Looks like a quiet one this year, with many friends out of town and me planning on being away next week.

• One of the things that has annoyed me to no end about the endless rounds of attempts to bail out mortgage lenders is that for the most part they got themselves into this trouble and deserve to go down for it. The LA Times details how those banks did nothing to even attempt to identify even the most obvious fraud rings. While certainly those who perpetrated the fraud deserve jail, the banks that should have been smart enough to detect it certainly don't deserve a bailout from public funds, or for that matter the assistance of any branch of government. As Taleb's fictional character "Fat Tony" notes, the banks are usually the perfect marks.
• On the menu for New Year's Eve is some home baked chicken, a nice Rosenblum Zin, and a bottle of 1989 Veuve Cliquot Reserve that has been in storage for some time. After that, perhaps a couple of hours at my local bar, which will be open to us natives after dinner, at about 10:30. In the meantime, the Law and Order marathon is keeping me busy.

There have been a couple of interesting items discussing auto loans the past few days:

• The situation in car loans may be even worse than in mortgages. Some lenders are offering as much as 200% of a car's value with little to no downpayment, in order to allow people to trade in their already underwater car loans.

  And just as the horse disappears over the horizon, the usual suspects have arrived to question the condition of the barn door lock: This month, S&P reviewed its ratings on $113.5 billion in auto loan securities it rated in the last two years out of concerns over growing losses. It didn't make any downgrades but predicted that "rising losses will continue into 2008 across all segments of the auto loan market."

  Not only that, but the terms on some of these loans have moved out to as long as seven years, meaning that the loan will quite likely outlast the car.

  Those most directly impacted are obvious: Ford (NYSE:F) and General Motors (NYSE:GM), both through the impact on their finance arms and because -- lets face it -- these ridiculous loans are part of the reason they've been able to sell as many cars in the first place. Tightening credit will mean that F = GM = Toast.

  This will also impact independent auto loan companies, to different degrees depending on their lending policies.

• Minyanville has a slightly different take on the situation, noting that auto loan performance does not necessarily track mortgage performance. They suggest that the losses in subprime auto lenders like Consumer Portfolio Services (NasdaqGM:CPSS) and Americredit (NYSE:ACF) have been overblown.

Following up on earlier comments about retail, I just ran into my friend with the gift store at the one local bar that was open Christmas Eve.

Her business is at roughly 50% of where it was last year. And she's already been experiencing some returns. That usually doesn't happen until after New Year's.

Her feel is that it's been a completely lousy year for specialty retail, even at the high end.

-btc

Lots going on this week:

• Adding to my comments on retail a couple of days ago, I stopped by Best Buy (NYSE:BBY) yesterday to pick up a couple of essentials. It seemed quite slow for a pre-Christmas week evening. Their latest earnings report notwithstanding, I think this is a further sign of things being very slow. Still, I wouldn't short them. Might consider a paired trade against Circuit City (NYSE:CC). As Macke notes, you don't want to short the leader in a business, regardless of what you think of the macro picture.
• It's nice to have sorted things out so that I can go back to my regular bar again on weekends. And quite a weekend it was. Met somebody quite nice on Friday. Then discovered how really wonderful one of my neighbors is on Saturday. The only fly in the ointment was the woman I've been most interested in lately deciding to show up there on Saturday with her girlfriends just as I was making the new connection...

I spent about an hour this afternoon listening to a friend and allowing her to cry on my shoulder for a bit.

She runs a little boutique store which until the past six months has been very successful. It sells all manner of interesting little gifts and expensive trinkets that tend to do very well on LA's west side. In her 10 years of operation, Christmas has always been a great time, even during the 2000 bust.

This year, she hardly has any traffic at all. Her Christmas sales are at 25% of where she expected them to be.

Somebody in the marketing department has lost it completely.

Preserving this here, because I can't imagine it'll stay on their website for too long.

In the meantime, check them out.

-btc

By Fil Zucchi on Minyanville's Buzz and Banter (which requires a well-worth-it subscription):

Boom Boom almost did the right thing. Had it spared us the pandering 1/4 point begged for by financial speculators, he would have finally shown the kind of stones that will be needed to guide us out of the current mess. Equities do not like it one bit, as well they shouldn't; the wimpy move is likely to worsen the credit environment and the financial markets as a whole could be in for a year-end pasting. So why do I suggest the Fed did the almost right thing?

Because one cannot devalue its way out of a gigantic pile of debt. Companies, many companies, need to fail, go away forever, and allow those who have a business existing to once again prosper not on the back of borrowed money, but on the strength of real demand, rather than demand generated by a need to circulate make believe money.

Had the Fed figured this out in 2001, by 2003 we would likely have forgotten the then recession. Instead it decided to try to fool everyone into believing that we could borrow our way into a permanent plateau of prosperity.

-btc

For the past year or so, I've found that the number of companies looking for contract employees and consulting services has dropped off significantly compared to the number that wanted to hire me to full time project management positions.

Recently, I've noticed this has reversed.

Typically, this is a sign of reduced willingness to commit to hiring, and perhaps a weaker employment market.

Obviously, I'm just a very small sliver of overall employment, and a fairly high-end one as well. I'll be following up with a few recruiters I know to try to get a better understanding of what's going on a bit further beneath the surface.

-btc

Another recent post from the ongoing discussion of Herb's latest piece on Marketwatch, which gets to the crux of how so much garbage could have gotten into the system, and how the supposedly smart people running the banks could have allowed so much of it on their books:

Unless they commit actual crimes, the people making these decisions get to keep their huge bonuses even when it becomes obvious that the “profits” they generated were fleeting and easily reversed by events that all the auditors and rating agencies said were unlikely.

Unfortunately, as Herb has pointed out often here, the notion of corporate governance has gotten completely out of control. Insiders rob the shareholders blind, then are allowed to retire with their full packages and keep their loot. They have no incentive to care about the long-term future of the organization they work for, so long as they have a locked-in retirement package they will always do just fine.

It's been a busy few months. I've been dating, working and considering new career options. In between I've been writing very little. The Casey Saga came back and then went away again, as did fellow blogger Aspeth. I switched bars due to a minor fling with a regular at my previous regular bar. My neighborhood coffee place raised prices again, despite government assurances that there's no inflation.

In other news:

• Jeff Matthews has a take on the Google Guys that is spot on. I always thought that "Don't Be Evil" was an impossible goal for a company that was as large and influential as Google. Power corrupts. Absolute Power corrupts absolutely. And Google is pretty powerful. A better goal might have been to set up the company in a manner that kept the evil in check. But when 2 guys control the bulk of the stock with super-voting rights, there is absolute and unchecked power over what the company does. Thus the squandering of company money on a 767, pet initiatives unrelated to their business focus, and other things that may eventually be the undoing of this great company. And yeah, I hate hypocrites, no matter how much I like their companies' products.
• Mish points out why the subprime bailout is a government sham, designed to make it look like they're doing something when they're not. As I pointed out to Mish in an email this afternoon, this proposal also ignores another fact. The people who might be helped by this are also the people least likely to want to stay in their homes for five years. In fact, they are the people most likely to have to move due to career, family or other considerations. When they need to move, sending in the keys to the bank will still be the best option.

Just responded to another comment to Herb's piece, cited below. This one asking how things are in my area, and in California in general:

Another slightly expanded reply:

Here’s what’s going on in my neighborhood in specific, and in California in general. In case you weren’t aware, Arnold has already asked the entire state government to start considering the need for an across-the-board 10% cut in all spending due to the fallout.

In my neighborhood (a fairly recently gentrified section of LA that has become fairly “hot” in recent years), properties that a couple of years ago would have sold in days with multiple bids are now languishing on the market and seeing price reductions. My impression is that in the middle of the market it’s down somewhere around 10%, maybe more. We have just seen the first “foreclosure” sign in the area.

Just commented on Marketwatch, and thought I'd post an expanded version of the comment here as well, along with a link to the fantastic piece on Herb's blog, quoting a long-time mortgage industry professional.

One of the commenters trotted out the oldest and lamest excuse in the real estate broker's handbook. The old "real estate can't go down because where will people live?" ploy. Not surprisingly, the guy appears to be a mortgage broker.

He states:

Am I the only person who heard that the population of the United States is now over 305,000.000. Gee where are all these people going to live !, Did we forget about supply and Demend, how about Job Growth.