Clem’s Chronicles: Drew Peterson Arrested/Bank Stress Tests/Obama Budget Cuts

By Clem Lane

May 7, 2009 10:11pm

howdy-Clem Lane here. lots of news….

DREW PETERSON ARRESTED-Authorities in Illinois say that former Illinois police sergeant Drew Peterson has been indicted on a murder charge in the death of his third wife. The Will County state’s attorney’s office says the indictment was issued Thursday in the death of Kathleen Savio. Peterson was taken into custody by Illinois State Police according to the Bolingbrook, IL police department.  WLS aerials of Peterson’s residence show police at the home gathering evidence. 

BANK STRESS TEST RESULTS-Stress Test Results finally released today. Treasury Secretary Tim Geithner describes it as providing “an unprecedented level of transparency and clarity to the health of the nation’s banking system.” Federal Reserve Chairman Ben Bernanke said the results should provide “considerable comfort.” Before we get to which banks are officially healthy/in need of cash/in SERIOUS need of cash, Betsy Stark  can you explain what the stress tests are again please. Stark:”150 bank examiners scoured the books of the nation’s 19 biggest banks to see what would happen if unemployment hits 10.3%, home prices drop another 22%, and the recession drags on into 2010.” Got it-and the results Ms. Stark? “What they found is that 9 banks have enough cash-right now-to ride out the more serious downtown in the economy and 10 do not. Regulators put the total cash shortfall for these weak banks at nearly $75 billion.” Some analysts complained the stress tests weren’t stressful enough(“A true stress test of the system is more like 11 to 12 percent unemployment” said Paul Miller a banking analyst at FBR in Stark’s WORLD NEWS piece).  What do the 10 banks who need cash have to do? Stark: “Weak banks will have six months to come up with the cash regulators say they need. The government says they can either raise the money from private investors, sell off assets, give the government a larger direct stake in banks, or ask the government for more cash.”  The goal of these tests Stark tells us is to give “Wall Street the confidence it needs to invest in banks and giving banks the cash cushion they need to make more loans to Main Street.” Of course, Stark reminds, “whether it turns out that way and how quickly will depend on how well the economy fares from here.” Speaking of the economy, there’s a little ole jobs report out tomorrow morning at 8:30am ET that investors can chew on as well.

STRESS TEST RESULTS/BANK OF AMERICA REACTION-By far the largest amount of money needed by one of the “weak banks” stress tested is Bank of America’s $33.9 billion shortfall. Lauren Perle listened to a conference call by BofA CEO Ken Lewis and reports: “Responding to today’s stress test results, Bank of America CEO Ken Lewis said on a conference call:  ‘we do not need new government money’ and that the bank doesn’t need to convert government money it already has.  ‘We have significant opportunities to raise money,’ he said. Chief Financial Officer Joe Price said the company will sell $1.25 billion new common shares and plans to generate about $10 billion from sales of its businesses, such as First Republic and Columbia Management.  He said an addition $7 billion could be raised through ‘actual financial performance’ over the next 6 months, and that converting government preferred stock to common stock (which gives the government ownership in the company) would be a ‘last resort.’ ‘The extreme scenario [used in the stress test] is becoming less and less of a possibility,’ Lewis said.

STRESS TEST RESULTS/OTHER BANKS-From Zunaira Zaki: “Of the 10 banks only GMAC avoided saying they can raise funds without additional government help. Wells Fargo announced plans to sell $6 billion of common stock to the public.  Wells needs and additional $13.7 billion, the banks says it will raise the money through earnings and other internal sources. Morgan Stanley plans to raise $2 billion in a share sale and $3 billion by selling debt that’s not government-guaranteed.   The government says Morgan Stanley needs to raise $1.8 billion. Citi says it will expand a program to convert preferred stock to common stock by $5.5B.  The government will now be the largest shareholder in Citi.  Citigroup had previously planned to exchange $27.5 billion of preferred stock into common stock. Now, it plans to exchange $33 billion. Regions says it will raise the $2.5B it needs without government help, but through stock offerings and possibly by selling non-core businesses. Similarly Fifth Third, Sun Trust, PNC Financial and Key Corp says they do not plan to use government help, but have no specific plans announced just yet.”

THE PRESIDENT’S BUDGET/$17 BILLION SOUNDS LIKE A LOT OF MONEY BUT……-President Obama announced some budget cuts today-Jake Tapper noted the cuts are “121 programs he seeks to cut from his budget, saving $17 billion.” Man that’s a serious chunk of change until you remember just how staggeringly large the budget is. Tapper: “Of the President’s $3.6 trillion budget, the proposed $17 billion cuts amount to a reduction of less than one-half of one percent.” That’s 0.5%. If your first inclination is to note how small a percentage that might be, some members of the Republican Party seemed to share your view. Senator Judd Gregg (R-NH)  was quoted in Tapper’s WORLD NEWS piece saying “It’s as if this were the Gobi Desert or the Sahara Desert and you came along and took a few pieces of sand off the desert.” Tapper adds that “fiscal conservatives say those criticisms ring hollow”. Chris Edwards of the Cato Institute says “I don’t think the Republican Party has any credibility on spending restraint anymore. Deficits soared hundreds of billions of dollars under President Bush.”  As to whether the budget cuts are moot or will be contested in Congress, Tapper notes: “On Capitol Hill today, White House officials were greeted with a lot of push-back, and we should point out that President Bush attempted many of the same cuts last year, and got the same pushback.” 

                                                                                                                                                       SANTA BARBARA FIRE-A relatively calm day in Santa Barbara has not hurt firefighters who continue fighting a 1300 acre, out-of-control blaze. But if you remember, yesterday was a calm day too until “the sundowner winds” came. Brian Rooney on WORLD NEWS explains what sundowner winds are: “Superheated air inland built up twice the usual amount of pressure-and when the afternoon sea breeze petered out, that inland air came roaring over the mountains pushing flames into populated canyons.” And push they did-California Governor Arnold Schwarzenegger said that dozens of homes had been destroyed and Rooney tells us that “Firefighters just got out of the way-abandoned hoses show how quickly they left. But three firefighters were burned when they were over-run during the night. Their truck is where they left it on a burned-out peak.” And what about tonight? At the most recent press briefing (8pm ET), officials note that “winds are picking up, but not as fierce as last night. Not out of the woods yet. The fire’s a little more active than it has been this afternoon.”
SCANDAL IN LOS ANGELES:   Dodgers’ slugger Manny Ramirez has a dark cloud over his head tonight and it’s not from the wildfires in Santa Barbara.    Major League Baseball has suspended the dreadlocked outfielder for 50 games after he tested positive for a banned substance.  ESPN is reporting that the drug  is HCG, added to baseball’s banned substance list just last year.  HCG is a woman’s fertility drug but it’s said to be popular among users of performance-enhancing drugs because it can mitigate the side effects of ending a cycle of steroids.  Ramirez himself says he did not take steroids but given the drug by a doctor who was treating him for “a personal health issue.”  Every baseball player is tested at least twice each year, once near the beginning of spring training and again at an unannounced, randomly selected date.  Manny Ramirez has decided not to appeal his suspension.  That means he will have to give up over $7.6 million of his salary before he returns to the playing field in July. (thanks to Ed Bailey for this entry)

-SWINE FLU/2 BILLION?- The World Health Organization says up to 2 billion people could be infected by swine flu if the current outbreak turns into a pandemic lasting two years. Joanna Schaffhausen notes: “They base this estimate on previous pandemics.  The press was ALL OVER this during questions, and (the WHO’s Dr. Keiji) Fukuda specifically said he did not want people to walk out using 2 billion infections as a WHO estimate.  They will anyway, because Fukuda did say such a scenario was possible, given past pandemics.
Current WHO update on cases: 2099 lab-confirmed cases, include 44 deaths, 42 Mexico, 2 in the U.S WHO also reiterated several times that it is safe to eat pork.”
-NEW YORK FED CHAIRMAN RESIGNS- Stephen Friedman, chairman of the Federal Reserve Bank of New York’s board of directors, has resigned effectively immediately. Friedman was the subject of a recent Wall Street Journal story that raised questions about his ties to Goldman Sachs Group Inc. 
-DEMJANJUK APPEAL DENIED-The Supreme Court has said no to alleged Nazi death camp guard John Demjanjuk’s  request to block his extradition to Germany. Jason Ryan sent out the following statement from Justice Department spokeswoman Laura Sweeney: “"The Department has learned that Justice Stevens denied Demjanjuk’s motion for an emergency stay. The U.S. government will continue to work in cooperation with the Government of Germany to affect the removal of Mr. Demjanjuk to Germany. I can’t provide any details on any possible timing of a potential removal."

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