Stocks enter the final hour essentially unchanged after a volatile morning session. January’s trade balance fell to –37.3 billion. A large decline in autos and oil imports was the primary cause. Snapping a string of gains both imports and exports fell, again the culprits were largely autos and energy. Foreclosure activity slipped 2% in February as per RealtyTrac but was 6% higher than a year ago. There doesn’t seem to be a rush to blame this improvement on the snow by the media, perhaps its because the month was 3 days shorter.
The Congressional Oversight Panel’s report on the special treatment of GMAC delivers some harsh criticism of the 17.2 billion Dollar to date bailout. As an aside like the home mortgage market where Uncle Sam is by and large the only source of financing so to is GMAC with respect to auto financing as it now extends credit to Chrysler customers as well. This no doubt goes along way to explaining the preferential treatment, Fannie Mae and Freddie Mac etc. get similar deals and for much the same reasons as without the government sponsored finance these markets would largely disappear in the current environment and almost overnight, back to the report.
Chaired by Elizabeth Warren the panel finds that the avoidance of bankruptcy by GMAC in 2008 wasn’t a particularly good idea as an opportunity to shed less desirable loss producing business lines was missed. Amongst other items GMAC was very big player in the sub-prime mortgage market. The 17.2 billion dollar bailout to date gives the Fed 56.3% ownership in a company that the OMB figures will result in a 6.3 billion Dollar plus loss. Last but not least the panel is deeply disturbed at the lack of a clear business model or strategy designed to both return the company to a viable state and also repay the taxpayer.
Not to pick on the City of Detroit but their latest offer of muni bonds, underwritten by Goldman Sachs of course contains the following glaring items in the offering statements. The possibility that the municipality will file bankruptcy, the most recent financial statements from the city are dated June 2008, a pledge of state sales tax revenue as backing to maintain an investment grade rating on the offering so that Detroit can keep its head above water a little longer.
A number of takeaways on this one, the continued borrowing by a municipality at ever more onerous terms is all but guaranteed to end badly as per the disclosure about bankruptcy. The credit ratings agencies are just as suspect as ever. Goldman Sachs having been instrumental in helping to precipitate this crisis made a fortune setting everyone up for failure. Another fortune when they failed and here we have a Goldman special, extend the offer of help, if you can call it that, profit handsomely from the syndication of the bond issue and then buy every CDS they can get their hands on to “hedge” their position in the event of default. Which given Detroit’s precarious financial position is highly likely, ala the bankruptcy disclosure.
Rapacious transactions similar to this have been engineered by the banks on a global scale, cites, counties, school boards, pension plans, states and nations have been victimized wholesale. The taxpayer has the privilege of paying to clean up the mess through bailouts that run into the trillions and yet our elected representatives 2-years after the fact still have not come up with effective regulation to reign in, let alone prevent these types of abuses or address the issue of “to big to fail”.
The politician’s failure to act speaks volumes about the effectiveness of financial industry lobbying largess and the true loyalties of our elected representatives who seem quite content to sell America, its citizenry and the ideals that formed this great nation down the river in the name of bank profits. It’s long past time to demand accountability and if we don’t who will.
