Blood From Student Stones Loans

April 8, 2008

Elaine Meinel Supkis

First of the big student loan security sales organizations files for bankruptcy. This annoys me no end. No student is ever allowed to file for bankruptcy! But the guys peddling this stuff may protect themselves this way! Charming. Hedge funds are no longer the destination of trillions of inflationary dollars and they are going under, one by one. Roubini and Misch and others debate the letter that describes the recession we are in. Is it a W, a U or an L. One commentator says, it is an F-U-C-K recession. I say, this is correct. And rail roads are sidelining much of their rolling stock due to lack of customers: a classic depression gage of dropping commerce.

First Marblehead Tumbles, Guarantor Files Chapter 11

April 8 (Bloomberg) -- First Marblehead Corp., the third- largest U.S. arranger of securities backed by student loans, tumbled as much as 39 percent after the guarantor of its loans sought bankruptcy protection.

First Marblehead dropped $3 to $4.70 at 10:41 a.m. in New York Stock Exchange composite trading after Education Resources Institute Inc., or TERI, filed for Chapter 11 in Boston yesterday. First Marblehead declined 82 percent in the past 12 months before today.

The bankruptcy filing means Boston-based First Marblehead may incur losses from any defaults, Friedman Billings Ramsey analyst Matt Snowling said. TERI, the largest nonprofit guarantor of private student loans with $16 billion insured, cited added cash demands from a credit-rating downgrade and tumbling demand for student loan securities for its failing finances.

The filing ``now shifts credit risk back'' to First Marblehead, Snowling, who is based in Arlington, Virginia, said today in a research note. ``The risk to the company's capital likely restricts the company's access to funding even further,'' he said.

Thanks to the lobbyists passing huge sums of money into the pockets of our 'representatives' we are stuck with draconian bankruptcy laws that are now a lead weight attached to our young people's legs. As they drown in debt, there is no hope of any relief thanks to our 'democratically elected' leaders. These leaders seem more interested in destroying this nation which is why they should be kicked out of office. But they won't change any of the laws that enable them to suck down billions in kickbacks. This is how the Clintons became multi-millionaires, after all. Reagan, after betraying America, collected millions from foreigners after leaving office. The method is simple. These traitors get paid for giving 'speeches.'

They are very beholden to people who peddle debts. So the Congress had to protect these debt dealers while leaving the door open for them to go bankrupt if they get in trouble, themselves. So here it is: millions of Americans who graduate from college will enter a bad job market made worse by a raging recession but they will STILL have to pay off student loans. And since they can't get good work, will have to pay many fees and punishingly higher interest rates on top of all this. And the excess charges will be garnished from future paychecks...FOREVER. This is a form of slavery. In classic times, slaves were either conquered nations or people who owed money and couldn't pay it all back.

How the US expects to get out of the grinding mess we are sliding into while squeezing all our youth mercilessly, this is the question. And the answer is obvious: no, we will not get out of this grinding mess. We can't. There is no way to undo this except if we toss our bankers and lenders overboard and clean the decks.

Of course, nearly all commentary I read about this mess assumes that the most important thing here is to save the bankers, NOT our children struggling under this terrible, unmovable debt. As if we can't lend if we have no banks. But if banks are killing us, we must kill them! My own bank which is a credit union, was formed in 1933 in New York. The regular banks were vanishing. They opened up and began to give out loans. The founders were the state workers of NY and their union. The bank is still going strong.

Simons, Mandel Post Biggest Drop in Hedge Fund Slump

April 8 (Bloomberg) -- Hedge-fund titans James Simons and Stephen Mandel are showing the biggest losses of their careers in the $1.9 trillion industry's worst start in more than a decade.

Simons's $18 billion Renaissance Institutional Equities Fund declined 12 percent since its value peaked last May, investors with direct knowledge of the situation said. Mandel's Lone Cedar Fund dropped about 10.6 percent from its high in December, according to people familiar with the fund.

Hedge funds lost an average 2.78 percent of their value in the first quarter, according to data compiled by Chicago-based Hedge Fund Research Inc. The debacle shows the extent to which frigid credit markets, depreciating homes and an economy exhibiting all the signs of a recession are wreaking havoc on even the savviest investors.

Isn't it utterly pathetic that hedge funds, which were, by definition, supposed to be counter to any ongoing system, are collapsing alongside the systems they were 'hedging'? This shows clearly how there can NEVER be any system that can hedge in the long run. This is because all systems are supposed to make the same level of profitability in order to keep investors happy. When I buy insurance, it is not in the expectation I will collect. I paid 40 years of fire insurance and never had a fire. I did have an electrical outlet catch on fire once. But I put that out and fixed it myself.

But my in-laws had a really bad fire due to bad electrical work. Done, incidentally, by firemen moonlighting. They needed their insurance! Insurance is usually an over-all loss. Unless something bad happens. But insurance that is profitable is no insurance at all! When it moves over from 'once in a lifetime' to 'pay back every day' it ceases to function. The insurer goes bankrupt! Hedges were supposed to perform this function. But seeing how they made money during downturns, people thought, 'Why not make money during bull markets? Everyone makes money during bull markets!'

Of course, these stupid hedge funds are allowed to go bankrupt and pay no one back. Unlike student loans. Note the horrid unfairness in this ethos.

From Mish:

Nouriel Roubini proposed the question in The US Recession: V or U or W or L-Shaped? and came up with "U". Let's take a look.

The "W" talk seems based on the idea that there may be a brief rebound in the second half based on the Bush economic stimulus plan. That stimulus plan will fail but perhaps it temporarily pulls the US out of recession for one or two quarters.

More likely to me is something like an "L" or a "WW" kind of scenario with the U.S. slipping in and out of recession for a prolonged period of time, perhaps 3-4 years or more.

Roubini nailed three reasons for a severe recession but dismisses "L" because the U.S. acted faster than Japan. I do not buy that argument for these reasons.

U.S consumers are in much worse debt shape than Japan.

There is global wage arbitrage now that did not exist to a huge degree in the mid to late 1990's. Even white collar jobs are increasingly at risk.

The savings rate in the US is in far more need of repair than what Japan faced. This will be a huge drag on future spending and slow any recovery attempts.

Japan faced a huge asset bubble (valuation) problem. The US faces both a valuation problem (what debt on the books is worth) and a rampant overcapacity issue as well.

Japan had an internet boom to help smooth things out. There is no tech revolution on the horizon that will provide a huge source of jobs.

As usual, economic commentators, even smart ones, tend to leave out the obvious. Here is a classic example. Japan has two more advantages over the US as we go off the cliff: Japan has a huge trade surplus PROFIT, in particular, with the US.

And Japan has a very low military budget.

Thanks to both, they ended up their 'depression' with the world's second biggest FOREX reserves. The US can't do any of the things Japan did. We are in the exact opposite condition. The only reason the US won't have an 'L' shaped economy is because the G7 partners are screaming at us to resume buying their trade goods! They want us to trade. Now and forever. One way, of course. The US does sell Boeing jets and war materials. As well as scrap and food produce. But mostly, we are selling our own nation. Foreigners are controlling more and more of our industrial base as well as much of our infrastructure. The longer we go down this particular economic road, the less we own here at home. I call this treason. Anyone who thinks this road is OK is a traitor.

Leaders Turn Up Volume on Credit Crunch Ahead of G7

Governments must act together to protect the global economy and prevent another credit crisis from infecting markets, top financial officials said on Monday, ahead of key talks between economic powers this week.

"The G7 should lead the international response to these events," said British finance minister Alistair Darling in a letter to Group of Seven members obtained by Reuters ahead of their meeting in Washington on Friday.

His remarks were the latest from a European leader urging a coordinated response to the crisis. But there have been no firm proposals, least of all from the G7's U.S. hosts, and some officials are openly skeptical whether coordinated international action is needed.

All of Europe has trade surpluses with the US. All of Europe contributes virtually nothing substantial to NATO while making the US carry most of the burden. The US has troops stationed all over Europe and pays a pretty penny for this privilege. The colonial wars being fought on the same grounds the Europeans fought are being fought mostly by the US at our own cost. Europe's military contribution is not even a quarter of the American costs. This is bankrupting us. No one in Europe says a peep about this. They want this to continue just like Japan loves this. Free rides with free trade that is one way is fun! Why stop?

Both Europe and Japan want the US to take on more debts. Both need for us to run in the red at low interest rates. Both refuse to understand how they are contributing to global inflation due to the desire to keep the US running deep in the red in trade, military spending and consumer spending. The flood of red ink needed to keep the US buying foreign goods and paying for global imperialism are to be paid for via more and more debt! The US is ravaging our own children to force them to pay for their educations even if it destroys them, economically, forever. But we won't say no to our trade partners who are eating away at our domestic economy? Much of our systems here are now owned by these same people. And of course, they don't want us to go bankrupt and leave them hanging?

Instead, we hang our children! Talk about insane.

Idle cars signal a downturn

The nation's top hauler of container rail freight, BNSF Railway Co., is parking miles of rail cars in Montana and elsewhere because there isn't enough freight to keep them rolling.

Cars that often carry 40-foot containers of goods shipped from Asia stand like an iron fence between the Missouri River and this Montana burg known for world-class fly fishing. They stretch as far as Sandee Cardinal can see when she stands outside her home on the river's west bank between Helena and Great Falls.

"What is that but a symbol of how America is down in the dumps right now?" Cardinal asked as she gazed at the cars that haven't moved for about three months.

The cars parked are the type that haul cargo from ships on the coast to points inland, mainly imported goods -- an area that's starting to slow down because of the weak economy. Analysts say transportation usually is among the first sectors to show signs of a downturn in the economy. With Americans feeling pinched -- employers eliminated a net 63,000 jobs last month amid declining consumer confidence -- it could be awhile before the idle cars move.

All classic signs of a depression. One of the stupidest things going today is the idea that our youth can keep our foul banking system going if only they can't get rid of any debts. Once they get stuck on the wrong side of the debt/profit divide, they can keep on purchasing stuff by going deeper into debt. Soon, we will see laws forcing their own children to pay off their parent's debts after death! This has happened before in history. More than once. And it kills economies. Especially since corporations get to skate away from their own obligations.

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Comments

[Reimund from Berlin]

Yes, hedge funds were, by definition, supposed to be counter to any ongoing system, so the economist noticed:

Imagine a geared hedge fund owning the riskiest tranches of CDOs exposed to subprime debt. Lombard Street Research reckons that the combined gearing could reach 54-fold, implying that a 2% price drop could wipe out the entire portfolio. There are no signs, as yet, that any hedge funds have taken such a big bet;

[Reimund from Berlin]

"Cars that often carry 40-foot containers of goods shipped from Asia stand like an iron fence between the Missouri River and this Montana burg."

I hope the companies will survive this. Does anyone know a news-link with an aerial photograph?

[mad mike]

well,DUH! the rail cars were carrying trinkets from china. when they start rolling again will they be carrying domestic production or more
imported stuff? expect the worse to happen.
the meaning of life is meaninglessness.

[rockpaperscizzors]

U.S., China to Allow Investments by Chinese Banks
Under a deal with China's banking regulator, the U.S. becomes the fifth overseas market in which Chinese banks and trusts can invest
The China Banking Regulatory Commission (CBRC) says it has signed a memorandum of understanding with the Securities & Exchange Commission in the US. The agreement is a de facto approval for Chinese banks and trusts to begin overseas investments in the US...
The deal has come after a recent state visit by US Secretary of the Treasury, Henry Paulson, to China. Paulson, responding to Chinese premier Wen Jiabao's vocal concerns on the US economy, reassured China about the US's long-term stability and said the subprime crisis would be limited.

Paulson's previous attendance of a Strategic Economic Dialogue conference with Chinese officials has resulted in a three-fold increase in total qualified foreign institutional investor (QFII) quotas from $10 billion to $30 billion. The QFII programme, unlike QDII, allows overseas investors to invest in Chinese domestic securities.
http://www.businessweek.com/globalbiz/content/apr2008/gb2008048_672557.htm?chan=top+news_top+news+index_global+business

Hmmmm they're not quite done with selling off of the United States. Just wondering, will chinese become our National language?

[rockpaperscizzors]

Geez, Goldman Sachs has their fingerprints on every f***ing deal and insiders such as Paulson on every corner. Secretary of Treasury Paulson's recent deal with China was for his alma mater Goldman Sachs.

Goldman's New Man in China
Cai Jin-Yong has been named CEO of Goldman Sachs Gao Hua Securities, Goldman's joint venture in China, replacing Zha Xiangyang, who is retiring
...The appointment, which is effective immediately, comes as competition in China heats up with more international investment banks expected to be allowed to underwrite domestic securities soon. At present Goldman Sachs and UBS are the only two foreign firms with a license to do this...
Cai will also assume a newly created position as president of China investment banking, which will make him Goldman's top man in China with regard to its overall investment banking efforts. This will include M&A transactions, as well as IPOs of Chinese firms outside of China. Effectively, he will take over from Richard Ong who helped run investment banking in China from his position as co-head of Asia investment banking
http://www.businessweek.com/globalbiz/content/mar2008/gb2008035_006148.htm?chan=search

[Blunt Force Trauma]

RPS said:

"Just wondering, will chinese become our National language?"

Start learning either Cantonese or Mandarin or both. You'll need it for your federally mandated, minimum wage serf stevedore job receiving salad spinners from Taiwan in a couple of years.

[Blunt Force Trauma]

BNSF (Burlington Norfolk Santa Fe) Railway has other problems other than idle rail cars.

Jury grants BNSF worker $1.2M

http://www.billingsgazette.net/articles/2008/04/08/news/local/39-bnsfsuit.txt

Six unions seek reconsideration of FRA rule; BLET members ratify short-line contract

http://www.progressiverailroading.com/news/article.asp?id=16089

Railroad fuel surcharges make shippers cry foul

http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/20080404/BUSINESS/804040388/1029/BUSINESS

As you can see, parked rail cars are the least of their problems.

[charlottemom]

I found your comments on "parking of railroad cars" extremely interesting in light of yesterday and today's FAA "grounding" of certain jets for wire inspections -- 1000 flights canceled! What! This news on the heels of bankrupting small air carriers, dropping UPS profits and of course posting of new highs in fuel costs. Meanwhile, reported on the internet (only) of food and fuel shortages and associated riots. Dare I say that these flight "groundings" are either 1) jet fuel shortage/rationing; 2) desperate cost savings by air carriers. I think this is a simple fuel=dollars issue and amounts to an air version of power "rolling brownouts" as another blogger puts it.

[Elaine Meinel Supkis]

Who knows? According to the airlines, it is a safety issue. But yes, it co-incides with a sudden price hike and more threats against Iran.

[Jojo]

Student debt has created a class of professional predators motivated by a cunning desperation to service their debt. Those that opt out of the professional debtor class join the military class, which protects the interests of the corporate purveyors of debt. A fine frinkin' mess I say.

[Ed-M]

Rockpaperscissors, I smell a chinese rat -- in the year of the rat! Looks to me that China has finally made a fatal mistake, and eventually everything of value there will be destroyed!

[Elaine Meinel Supkis]

My heart goes out to those trapped in the student loan web.

[alice]

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[Loans]

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[Credit Expert]

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