US secretly tried to make deal with Goldman Sachs in wake of financial crisis

The government secretly tried to orchestrate a deal involving Goldman Sachs in the week following Lehman Brothers’ collapse and considered using the Federal Reserve to help support such a transaction, Andrew Ross Sorkin reports in the new issue of Vanity Fair.

In an excerpt from his forthcoming book, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, Sorkin reports that the deal, which was nearly consummated, would have merged Goldman Sachs and Wachovia. Henry M. Paulson, the Treasury secretary and former C.E.O. of Goldman, was deeply involved in the process, contacting both Lloyd Blankfein, Goldman's current C.E.O., and a Wachovia board member, and strongly urged both to consider it. Wachovia’s C.E.O., Robert Steel, was a former vice-chairman at Goldman Sachs and Paulson’s former number two at the Treasury Department. (more)

Option ARMs in Financial Pain: 900,000 Mortgages and 1 out of 4 either Seriously Delinquent or in Foreclosure

It is interesting to see new data being published regarding Option ARMs in the new OCC and OTS report. According to the recently released report, there were 900,000 active Payment Option ARMs in the United States. What is troubling about the current report is the performance of these loans. Many of these loans are located in the depressed states of California and Florida that have dealt with record breaking budget problems. These loans have the potential to once again destabilize the housing markets in these regions.

What is interesting to note about this report is that 1 out of 4 of the option ARMs are either in foreclosure or in serious delinquency. The vast majority of these loans will not hit recast dates until 2010 yet the performance of these loans is already disastrous. The difference between a recast and a reset is that a recast is a change in payment irrespective of a low interest rate. Let us first look at their geographic location: (more)

Unprecedented U.S. corp. defaults seen for '09

U.S. corporate debt default rates are expected to hit "unprecedented" levels in 2009, even though the economy may be past the halfway mark of the U.S. recession, according to a forecast unveiled on Monday at the Reuters Restructuring Summit.

"There is a lot of pain left -- we are only just half way through the 600 or so defaults in this cycle," said Phil Kleweno, a partner at Bain's corporate renewal group.

The forecast for the 2009 corporate default rate has risen to 12 percent to 14 percent, from a May forecast of 11 percent to 13 percent, according to Bain's corporate default outlook. That suggests a total of about 180 to 210 companies could default on their debt this year. (more)

US Census Bureau report: 40 million living in poverty

The overall poverty rate in the US rose to 13.2 percent in 2008, as workers across all sectors of the economy became jobless and increasing numbers of families were forced into destitution, according to a new government report. Real median household income also declined by 3.6 percent.

The report released Tuesday, part of the US Census Bureau’s American Community Survey, is the most recent to measure the recession’s impact on working class families and the poor. Based on the changes between 2007 and 2008, the first full year of the recession, its findings do not reflect increases in poverty and joblessness this year as the consequences of the crisis have become even more acute. (more)

FDIC: Bank Failures to Cost $100 Billion

Federal regulators said Tuesday they expect U.S. bank failures to cost the deposit insurance fund about $100 billion in the next four years and the fund to be running at a deficit this month.

That is higher than an earlier estimate of $70 billion in failure costs through 2013.

The Federal Deposit Insurance Corp. made the projections Tuesday as its board voted to propose requiring banks to prepay an estimated $45 billion in regular insurance premiums for 2010-2012. The proposal could take effect after a 30-day public comment period. (more)

U.S. To Break Up Soon?

According to Macedonian Radio and Television On-line (MRT), a Russian professor predicts the United States will fall apart in July 2010. MRT reports, "'Mr. Obama is similar to the last Soviet leader Mikhail Gorbachev. Gorbachev was also making great promises for the Soviet Union, but the situation was only getting worse,' he said. By next summer, according to Professor Panarin, the US will disintegrate into six blocs--and everyone will get their piece. 'The probability that the United States of America fall apart in July 2010 is more than 50 percent,' said Igor Panarin, Professor at Moscow's Diplomatic Academy within the Russian Federation's Ministry of Foreign Affairs."

MRT went on to report, "Panarin came up with his grim forecast while analyzing the parallels between the Soviet Union in its final days and the current situation in the United States. 'American dream ballooned seven times in 11 years. During Gorbachev era, the Soviet dream ballooned five times.' Americans hope [President] Barack Obama 'can work miracles,' he wrote. 'But when spring comes, it will be clear that there are no miracles.'" (more)

Marc Faber Dollar weakening the market, Sept 25, 2009