does another. Of course Congressman Mark Souder is the king of this after promising to serve no more than 12 years and then abruptly changing his tune and deciding to continue to “serve” us in “Worshington”.

But now his “say one thing but do another” approach has reached a new comic plateau. Read this from his latest NS column:

In a capitalist system, which has worked pretty well for the United States and other nations that have tried it, you have ups and downs. But private decisions, based upon cost and return, result in the steady progress toward the goals that people choose. In socialist systems, you have some ups, but more downs and thus a lower net standard of living (even if you may feel all equally more poor) because government makes those decisions and not on a cost-efficient basis.

Now in America we have an administration and Congress that want to make decisions for us. But there is an even greater problem than that: They are tying the hands of the private sector to do it on its own. The people are going to be deprived of choices.

Surely you jest Congressman? Does he think we forgot that this entire mess started with the $750 Billion bank bailout? I’m sure everybody remembers that one - even Mark Souder couldn’t have forgotten. After all that’s the one where he said people called his office 100-1 against the bailout but he knew better and supported it anyway.

How’d that work out for us? $750 Billion down the drain with not a damn thing to show for it except a mountain of future debt. So please spare me the “in a capitalist system, blah, blah, blah” lecture Congressman. You clearly don’t support a capitalist approach to the current financial crisis and you never did.

As the old saying goes “if you’re not part of the solution then you’re part of the problem.” Guess which one Souder is?

President Obama shatters another campaign promise

President Obama should enjoy his current popularity because it is not going to last if he keeps shattering campaign promises that he made over and over.

Congress is currently considering a huge pork filled omnibus spending bill. This bill contains approximately 9000 earmarks.

President Obama repeatedly promised to “eliminate all earmarks” when elected President.

Well, it looks like he either changed his mind or that he lied. Or maybe he is not the President and this is all a bad dream?

I am not sure what other conclusion one could come to. I am sure Kevin Knuth will think of some ridiculous defense of President Obama.

I think that President Obama’s capitulation on earmarks illustrates two things clearly:

He is afraid to confront the Democratic leadership in Congress on this issue.
He is willing to break his campaign promises as he sees fit.

I wonder what other campaign promises he will break. So far it looks like he will certainly break his promises on Iraq and he has absolutely shattered his promise of fiscal discipline.

Mike Sylvester

Senator Bayh Says No To Omnibus Spending Increase

I’ve been critical of Senator Bayh in the past but he’s right on this one. And if more Senators applied the same common sense Bayh shows on this issue then we just might be able to save this country. From the WSJ:

This week, the United States Senate will vote on a spending package to fund the federal government for the remainder of this fiscal year. The Omnibus Appropriations Act of 2009 is a sprawling, $410 billion compilation of nine spending measures that lacks the slightest hint of austerity from the federal government or the recipients of its largess.

The Senate should reject this bill. If we do not, President Barack Obama should veto it.
[...]
Our nation’s current fiscal imbalance is unprecedented, unsustainable and, if unaddressed, a major threat to our currency and our economic vitality. The national debt now exceeds $10 trillion. This is almost double what it was just eight years ago, and the debt is growing at a rate of about $1 million a minute
[...]
As Indiana’s governor, I balanced eight budgets, never raised taxes, and left the largest surplus in state history. It wasn’t always easy. Cuts had to be made and some initiatives deferred. Occasionally I had to say “no.”

But the bloated omnibus requires sacrifice from no one, least of all the government. It only exacerbates the problem and hastens the day of reckoning. Voters rightly demanded change in November’s election, but this approach to spending represents business as usual in Washington, not the voters’ mandate.

H/T: F Rost

GM Still Bankrupt

Back on Feb 18 GM and Chrysler released their “viability” plans to the treasury detailing how they were supposedly going to get back into the black. Here’s what I wrote after reading GM’s plan:

GM’s plan is much more detailed but the analysis is the same - they are bankrupt. Their US industry sales assumptions are ridiculous. They conveniently assume that the market bottoms out in the 1st Quarter of 2009 and gradually builds back up to bubble-economy numbers. And even under that rosy scenario they are still only breaking even by 2012 and paying off their loans by 2017.

I cannot imagine auto sales gaining the rest of this year - it makes no sense. Who is going to be buying them? Millions will lose their jobs and people will continue to horde cash - like everyone else GM seem to be banking on the magic stimulus bullet to save the day - it won’t happen.

The baseline industry sales number for their viability analysis was 10.5 million units. So what was the actual number that was reported today? A dismal 9.1 million - the lowest since 1981. GM’s sales were off 53% from a year ago.

Unless they RADICALLY reduce capacity they are probably finished…

Nationally Recognized County Purchasing Director Resigns, Blames County Commissioners

Regular readers know what I think of think of county government - mainly that it’s an ineffective bureaucracy with no checks and balances nor any longterm vision. Basically I think it’s a joke.

Well more supporting evidence is coming to light now that the county purchasing director, Bill Greer, has resigned. We’ve obtained a copy of his resignation letter, entitled “Why I can no longer work for the Allen County board of commissioners”, and suffice to say he doesn’t have any kind words for the county commissioners.

Greer discusses the commissioners’ unprofessional behavior as well as pointing out their incompetence, indifference and potentially illegal (my word) activity. I think it’s important to know that Greer is not some lightweight bureaucrat - before he came to Allen County he had won the National Award for Governmental Purchasing two years in a row. He clearly knows how to run a professional and competent purchasing department but what he ran into here was evidently nothing of the sort.

Below are a few choice excerpts but I would recommend you read the full letter:

The Indiana Unemployment system is completely broken

This is my second post concerning the structural deficit the Indiana Unemployment Fund is facing. You can view part one of this post here.

As I said in the earlier post I entirely oppose the existing government controlled and employer funded Unemployment system in this Country. Please remember employees do not pay one dime into this system; it is 100% funded by employers and by the Government through money they take from taxpayers.

The Indiana Unemployment system could owe the Federal Government more than one billion dollars by the end of 2009. Clearly something must be done.

The idiots in Indianapolis have been playing politics rather than seriously trying to fix the structural deficit in the Indiana Unemployment Fund. The Fund has been spending more than it brings in since 2001. Back in 2000 the fund had a surplus of 1.6 billion dollars.

News Sentinel headline on Feb 26th, 2009

The headline was “ GM posts $9.6B loss i 4th quarter.” The next line was:

“Auditors to decide if company remains a “going concern.”

As most of the readers of this blog know I am a Fort Wayne CPA and my wife and I run a small public accounting firm. We do not do a lot of auditing; instead we mainly handle tax planning and preparation, bookkeeping, payroll, business valuations, etc.

I am certainly not an expert on auditing; not by any means.

If the auditors feel there is substantial doubt about GM’s ability to continue operations they must state that in their annual audit of GM.

Recently the head of GM has testified in front of Congress multiple times; he has repeatedly claimed that without immediate Government aid worth tens of billions of taxpayer dollars that GM will not survive.