How Barack Obama can get at least some of his credibility back
When a president speaks, the world listens. That is why Barack Obama’s credibility matters.
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+Bob DeMarco is a citizen journalist and twenty year Wall Street veteran.
Showing posts with label obama. Show all posts
Showing posts with label obama. Show all posts
Thursday, November 21, 2013
The man who used to walk on water
When a president speaks, the world listens. That is why Barack Obama’s credibility matters.
+Bob DeMarco is a citizen journalist and twenty year Wall Street veteran.
Monday, October 26, 2009
60 Minutes Medicare Fraud A $60 Billion Crime (Video, Text Transcript)
Scammer Explains How Easy It Is To Steal Millions60 Minutes Medicare Fraud A $60 Billion Crime is sure to make taxpayers irate.
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Medicare Fraud: A $60 Billion Crime
A.G. Holder Tells 60 Minutes More Oversight Is Needed; Scammer Explains How Easy It Is To Steal Millions
Of all the problems facing the United States right now, none are more important than health care.
President Obama says rising costs are driving huge federal budget deficits that imperil our future, and that there is enough waste and fraud in the system to pay for health care reform if it was eliminated.
At the center of both issues is Medicare, the government insurance program that provides health care to 46 million elderly and disabled Americans. But it also provides a rich and steady income stream for criminals who are constantly finding new ways to steal a sizable chunk of the half trillion dollars that are paid out each year in Medicare benefits.
In fact, Medicare fraud - estimated now to total about $60 billion a year - has become one of, if not the most profitable, crimes in America.
This story may raise your blood pressure, along with some troubling questions about our government's ability to manage a medical bureaucracy.
If you want to find Medicare fraud, the first place you should look is South Florida, where 60 Minutes and correspondent Steve Kroft were told it has pushed aside cocaine as the major criminal enterprise.
It's a quiet crime - there are no sirens or gunfire. The only victims are the American taxpayers, and they don't even know they are being ripped off.
FBI Special Agent Brian Waterman, who 60 Minutes rode with for several days, told us the only visible evidence of the crimes are the thousands of tiny clinics and pharmacies that dot the low-rent strip malls.
You don't even know they're there because there's never anyone inside. No doctors, no nurses and no patients.
"This office number should be manned and answered 24 hours a day," Waterman explained, standing outside one of those small, unstaffed businesses.
The tiny medical supply company billed Medicare almost $2 million in July and a half million dollars while 60 Minutes was there in August, but we never found anybody inside, and our phone calls were never returned.
Sometimes, they don't even have offices: we went looking for a pharmacy at 7511 NW. 73rd Street that billed Medicare $300,000 in charges. It turned out to be in the middle of a public warehouse storage area.
"They've already told us that there's no offices here," Waterman told Kroft. "There are no businesses here. In fact they are not even allowed to have a business here."
Waterman is the senior agent in the Miami office in charge of Medicare fraud. And Kirk Ogrosky, a top Justice Department prosecutor, oversees half a dozen Medicare fraud strike forces that have been set up across the country.
The office Kroft visited operates out of a warehouse at a secret location in South Florida and includes investigators from the FBI, Health and Human Services, and the IRS.
"There's a healthcare fraud industry where people do nothing but recruit patients, get patient lists, find doctors, look on the Internet, find different scams. There are entire groups and entire organizations of people that are dedicated to nothing but committing fraud, finding a better way to steal from Medicare," Waterman explained.
"Is the Medicare fraud business bigger than the drug business in Miami now?" Kroft asked.
"I think it's way bigger," Ogrosky said.
Asked what changed, Ogrosky told Kroft, "The criminals changed."
"Sophistication," Waterman added.
"They've figured out that rather than stealing $100,000 or $200,000, they can steal $100 million. We have seen cases in the last six, eight months that involve a couple of guys that if they weren't stealing from Medicare might be stealing your car," Ogrosky explained.
"You know, we were the king of the drugs in the '80s. We're king of healthcare fraud in the '90s and the 2000's," Waterman added, speaking about South Florida.
But it's not just Miami: in March, the FBI arrested 53 people in Detroit, including a number of doctors, and charged them with billing Medicare more than $50 million for unnecessary medical procedures.
And in Los Angeles, the City of Angels Medical Center recruited homeless people off the street to fill their empty beds, offering them cash and drugs plus clean sheets and three square meals a day, while billing Medicare tens of millions of dollars for their stay.
"We have to understand this is a major fraud area," United States Attorney General Eric Holder told Kroft.
Holder is taking a crime that has been in the backwaters of law enforcement and made it a top priority at the Justice Department.
"Why do you think it's been so attractive for the criminals?" Kroft asked.
"Because I think it's been pretty easy. I think that they have found a way in which they have been able to get pretty substantial amounts of money with not a huge amount of effort and at least until now, without the possibility of great detection," Holder explained.
The attorney general agreed that the risks are much lower. "You'll see some of these people and they'll say 'You know there is not a chance that you are going to have some other drug dealer shooting at you.' The chances of being incarcerated were lower, the amount of time you would spend in jail was smaller. All of which is different now."
"You're wakin' up every day makin' $20,000, $30,000, $40,000. Every day, almost literally. And you're like 'Wow I just won the lottery,'" a man we'll call "Tony" told Kroft.
Tony is not his real name. Before he was ratted out by a friend and brought down by the FBI, he was making Wall Street money running a string of phony medical supply companies out of a building that were theoretically providing wheel chairs and other expensive equipment to Medicare patients.
He told Kroft he stole about $20 million from Medicare. He told Kroft it was "real easy."
"And you're not exactly a criminal mastermind?" Kroft asked.
"No. No," Tony said. "No, not really. It's more like common sense."
Asked if he actually ever sold any medical equipment, Tony said, "No. Just have somebody in an office answering the phone, like we're open for business. And wake up in the morning, see how much, check your bank account and see how much money you made today."
He told Kroft he didn't have any medical equipment or real clients - all of it was fake.
"And you would just fill out some invoices and some forms and send 'em to Medicare?" Kroft asked.
"That's it. In 15 to 30 days you'll have a direct deposit in your bank account. I mean it was ridiculous. It's more like taking candy from a baby," Tony said.
According to the FBI, all you have to do to get into this business is rent a cheap storefront office, find or create a front man to get an occupational license, bribe a doctor or forge a prescription pad, and obtain the names and ID numbers of legitimate Medicare patients you can bill the phony charges to.
"There's a whole industry of people out there that do nothing but provide patients," Waterman told Kroft.
Asked what he means by "provide patients," Waterman said, "I'm just talking about lists of patients, people's names, Social Security numbers, addresses, and date of birth. With those four things, you can bill for a patient."
Asked where Tony got his fictitious customers, he told Kroft, "They'll be people that would sell you a list of maybe $10 per patient. And I'll buy 1,000, 10,000 maybe at a time. And then you just fill in the patient's name and you send it. And then I used the same patients with the same company and then the next company I used the same patients and I kept using them, and they'll pay for the same patient every time."
Once the crooked companies get hold of the patient lists, usually stolen from doctors' offices or hospitals, they begin running up all sorts of outlandish charges and submit them to Medicare for payment, knowing full well that the agency is required by law to pay the claims within 15 to 30 days, and that it has only enough auditors to check a tiny fraction of the charges to see if they are legitimate.
If they're not, it's usually people like 76-year-old Clara Mahoney who catch them.
She began to notice all sorts of crazy things turning up on her quarterly Medicare statements back in 2003 - things that Medicare paid for on her behalf that she had never ordered, never wanted and never received.
"Air mattresses, a wheel chair, urine bag for my leg," Mahoney said, listing some of the unwanted items Medicare was charged for on her behalf. "It was getting so I didn't wanna open up the explanation of benefits because you know, it's like, 'Oh, no. Not again.'"
Mahoney, who says she hasn't been sick in 30 years, began calling Medicare to tell them that someone was ripping them off. But the only responses she received were letters saying that someone was looking into it. The bogus charges are still turning up on her statements.
"And I continued to report and I kept saying, 'Can't you flag my account? You know, I'm not getting any equipment or supplies. Nothing,'" she told Kroft.
They have been "looking" into Mahoney's issue for six years.
Once criminals like Tony get their hands on usable patient numbers, they try and charge Medicare for the most expensive equipment possible, which requires having access to a list of Medicare codes.
Asked what some of the best codes were, Tony told Kroft, "Artificial limbs, electric arms, electric wheelchairs. I mean, a regular patient, you can put them on two artificial legs and an artificial arm and they'll pay for it."
And that's what happened to former Federal Judge Ed Davis. He was one of those patients who started getting charges on his Medicare statement for artificial limbs.
"And I looked at it and it had charges for prosthesis. And I knew I had my arms," Judge Davis explained.
Though he has two healthy arms, his statement showed Medicare had been billed for a left and a right arm.
"Didn't anybody in Medicare check to see if any of these charges were valid?" Kroft asked Tony.
"Sometimes they'll do it. But by the time they did it, it was too late," Tony said. "We've already made $300,000, $400,000, $500,000 on it. And then we will never send 'em nothing back. And then at 30 days they'll send an inspector to your office. And by that time…it's all closed down."
They would pay first and send an auditor later.
"There's somethin' I don't understand. I mean, you're saying essentially people just fill out the phony paperwork, they send a bill to Medicare and they pay it," Kroft remarked to Brian Waterman.
"That's why you have companies that can run for 60, 90 days, and bill for ridiculous things. Because there are very few checks and balances to even determine whether these things a, were medically necessary, b, were ever given, or c, even physically possible for a patient with the kind of conditions they have," Waterman explained.
The FBI calls it "pay and chase." And riding around with them we saw plenty of examples. One tiny pharmacy in a Hialeah strip mall went from billing Medicare $13,000 in May to billing nearly a million dollars a month later.
The small, now shut-down office billed $800,000 in the month if June.
By the time we were there in August, the FBI says the owners had already burned the company, shut it down and moved on to another operation.
"We were here last week. There was stuff on the shelves. The business still had a name on it. You can still see from where the tape is that someone just took this off," Waterman told Kroft, standing outside the empty storefront.
To understand just how preposterous all of this is, the FBI says the tiny little store collected six times more money from Medicare in June than the largest Walgreen Pharmacy in the state of Florida.
It's quite an achievement, since neither the FBI nor the proprietor of the bingo parlor next door ever saw a customer coming or going.
"I've never seen people, only twice," the Bingo hall proprietor told Kroft. "No customers. It's always been locked."
We obviously had a few questions to ask the people at Medicare and requested an interview with the person in charge of preventing fraud. That turned out to be Kim Brandt, Medicare's director of program integrity.
"We went around with an FBI agent and a woman from Health and Human Services. They took us to storefront, billing three or four hundred thousand dollars a month. And they were completely empty. Nobody there. I mean, how do they get away with that?" Kroft asked.
"We're as frustrated by that as the law enforcement officials that you went out with. And in fact, our primary focus over the past years has been to tighten our enrollment standards to make it so it's much harder for people like that to be able to get in the program, and to be able to commit that kind of fraud," Brandt said.
"Look, I'm sure that you're aware of these problems. But it doesn't seem like you're doing a very good job. I don't mean you personally, but I mean, the government. This is still like a huge problem, and getting worse, right?" Kroft asked.
"Well, it really does come down to the size and scope of the Medicare program, and the resources that are dedicated to oversight and anti fraud work. One of our biggest challenges has been that we have a program that pays out over a billion claims a year, over $430 billion, and our oversight budget has been extremely limited," Brandt said.
About that there is little dispute: Medicare has just three field inspectors in all of South Florida to check up on thousands of questionable medical equipment companies.
"Clearly more auditing needs to be done and it needs to be done in real time," Attorney General Eric Holder said.
Asked why it has taken Medicare so long to figure out they were being scammed, Holder told Kroft, "I think lack of resources probably. And then I think people I don't think necessarily thought that something as well intentioned as Medicare and Medicaid would necessarily attract fraudsters. But I think we have to understand that it certainly has."
The Obama administration is providing Medicare with an additional $200 million to fight fraud as part of its stimulus package, and billions of dollars to computerize medical records and upgrade networks, which should help Medicare catch more phony charges.
But Tony, who has just begun serving his 12 year prison sentence, says there's no shortage of people in Miami waiting to take his place.
Asked how many people in Miami were doing this, Tony said, "I'd say at least 2,000 people. At least 2,000, 3,000 companies."
He estimated that less than five percent of these companies were legitimate.
"If went to the phone book and looked under medical equipment suppliers, 95 percent of the companies would be phony?" Kroft asked.
"Yes, sir," Tony replied.
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Bob DeMarco is the editor of the Alzheimer's Reading Room and an Alzheimer's caregiver. The Alzheimer's Reading Room is the number one website on the Internet for news, advice, and insight into Alzheimer's disease. Bob has written more than 800 articles with more than 18,000 links on the Internet. Bob resides in Delray Beach, FL.
Original content Bob DeMarco, Alzheimer's Reading Room
Monday, March 23, 2009
Geithner Speaks: My Plan for Bad Bank Assets
No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk.
However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.
Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.The funds established under this program will have three essential design features.
- First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors.
- Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments.
- Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.
Our goal must be a stronger system that can provide the credit necessary for recovery, and that also ensures that we never find ourselves in this type of financial crisis again. We are moving quickly to achieve those goals, and we will keep at it until we have done so.Read the entire Geithner statement.
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Sunday, March 22, 2009
60 Minutes Obama On AIG Anger, Recession, Challenges (Full Text Version)
Watch CBS Videos Online
Subscribe to EF Hutton via Email"Were you surprised by the intensity of the reaction, and the hostility from the AIG bonus debacle?" 60 Minutes correspondent Steve Kroft asked.
"I wasn't surprised by it. Our team wasn't surprised by it. The one thing that I've tried to emphasize, though, throughout this week, and will continue to try to emphasize during the course of the next several months as we dig ourselves out of this economic hole that we're in, we can't govern outta anger. We've got to try to make good decisions based on the facts in order to put people back to work, to get credit flowing again. And I'm not gonna be distracted by what's happening day to day. I've gotta stay focused on making sure that we're getting this economy moving again," President Obama replied.
The president ordered Treasury Secretary Timothy Geithner to use every legal means to recover the bonus money from AIG. If it is not repaid, it will be deducted from the company's next bailout payment. The House decided to extract its own revenge by passing a bill that would impose a tax of up to 90 percent on the AIG bonuses and on the bonuses of anyone making more than $250,000 a year who works for a financial institution receiving more than $5 billion in bailout funds.
"I mean you're a constitutional law professor," Kroft remarked. "You think this bill's constitutional?"
"Well, I think that as a general proposition, you don't wanna be passing laws that are just targeting a handful of individuals. You wanna pass laws that have some broad applicability. And as a general proposition, I think you certainly don't wanna use the tax code to punish people," the president replied. "I think that you've got an pretty egregious situation here that people are understandably upset about. And so let's see if there are ways of doing this that are both legal, that are constitutional, that upholds our basic principles of fairness, but don't hamper us from getting the banking system back on track."
"You've got a piece of legislation that could affect tens of thousands of people. Some of these people probably had nothing to do with the financial crisis. And some of them probably deserve the bonuses that they got," Kroft said. "I mean is that fair?"
"Well, that's why we're gonna have to take a look at this legislation carefully. Clearly, the AIG folks gettin' those bonuses didn't make sense. And one of the things that I have to do is to communicate to Wall Street that, given the current crisis that we're in, they can't expect help from taxpayers but they enjoy all the benefits that they enjoyed before the crisis happened. You get a sense that, in some institutions, that has not sunk in; that you can't go back to the old way of doing business, certainly not on the taxpayers' dime," Obama said. "Now the flip side is that Main Street has to understand, unless we get these banks moving again, then we can't get this economy to recover. And we don't wanna cut off our nose to spite our face."
"Your Treasury Secretary Tim Geithner has been under a lot of pressure this week. And there have been people in Congress calling for his head. …Have there been discussions in the White House about replacing him?" Kroft asked.
"No," Obama said.
Asked if Geithner had volunteered or asked whether to step down, Obama told Kroft, "No. And he shouldn't. And if he were to come to me, I'd say, 'Sorry, Buddy. You've still got the job.' But look, he's got a lot of stuff on his plate. And he is doing a terrific job. And I take responsibility for not, I think, having given him as much help as he needs."
Obama says Geithner is not only responsible for the banks, the bailouts and the automobile industry, he also has to make sure the money is being spent wisely and report to Congress. Yet nearly a dozen high level Treasury department jobs remain unfilled and Geithner still has no deputy. Two people under consideration for the post withdrew their names after going through the vetting process.
"You know, this whole confirmation process, as I mentioned earlier has gotten pretty tough. It's been always tough. It's gotten tougher in the age of 24/7 news cycles. And a lot of people who we think are about to serve in the administration and Treasury suddenly say, 'Well, you know what? I don't wanna go through some of the scrutiny, embarrassment, in addition to taking huge cuts in pay,'" Obama explained.
"Have you offered some of these high level positions [in] the Treasury to people who would have turned them down?" Kroft asked.
"Absolutely. Yeah. And not because people didn't wanna serve. I think that people just felt that, you know, that the process has gotten very onerous," Obama said.
"Your Treasury secretary's plan, Geithner's plan, and your plan really for solving the banking crisis was met with very, very, very tepid response. A lot of people said they didn't understand it. A lot of people said it didn't have any, enough details to solve the problem. I know you're coming out with something next week on this. But these criticisms were coming from people like Warren Buffett, people who had supported you, and you had counted as being your…," Kroft said.
"And Warren still does support me. But I think that understand Warren's also a big player in the financial markets who's a major owner of Wells Fargo. And so he's got a perspective from the perspective of somebody who is part-owner of a bank. You've got members of Congress who've got a different perspective. Which is, 'We don't wanna spend any more taxpayer money.' You've got a whole host of players, all of whom may have a completely different solution. Right?" Obama said.
"And you know, one of the challenges that Tim Geithner has had is the same challenge that anybody would have in this situation. People want a lot of contradictory things. You know, the banks would love a lot of taxpayer money with no strings attached. Folks in Congress, as well as the American people, would love to fix the banks without spending any money. And so at a certain point, you know, you've got just a very difficult line to walk."
"You need the financial community…to solve this crisis," Kroft remarked. "Do you think that the people on Wall Street and the people in the financial community that you need trust you, believe in you?"
"Part of my job is to communicate to them. Look, I believe in the market. I believe in financial innovation. And I believe in success. I want them to do well. But what I also know is that the financial sector was out of balance. You look at how finance used to operate just 20 years ago, or 25 years ago. People, if you went into investment banking, you were making 20 times what a teacher made. You weren't making 200 times what a teacher made," Obama said.
"There is a perception right now, at least in New York, which is where I live and work. …People feel they thought that you were going to be supportive. And now I think there are a lot of people the say, 'Look, we're not gonna be able to keep our best people. They're not gonna stay and work here for $250,000 a year when they can go work for a hedge fund, if they can find one that's still working…and make a lot more," Kroft remarked.
"I've told them directly, 'cause I've heard some of this. They need to spend a little time outside of New York. Because you know, if you go to North Dakota, or you go to Iowa, or you go to Arkansas, where folks would be thrilled to be making $75,000 a year without a bonus, then I think they'd get a sense of why people are frustrated," Obama said.
"I think we have to understand the severity of the crisis that we're in right now. The fact is that, because of bad bets made on Wall Street, there have been enormous losses. I mean there were a whole bunch of folks who, on paper, if you looked at quarterly reports, were wildly successful, selling derivatives that turned out to be…completely worthless," he added.
And they were insuring them.
"Now you know, gosh, I don't think it's me being anti-Wall Street just to point out that the best and the brightest didn't do too well on that front, and that you know, maybe the incentive structures that have been set up have not produced the kinds of long term growth that I think everybody's looking for," Obama said.
Asked if he was surprised at the depth of the recession when he took office, Obama told Kroft, "I don't think that we anticipated how steep the decline would be, particularly in employment. I mean if you look at just, you know, hundreds of thousands - now millions - of jobs being shed over the course of two months or three months, that slope is a lot steeper than anything that we've said we've seen before."
"Now, there's a potential silver lining, which may be that things are so accelerated now, the modern economy is so intertwined and wired, that things happen really fast for ill, but things may recover faster than they have in the past," he added.
"Do you believe that there's still some systemic risk out there? That the financial system could still implode if you had a big failure at AIG or at Citicorp?" Kroft asked.
"Yes," Obama said.
"Citibank?" Kroft asked.
"I think that systemic risks are still out there. And if we did nothing you could still have some big problems. There are certain institutions that are so big that if they fail, they bring a lot of other financial institutions down with them. And if all those financial institutions fail all at the same time, then you could see an even more destructive recession and potentially depression," Obama said. "I'm optimistic about that not happening."
The president said there is a limit to the amount of money the government can spend and print to solve the crisis. Asked if the government is getting close to that limit, Obama said, "The limit is our ability to finance these expenditures through borrowing. And, you know, the United States is fortunate that it has the largest, most stable economic and political system around. And so the dollar is still strong because people are still buying Treasury Bills. They still think that's the safest investment out there."
"If we don't get a handle on this, and also start looking at our long-term deficit projections, at a certain point people will stop buying those Treasury Bills," Obama added.
"Do you have any idea when this might end? Or when things might start getting better?" Kroft asked.
"Well, we're already starting to see flickers of hope out there. Refinancings have significantly increased. Interest rates have never been lower. That promises the possibility at least of the housing market bottoming out and stabilizing. It’s not going to happen equally in every part of the country," Obama said.
On the subject of the ailing automobile industry, the president said he is still committed to helping General Motors and Chrysler avert bankruptcy, but he says they have yet to demonstrate they can remain economically viable. And there are major political obstacles.
"I just wanna say that the only thing less popular than putting money into banks is putting money into the auto industry," Obama said.
"Eighteen percent are in favor," Kroft pointed out. "Seventy-six percent against."
"It's not a high number," Obama acknowledged, with a chuckle.
"You're sitting here. And you are laughing. You are laughing about some of these problems. Are people gonna look at this and say, 'I mean, he's sitting there just making jokes about money.' How do you deal with, I mean, explain the…mood and your laughter," Kroft asked. "Are you punch drunk?"
"No, no. There's gotta be a little gallows humor to get you through the day," Obama explained. "You know, sometimes my team talks about the fact that if you had said to us a year ago that the least of my problems would be Iraq, which is still a pretty serious problem, I don't think anybody would have believed it. But we've got a lot on our plate. And a lot of difficult decisions that we're gonna have to make."
One of those difficult decisions is Afghanistan. Asked what that mission should be, Obama said, "Making sure that al Qaeda cannot attack the U.S. homeland and U.S. interests and our allies. That's our number one priority. And in service of that priority there may be a whole host of things that we need to do. We may need to build up economic capacity in Afghanistan. We may need to improve our diplomatic efforts in Pakistan."
"We may need to bring a more regional diplomatic approach to bear. We may need to coordinate more effectively with our allies. But we can't lose sight of what our central mission is. The same mission that we had when we went in after 9/11. And that is these folks can project violence against the United States' citizens. And that is something that we cannot tolerate," Obama said. "But what we can't do is think that just a military approach in Afghanistan is gonna be able to solve our problems. So what we're looking for is a comprehensive strategy. And there's gotta be an exit strategy. There's gotta be a sense that this is not perpetual drift."
"Afghanistan has proven to be very hard to govern. This should not come as news to anybody given its history," Kroft said. "As the graveyards of empire. And there are people now who are concerned. We need to be careful what we're getting ourselves into in Afghanistan. Because we have come to be looked upon there by people in Afghanistan, and even people now in Pakistan…as another foreign power coming in, trying to take over the region."
"I'm very mindful of that. And so is my national security team. So is the Pentagon. Afghanistan is not going to be easy in many ways. And this is not my assessment. This is the assessment of commanders on the ground," Obama explained.
"Iraq was actually easier than Afghanistan. It's easier terrain. You've got a much better educated population, infrastructure to build off of. You don't have some of the same destabilizing border issues that you have between Afghanistan and Pakistan. And so this is gonna be a tough nut to crack. But it is not acceptable for us to simply sit back and let safe havens of terrorists plan and plot," he added.
"One question about Dick Cheney and Guantanamo. I'm sure you wanna answer this," Kroft said. "A week ago Vice President Cheney said essentially that your willingness to shut down Guantanamo and to change the way prisoners are treated and interrogated was making America weaker and more vulnerable to another attack. And that the interrogation techniques that were used at Guantanamo were essential in preventing another attack against the United States."
"I fundamentally disagree with Dick Cheney. Not surprisingly. You know, I think that Vice President Cheney has been at the head of a movement whose notion is somehow that we can't reconcile our core values, our Constitution, our belief that we don't torture, with our national security interests. I think he's drawing the wrong lesson from history," Obama said.
"The facts don't bear him out. I think he is, that attitude, that philosophy has done incredible damage to our image and position in the world. I mean, the fact of the matter is after all these years how many convictions actually came out of Guantanamo? How many terrorists have actually been brought to justice under the philosophy that is being promoted by Vice President Cheney? It hasn't made us safer. What it has been is a great advertisement for anti-American sentiment. Which means that there is constant effective recruitment of Arab fighters and Muslim fighters against U.S. interests all around the world," he added.
"Some of it being organized by a few people who were released from Guantanamo," Kroft pointed out.
"Well, there is no doubt that we have not done a particularly effective job in sorting through who are truly dangerous individuals that we've got to make sure are not a threat to us, who are folks that we just swept up. The whole premise of Guantanamo promoted by Vice President Cheney was that somehow the American system of justice was not up to the task of dealing with these terrorists. I fundamentally disagree with that. Now, do these folks deserve Miranda rights? Do they deserve to be treated like a shoplifter down the block? Of course not," Obama said.
Asked what should be done with these people, Obama said, "Well, I think we're gonna have to figure out a mechanism to make sure that they not released and do us harm. But do so in a way that is consistent with both our traditions, sense of due process, international law. But this is the legacy that's been left behind. And, you know, I'm surprised that the vice president is eager to defend a legacy that was unsustainable. Let's assume that we didn't change these practices. How long are we gonna go? Are we gonna just keep on going until you know, the entire Muslim world and Arab world despises us? Do we think that's really gonna make us safer? I don't know a lot of thoughtful thinkers, liberal or conservative, who think that that was the right approach."
Aside from running the Harvard Law Review and directing his own presidential campaign, President Barack Obama entered the White House with no real executive experience.
Now he is grappling with the challenges of running one of the largest enterprises in the world under the most trying circumstances. How is he handling the pressure, what is an average day like and how are his wife Michelle and their young daughters adjusting? The president talked about all of that as he gave 60 Minutes a tour of the White House grounds.
Asked if he's gotten into a routine, Obama told Kroft, "I have. You know, I typically work out in the morning. Michelle's often there with me. We do our little workout, and then…after the workout, have breakfast, read the papers, read my morning security briefing. And then I come down here and talk to our National Security team. Then we talk to the economic team. After that, who knows? Anything goes. But typically, between 7:00 and 10:00 I sort of know what I'm doing."
Walking on the White House grounds, Obama pointed up at the living quarters of the executive mansion. "This is the living quarters, up on the second floor. We got a gym right over there, up on the third floor. And the second floor is, our bedroom's on this side, and we got a dining room on that side. And, yeah, pretty nice digs," the president told Kroft.
"How are you finding the job?" Kroft asked.
"It's exhilarating. It's challenging you know, I find that the governance part of it, the decision making part of it, actually comes pretty naturally. I think I've got a great team. I think we're making good decisions. The hardest thing about the job is staying focused. Because there's so many demands and decisions that are pressed upon you," Obama explained.
Asked what the hardest decisions has been that he's had to make in the last 60 days, Obama said, "Well, I would say that the decision to send more troops into Afghanistan. You know, I think it's the right thing to do. But it's a weighty decision because we actually had to make the decision prior to the completion of strategic review that we were conducting. When I make a decision to send 17,000 young Americans to Afghanistan, you can understand that intellectually - but understanding what that means for those families, for those young people when you end up sitting at your desk, signing a condolence letter to one of the family members of a fallen hero, you're reminded each and every day at every moment that the decisions you make count."
"What is the most frustrating part of the job?" Kroft asked.
"The fact that you are often confronted with bad choices that flow from less than optimal decisions made a year ago, two years ago, five years ago, when you weren't here," Obama said. "A lot of times, when things land at my desk it's a choice between bad and worse. And as somebody pointed out to me, the only things that land on my desk are tough decisions. Because, if they were easy decisions, somebody down the food chain's already made them."
The president told Kroft he has to make lots of decisions daily - too many to count.
"Every time somebody walks in your office," Kroft remarked.
"There's a decision. Otherwise, they don't get a meeting," Obama said.
For meetings and decisions, Obama said he's always briefed before it happens. "I spend a lot of time reading. People keep on asking me, 'Well, what are you reading these days?' Well, mostly briefing books. You know, you get a little time to read history or you know, policy books that are of interest. But there's a huge amount of information that has to be digested, especially right now. Because the complexities of Afghanistan are matched, maybe even dwarfed, by the complexities of the economic situation. And there are a lot of moving parts to all of that."
Asked if he ever takes a day off, Obama told Kroft, "I do. It's never a full day, but typically Saturdays and Sundays. I'll wander down to the Oval Office I will do some work, but I'll still have time for the kids.
On most days, the president says he and the first lady are able to have a family dinner with their children. And he usually sees his two daughters in the afternoon when they come home from school and pay him a visit in the West Wing. He can look out the window of the Oval Office, and watch them play on their new swing set.
"This is a pretty spectacular swing set," Obama said. "I have to say that I was not the purchaser of this. The admiral, our chief usher, Admiral Steve Rochon, took great interest when we said that we should get a swing set, and found what I assume must be the Rolls Royce of swing sets."
"You didn't have one of these when you were a kid?" Kroft asked.
"I sure did not. I thought we were gonna get like two swings. But they went all out," Obama replied with a chuckle.
The Obamas' daughters have had kids over at the White House after school. "And they've tested this out," Obama said of the swing set. "And it got a thumbs up."
Asked if they're liking it in the White House, Obama said, "You know, they are adapting remarkably in ways that I just would not have expected."
"What's interesting is actually how unimpressed they are with it," the president said. "I mean they're going to school. They are unchanged. They're the same sweet, engaging, happy unpretentious kids that they were"
"And they're having fun," Kroft said.
"They do seem to be have fun. And Michelle is thriving as well. I mean she just started a vegetable garden out here," Obama said. "All the chefs from the White House staff went down there with her. And they started diggin' ground. And they're gonna be planting stuff. And this is part of the message that she wants to send about good nutrition."
Michelle Obama had broken ground for the vegetable garden a few hours earlier on the South Lawn, with the help of some Washington school children; it's just a small patch of land on the sprawling White House grounds that cover 18 acres. As for the 55,000 square foot house, the first family is still exploring the 132 rooms and 35 bathrooms.
The president admitted he has gotten lost in the executive mansion - repeatedly.
"Harry Truman called the White House 'The Great White Jail.' Clinton said he couldn't make up his mind whether it was the finest public housing in America or the jewel of the prison system," Kroft said.
"The bubble that the White House represents is tough," Obama acknowledged. "And one of the things that I am constantly struggling with is how to break out of it. And I've taken to the practice of reading ten letters selected from the 40,000 that we get every night, just to hear from voices outside of my staff. But the inability to just go, and you know, sit at a corner coffee shop and have a chat with people, or just listen to what folks are saying at the next table, that I think, is something that, as president, you’ve gotta constantly fight against."
Friday, March 13, 2009
Housing Bargains Galore--Glass Half Full or Half Empty?
You know the saying, glass half full, glass half empty. In today's housing world it depends whether you are a buyer or seller. Buyer good, seller bad. Take a look at this,
Foreclosed Houses Haunt Home Builders
By MICHAEL CORKERY and DAWN WOTAPKA
(See Correction & Amplification below.)
As the normally hot spring selling season begins, two houses in the Inland Empire region of Southern California sum up the big problem facing many of the nation's largest home builders.
One of the houses, a four bedroom built in 2006 that was seized by a lender in a foreclosure action, is listed for sale at $229,900. Meanwhile, in the same housing development, D.R. Horton Inc. is trying to sell a new house that looks nearly identical for $299,000, or 23% more.
Or consider Pulte Homes Inc.'s predicament in Henderson, Nev., near Las Vegas. The builder is trying to sell a new, four-bedroom house for $214,990, while a home owner is trying to dump a similar house, which Pulte built two years ago, for $149,999. That price is less than the owner's mortgage under a "short sale" approved by the lender.
In many markets, "we are no longer competing with other builders. We are competing with foreclosures," said Steve Ruffner, president of the Southern California division of KB Home.
Sales of used homes are actually rising in some regions because of foreclosures, but new-home sales fell to a four-decade low in January, down 77% from their peak in summer 2005. Altogether, home builders sold houses at a seasonally adjusted annual rate of 309,000 units in January, down from a peak of 1.4 million in July 2005.
Home builders are confronting the competition from foreclosures at a difficult time in their history. Small builders are dying by the dozens, while some large companies are staying afloat by cutting expenses and scrambling to restructure debt.
President Barack Obama's foreclosure-prevention plan is likely to help stem the supply of bank-owned houses somewhat, and the administration's proposed budget would extend builders a lifeline through a lucrative tax break. But the foreclosure problem won't disappear.
In Henderson, Nev., a homeowner is trying to sell the house above for $149,999 -- less than the mortgage – two years after Pulte Homes built it. Ben Prasad of Realty Professionals of LV is the listing broker on the house. Meanwhile, Pulte is offering a similar house nearby, below, for $214,990.
"I don't know how the builders are going to compete," said Credit Suisse analyst Daniel Oppenheim, who downgraded his ratings for Centex Corp. and D.R. Horton stock last week, partly out of concern about foreclosure competition.
The problem is particularly vexing because many buyers are bypassing new houses for foreclosed ones that are virtually new and are often located in the companies' own developments. "Buyers think they are going to get the best bargain with a foreclosed house, and they aren't even looking at new homes," said Graham Holmes, owner of Reviron Realty, which sells bank-owned properties in the Inland Empire.
Home builders' responses to the foreclosure threat vary. Los Angeles-based KB Home is focusing on building smaller, lower-priced houses that can compete with foreclosures head on. The builder has shrunk its house size from an average of 3,200 square feet during the housing boom to an average of 1,600 square feet in many markets today. "We're finding that if we can get a product to market that is priced competitively with foreclosures, [we] can sell pretty well, even in these times," said Jeffrey Mezger, KB's chief executive.
Dallas-based Centex, on the other hand, says it's not trying to beat lenders on price. Instead, the nation's third largest builder by volume is trying to entice buyers with perks like mortgage interest rates as low as 4.25%, energy-efficient designs and warranties.
D.R. Horton also offers incentives, including covering the buyer's closing costs, and touts a $10,000 California tax credit for buying a new house. And it notes that buyers often need to spend money to fix up foreclosed properties before they can move in.
Builders also argue that while they may look alike, new and foreclosed houses aren't comparable. "Our brand-new homes appeal to the buyer who wants up-to-date features, a chance to make their own selections like carpeting and paint colors," a Pulte spokesman said.
Some buyers clearly agree. "A foreclosure is like a used car," said Danny Hernandez, who bought a new, $237,000, five-bedroom KB house in Beaumont, Calif., in the hard-hit Inland Empire. Mr. Hernandez, a 41-year-old warehouse worker, said the fact KB paid his closing costs and a nonprofit group subsidized his down payment helped make the sale.
Another strategy: build in new neighborhoods that aren't filled with vacant, bank-owned houses. "In general, we try not to compete with foreclosures," said Centex Chief Executive Tim Eller. "It's not all about price, it's about value. Buyers determine value by the look and feel of the neighborhood."
KB said its smaller houses are selling well, but the prices keep sinking. In November, KB was selling its line of smaller houses at a development in Beaumont for as little as $207,990. Now, it has dropped its starting price to $169,990 to match recent foreclosure values in Beaumont. Since it opened the Highland Vista development last summer, KB has sold 28 homes out of about 110 house lots.
Analysts question how low builders can go before building a house costs more than they can charge for it. In some markets in California and Florida, builders have reached that point and have stopped building.
Write to Michael Corkery at michael.corkery@wsj.com and Dawn Wotapka at dawn.wotapka@dowjones.com
Corrections & Amplifications
D.R. Horton is trying to sell a new, four-bedroom house in the Inland Empire region of California for $299,000, or about 30% more than an identical-looking, nearby foreclosed house, which is listed for $229,900. This article incorrectly said it was 23% more.
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In Henderson, Nev., a homeowner is trying to sell the house above for $149,999 -- less than the mortgage – two years after Pulte Homes built it. Ben Prasad of Realty Professionals of LV is the listing broker on the house. Meanwhile, Pulte is offering a similar house nearby, below, for $214,990.
The house in the picture looks like a bargain to me at $149,999. $125,000 bid?
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Foreclosed Houses Haunt Home Builders
By MICHAEL CORKERY and DAWN WOTAPKA
(See Correction & Amplification below.)
As the normally hot spring selling season begins, two houses in the Inland Empire region of Southern California sum up the big problem facing many of the nation's largest home builders.
One of the houses, a four bedroom built in 2006 that was seized by a lender in a foreclosure action, is listed for sale at $229,900. Meanwhile, in the same housing development, D.R. Horton Inc. is trying to sell a new house that looks nearly identical for $299,000, or 23% more.
Or consider Pulte Homes Inc.'s predicament in Henderson, Nev., near Las Vegas. The builder is trying to sell a new, four-bedroom house for $214,990, while a home owner is trying to dump a similar house, which Pulte built two years ago, for $149,999. That price is less than the owner's mortgage under a "short sale" approved by the lender.
In many markets, "we are no longer competing with other builders. We are competing with foreclosures," said Steve Ruffner, president of the Southern California division of KB Home.
Sales of used homes are actually rising in some regions because of foreclosures, but new-home sales fell to a four-decade low in January, down 77% from their peak in summer 2005. Altogether, home builders sold houses at a seasonally adjusted annual rate of 309,000 units in January, down from a peak of 1.4 million in July 2005.
Home builders are confronting the competition from foreclosures at a difficult time in their history. Small builders are dying by the dozens, while some large companies are staying afloat by cutting expenses and scrambling to restructure debt.
President Barack Obama's foreclosure-prevention plan is likely to help stem the supply of bank-owned houses somewhat, and the administration's proposed budget would extend builders a lifeline through a lucrative tax break. But the foreclosure problem won't disappear.
In Henderson, Nev., a homeowner is trying to sell the house above for $149,999 -- less than the mortgage – two years after Pulte Homes built it. Ben Prasad of Realty Professionals of LV is the listing broker on the house. Meanwhile, Pulte is offering a similar house nearby, below, for $214,990.
"I don't know how the builders are going to compete," said Credit Suisse analyst Daniel Oppenheim, who downgraded his ratings for Centex Corp. and D.R. Horton stock last week, partly out of concern about foreclosure competition.
The problem is particularly vexing because many buyers are bypassing new houses for foreclosed ones that are virtually new and are often located in the companies' own developments. "Buyers think they are going to get the best bargain with a foreclosed house, and they aren't even looking at new homes," said Graham Holmes, owner of Reviron Realty, which sells bank-owned properties in the Inland Empire.
Home builders' responses to the foreclosure threat vary. Los Angeles-based KB Home is focusing on building smaller, lower-priced houses that can compete with foreclosures head on. The builder has shrunk its house size from an average of 3,200 square feet during the housing boom to an average of 1,600 square feet in many markets today. "We're finding that if we can get a product to market that is priced competitively with foreclosures, [we] can sell pretty well, even in these times," said Jeffrey Mezger, KB's chief executive.
Dallas-based Centex, on the other hand, says it's not trying to beat lenders on price. Instead, the nation's third largest builder by volume is trying to entice buyers with perks like mortgage interest rates as low as 4.25%, energy-efficient designs and warranties.
D.R. Horton also offers incentives, including covering the buyer's closing costs, and touts a $10,000 California tax credit for buying a new house. And it notes that buyers often need to spend money to fix up foreclosed properties before they can move in.
Builders also argue that while they may look alike, new and foreclosed houses aren't comparable. "Our brand-new homes appeal to the buyer who wants up-to-date features, a chance to make their own selections like carpeting and paint colors," a Pulte spokesman said.
Some buyers clearly agree. "A foreclosure is like a used car," said Danny Hernandez, who bought a new, $237,000, five-bedroom KB house in Beaumont, Calif., in the hard-hit Inland Empire. Mr. Hernandez, a 41-year-old warehouse worker, said the fact KB paid his closing costs and a nonprofit group subsidized his down payment helped make the sale.
Another strategy: build in new neighborhoods that aren't filled with vacant, bank-owned houses. "In general, we try not to compete with foreclosures," said Centex Chief Executive Tim Eller. "It's not all about price, it's about value. Buyers determine value by the look and feel of the neighborhood."
KB said its smaller houses are selling well, but the prices keep sinking. In November, KB was selling its line of smaller houses at a development in Beaumont for as little as $207,990. Now, it has dropped its starting price to $169,990 to match recent foreclosure values in Beaumont. Since it opened the Highland Vista development last summer, KB has sold 28 homes out of about 110 house lots.
Analysts question how low builders can go before building a house costs more than they can charge for it. In some markets in California and Florida, builders have reached that point and have stopped building.
Write to Michael Corkery at michael.corkery@wsj.com and Dawn Wotapka at dawn.wotapka@dowjones.com
Corrections & Amplifications
D.R. Horton is trying to sell a new, four-bedroom house in the Inland Empire region of California for $299,000, or about 30% more than an identical-looking, nearby foreclosed house, which is listed for $229,900. This article incorrectly said it was 23% more.
| Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments. |
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Monday, March 09, 2009
Buffett Inflation has the "potential" to be worse than the 1970s
He added that inflation “has the potential” to be worse than the double-digit rates of the 1970s. “It depends on the wisdom of our policies, what we do with” new government spending. Buffett said that Republicans need to stand behind the Obama administration, but Obama and Democrats should not use the crisis “to roll Republicans.”Other highlights:
- The economy "can't turn around on a dime" and a turnaround "won't happen fast."
- Five years from now, the economy will be running fine. The strength of the American system will pull it through, just as it has many times in the past.
- Democrats and Republicans should work together and not try to take advantage of the economic situation to achieve partisan goals.
- Inflation has the "potential" to be worse than the 1970s.
- Most banks are in "pretty good shape" and can "earn their way out" of the current problems given the low cost of funds. Banks, however, "need to get back to banking."
- Extremely important that the government make clear depositors won't lose their money if banks fail. Obama needs to make a "clear statement" in support of the banking system.
- Berkshire is restricted from buying more American Express stock, but that doesn't mean it is not a "hell of a buy" at $10 a share.
- Wishes he had written the New York Times "Buy American" piece a few months later, but stands by the basic argument that you'll do better over a ten-year period with stocks that you will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't.
- Buffett says derivatives are not "evil" and to be avoided at all costs, but they are "dangerous" and should be used very carefully. He still expects to make money on the long-term "put option" equity derivative contracts Berkshire has written.
- Housing market could work through, or "sop up," its excess supply in as little as three years if new construction is reduced to a level below natural population growth
- The U.S. economy was not a "house of cards" over the past ten years, but mistakes were made when it came to borrowing money.
- Mark-to-market accounting should be retained, but regulators shouldn't use it so much to require insitutions to increase their reserves.
- "Probably the uptick rule" is a good idea.
- Mistake to "demonize" corporate executives for using private jets. Having a jet has helped Berkshire make deals in the past.
- Praises Ben Bernanke's leadership as Federal Reserve Chairman.
Warren Buffett to CNBC: Economy Has "Fallen Off a Cliff"
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| Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Asociate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking syndication and writing assignments. |
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Tuesday, March 03, 2009
'Bad Bank' Funding Plan to Rescue and Move Distressed Assets
Put me down as a fan of this plan. It could end up being a stroke of genius. This definitely trumps the Resolution Trust Corporation (RTC) plan that was used to dispose of the assets from failed Savings and Loans.
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The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month.
...private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.
'Bad Bank' Funding Plan Starts to Get Fleshed Out
| Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Asociate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking syndication and writing assignments. |
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Friday, February 27, 2009
U.S. to Take Big Citi Stake and Overhaul the Board
Main points:
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U.S. to Take Big Citi Stake and Overhaul the Board
By KEVIN KINGSBURY and MAYA JACKSON RANDALL
Struggling banking giant Citigroup Inc., moving aggressively to shore up its equity base, announced a stock swap Friday that if successful will leave the government owning more than a third of the company and wipe out nearly three-quarters of existing shareholders' stake.
The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven't been enough to stop the bank's slide. It also represents a deepening of the government's role in trying to prop up the U.S. banking sector.
Under the deal, Citigroup said it will offer to convert nearly $27.5 billion in preferred stock sold to private investors and the public and up to $25 billion in preferred stock bought by the government into common stock. The exchange, if fully executed, would leave the U.S. government with 36% of the bank's shares. Existing shareholders' stake would be cut to 26%. Shareholders will have to approve much of the common stock issuance.
Additionally, the government is demanding that the company overhaul its board of directors. Citigroup's board will soon include a majority of new independent directors, the company said Friday. Chief Executive Vikram Pandit is expected to keep his job under the agreement.
The bank's stock plunged on the news.
The terms are onerous for both sides. While common shareholders will see their stakes severely diminished, preferred shareholders are being asked to swap their holdings for riskier common stock, whose holders are the first to get wiped out in times of trouble.
Neither has much choice, however. To motivate investors to sign up, Citigroup is suspending its payment of dividends on preferred stock. And to spur common shareholders to vote for the deal, Citigroup will issue securities to preferred shareholders that agree to the swap that let them buy common stock for a penny a share if shareholders don't approve the deal.
The swap won't involve any additional investment in Citigroup by either the government or the private shareholders, but will boost the bank's tangible common equity ratio, which is closely watched by analysts. It will also relieve the bank of the need to pay more than $5 billion in annual preferred stock dividends.
"This securities exchange has one goal -- to increase our tangible common equity," Chief Executive Vikram Pandit said.
[Citigroup Center in New York] Bloomberg News/Landov
A pedestrian walks past the Citigroup Center in New York.
Separately, Citigroup announced it will record $10 billion in write-downs for the fourth quarter, boosting the year's net loss to $27.7 billion. Citi is also suspending dividend payments on common shares, which had already been slashed to 1 cent a share per quarter.
The conversion rate for swapping the preferred stock to common shares is $3.25, a 32% premium to Thursday's closing price.
The Treasury will only convert its preferred stock into common shares if other preferred-stock holders -- namely sovereign wealth funds that plowed billions into Citigroup in early attempts to bolster capital levels -- also do so. Holders including the Government of Singapore Investment Corp. and longtime shareholder and Saudi Prince Alwaleed Bin Talal are among those of have said they will participate in the exchange.
Treasury said it will match private investors' conversions dollar-for-dollar.
"Treasury will receive the most favorable terms and price offered to any other preferred holder through this exchange," the department added in the statement.
If the maximum conversion levels are hit, that would boost Citi's TCE from the fourth quarter's $29.7 billion to as much as $81 billion.
The agreement marks the third time since October that Washington has come to Citigroup's rescue. Since then, the government has pressured Citigroup to partially break itself up by selling big chunks of its businesses and to overhaul its board. But U.S. ownership has also created a murky situation in which it's unclear who's in charge, leaving Citigroup executives often groping for guidance.
Citigroup will still have to endure the so-called "stress test," which examines banks ability to withstand various chilling economic scenarios, and could be required to raise additional capital.
The company will reconstitute its board to include a majority of new independent directors. It said of the 15 current directors, three will not stand for reelection and two will reach retirement age, and it will announce new directors soon.
Citigroup Chairman Richard Parsons has been scrambling to lure new directors. That has proven an uphill battle, with two candidates Citigroup approached rebuffing the overtures, according to people familiar with the matter.
—Deborah Solomon and David Enrich contributed to this article.
Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com and Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com
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- We didn't put in any more taxpayer dollars (not yet anyway).
- The deal addresses the issue of the Board of Directors. The Board will be constructed of new, independent members. I wonder why this took so long?
- Chief Executive Vikram Pandit keeps his job.
- If full dilution occurs we the taxpayers end up owning 36 percent of the bank. We are way underwater.
- The deal boost the bank's tangible common equity ratio. Makes the bank look good for now.
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U.S. to Take Big Citi Stake and Overhaul the Board
U.S. to Take Big Citi Stake and Overhaul the Board
By KEVIN KINGSBURY and MAYA JACKSON RANDALL
Struggling banking giant Citigroup Inc., moving aggressively to shore up its equity base, announced a stock swap Friday that if successful will leave the government owning more than a third of the company and wipe out nearly three-quarters of existing shareholders' stake.
The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven't been enough to stop the bank's slide. It also represents a deepening of the government's role in trying to prop up the U.S. banking sector.
Under the deal, Citigroup said it will offer to convert nearly $27.5 billion in preferred stock sold to private investors and the public and up to $25 billion in preferred stock bought by the government into common stock. The exchange, if fully executed, would leave the U.S. government with 36% of the bank's shares. Existing shareholders' stake would be cut to 26%. Shareholders will have to approve much of the common stock issuance.
Additionally, the government is demanding that the company overhaul its board of directors. Citigroup's board will soon include a majority of new independent directors, the company said Friday. Chief Executive Vikram Pandit is expected to keep his job under the agreement.
The bank's stock plunged on the news.
The terms are onerous for both sides. While common shareholders will see their stakes severely diminished, preferred shareholders are being asked to swap their holdings for riskier common stock, whose holders are the first to get wiped out in times of trouble.
Neither has much choice, however. To motivate investors to sign up, Citigroup is suspending its payment of dividends on preferred stock. And to spur common shareholders to vote for the deal, Citigroup will issue securities to preferred shareholders that agree to the swap that let them buy common stock for a penny a share if shareholders don't approve the deal.
The swap won't involve any additional investment in Citigroup by either the government or the private shareholders, but will boost the bank's tangible common equity ratio, which is closely watched by analysts. It will also relieve the bank of the need to pay more than $5 billion in annual preferred stock dividends.
"This securities exchange has one goal -- to increase our tangible common equity," Chief Executive Vikram Pandit said.
[Citigroup Center in New York] Bloomberg News/Landov
A pedestrian walks past the Citigroup Center in New York.
Separately, Citigroup announced it will record $10 billion in write-downs for the fourth quarter, boosting the year's net loss to $27.7 billion. Citi is also suspending dividend payments on common shares, which had already been slashed to 1 cent a share per quarter.
The conversion rate for swapping the preferred stock to common shares is $3.25, a 32% premium to Thursday's closing price.
The Treasury will only convert its preferred stock into common shares if other preferred-stock holders -- namely sovereign wealth funds that plowed billions into Citigroup in early attempts to bolster capital levels -- also do so. Holders including the Government of Singapore Investment Corp. and longtime shareholder and Saudi Prince Alwaleed Bin Talal are among those of have said they will participate in the exchange.
Treasury said it will match private investors' conversions dollar-for-dollar.
"Treasury will receive the most favorable terms and price offered to any other preferred holder through this exchange," the department added in the statement.
If the maximum conversion levels are hit, that would boost Citi's TCE from the fourth quarter's $29.7 billion to as much as $81 billion.
The agreement marks the third time since October that Washington has come to Citigroup's rescue. Since then, the government has pressured Citigroup to partially break itself up by selling big chunks of its businesses and to overhaul its board. But U.S. ownership has also created a murky situation in which it's unclear who's in charge, leaving Citigroup executives often groping for guidance.
Citigroup will still have to endure the so-called "stress test," which examines banks ability to withstand various chilling economic scenarios, and could be required to raise additional capital.
The company will reconstitute its board to include a majority of new independent directors. It said of the 15 current directors, three will not stand for reelection and two will reach retirement age, and it will announce new directors soon.
Citigroup Chairman Richard Parsons has been scrambling to lure new directors. That has proven an uphill battle, with two candidates Citigroup approached rebuffing the overtures, according to people familiar with the matter.
—Deborah Solomon and David Enrich contributed to this article.
Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com and Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com
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| Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , managed on Wall Street at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking writing assignments and syndication. |
More from All American Investor
- Ray Dalio on the current state of affairs in the market
- Homebuyer Credit Won’t Stabilize Market, Analysts Say
- Roubini Predicts U.S. Losses May Reach $3.6 Trillion
- Six Errors on the Path to the Financial Crisis
- Who Caused the Financial Crisis?
- Option ARM--The Toxic Mortgage
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Thursday, February 26, 2009
Food for thought on the Budget Deficit
One thing that is being overlooked in this budget deficit mess is payback. If these TARP loans get paid back the future deficits are likely to be better than is currently being forecast in the market.
New bull market down the road? Remember these factors always influence stock market action:
Feel free to comment or share you thoughts on this and the budget deficit.
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New bull market down the road? Remember these factors always influence stock market action:- Perception
- Better than expected
- Consumer and investor confidence
Feel free to comment or share you thoughts on this and the budget deficit.
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Tuesday, February 24, 2009
Whose your Daddy AIG?
It is now clear that AIG had to be bailed out. The alternative was a meltdown of the world financial system. I still remember Hank Greenberg, with hat in hand on CNBC, telling America that AIG has plenty of assets and just needed some help from the U.S. government---taxpayers (that was the first $85 Billion) . I also remember writing that there was zero chance that AIG would make it. I still believe that to be true.
The government is going to need to keep AIG going for about 20 years before they can dig themselves out of the hole they put themselves in by creating a mountain--a trillion dollars or more--of phony baloney paper. We are learning every day how toxic so called credit derivatives swaps are, and how worthless they are. Nobody can put a price on this paper. On the other hand, it did help enrich management of AIG by creating lots of fee income that turned into bonuses. The underlying assets--little did they care.
So here comes AIG hat in hand for more of the taxpayer's hard earned dollars. This is really the Donald Trump strategy--get your partners in so deep they have no choice but to give you more money. So far they are into our pockets for $150 billion.
It is time for a realistic view of this problem. We--the taxpayers--need to hire some sharp investment bankers to get in there and make the best deal possible for the American public. This plan should include a longer term plan to dismantle AIG and erase it from the face of the earth.
Throwing good money after bad is not going to work and the next thing you know we--the taxpayers--will be broke. It is time to ask--Whose your daddy?
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AIG Seeks to Ease Its Bailout Terms
American International Group Inc. is seeking an overhaul of its $150 billion government bailout package that would substantially reduce the insurer's financial burden, while further exposing U.S. taxpayers to its fortunes, people familiar with the matter say.
Under the plan, the government loan of up to $60 billion at the heart of the bailout would be repaid with a combination of debt, equity, cash and operating businesses, such as stakes in AIG's lucrative Asian life-insurance arms. AIG and the government have been discussing the changes since December and plan to announce them by Monday when the insurer is expected to ...
The government is going to need to keep AIG going for about 20 years before they can dig themselves out of the hole they put themselves in by creating a mountain--a trillion dollars or more--of phony baloney paper. We are learning every day how toxic so called credit derivatives swaps are, and how worthless they are. Nobody can put a price on this paper. On the other hand, it did help enrich management of AIG by creating lots of fee income that turned into bonuses. The underlying assets--little did they care.
So here comes AIG hat in hand for more of the taxpayer's hard earned dollars. This is really the Donald Trump strategy--get your partners in so deep they have no choice but to give you more money. So far they are into our pockets for $150 billion.
It is time for a realistic view of this problem. We--the taxpayers--need to hire some sharp investment bankers to get in there and make the best deal possible for the American public. This plan should include a longer term plan to dismantle AIG and erase it from the face of the earth.
Throwing good money after bad is not going to work and the next thing you know we--the taxpayers--will be broke. It is time to ask--Whose your daddy?
Follow EF Hutton on Twitter
Subscribe to EF Hutton via EmailThis is a very good explanation of the situation as it now exists. Follow the link for more.
American International Group Inc. is seeking an overhaul of its $150 billion government bailout package that would substantially reduce the insurer's financial burden, while further exposing U.S. taxpayers to its fortunes, people familiar with the matter say.
Under the plan, the government loan of up to $60 billion at the heart of the bailout would be repaid with a combination of debt, equity, cash and operating businesses, such as stakes in AIG's lucrative Asian life-insurance arms. AIG and the government have been discussing the changes since December and plan to announce them by Monday when the insurer is expected to ...
Monday, February 23, 2009
Bailout Nation: U.S. May Draw Citi Into Tighter Embrace
Bank nationalization is hanging over the market. But as far as taxpayers go the last thing we want is common stock. The reverse should be happening: common stock holders and existing debt holders should be getting crammed down in any reorganization that includes bailout funds, that is, taxpayer dollars. 
U.S. May Draw Citi Into Tighter Embrace
For the third time in four months, Citigroup is looking for government help to shore up its capital.
The question is whether more government involvement above and beyond the $45 billion the bank has already taken in two installments in October and November, not to mention the guarantee against losses on $300 billion of assets, would do anything to restore confidence.
Fears that Citigroup would succumb to the fate of American International Group and be outright nationalized sent its stock into a tailspin last week, ending Friday at a paltry $1.95. That gives Citi a market capitalization of just over $10 billion. One year ago, it had a market value of over $137 billion, and even that was considerably less than in Citi's glory days.
Though the deal believed to be under discussion would incur no additional costs to taxpayers, it would hammer common stockholders. News reports Sunday evening had the bank, either voluntarily or at the behest of the government, converting preferred shares held by the government into common shares, which would dilute existing stockholders. The government could end up holding 40% of the company's equity.
Citigroup wouldn't comment on the reports, except to reiterate a statement it made last week when the nationalization rumors were making the rounds. "Citi's capital base is very strong and our Tier 1 capital ratio as measured at the end of the fourth quarter was 11.9%, among the highest in the industry. We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," a spokesman said.
Citi, reeling from $18 billion in losses for 2008 and massive exposure to the consumer loan market, is already in the process of splitting itself in two. It's taking more than $800 billion of unwanted assets and businesses, like mortgage lending and consumer finance, and segregating them in a new business unit with its own management, who will spend their time selling the assets or otherwise disposing of them.
It also sold a majority of its crown jewel, Smith Barney, to a joint venture with Morgan Stanley.
The rest of Citi, which is returning to its pre-1998 name Citicorp, will continue on and presumably perform better without those money-losing assets and noncritical businesses. The remaining businesses will include corporate and retail banking, private banking and wholesale services around the world.
Announcing the plan in January, CEO Vikram Pandit explained, "This new structure will provide a wide range of options going forward to continue strengthening our core franchise."
But Citi faces a stress test by the government, and the results might not be pretty. Like many other banks, Citi faces mounting consumer loan losses, which are only being exacerbated by rising unemployment.
The stress testing, which is mandatory for the 15 biggest U.S. banks with more than $100 billion of assets, begins in the coming weeks. The Treasury Department, which is running the program, wants to find out whether the banks would have the capital they needed to continue to lend and absorb more losses if the economy were to weaken more than expected. Some think this stress testing, which is part of the Treasury's new Financial Stability Plan, means the government is imposing stricter capital standards on banks.
The fear is that any testing scenario will create a situation where there are clear winners (banks that don't have to take additional capital from the government but will likely be forced to anyway in a "voluntary" program to give the plan legitimacy), and clear losers (banks that will get capital injections that come with all sorts of additional restrictions on executive compensation, among other things).
Banks that go through a stress test will get access to a Treasury-provided "capital buffer" (an additional preferred equity stake) to bridge the time until the bank can raise the capital on the private markets. Given the restrictions that will likely accompany additional government injections, most see banks favoring raising capital in the private markets, if at all possible.
Citi has a number of wealthy constituents backing it, including Saudi Arabia's Prince Alwaleed bin Talal, whose fund has taken a major hit in the last few months. Other investors include the Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation and the Kuwait Investment Authority. Some executives at Citi get stock awards that vest if the stock improves by a multiple of three in the next four years. Pandit, along with some other senior executives, didn't participate in the awards.
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Fears that Citigroup would succumb to the fate of American International Group and be outright nationalized sent its stock into a tailspin last week, ending Friday at a paltry $1.95. That gives Citi a market capitalization of just over $10 billion. One year ago, it had a market value of over $137 billion, and even that was considerably less than in Citi's glory days.
Though the deal believed to be under discussion would incur no additional costs to taxpayers, it would hammer common stockholders. News reports Sunday evening had the bank, either voluntarily or at the behest of the government, converting preferred shares held by the government into common shares, which would dilute existing stockholders. The government could end up holding 40% of the company's equity.
Subscribe to EF Hutton via Email
For the third time in four months, Citigroup is looking for government help to shore up its capital.
The question is whether more government involvement above and beyond the $45 billion the bank has already taken in two installments in October and November, not to mention the guarantee against losses on $300 billion of assets, would do anything to restore confidence.
Fears that Citigroup would succumb to the fate of American International Group and be outright nationalized sent its stock into a tailspin last week, ending Friday at a paltry $1.95. That gives Citi a market capitalization of just over $10 billion. One year ago, it had a market value of over $137 billion, and even that was considerably less than in Citi's glory days.
Though the deal believed to be under discussion would incur no additional costs to taxpayers, it would hammer common stockholders. News reports Sunday evening had the bank, either voluntarily or at the behest of the government, converting preferred shares held by the government into common shares, which would dilute existing stockholders. The government could end up holding 40% of the company's equity.
Citigroup wouldn't comment on the reports, except to reiterate a statement it made last week when the nationalization rumors were making the rounds. "Citi's capital base is very strong and our Tier 1 capital ratio as measured at the end of the fourth quarter was 11.9%, among the highest in the industry. We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," a spokesman said.
Citi, reeling from $18 billion in losses for 2008 and massive exposure to the consumer loan market, is already in the process of splitting itself in two. It's taking more than $800 billion of unwanted assets and businesses, like mortgage lending and consumer finance, and segregating them in a new business unit with its own management, who will spend their time selling the assets or otherwise disposing of them.
It also sold a majority of its crown jewel, Smith Barney, to a joint venture with Morgan Stanley.
The rest of Citi, which is returning to its pre-1998 name Citicorp, will continue on and presumably perform better without those money-losing assets and noncritical businesses. The remaining businesses will include corporate and retail banking, private banking and wholesale services around the world.
Announcing the plan in January, CEO Vikram Pandit explained, "This new structure will provide a wide range of options going forward to continue strengthening our core franchise."
But Citi faces a stress test by the government, and the results might not be pretty. Like many other banks, Citi faces mounting consumer loan losses, which are only being exacerbated by rising unemployment.
The stress testing, which is mandatory for the 15 biggest U.S. banks with more than $100 billion of assets, begins in the coming weeks. The Treasury Department, which is running the program, wants to find out whether the banks would have the capital they needed to continue to lend and absorb more losses if the economy were to weaken more than expected. Some think this stress testing, which is part of the Treasury's new Financial Stability Plan, means the government is imposing stricter capital standards on banks.
The fear is that any testing scenario will create a situation where there are clear winners (banks that don't have to take additional capital from the government but will likely be forced to anyway in a "voluntary" program to give the plan legitimacy), and clear losers (banks that will get capital injections that come with all sorts of additional restrictions on executive compensation, among other things).
Banks that go through a stress test will get access to a Treasury-provided "capital buffer" (an additional preferred equity stake) to bridge the time until the bank can raise the capital on the private markets. Given the restrictions that will likely accompany additional government injections, most see banks favoring raising capital in the private markets, if at all possible.
Citi has a number of wealthy constituents backing it, including Saudi Arabia's Prince Alwaleed bin Talal, whose fund has taken a major hit in the last few months. Other investors include the Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation and the Kuwait Investment Authority. Some executives at Citi get stock awards that vest if the stock improves by a multiple of three in the next four years. Pandit, along with some other senior executives, didn't participate in the awards.
More from All American Investor
- Ray Dalio on the current state of affairs in the market
- Homebuyer Credit Won’t Stabilize Market, Analysts Say
- Roubini Predicts U.S. Losses May Reach $3.6 Trillion
- Six Errors on the Path to the Financial Crisis
- Who Caused the Financial Crisis?
- Option ARM--The Toxic Mortgage
- Debt Binge--The Perfect Financial Storm
Follow EF Hutton on Twitter
Thursday, February 19, 2009
CNBCs Steve Liesman versus Larry Kudlow and Rick Santelli
Steve Liesman is CNBCs Senior Economics Reporter. When it comes to the economy there is no one better than Steve on television. Steve has a way of cutting through the crap and looking beyond the obvious in his reports. Most of us can look at the headline when a new government statistic is issued and conclude what we want. Steve, on the other hand, gets into the guts of new government reports and pulls out the information that is likely to effect the markets--this information is not always easy to discover and it is not always obvious. You can make a lot of dojo listening to Steve and interpreting what he is saying. Put it this way, he is worth listening to because he might keep you out of trouble.
A few minutes ago on CNBC, Steve was arguing with Larry Kudlow and Rick Santelli about the Obama Housing plan. Larry as usual has his own preconceived explanation--this is just another attempt on the part of Democrats to transfer wealth from the rich to the poor. Larry obviously slept through most of the 90s. Rick Santelli is all bent out of shape because he thinks the good people of the country are paying off the mortgages of the bad people. He does look pretty funny screaming on the floor of the exchange--well at least his face doesn't look like it is going to explode alla Howard Dean.
Steve, on the other hand, is trying to make a simple point about the housing bailout--the current state of affairs in housing is an artificial situation caused by a mortgage system gone wild and man gone amuck. As a result, the market cannot correct itself in its normal fashion. In other words, the housing market needs some help to wash out all the excess.
I am probably not doing a good job explaining Steve Liesman's point of view. So if you are out there Steve, feel free to come in and comment; or, send us something to put up on this blog for our audience of investors.
In my opinion Steve is the guy that should have his own show on cable television. The guy is outright smart and talks in a way that can be understood. I mean Suzy Orman--give me a break. How many times can you say the same thing. Suz has no problem letting you know you are a dope. Steve gives you the dope--the real skinny.
Just so you know. I am not a friend, nor do I know Steve Liesman. I worked at Bear Stears at the same time as Larry Kudlow. And, I wouldn't mind having a drink with Rick Santelli at the Banana Boat.
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As CNBC’s Senior Economics Reporter, Steve Liesman reports on all aspects of the economy including the Federal Reserve Bank and major economic indicators. He appears on "Squawk Box" (M-F, 6-9 a.m. ET), as well as other CNBC programs throughout the Business Day.
Steve Liesman joined CNBC from The Wall Street Journal where he served as a senior economics reporter covering monetary policy, international economics, academic research and productivity. At the Journal, Liesman previously worked as an energy reporter and, from 1996-98, as the Journal’s Moscow bureau chief. He was a member of the reporting team recognized with a Pulitzer Prize for stories chronicling the crash of the Russian financial markets.
Prior to joining the Journal in 1994, Liesman was the business editor for The Moscow Times, where, as the founding business editor for the country’s first English language daily newspaper, he helped create the publication’s stock index, which was the country’s first. Liesman has also worked as a business reporter for both the St. Petersburg Times in St. Petersburg, Fl., and The Sarasota Herald-Tribune in Sarasota, Fl.
Liesman holds a Masters of Science from Columbia University Graduate School of Journalism and a B.A. in English from the State University of New York, Buffalo.
More from All American Investor
- Ray Dalio on the current state of affairs in the market
- Homebuyer Credit Won’t Stabilize Market, Analysts Say
- Roubini Predicts U.S. Losses May Reach $3.6 Trillion
- Six Errors on the Path to the Financial Crisis
- Who Caused the Financial Crisis?
- Option ARM--The Toxic Mortgage
- Debt Binge--The Perfect Financial Storm
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