More Oil!

We need more oil. This is not secret. In fact it hasn’t been a secret for the last 30 years.
We’ve just been denying it:

News Link

The energy crisis is real. It is worldwide. It is a clear and present danger to our nation. These are facts and we simply must face them.

That was Jimmy Carter speaking about the Oil Crisis then in 1979.
Carter was a horrible President, but he had that right at least. We are in an Oil Crisis. His solution though was about as dumb as the solutions by the Democrats today in Congress. Do nothing.

This week Bush stepped up the stakes in the Drilling for more Oil game.
He lifted the executive order by his Father Bush that placed a moratorium on drilling along our coasts. A moratorium that held for 18 years and even longer for congress. 27 Years has been too long.

Now, I nor anyone else for that matter is saying that it is the magic bullet. But the reality is that if 28 years ago we were drilling along the coast, we probably would not have this problem right now. Like most things though, people and govt all look at things in the NOW.

This from Obama a month ago:

It would have long-term consequences for our coastlines, but no short-term benefits, since it would take at least 10 years to get any oil,” he said.

There are so many arguments floating around that the drilling now won’t fix the current problem.
Reality check people (and Obama). NOTHING we do right NOW will fix the CURRENT problem. Well other than reducing our debt, but even that is not a NOW fix.

But it won’t get any better by doing nothing. Which is the Obama proposal. Don’t drill at all. That is stupid.

We have not Built a refinery in the US for 30 years. Not a single new Nuclear Plant in 30 years. We basically just STOPPED doing anything or rather banned companies from doing anything. That hasn’t worked at all. In fact its made things worse. Now over the next 20 years (if Congress lifts these bans) we will see a huge spike in Nuclear building, clean energy building and Oil production.

Its not if, but when. Its not why its how fast.

With Bush playing the first card it puts the pressure back on Congress (with already single digit approval numbers) to do something. Its time to lift the ban, we can do it responsibly, we can do it now so that my kids in 20 years aren’t writing in some blog as well on the same problems his dad talked about. Meanwhile Oil is at 500 a barrel.

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Mae, Mac and Indy

These last couple weeks has been filled with more economic woes.

IndyMac has failed, mostly fueled by speculation of its demise which forced a run on the bank. Always a dangerous thing. Part of it, if not most of it was fueled by a letter written by Senator Chuck Shumer of NY on June 26th. Midday trading Friday (usually a light day) showed IndyMac up 75 cents. News of the run hadn’t trickled down yet.

News Link

The U.S. Senator who leads the Senate subcommittee that oversees the Federal Reserve and economic policy has written letters to federal bank regulators questioning the condition of IndyMac Bancorp Inc. of Pasadena, news services reported Friday.

Sen. Charles Schumer, a Democrat from New York, sent the letters to the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco. The letters reportedly said Schumer is concerned IndyMac “may have serious problems with its current loan holdings, and could face a failure if prescriptive measures are not taken quickly.”

Schumer, who serves on the Senate Committee on Banking, Housing and Urban Affairs and is chairman of its Economic Policy Subcommittee, cited concerns that the bank’s condition is a risk to taxpayers and borrowers.

Moody’s Investors Service Inc. on Tuesday downgraded IndyMac.

Fast forward 2 days later and we begin to see lots of people making large withdraws from IndyMac, causing a run on the bank.

News Link

Battling rumors that it may collapse, Pasadena-based IndyMac Bancorp acknowledged Monday that its financial position had deteriorated but described the fears as overblown and said it was working with regulators to improve its “safety and soundness.”

IndyMac, a national home lender burned by the mortgage meltdown, went public after depositors lined up at San Gabriel Valley branches starting Friday to pull out their money. Striving to reassure them, the thrift said nearly all their deposits were insured by the Federal Deposit Insurance Corp.

Nonetheless, Elizabeth Brown closed four accounts totaling $200,000 Monday at an Arcadia branch where about 20 customers were lined up at noon, saying: “The only reason I’m panicking is if anything happens, my money is tied up.

“I don’t want to take the chance,” said Brown, 62, of Temple City. “I’m going to put my money somewhere else, and if they come back, I’ll come back.”

Rick McPherson, 64, said he grew worried after hearing news reports that IndyMac was struggling, and withdrew $1,000 he had at IndyMac.

“I’m not certain what happens when a bank fails,” said McPherson, a printer from Arcadia. “I don’t trust the economy right now.”

The concerns were triggered by Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, who said in public letters to the FDIC and other bank regulators Thursday that IndyMac “could face a failure if prescriptive measures are not taken quickly.” IndyMac said Monday that Schumer had created the “wrong impression” about the savings and loan’s risks.

IndyMac, which operates 31 offices and also takes deposits over the Internet, said the outflow of money increased on Saturday after continuing news coverage of Schumer’s remarks. The outflow Friday and Saturday totaled about $100 million, or about 0.5% of its total deposits of $19 billion, the company said.

That all happened over the weekend just 24-48 hours AFTER Schumers remarks.

Schumer in turn fired back days later that the run was not his fault but the Bush Administrations fault.

News Link

“The administration is doing what they always do, blaming the fire on the person who called 911,” Schumer said, according to the Associated Press’ story from the news conference in New York.

Remember folks, Politics and Finance – they are are all connected.

Schumer basically put his foot out too far on a bank that was already in a bit of distress and with his lone comments caused a major run on the bank in not only hours after, but days after as well. In the 11 days that followed, depositors withdrew more than $1.3 billion from IndyMac, leaving the bank unable to function. Via Fox Today cops were dispatched to calm the crowds as the news made its way to more people of the failure of the bank.

For Schumer to privately raise concerns within his oversight committee would be totally fine, for him to raise these concerns with a public letter are utterly ridiculous. That it was leaked from his office would should (I think) lead to an investigation. In Schumers supposed efforts to “save depositors” at the Bank, he created a much larger problem that hopefully does not trickle down to many other banks.

Fears at Wachovia have now started, as well as other banks.
Thankfully today Wells Fargo reported better than expected earnings.

On to the next problem.
Fannie Mae and Freddie Mac both seem to be on the path to a bail out from the federal govt.  The fed spelled their plan out on Monday as to what they are going to do with these two quasi public companies.

Yahoo News

Fannie Mae and Freddie Mac were volatile after tumbling last week amid concerns they would succumb to losses in their mortgage portfolios. The Fed said it would lend to the two companies “should such lending prove necessary.” Treasury Secretary Henry Paulson said his department is asking Congress for quick approval of a plan to expand its line of credit to the two companies and to make an equity investment in them if necessary.

Troubling indeed. Mae and Mac both have over 5 Trillion dollars in Mortgage debt that they hold. Taking on this massive amount of “assistance” would double the Nations Debt OVERNIGHT! Quite possibly causing the largest meltdown of History as American Bonds start to plummet over the massive debt incurred. A massive drop in the dollar, Oil doubling and total Chaos really.

Scary thought indeed. Are we to continue down the path that no matter how large you get the govt will bail you out of a crisis? Is that really what we want to create? A system where we say, get as large as possible, take out the most risk possible and then let the govt come in and bail us out.

That is not the free market economy we should be embracing.

Jim Rogers said more on Marketplace yesterday which is spot on:

Jim Rogers: Well, this plan is adding huge amounts of debt to the American government’s burden. Last weekend, we ran up $5 trillion, the same amount of debt that it took 200 years to accumulate. The world knows that’s an unbelievable burden added to any government, especially the one which is already deeply in debt. It’s bad for the economy, it’s bad for interest rates, it’s bad for inflation and it’s bad for the currency.

Jagow: As you say, $5 trillion in debt — that’s what Fannie and Freddie control; about half the U.S. mortgage market. How in the world can we let them fail?

Rogers: Well, it’s better to let them fail now if you ask me than wait two or three years when it’s going to be $10 trillion or who knows how much else because if we keep doing this, the United States government, who’s going to buy American government bonds? If you were a foreigner and you saw that the government added huge amounts of debt annually, would you continue to buy American government bonds? I mean, I wouldn’t and I’m an American.

Jagow: Alright, so if we don’t backstop Fannie and Freddie, what do we doe?

Rogers: Well, my view would be we let them fail and they’ll be reorganized in bankruptcy court. We’ve been having bankruptcies for a couple hundred years and for a few thousand years through the world. Let them go bankrupt, let them be reorganized, we clean out the system, I’d hope we put a few people in jail from Fannie Mae and Freddie Mac and we can start over. I’d rather do that, as painful as it’s going to be, than have to do it in two, three, five, whatever number of years it’s going to be.

Jagow: What do you think it will take to restore the confidence of foreign investors?

Rogers: Well, you’ve got to change the whole government structure of running up gigantic deficits in America and it’s going to cause some very radical changes. You know, most countries throughout history, when they’ve gotten themselves in financial trouble, they’ve never gotten themselves out unless they had a crisis or a semi-crisis. I’m afraid we’re going to be just like every other country and we’re going have to have our crisis or our semi-crisis and then maybe we’ll make some needed changes.

Politics however seem to be trumping sound financial moves. As we are seeing with the Bush Administrations latest moves to pump more liquidity into Mac and Mae. They are too large to let fail.

Letting a company fail, no matter how large they are, will cause some pain, locally, hell even nationally. But in the end after the dust settles the market finds its way back if you let it. We saw the collapse of Enron, Worldcom (sure they are different animals) but in the end, the market corrected itself. Another company came in and took over the gap for Enron and along we went for the last 5 years in economic expansion.

All these things do is cause knee jerk reactions by Congress. Such as the new move to stop short selling. Does that now mean that my shorts on JP are no longer valid? WTF?

What kind of Capitalism are we running here?

News Link

The U.S. Securities and Exchange Commission subpoenaed Wall Street’s biggest firms and hedge-fund advisers in a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc. and Bear Stearns Cos. shares, said three people with knowledge of the matter.

The SEC’s enforcement unit demanded information from investment banks including Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch & Co., according to two of the people, who declined to be identified because the inquiries aren’t public. The Washington-based regulator is seeking trading records and e- mails, one of them said.

The subpoenas mark a new front in the broadest U.S. investigation of Wall Street trading since state and federal regulators targeted mutual-fund abuses in 2003. The SEC issued an emergency order yesterday curtailing short selling in financial stocks, including Lehman and mortgage-finance companies Fannie Mae and Freddie Mac. The agency also is examining whether securities firms have adequate controls to thwart misconduct.

“The SEC is trying to determine whether there was illegal manipulation of market prices, and that is far easier to do if you have a broad sweep,” said Tamar Frankel, a law professor at Boston University.

Bull!
Lehman has been known for taking out loans on B and C Paper. Those are the most riskiest loans. That is why they are being shorted. Their books tell the story of a company that will not post profits and in fact will post losses for probably the next 2 years.

I’ll end this with some failed logic by Paulson:

Mr. Paulson walked lawmakers through his logic. By giving him the authority to spend an unlimited amount of money, he said, the markets would accept that the government’s commitment is solid, and that would increase confidence.

Quite the opposite Mr. Paulson. Bonds tells the tale of that failed logic as well as the drop of the dollar yesterday.

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