Obama To Spend $100M In Taxpayer Dollars In Stealth Bailout Of Detroit

President Obama has decided to secretly bail out Detroit and make its corrupt pension plan whole at the rest of the nations' expense.Which of course, means he lied about his commitment not to do so.

In order to sneak this past the American people, the regime is labeling this as 'blight remediation,' but the fine print allows the new city manager to shove it into the city's pension funds, which were looted over several decades by Detroit's Democrat politicians and corrupt public employee union bosses.

As the Detroit Free Press reported, the money's coming from a secret $7.6-billion slush fund the Obama Administration established called the the Hardest Hit Fund designed to help those 18 states hardest hit by the real estate collapse. Surprise, surprise, 11 of those 18 states (and the ones getting most of the cash) are either deep Blue enclaves or battle ground states with predominantly black urban Democrat populations. And the 7 of those states that are Red States likewise have significant black populations, like Georgia's urban Democrat stronghold in Atlanta. There's also looks like there might be an interesting correlation here between the areas hardest hit and a population of certain borrowers who received loans from Fannie and Freddie they weren't really qualified for normally based on those sharply reduced, politically correct underwriting standards doesn't there? And while the Democrats who controlled congress after January 2007 fought off any attempts at oversight of Fannie and Freddie during the Bush years.

Michigan is already the recipient of almost half a billion taxpayer dollars, and Detroit already received $320 million of your tax dollars in a separate bailout, so this $100M specifically earmarked for Detroit's pension funds is lagniappe, (a little extra) as they say in N'awlins.

So aside from the fact it's being done in secret without congressional oversight, why is this so outrageous?

First off, because it's racial politics written in big letters and a blatant political bribe to Detroit's public employee unions with the midterms coming on.

Second, because it sets a horrific precedent.Lots of cities whom have been Democrat ruled for decades have underwater pension funds. Looking at what Detroit's getting, what we're looking at is the old 'train pulling' logic..'hey sweetie, you did it for him, ain't I good enough?'

And finally, because of the nature of how Detroit's pension fund was looted. You see, while the politicians and union officials got the biggest , the rest of the pension recipients shared in the swag, receiving a '13th check' every year instead of any profits being re-invested to keep the fund solvent. They received it as what amounts to a political bribe to keep voting the some politicos and union bosses back into power no matter whether the fund did well or poorly.The constant looting of the pension funds was largely covered by simply raising taxes or diverting other revenues into it.

Meanwhile Americans with private pensions and 401K's aren't getting any bailouts and are getting hammered by higher and higher taxes to pay for the excesses of places like Detroit...and the other mismanaged Blue urban strongholds and public employee unions that are going to get in line behind Detroit for their share.

The ObamaCare Xmas Present Obama Plans - Single Payer And A Taxpayer Bailout

Unfortunately, here's a nasty lump of coal for your stocking, courtesy of President Obama and his Democrats.For al the talk about ObamaCare crashing and burning on its own, did you really think our Dear Leader and his friends were going to let that happen just because it's dysfunctional and the American people are finally on to what a plundering of the nation's wealth it is?

Regular readers of these pages will know that I have always said that ObamaCare was merely intended as a gateway to force single payer, government run healthcare on the nation, like it or not. Harry Reid and others have admitted as much. As Dr. Charles Krauthammer explains above, the pathway to single payer was baked into this destructive piece of tyranny from the start, with provisions for a massive, mandated taxpayer bailout if not enough people sign up for the exchanges...exactly what's happening now.

Insurance companies will become government-controlled lackeys, you and your family will be shaken down to pay ultra high rates for rationed, inferior health care and yet another one of those quasi-independent occupations that used to provide Americans with a middle class living will disappear as insurance agents are replaced by ObamaCare navigators.

The president and his team will try to shove this through by executive order if need be, citing massive damage to the insurance industry unless they bail it out. They will, of course, not mention that this is damage they willfully caused.Or that simply revoking ObamaCare would allow the industry to rebuild over time.

One possible prevention is a bill passed in congress that prevents a bailout of the insurance companies in exchange for raising the debt ceiling...if the Republicans unite behind it, a big if. Marco Rubio is pushing for just such a bill right now in the Senate, and provided Boehner and the House go along there might be enough vulnerable Democrats in congress to support it as well.

As an alternative, the House could simply stand up to the president for once, do the job the Constitution mandated them to do and refuse to allocate funds for the bailout.

In any event, you need to contact your members of congress and insist on no bailout for insurance companies. Now.

Corruption In Action - Detroit Gets $320 Million Federal Bailout

Back when Detroit's financial woes heated up, Detroit City councilwoman JoAnn Watson made a racially oriented demand that President Obama bail them out, saying, "Our people in an overwhelming way supported the re-election of this president and there ought to be a quid pro quo and you ought to exercise leadership on that."



As I wrote at the time, I trust you know exactly whom Ms. Watson meant by 'our people'. And given the almost certain probability of voter fraud in Wayne County, what she meant by 'support'.

Well, it may been a while coming, but President Obama saw to it that his friends in Detroit got a little somethin' somethin'. Shutdown or no shutdown, sequester or no sequester, Detroit just received $320 million of your tax dollars.

Now, the Regime would have it that this is certainly not a bailout. They're calling it a stimulus. But just like Obama's other stimulus,it seems like the money is mainly going as a payoff to the president's political allies rather then being being used to restructure debt or create any actual jobs.

The Obama Administration is being fairly closed mouthed about this. All they'll reveal is that the funds came from FEMA, Homeland Security, HUD and the TARP bailout funds, and no one seems to know who actually authorized it or put the package together.

As the normally Obama friendly Christian Science Monitor reported, another oddity is that most the money is supposedly earmarked for programs already being funded by places like the Ford, Kresge, and Knight Foundations. The reason for the apparent duplication will become evident when you realize where the money is actually going.

As I reported earlier, there has been a running war between the entirely black Detroit City Council and Emergency Manager Kevyn Orr ( who is also black, not that it matters to the Council), who filed bankruptcy after he was appointed to try and sort out the dysfunctional city's finances by Governor Rick Snyder.

Part of what Orr is trying to accomplish involves changing some of the sweetheart contracts the City Council and people like incarcerated Mayor Kwame Kilpatrick made with the public employee unions in exchange for campaign swag and votes that allowed them to rule what was once America's most prosperous city as their personal fiefdom.

Aside from trying to restructure the ridiculously opulent pension plans, the bankruptcy also allows Orr to restructure the union contracts. And therein lies the real story behind the 'stimulus', which is exactly what this is, unless we want to use the more appropriate term 'bribe'.

You see, the majority of the funds come with some interesting strings attached. They require that the city ceases any attempt to change the existing union contracts and pay what are referred to as 'prevailing union wages', thus giving the City Council and the unions a huge weapon to use against any reforms Kevyn Orr might try to push through, since the money's available for the status quo courtesy of the American taxpayer.

Ditto when it comes to the pension plans. The Motor City's pension managers are insisting that the pensions are only underfunded by a mere $634 million, so no reform is necessary. Orr, a bankruptcy attorney originally from Washington DC has reports from his accountants showing the shortfall as a much more realistic $3 billion. With the arrival of the ObamaMoney , the opponents of any pension reform (again, mostly the unions) have another weapon to use.

It's worth mentioning, by the way, exactly how Detroit's pension plans got into this state.

The theory behind pension plans is pretty simple. An employer and its employees contribute funds every month that are invested in certain vehicles like stocks and bonds, with the idea that retiree benefits with be eventually paid out of the profits. It's similar to an old, time tested strategy known as dollar cost averaging - you commit a certain percentage of your earnings to investment, and with even normally competent management, good years average out with not so good years to give you a decent profit on your investment over time.

After five term Mayor Coleman 'I don't know nothin' about no Krugerands' Young took over in the 1970's, the City of Detroit started doing things differently. When the investments did well, instead of leaving them in the fund and re-investing them for further profit, Detroit payed its retirees a 'thirteenth check'. When the investments didn't do so well, that 13th check continued anyway, so there was a constant looting of the pension funds that was largely covered by simply raising taxes or diverting other revenues into it. Even a drug addled southside crack dealer would have realized that this was unsustainable, especially as the city's tax base moved away to avoid skyrocketing crime and taxes. But the ruling powers in Detroit had a personal incentive to keep the status quo, as many of them were dipping directly into the pension funds. That is one of the reasons former Mayor Kwame Kilpatrick is now a guest of the federal government.

Another question this raises..a lot of American cities are in trouble. Are federal bailout finds now going to be distributed on a 'party loyalty' or even a racial basis? Congressman Jerry McNerney, the Democrat representative of a district that includes the city of Stockton, California wrote President Obama and asked this question directly without getting a response. He wanted to know why aid was not extended to Stockton, a city which declared bankruptcy last year, “and suffers from many of the same problems as Detroit”.

I wouldn't expect an answer anytime soon if I were Rep. McNerney.

As for Detroit, let's remember something. This was not Hurricane Katrina or 9/11 or Hurricane Sandy . There was no emergency here that required the use of federal funds. This was merely a Chicago-style marker for money and services received, paid out from our tax dollars to President Obama's union allies, nothing less and nothing more.

Detroit's plight is due to over forty years of racial politics and Democrat rule, and the outright theft, greed and criminal mismanagement by politicians the people of Detroit continued to elect for decades, and will likely continue to elect in the future. The unions in particular have no claim on any bailout, since they were part of the same circle of corruption and benefited from it. Even worse, without attacking the core problems of Detroit (which may prove impossible, given th ecurrent population) nothing's going to change no matter how much federal aid pours in.

The Obama Administration has stated that Detroit cannot expect to receive any more federal aid. I'd rate that statement to be as true as President Obama's famous "If you like your doctor and your health plan, you'll be able to keep them."

Especially as we get closer to the midterms.

Merry Christmas, Taxpayers! Obama To Dump GM Stock At $12 B Loss

Ho ho ho, has Obama Claus got something for you!

Back when President Obama was pounding his chest about his wonderful success with the GM bailout, I never could figure out why a sharp businessman like Mitt Romney chose not to reveal the truth to the voters.

The GM bailout was only designed to do one thing - pay back the president's union supporters and campaign contributors at taxpayer expense, Chicago-style. It amounted to wiping out GM's private equity holders,many of them elderly retirees and gifting the company to the unions.

The cost? Oh before today's announcement, something like $88 billion in taxpayer funds.

The GM stock the feds were holding was put up for sale in the initial public offering which was supposed to recoup our initial $50 billion 'investment' was supposed to start out at $36 per share, around where the stock traded shortly after the offering hit the market. Instead, it tanked and the losses alone on the devalued stock the feds got stuck with came to over $16.6 billion...not counting the $26.4 billion in direct aid that's never been recouped.

There's also that $45.4 billion dollar tax credit against future profits at the American taxpayer's expense given to them by the Obama Administration that could keep GM tax free for years.GM earned a $7.6 billion 'profit' in 2011 but paid no taxes.

Now, we can up the cost even higher. President Obama's lump of coal in your stocking is today's announcement that the feds will be dumping their remaining GM stock.

About half of the stock is going to be sold back to GM's union owners for $5.5 billion. And that's not all, the union is getting a price of $27.50 per share, about 8 percent higher than GM’s closing price yesterday,when the deal was signed. The Feds are going to try to sell the rest of it at any price they can get over the next 15 months or so. The cost to the taxpayers? An estimated $12 billion.

That brings the cost of the GM bailout to a nice $100 billion or so, give or take.The linked Examiner article doesn't count the tax break and thus severely understates what the GM bailout actually cost.

During the campaign , President Obama lied to the American people telling us that the Obama Administration 'got back every dime we invested'.

That $100 billion or so is money the taxpayers will never see again. Unless you happen to be a Democrat running for office with union campaign contributions in your war chest.

Merry Christmas.

Detroit To Obama: 'We Voted You In..Now Give Us That Obama Money!"

After the voting comes the demands for payment using other people's money, of course:

The city of Detroit faces a major financial crisis and one member of city council thinks President Barack Obama should step in and help.

City Council member JoAnn Watson said Tuesday the citizens support of Obama in last month's election was enough reason for the president to bailout the struggling the city. (Click the video player to listen)

"Our people in an overwhelming way supported the re-election of this president and there ought to be a quid pro quo and you ought to exercise leadership on that," said Watson. "Of course, not just that, but why not?"

"After the election of Jimmy Carter, the honorable Coleman Alexander Young, he went to Washington, D.C. He came home with some bacon," said Watson. "That's what you do."

I trust you know exactly whom Ms. Watson means by 'our people'. And given the almost certain probability of voter fraud in Wayne County, what she means by 'support'.

I love the mention of former Detroit mayor Coleman Young, an advanced practitioner of racial politics. A former member of the Communist Party and the National Negro Labor Council, a communist front group Young started with Soviet agent Paul Robeson, Young was Detroit's first black mayor who used to habitually refer to himself as 'the chief muthaf**ker in charge'.

He served five terms as the city's demographics changed, essentially presiding over the city's decline. By the end of his last term, the population of Detroit had shrunk by more than half as middle class taxpayers and businesses fled and the crime rate was far higher than it was before he became mayor.

And bacon? Whatever Young got from President Carter, he and his cronies certainly cut themselves a healthy slice. When Coleman's close friend and political adviser William L. Hart was convicted for stealing $2.6 million from city funds and when other Young cronies in the police department, school boards, sanitation, and other departments likewise took the fall in what the FBI called 'a large circle of corruption surrounding the mayor', a substantial amount of the evidence they used was from wiretaps on Mayor Young's home telephone.

The only reason he stayed out of jail is because the Carter Justice department thought it inadvisable to indict a popular black Democrat mayor and risk antagonizing a reliable voting bloc.

Young's successors like Kwame Kilpatrick, now a guest of the State of Michigan have continued this legacy with gusto, if not the same ability to get away with it.

For that matter, there are certain rumblings about Councilwoman Watson's own tax situation.

Detroit is flat broke,after decades of Democrat rule, leftist high tax and spend policies, corruption and racial politics.

But because it is essentially a black-run city, any attempt to step in with an intervention has led to charges of racism.

Michigan Governor Rick Scott actually tried to set up an $80 million bail out of Detroit in exchange for the creation of a nine-member Financial Advisory Board to oversee the city's financial restructuring,with six members appointed by the Governor and two by the city council. As an example of how corrupt the current city council is, instead of the money going directly through their hands it was to be put into an escrow account that could be drawn on after expenditures were approved by the committee.

The city council turned it down, and the city attorney, Krystal Crittendon, sued the State of Michigan for what she claimed where monies owed by the state to Detroit.The suit was tossed out of court, and Detroit's situation is essentially in limbo.

The idea of bailing out the current city government of Detroit and throwing good money after bad is not something that inspires confidence.

Obama To Union Auto Workers: "I Bet On You"

President Obama was in Toledo, Ohio today speaking to a group of UAW workers on the eve of the Democrat's convention in Charlotte and made the following statement and chest thumping about his supposed rescue of the auto industry:

"I bet on you. I'll make that bet any day of the week and because of that bet, three years later, that bet is paying off for America," he said.

Just two things...first of all, President Empty Chair made that bet with other people's money, not his. He risked nothing.

And second, that bet isn't paying off for anyone except the unions, who spent $40 million and up in 2008 to elect this president.

The rest of us are the ones doing the paying, and the tab is in the billions...at least $43 billion in direct aid we'll never see again and losses on devalued stocvk the government was left holding, and an additional $45.4 billion dollar tax credit against future profits at the American taxpayer's expense given to them by the Obama Administration that could keep GM tax free for years.

GM and Chrysler could have easily been bailed out using a managed bankruptcy instead of a massive taxpayer bailout, after which they could have renegotiated their contracts with the unions. But that's not what the union bosses were buying when they purchased Barack Obama.

It's about time someone mentioned it and questioned President Obama's claim of an 'achievement'.

Obama: "Hey Let's Repeat My Auto Industry 'Success' "

Some stories almost write themselves. Here's President Obama speaking in Colorado:

President Obama, while villifying Mitt Romney for opposing the auto industry bailout, bragged about the success of his decision to provide government assistance and said he now wants to see every manufacturing industry come roaring back.

“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.

“I don’t want those jobs taking root in places like China, I want those jobs taking root in places like Pueblo,” Obama told a crowd gathered for a campaign rally at the Palace of Agriculture at the Colorado State Fairgrounds here.

Either our president has finally slipped his moorings or he arrogantly thinks everyone is stupid but him. There's no third possibility.

The cost of the bail out to the American taxpayer (which, let's face it, was done strictly to benefit Obama's union allies, as it amounted to wiping out private equity holders and gifting the company to the unions) was actually a lot more than people realize.

The losses alone on the devalued stock the feds are holding came to over $16.6 billion...not counting the $26.4 billion in direct aid that's never been recouped.

There's also that $45.4 billion dollar tax credit against future profits at the American taxpayer's expense given to them by the Obama Administration that could keep GM tax free for years.GM earned a $7.6 billion 'profit' in 2011 but paid no taxes.

Yes. let's keep doing that..until we go broke., which won't be long if President Obama's re-elected.

And speaking of keeping jobs...obviously the president is quite choosy about which jobs, and who gets to keep them.

There were over 1100 GM dealership that were arbitrarly closed down, no matter how profitable they were. It's also a matter of record that no dealership that was minority owned got the axe,no matter how unprofitable they were.

Then, there's the story about what happened at Delphi, a company closely associated with GM and the largest auto parts manufacturer in the world. When they were taken over by th eObama Administration as part of the bail out, a funny thing happened; Twenty thousand of its salaried non-union retirees lost nearly their entire pensions when the government bailed out GM. At the same time, Delphi retirees who were members of the United Auto Workers union kept their full pensions and had them made good:

The move, made in 2009 while the Obama administration implemented its auto bailout plan, appears to have been made solely because those retirees were not members of labor unions.

The internal government emails contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that the administration misled lawmakers and the courts about the sequence of events surrounding the termination of those non-union pensions, and that administration figures violated federal law.

Another day, another lie, another scandal...business as usual.

Perhaps, though the president ought to work on his stump speech to make things a little more challenging. The contempt he must have for other people's intelligence is just a tad too obvious.

'Government Motors' - Taxpayer Losses On GM Bailout Rise to $35 Billion

The cost of the Obama Administration's bailout of General Motors keeps rising. GM shares fell to a 2012 low of 19.57 yesterday.

If you recall, GM's starting share price in the company's initial public offering (IPO) after the bailout was $33 per share. Most experts estimated that the stock would have to rise to at least $52 and by some estimates as high as $103 in order for the taxpayers to just break even on the large block of shares the government was holding as 'collateral' for the $85 billion bailout.

As it turned out, the IPO was a huge bust and the Obama Administration was forced to dump stock at below market prices, something probably against SEC rules if a private investor did it.

The losses on the stock sale plus the declining price of the 26.5% of GM, or 500 million shares the taxpayers still own adds up to $16.6 billion...not counting the $26.4 billion in direct aid that's never been recouped.

There's also that $45.4 billion dollar tax credit against future profits at the American taxpayer's expense given to them by the Obama Administration that could keep GM tax free for years.GM earned a $7.6 billion 'profit' in 2011 but paid no taxes.

The gifting of GM to President Obama's union allies was simply a transfer of wealth directly from taxpayers to the unions who invested millions in campaign work hours and in contributions to get the president elected, and you can bet that a substantial amount of the taxpayer money spent to keep GM alive will simply be 'recycled' back into campaign funds for President Obama and his fellow Democrats.

The Eurozone's Time Of Decision

Next week, there is a major summit of EU leaders scheduled. They're going to try to hash out some way of dealing with their ongoing fiscal crisis. Italy's Prime Minister Mario Monti was fairly stark about what's at stake.

As I predicted earlier, Spain's bailout without the insistence of major austerity measures and reduced government spending had been the signal for what amounts to a 'gang bang' on German
Chancellor Angela Merkel. Not only does Italy expect a bailout on similar terms, but Portugal and Ireland now want their bail out agreements amended to cut back on mandatory austerity measures. And they now have another important player piling on Merkel - the head of the International Monetary Fund, Christine Lagarde:

IMF managing director Christine Lagarde warned that the euro is under "acute stress" and urged eurozone leaders to channel aid directly to struggling banks rather than via governments. She also called on the European Central Bank (ECB) to cut interest rates.

The stark message from Lagarde, delivered to eurozone finance ministers who were meeting in Luxembourg, will increase pressure to come up with a unified approach to tackle problems including Spain's struggling banks. She urged the 17 eurozone countries to consider jointly issuing debt and helping troubled banks directly. She also suggested relaxing the strict austerity conditions imposed on countries that have received bailouts.

"We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area," Lagarde said after the meeting. {...}

One of Lagarde's recommendations for Europe was that eurozone leaders should consider issuing bonds or debt "in some form" backed by the governments of all member countries. Berlin opposes the idea because it would put German taxpayers on the hook for foreign debts and increase the country's cost of borrowing.

In addition, Lagarde said it was necessary to break "the negative feedback loop" that occurs when governments take on more debt to bail out their banks, and she called on Europe's two emergency bailout funds to shore up shaky banks directly.

Let's translate what 's going on here, and more importantly, who it's coming from.

This the head of the IMF, a crucial player in the world's financial order and a major potential source of funds for the EU's troubled economies. And what she's telling Angela Merkel and the Germans is that the IMF's support for the eurozone is questionable unless the Germans and other healthier members of the eurozone agree to purchase Greek, Spanish, Italian, Irish and Portuguese debt that the market has already decided are perfectly lousy investments. Moreover, she wants that debt purchased at at artificially lowered interest rates, and she wants the money to go directly to the banks, so the entire eurozone is on the hook for it rather than individual countries.

The idea here is simple. If the Germans bend over for it,the contagion from the affected countries will be spread throughout the entire system. At the same time, the 'purchase' of the debt plus low interest rates will allow the affected countries to chuck any ideas of fiscal austerity and engage in 'growth' - a euphemism for increased government spending.

If Angela Merkel agrees to this, she's likely to become history politically if the current polls are any indication of how the average German feels about this sort of arrangement.

Even if it goes through, it's a recipe for ruin, and I don't see how it can last for long.

The Greek Elections: Kicking The Can Down The Road

Well, the Greeks have voted and the result is essentially indecisive.

The New Democracy Party,which favors staying in the euro and adhering to the bailout's austerity measure eked out a narrow win, but by no means enough to form a government.They appear to have won 127 Seats, with the left wing Syriza,party,which favored going back to the drachma and using the bailout agreement for toilet paper getting 72 seats. The PASOK Party, which is somewhat close in ideology with New Democracy got something like 32 seats.

A New Democracy-PASOK coalition would be enough to govern...but it appears to be 'complicated'.

First,PASOK's leadership refused to join the government unless Syriza was part of it as a unity coalition. Later, they seem to signal that they might join, but without any ministerial portfolios.

Here's what's behind it.

Greece's economy is in dire condition and on the verge of collapse. During the past three years, Greece’s GDP contracted by 16% and is expected to shrink another 7% this year. Unemployment has risen to 22%.

As a result of the dire condition of the economy, Greece’s public finances and outstanding public debt are much worse shape than the IMF projections earlier this year, tax receipts are declining and the Greek government faces major payment arrears on money that needs to be spent simply to keep the government going.

The IMF will almost certainly demand further cuts in public spending as a condition of making its next loan disbursement which is politically unsustainable..there's absolutely no way parliament will approve them.

The markets may initially react favorably as they did with Spain, but reality is going to set in shortly.

Greece will likely default on its debts and be out of the euro before 2012 ends. The economy is simply too bad, the debts too high . And there are simply no further cuts the Greek public will accept and no further concessions the IMF and the eurozone are going to be able to offer, especially since Spain and Italy are going to need to be dealt with.

The EU is likely headed for a deeper recession, and it remains to be seen what the effect on America and other world markets will be.

The Markets Have Spoken - Spain's Bailout Is A Failure

As the above chart shows ( h/t Brad Plumer at the WAPO), the band-aid applied to th elatest case of gangrene in the eurozone hasn't fooled investors one bit. Spain's borrowing cost ( orange) shot upward to almost 6.5%.

Italy, the next domino in the ongoing crisis, (gray) saw its borrowing cost increase to nearly 6%.

Translation? Investors don't think they're going to be paid back, and will simply end up losing most of their investment in the form of a 'haircut', ala Greece.

The investors whom already own these securities are seeing their investments plummet in value, since not only are few people interested in buying Spanish or Italian government debt, they certainly aren't willing at the earlier, lower rates without a huge price discount.

I think we can call this a failure in any EU language you like.

As I said before, without major cuts in the European nanny state and major changes in demographics, there's no way shoveling more and more money down this rat hole can work. Debt at a level of 110% of Spain's Gross Domestic Product is simply unsustainable.

Spain, along with most of the EU is not reproducing at even replacement levels, and there simply aren't going to be enough young Spanish workers to pay the debt off. And for that matter, this also applies to Germany. There's no way 42 Germans in the future are going to be willing or able to carry the load for the eurozone that 100 Germans have been committed to carrying now...especially given how opposed those 100 are to it.

The Rot Thickens - Spain Accepts Massive EU Bailout

Spain has accepted a massive EU bailout of its banking sector by European finance ministers of an aid package of up to $125 billion.

Prime Minister Mariano Rajoy of Spain and members of his government are vigorously spinning this as 'aid to the banking sector' rather than a bailout, but a bailout is exactly what it is. While Spain has avoided the kind of austerity strictures forced on Ireland, Portugal and Greece, the money is not going to be given directly to the banks, as Spain wanted.Instead, it's going to be distributed to the FROB, the Spanish government agency responsible for regulating Spain's banks, as who previously handled a Spanish government funded bailout for Spanish banking giant Bankia. That means the Spanish government rather than the individual banks are going to be responsible for the debt, with will skyrocket to Greek levels, 110% of Spain's Gross Domestic Product.

Even worse, this is essentially a band-aid used to treat a bad case of gangrene. Spain's banking woes are due not only to a vastly inflated Euro-socialist public sector but to a huge bubble in property and construction. Not only are the full effect of the toxic loans and investments in Spain's real estate and construction sector throughout the eurozone still to be totaled up, but the debt is simply unsustainable given Spain's economy and more importantly, its demographics. There simply aren't going to be enough young Spanish workers to pay off the debt in the foreseeable future.

This, of course, gives rise to another question, examined in a great piece written in the Financial Times by Niall Ferguson and Nouriel Roubini.

Being pragmatists, Ferguson and Roubini focus on practical ways to preserve the eurozone. As they point out (and as you read in these pages previously), there is a real danger of bank runs because there is no system of insured deposits in European banks, massive amounts of currency have already left southerm Europe and EU countries like Denmark and Britain that don't use the euro are erecting firewalls to keep euro deposits and out of their banking systems.

Ferguson and Roubini also call for a EU-wide banking system with no ties to any sovereign EU country, and quite rightly point out that the rise of Hitler was presaged by a banking crisis in the 1930's. Here's the part they're missing.

The EU project has already done massive damage to democracy in its nation states and foisted what amounts to an unelected bureaucracy on them. The original way this was sold was as an economic union only, that would not impinge on the sovereignty of individual countries.It's morphed into something far different.

German Chancellor Angela Merkel has allowed herself to be pressured into agreeing to loading unsustainable debt on the German people she claims to represent without their consent and, if recent polls are to be believed, over their overwhelming opposition.Not only that, but if the sort of EU-wide banking system and the accompanying controls are set up by the EU's bureaucrats,they're going to be impossible to remove without exactly the major political upheaval the current agreement is designed to try and avoid.

The truth of the matter is that Germany has benefited from the EU because it has allowed them to price their exports in a cheaper currency. But it's not hard to see a populist demagogue seeking power on a platform of nationalism and repudiation of taxes and debt based on funding bailouts the Germans never agreed to in any sort of referendum in the first place.

As I mentioned before, there's also another factor involved. Now that Portugal, Ireland and Greece have already suffered under austerity programs in order to obtain their bailouts, is there any incentive to their continuing to do so now that they see Spain getting its bailout without them? And let's not even mention Italy, the next eurozone country likely to need one.

Chancellor Merkel at least had her gut level instincts in the right place when she was talking about the need for austerity, which basically meant curbs on the EU's bloated public sector spending. Having been hammered by the new socialist government of France and weighing the damage to Germany's export based economy, she's now decided to go with the flow and wearily acquiesce to 'growth' which is a socialist euphemism for even more government spending. And the centralization of the eurozone's banking system in order to recapitalize the debts of countries like Spain merely spreads the infection to the remaining members that still retain a degree of financial health.

This will not end well.

Merkel 'Evolving' On Spanish Bailout Deal Without Austerity Program Attached

German Chancellor Angela Merkel appears to be caving in:

A deal is in the works that would allow Spain to recapitalize its stricken banks with aid from its European partners but avoid the embarrassment of having to adopt new economic reforms imposed from the outside, German officials say.

While Berlin remains firm in its rejection of Spain's calls for Europe's rescue funds to lend directly to its banks, the officials said that if Madrid put in a formal aid request, funds could flow without it submitting to the kind of strict reform program agreed for Greece, Portugal and Ireland.

Instead, Spain would only have to agree to new conditions tied to the reform of its banking sector. Berlin is also exploring the possibility of funneling aid to Spain's Fund for Orderly Bank Restructuring rescue mechanism (FROB) to reinforce the message that it is the country's banks and not its public finances which are at the root of its problems.

The evolving German stance on aid for Spain is the latest evidence that Chancellor Angela Merkel is adopting a more flexible approach to solving the euro zone's deepening debt crisis.

There are a few problems with this.

First of all, Merkel is going to have to somehow convince German taxpayers to go along with it.

Second, the amount of money requested is staggering, larger than any previous bailout. At current birthrates, Germany's newer generation of taxpayers is going to be far less than its current one, and Spain is even further behind in reproducing its present population. If a debt of 110% of Gross Domestic Product can't be paid off now by 100 Spaniards, it's highly unlikely that 30 Spaniards are going to be able to do it. Nor is it likely that 42 Germans are going to be able to continue to support the same level of largesse for the entire eurozone that 100 Germans do today,paying off long term debts that are essentially valueless at his point anyway, since they're based on a real estate and construction bubble that makes what happened in America look benign by comparison.

And third, Chancellor Merkle is going to be pinned down on the sofa and subjected to what I call the gang bang rationale.."hey, you did it for him, you can do it for me, so just lay back and enjoy it."

The Greeks, the Portuguese and the Irish have already been subjected to severe austerity packages for past bailouts, and those programs, if you can call it that, are still ongoing. After seeing Spain get even more money for doing absolutely nothing but threatening to leave the euro, they're going to want their austerity programs waived too..or else. And other countries in similar territory, like Italy, are going to want to pull the same thing.

Merkle and Germany would be far better off telling Spain (and Greece, for that matter) to get bent. Either that, or simply writing off their debts and taking the pain now while it's still manageable rather than spreading the infection throughout the eurozone.

To go back to the analogy I used the other day, it's a choice between amputation and learning to enjoy gangrene as it spreads throughout the remaining healthy parts of the body.

The Sickness Spreads - Spain Asks for Huge Bailout

Spain appears to be the next eurozone country to go under.

Standard & Poor’s just slashed the credit ratings of Spain's top five banks after previously downgrading ratings on 11 Spanish banks back in late April. Moody's followed suit soon after.

Bankia, one of Spain's largest banks that was partially nationalized recently after a 4.5 billion euro bail out has asked the Spanish government for a further 19 billion euro ( $24 billion). One in ten bank accounts in Spain are in Bankia. It's an open question whether Spain can afford to bail out Bankia...or whether it can risk the social unrest that would come form letting it tank.

Bankia's rating was cut to BB+, one notch into junk status, from BBB-, while another bank BFA, which was already in junk status, was cut to B+, four notches into junk territory, from BB-.

Aside from an out of hand welfare state glommed onto by thousands of immigrants from North Africa and the Arab world, Spain has a serious problem with more prosperous regions like Catalonia being called on to fund poorer areas .

And Catalonia has just told Madrid that it is running out of cash.

Spain's big ace in the hole was that it had done a reasonable job selling its debt thus far, about half of what the country will need for 2012. But now Catalonia, by far Spain's most properous region has informed Madrid that it needs help from the central government because it's running out of options for refinancing any more debt for this year.

Meanwhile, its highly indebted regional governments face 36 billion euros of debt refinancing bills this year, far above the previously stated 8 billion.

Will Spain go to the IMF and/or eurozone's rescue fund to make up the difference? And will German taxpayers be willing to stick their hands in their pockets again?

Stay tuned...

Eurozone Ministers Agree To Second Greek Bailout

The final deal has been hammered out, and the euro zone ministers have finally agreed to the conditions for a second Greek bailout. In exchange for a new loan of over 130 billion euros, the Greeks are going to have over 107 billion euros worth of debt written off.

Greece will also have to agree to the following tough conditions, with the goal of getting Greece to reduce its debt to a mere 120.5% of GDP by 2020:

Private holders of Greek debt are going to take a 70% 'haircut' on the value of their bonds, equivalent to 70 cents on the dollar.

Greece's economy will be subjected to permanent monitoring by euro zone monitors from the EU, the IMF and the ECB on the ground in Athens. In other words, Greece is essentially not in control of its own economy any longer.

The Greek constitution will be amended to give priority to debt repayments over the funding of government services

Greece will set up a special account, managed separately from its main budget, that must always contain enough money to service its debts for the coming three months

Essentially, the euro zone has 'purchased' Greece in exchange for lending them the money they need to pay their debts.

The deal reflects the schizoid nature of the euro zone on the matter. On one hand,they'd like to be rid of Greece, so they came up with conditions almost impossible to meet. On the other hand,they're afraid that if Greece defaults and skips put of the euro zone, it will give other countries like Spain, Portugal, Italy and Ireland similar ideas.

The Greek parliament is expected to vote on the bailout tomorrow.Personally, I think they'd be far better off simply defaulting,going back to the drachma and starting over fresh. No one is going to lend Greece any money or buy its bonds for some time anyway, so it's not like the country's credit ratings matter.And a number of Greeks see it that way.

"The funds that are coming in are not staying in Greece, are not being invested in Greece, are not here to help the Greeks get out of this crisis," Constantine Michalos, president of the Athens Chamber of Commerce and Industry, told the BBC.

"It's simply to repay the banks, so that they can retain their balance sheets on the profit side."

Yes...and also to provide the EU time for the euro zone to build greater firewall protection around its banks and reduce their exposure when Greece eventually defaults, as well as around other potentially vulnerable countries like Spain and Italy.

In a reversal of that old saying, it's the Greeks that need to beware of foreigners bearing gifts.

The Eurozone Under The Gun: France And Germany At Odds

Saving the eurozone has come down to two countries, France and Germany. President Sarkozy and Chancellor Merkel are meeting today to try and craft a common proposal to save the eurozone and the EU,but their differences are fairly wide.

The Germans are desperate to preserve the eurozone because their economy depends on exports, and returning to the Deutschmark would create a rise in the prices of German products. On the other hand, German taxpayers are fed up with costly bailouts.

Merkel wants a 'federalized' eurozone to enforce budget discipline and to have euro zone states surrender the control of their budgets to a European authority with veto power and the ability to punish governments that step out of line.

France opposes this, and Sarkozy, with only five months to go before elections, is taking major criticism from his political opposition and the press over handing French sovereignty to unelected EU officials.

At that, a proposal along the lines of what the Germans want might necessitate a change in the EU treaty.

It'll be interesting to see what they come up with.

Meanwhile, Italy has joined Greece, Spain, Ireland and Portugal as another country whose debt is out of control and may need an EU bailout.

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Auto Bailout Losses From Obama's Gift To His Union Supporters Skyrockets To $23.6B

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion from its $85 billion bailout of the auto industry. This is a mere $9 billion jump from its previous estimate of $14.33 billion.

Since Democrats are constantly claiming to be concerned about 'new revenues', it's worth mentioning that the above figures don't include that $45.4 billion dollar tax credit against future profits at the American taxpayer's expense given to them by the Obama Administration that could keep GM and its UAW owners tax free for years.

It also doesn't include $5 billion the government set aside to guarantee payments to auto suppliers in 2009.

What's going on here is a sharp decline in the value of GM's stock price. GM's Sept. 30 closing price is $20.18, down one-third over the previous quarterly price.

As I told you early this year, the Initial Public Offering (IPO) of stock for Government Motors was a huge bust, and the Feds were forced to sell a large block of shares it was holding as 'collateral' for the $85 billion bailout at a below break even price (otherwise known as a loss) of $33 per share. For those of you whom are math challenged, the current price reflects over a 38% decline in value since January from even that fire sale price.

In order for the taxpayers to have broken even, the price of the stock would have to rise to at least $52 and by some estimates as high as $103. It'll take years to get there, if it ever does, and the Obama Administration was simply being deceptive when it suggested that the stock price of $45 per share ( which it never even came close to hitting) would be enough for the taxpayers to recoup their considerable investment.

Part of the reason the stock has declined so rapidly is that GM is simply not making cars the public wants to buy. The Volt was a huge bust, even with the $10K government subsidy..it had sold only 3,895 units as of September. The Nissan Leaf, a similar hybrid car sold over twice as many cars during the same period, and did it without the American taxpayers paying people to buy it.

Overall productivity and quality control have also plummeted sharply since the government and the unions took over the reins.

The other reason the stock price has tanked is, well, poetic justice.

When the Obama Administration took over, the existing private stockholders, many of them retirees, saw their investment become virtually worthless overnight, as they were placed in the food chain behind the federal government and the UAW. In the restructuring, their 'equity' was reduced to 10% by government decree.

Stuff like that tends to be remembered. Is it any wonder no one wants to buy the stock as a private or institutional investor after that hosing?

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U Turn: Papandreou Cancels Greek Referendum On EU Bailout

After being summoned to an emergency meeting with Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, Greek PM George Papandreou announced that a planned referendum in Greece over whether to accept the additional austerity measures demanded by the EU as part of a second €130 billion bailout had been canceled.

Papandreou had announced the referendum after wide spread opposition to the new measures, but it provoked outrage among EU leaders who threatened to cut off all EU funds to Greece.

Without the funds from the EU, Greece wouldn't have been able to pay more than 700,000 public sector workers and more than 2 million pensioners at the end of November.Reportedly, the Greek government has already started postponing payments to suppliers.

In a meeting with his cabinet after his talks with Sarkozy and Merkel, Papandreou had offered his resignation, but it was withdrawn after the opposition New Democracy conservative party came aboard and said they would back the new measures in order to keep Greece in the eurozone.

Papandreou said: “We had a dilemma: consensus or a referendum ... Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”

How this is going to fly with the Greek electorate is another story.

Civil servants are going to mount another anti-austerity protest outside parliament on today, with officials from their union, Adedy, complaining that the latest round of pay cuts had reduced average public sector salaries by more than 20 per cent.

“We will send the message to the government that we have reached the limit of what we can take, “ a union official said.

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EU Gives Greece An Ultimatum - Accept Our Terms Now Or Leave The EU

The EU is not at all pleased with Greek PM George Papandreou's decision to hold a popular referendum on whether to accept the austerity terms the EU wants in exchange for a second bail out.

They gave Greece what amounts to an ultimatum...either accept the terms now or leave the eurozone.

"Does Greece want to remain part of the euro zone or not," German Chancellor Angela Merkel said. "That is the question the Greek people must now answer."

French President Nicolas Sarkozy said the Greeks would get no more euro-zone rescue aid—"no French taxpayer money, no German taxpayer money"—until they answer. Greece would go bankrupt without the aid in a matter of weeks.

The Eurocrats are angry because they were under the impression they had a deal. Instead, Papandreou went back home, saw how deeply unpopular the new terms were with his own party and the Greek people and decided he needed the cover of a popular referendum, which he says can't be put together until December 5th at the earliest, which would take Greece over the brink. So the EU is essentially demanding that there be no referendum,which isn't going to happen.

If the EU insists on this course of action, Greece will simply default on its debt and start from scratch, leaving the other eurozone members holding the bag

The problem for the eurozone is that if the other troubled members like Ireland, Portugal, Italy, and Spain see Greece defaulting and going back into the drachma, they're going to do exactly the same thing and flee back to their own currencies after defaulting on their debt.

And the entire rotten edifice could come tumbling down, with major repercussions for world financial markets.

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GOP Senator Calls For Obama to Cancel Huge Fannie Mae, Freddie Mac Bonuses

Sen. John Barrasso, R-Wyo called today for President Obama to cancel large bonuses set to be awarded to Fannie Mae and Freddie Mac executives.

“I am calling on the president of the United States to cancel those bonuses and explain to the American people, the taxpayers who bailed out Freddie and Fannie, why he continues to reward failure,” Sen. John Barrasso, R-Wyo., said at a news conference Tuesday.

The bonuses? Oh, a mere $12.8 million in bonuses approved for 10 executives at the government-seized mortgage companies.

Fredie Mac and Fannie Mae have received about $141 billion in taxpayer funds since the government took them over in 2008:

Politico first reported the $6.46 million in bonuses for the top five officers at Freddie Mac -- including $2.3 million for CEO Charles E. Haldeman Jr., who is stepping down next year -- and $6.33 million for Fannie Mae officials, including $2.37 million for CEO Michael Williams, for meeting modest goals.

A second bonus installment for Freddie executives in 2010 has yet to be reported to the Securities and Exchange Commission, Politico reported.

According to the White House, clamping down on what it czlled 'excessive compensation' on Wall Street via Dodd-Frank was just fine, but none of those provisions apply to Fannie and Freddie. Given who wrote Dodd-Frank and their history with those institutions, it's not hard to imagine why.

Just for the record, here's a flashback from candidate Barack Obama during the 2008 presidential campaign:

“I’ve always said that any action with respect to Fannie Mae and Freddie Mac needs to put taxpayers first and can’t under any circumstances bail out shareholders or senior management of that company.”

Lest you think this is yet another Republican attempt to embarrass the president,Senate Majority Leader Harry Reid had this to say when asked about this obscenity by reporters:

“A gag reflex in front of all of you would be improper.”

If Barrasso tries to get legislation passed to have Fannie and Freddie execs forfeit their bonuses, it'll be interesting to see if Reid supports it.

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