Wednesday, September 30, 2009

Wednesday roundup (9-30-09)

Consumers are less confident in the economy:

"The Conference Board, a New York-based business research group, said its Consumer Confidence Index fell to 53.1 in September from an upwardly revised 54.5 in August.

"Economists were expecting a reading of 57, according to a consensus survey.

"'Consumers remain quite apprehensive about the short-term outlook and their incomes,' said Lynn Franco, director of the Conference Board Consumer Research Center. 'With the holiday season quickly approaching, this is not very encouraging news.' ...

"The lower reading doesn't bode well for the nation's retailers, who make more than half of their annual profit during the holiday season.

"'This year consumers have less income available to spend and credit is tighter,' [Mark] Vitner [at economist at Wells Fargo] said." (CNN)

Both federal and state tax revenues have been severely curtailed:

"In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.

"Some in that group will even get additional money from the government because they qualify for refundable tax breaks.

"The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%." (CNN)

"State tax revenues in the second quarter plunged 17% from a year earlier as rising unemployment and reduced spending hurt sales- and income-tax collections, according to Census Bureau figures released Tuesday.

"The decline was the sharpest since at least the 1960s. ...

"'This brings really bad news for almost every single state and leaves them with unprecedented budget crises,' said Lucy Dadayan, a senior policy analyst with the Nelson A. Rockefeller Institute of Government at the State University of New York." (The Wall Street Journal)

Most homeowners with modified loans still can't avoid foreclosure:

"Lenders are ramping up efforts to avoid home foreclosures, but a report by bank regulators says more than half of borrowers who get help fall behind again.

"More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday." (The Associated Press)

"The number of homes lost to foreclosures rose about 17 percent in the second quarter of this year despite the launch of an extensive government program aimed at helping borrowers save their home, according to government data released Wednesday." (The Washington Post)

In desperation, banks are sometimes even reducing the principal when they modify loans:

"Banks and loan investors are starting to bite the bullet and lower the principal due on home mortgages for some struggling borrowers, a new report from bank regulators shows. ...

"The portion of loan modifications in the second quarter that involved reducing the principal jumped to 10% from 3.1% in the first quarter, according to the report released Wednesday by the Office of the Comptroller of the Currency, or OCC, which regulates national banks." (The Wall Street Journal)

And corporate debt defaults may reach record levels this year:

"U.S. corporate debt default rates are expected to hit 'unprecedented' levels in 2009 ...

"A spike of maturities beginning next year will cause the next wave of financial distress, according to the Bain study." (Reuters)

CIT Group: Not too big to fail, but still big:

"The fate of CIT Group Inc. was hanging in the balance Tuesday as the large commercial lender readied a plan that would likely hand control of the company to its bondholders.

" ... [but] many of those involved said they didn't expect that the company could avoid seeking Chapter 11 bankruptcy protection, given competing bondholder interests.

"If CIT does file, it would be the fifth-largest bankruptcy filing, by assets, in U.S. history, trailing only Lehman Brothers Holdings Inc., Washington Mutual Inc., WorldCom Inc. and General Motors Corp." (The Wall Street Journal)

Families are not getting out of debt as fast as professionals are, analyst says:

"American families, who account for about 40% of all borrowing in the U.S., aren't nearly as far along the deleveraging road as big finance. ...

"'Deleveraging in the household sector has barely begun because it's hard for households to lower debt burdens, other than declaring bankruptcy,' says Martin Barnes, who has been monitoring the credit cycle for years for the Bank Credit Analyst, a forecasting journal." (The Wall Street Journal)

Recovering from job losses may take years, academics predict:

"The recession’s staggering job losses, coupled with an ever-growing labor force, means it could be late 2017 before employment returns to the pre-recession levels of 2007, according to the study, conducted by Rutgers economists Jim Hughes and Joseph Seneca.

"'We’re not trying to be overly dramatic here -- we might even be considered optimistic,' said Hughes, who is dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. 'It’s not going to be an easy slog from here.'" (The Star-Ledger of Newark, NJ)

And with people out of work, there will be no rise in consumption and consequently no increase in production:

Robert Macintosh, chief economist at Eaton Vance Corp. in Boston, says, "(ADP [National Employment report]) is a little worse than expected, that maybe offsets the minor, minor positive from the GDP report. So that nets things out a little bit.

"Really what it comes down to is how much of this recovery is going to be sustainable. At this point I'm questioning whether businesses really want to commit to ramping up production. If they're not willing to ramp up production, you're not going to get jobs out of it and that's going to curb consumption. That's the real Holy Grail here, getting consumption up.

"I'm not a believer yet that this is a robust economy. I'm still thinking more in the Nike swoosh type of economy. What I'm seeing here, these numbers this morning, doesn't change my opinion that this is going to be a very frustratingly weak growth period and you're not going to see the job creation that you'd love to see." (Reuters)

IMF says global reserves of dollar fell:

"The dollar’s share of global currency reserves fell in the second quarter to the lowest level in a decade as the holdings of euros rose to a record, according to the International Monetary Fund." (Bloomberg)

Lawrence Brahm, the founding director of the Shambhala Foundation, writes:

"The tectonic plates of the global financial system have shifted. The post-colonial order created at Bretton Woods irreparably cracked, together with Wall Street, in September 2008. Time has come to replace it. ...

"It looks like China is positioning to become the bank of reserve to the IMF." (Asian Times)

Watch PBS Frontline's program "Young & Restless in China" online (PBS).

Japan needs reform and low interest rates, OECD says:

"Japan needs major reforms in taxation, healthcare and employment to sustain recovery from recession and foster long-term growth, a new international report said Wednesday.

"Although the world's second largest economy is shaking off its worst slump since World War II, it faces serious problems that could undermine longer-term prospects, according to the Organization for Economic Cooperation and Development, a rich nations club." (The Associated Press)

"'We think the Bank of Japan should keep the policy rate very close to zero as long as inflation remains in minus,' OECD senior economist Randall Jones said. The central bank 'should focus on trying to stop deflation,' he said.

"'Any interest hikes would exacerbate deflation,' the Organisation for Economic Cooperation and Development said in its Economic Surveys report." (Reuters)

Deficits in France and Spain highlight painful economic situations:

"France said its budget deficit will grow to a record this year and next as the global recession causes tax receipts to shrivel and a government stimulus package ramps up spending.

"The budget gap is expected to widen to 8.2% of gross domestic product in 2009, from 3.4% last year, French Budget Minister Eric Woerth said Wednesday as he presented next year's budget to journalists.

"In 2010, the budget shortfall will grow even further to a never before recorded 8.5% of GDP.

"Accounts will remain in the red for the foreseeable future ..." (The Associated Press)

"'France is in a dreadful debt dynamic,' said Guillaume Sciard, who oversees 3 billion euros ($4.4 billion) of bonds at Barclays Wealth Managers France in Paris. 'France will lose its AAA rating by 2012. In Europe, Germany may be the last to potentially keep its AAA.'" (Bloomberg)

"Spain's budget deficit for the first eight months of the year has swollen to 5.73 percent of gross domestic product - four times what it was last year - due to lower tax revenues and a mounting bill for spending aimed at alleviating the economic crisis, the government reported Wednesday. ...

"The once-buoyant economy contracted in the second quarter by 1.1 percent over 3 months and by a record 4.2 percent over the year. It was the fourth consecutive quarterly contraction." (The Associated Press)

Rep. Ron Paul is interviewed by Jon Stewart on the Daily Show:

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A drive through commercial real estate in Carlsbad CA:

What you see is a ghost town. (JimtheRealtor on Youtube)

Tuesday, September 29, 2009

Tuesday roundup (9-29-09)

Deflation rears its ugly head:

"The crisis engulfing the world's second economy is remarkable. Profits [in Japan] fell 53pc in the second quarter. Total cash earnings have dropped 7.1pc this year. Tax revenues have plunged 27pc. While the economy is no longer in recession, GDP has shrunk by 8pc from its peak and exports are down 36pc (in yen). ...

"Tokyo's grim experience is a lesson for Europe, where a mini-deflation scare is emerging. September inflation was -1.2pc in Belgium, -1pc in Spain, -0.3pc in Germany. Governments have been expecting a short bout of deflation as lower oil prices (from last year's peak) feed through. However, a pattern has emerged where the downward pressure is proving more persistent than expected in a string of countries.

"Gabriel Stein from Lombard Street Research said the European Central Bank is taking a gamble assuming that prices will rebound safely in 2010. 'What is remarkable is that the ECB seems so unconcerned. The M3 money supply has been contracting since April. The ECB's quantitative easing (€60bn) has been just 0.5pc of GDP. We think they should be doing 5pc of GDP. Germans have this fear that inflation is an ever-present danger, but deflation can be a bigger danger,' he said." (The Daily Telegraph)

"Deflation, not inflation, is still the biggest risk to the U.S. economy in the medium term, Dallas Federal Reserve President Richard Fisher said on Tuesday.

"The overhang of excess capacity in the U.S. economy following the deep recession will keep growth slow for some time, he said in a speech to the Texas Christian University Business Network of Dallas." (Reuters)

"'While the commentariat is focused on inflation, the real issue for now is deflation, driven by virtually 10-per-cent unemployment in the U.S., Germany, France, Italy, China, India et al,' said Ken Courtis, an investment banker based in Hong Kong and an expert on Japan and other Asian economies." (The Globe and Mail)

Fed official warns "A LOT COULD STILL GO WRONG" with the economy:

"The New York Fed's first vice president, Christine Cumming, ... said recent data suggested the U.S. economy is starting to bottom out, but she sees little strength in the recovery.

"'We view the risks as still very much skewed to the downside. In other words, a lot could still go wrong and we have to be careful,' she said in a lecture at Eastern Connecticut State University." (Reuters)

States face "unprecedented budget crises":

"State tax revenues in the second quarter plunged 17% from a year earlier as rising unemployment and reduced spending hurt sales- and income-tax collections, according to Census Bureau figures released Tuesday.

"The decline was the sharpest since at least the 1960s. ...

"'This brings really bad news for almost every single state and leaves them with unprecedented budget crises,' said Lucy Dadayan, a senior policy analyst with the Nelson A. Rockefeller Institute of Government at the State University of New York." (The Wall Street Journal)

The Wall Street Journal headline reads: "FDIC Fund to Be in Red for Years as Bank Failures Jolt System":

"The government said the fund that protects consumer bank deposits has fallen into the red and will remain there into 2012, a pointed symbol of how the aftershocks of the financial crisis will reverberate for years as banks continue to fail at a high rate.

"The negative balance is a headache for the Federal Deposit Insurance Corp., which runs the fund. On Tuesday, it proposed the unprecedented step of having the banking industry prepay $45 billion in fees by the end of the year to give the government more breathing room to handle future failures.

"The only other time the fund fell into the red was in 1991, during the savings-and-loan crisis, and it shows how U.S. officials underestimated the impact of this crisis on the government's cash needs." (The Wall Street Journal)

"The fund that insures U.S. bank deposits will be in deficit as of Wednesday, the Federal Deposit Insurance Corp. said." (The Associated Press)

Consumer confidence drops in September:

"The New York-based Conference Board, a private research group, said that its Consumer Confidence Index dipped to 53.1 in September, down from the revised 54.5 reading in August. Economists surveyed by Thomson Reuters had expected a reading of 57. ...

"Paul Dales, U.S. economist at Capital Economics Ltd, said that despite a rally in the stock market, shoppers are fixating on the job market and declining wages.

"'Falling employment and incomes are undermining confidence and are likely to continue to do so,' Dales wrote in a report released Tuesday. 'Confidence is set to remain at fairly subdued levels,' adding that consequently consumer spending will remain modest.

"Mark Vitner, senior economist at Wells Fargo, noted that the unexpected decline in confidence raises concerns about holiday spending.

"'Last year, consumers were shellshocked as they worried about what might happen to the economy. Today, shoppers ... don't have the means to step up spending,' Vitner said." (The Associated Press)

"Consumers remain quite apprehensive about the short-term outlook and their incomes," said Lynn Franco, head of the consumer research group at the private research organization. "With the holiday season quickly approaching, this is not very encouraging news." (Marketwatch)

Monday, September 28, 2009

Monday roundup (9-28-09)

"Japan prices tumble at record rate in August":

"Prices in Japan tumbled at a record pace in August, intensifying concerns that deflation could undermine the country's fragile economic recovery.

"The country's key consumer price index, which excludes volatile fresh food prices, fell 2.4 percent from a year earlier amid rising unemployment and falling wages, the government said Tuesday. The figure marks the steepest decline since officials began compiling comparable data in 1971." (The Associated Press)

"'Deflation is getting serious. If one retailer cuts prices, others have to do the same otherwise they cannot sell,' said Yoshimasa Maruyama, economist at Itochu Corp." (Reuters)

"'We’ll soon start to see that there isn’t enough domestic demand to push up wages,' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. 'As households’ spending power falls, there’s concern that this deflation will lead to further deflation -- in other words, that we’ll enter into a deflationary spiral.'" (Bloomberg)

"Japan was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, prompting consumers to put off purchases in the hope of further price drops and reducing corporate earnings." (AFP)

Trichet says emergency measures should remain in place and adds that the world needs a strong dollar:

"European Central Bank President Jean-Claude Trichet said it is too early to unwind emergency measures to revive economic growth and bank lending.

"'It would be premature to declare the crisis over,' Trichet told the European Parliament in Brussels today. 'Now is not the time to exit. However, at some point in time an exit strategy will have to be implemented. The ECB has an exit strategy and stands ready to put it into action when the time comes.'" (Bloomberg)

"'In the present situation it is extremely important that we can have in the framework at the level of global finance and the global economy a strong dollar, as the authorities in the U.S. are saying,' Trichet told lawmakers in Brussels today. 'The solidity of the dollar is very important.'" (Bloomberg)

Yet some are still not sure the ECB "gets it."

"Hans Redeker, currency chief at BNP Paribas, said the ECB risks a serious error. 'They think the financial system will recover as if this were a normal cycle but it's not. Credit is falling like a rock. Bank are tightening lending to meet the new rules on higher capital ratios. We really could repeat what the Fed did in the 1930s,' he said." (The Daily Telegraph)

"The dollar is the lynchpin of national security":

Even so, the Fed feels a need to "trash the dollar," but gradually "over the next 14 years", beause by doing so it would alleviate US financial "liabilities," argues James G. Rickards, senior managing director for market intelligence at scientific consulting firm Omnis. They want a stable decline of the dollar, he told CNBC last Friday, but if gold soars, he expects they will defend the dollar with higher interest rates. And he does expect gold to double, but adds that the problem with individuals owning gold is that "when you own gold, you're fighting every central bank in the world. Central banks HATE gold because it limits their ability to print money." (CNBC)

Meanwhile ... the Yuan is on the march:

"In the coming decade, China's currency will become fully internationalized." (Forbes)

These are tough times for small businesses, whether start ups or going concerns:

"New companies will be crucial to the strength of any economic recovery. Businesses in their first 90 days of life accounted for 14% of hiring in the U.S. between 1993 and 2008, according to the Bureau of Labor Statistics.

"But this recession is taking a particularly heavy toll on business creation, as sources of small-business funding dry up and would-be entrepreneurs become more risk-averse. When entrepreneurs do launch businesses, they are hiring fewer employees on average. The trends threaten to damp growth in jobs and economic output for years." (The Wall Street Journal)

Indeed, even within the existing sector there is a dismal attitude.

"Most small business owners remain cautious in their economic outlook, with more than two-thirds saying the recession is not over for them, according to this month’s Discover Small Business Watch index released on Monday.

"In addition, more than half of owners rate the economy as poor, up from 48 percent in August." (The Dallas Morning News)

Increased saving = no recovery?:

"Pacific Investment Management Co. strategic adviser Richard Clarida said the U.S. savings rate may exceed 8 percent, hurting consumer spending and weighing on the economic recovery.

"'I’m in the glass is half empty camp,' Clarida said during an interview in New York on Bloomberg radio. 'Traditionally the consumer comes to the rescue of economic recoveries. We’ll see a more subdued consumer.'" (Bloomberg)

Sunday, September 27, 2009

Sunday roundup (9-27-09)

World Bank head says US dollar supremacy is not guaranteed:

"World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency. ...

"He also criticized central banks, saying they failed to address growing risks in the economy in the last several years.

"Central banks 'argued that damage to the real economy of jobs production, savings and consumption could be contained, once bubbles burst, through aggressive raising of interest rates,' Zoellick said. 'They turned out to be wrong.'" (Bloomberg)

Crisis forces Social Security to draw down its surpluses ...

"Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.

"The deficits -- $10 billion in 2010 and $9 billion in 2011 -- won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit." (The Associated Press)

"The number of applications for retirement benefits has ballooned 23 percent this year, while disability claims have risen by about 20 percent, the officials said.

"'A lot of people who in better times would have continued working are opting to retire,' said Alan J. Auerbach, an economic and law professor at the University of California, Berkeley." (NBCMiami)

... while on the other side of the age spectrum, young people are facing a bleak job market:

"The unemployment rate for young Americans has exploded to 52.2 percent -- a post-World War II high, according to the Labor Dept. -- meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time." (The New York Post)

The Great Deflation/Inflation Debate:

Harry S. Dent, Jr., makes his cyclical case for deflationary depression in the decade ahead.(Financial Sense Newshour)

Watchdogs sleeping on the job:

"'In the prime market, where we need supervision less, we have lots of it. In the subprime market, where we badly need supervision, a majority of loans are made with very little supervision,' former Fed Governor Edward M. Gramlich, a critic of the hands-off policy, wrote in 2007. 'It is like a city with a murder law, but no cops on the beat.'" (The Washington Post)

The solution to toxic financial assets was proposed two weeks ago!:

Vince Farrell, chief investment officer at Soleil Securities: "One way out of this morass is to make the investment bankers that dream up all this toxic stuff get paid in they stuff they create. You know, the idea of, 'Gee, we just had a great quarter cause we shovelled a lot of this stuff out of the door, we're going to give you a lot of cash!' Why don't you give them a lot of the paper they just created. I have a feeling that if your own self interest is on the line, you might be a little bit careful about what you create."

Jim Rogers, chief executive officer of Rogers Holdings: "Well, you could also get rid of them [toxic assets] by giving some of them out as bonuses to bankers. They keep giving themselves bonuses, but they give themselves bonuses in real money, cash. Why don't they just give out the toxic waste? Most of the toxic waste came from the bankers in the first place. Let them have it! And let the regulators have some of it. Let the regulators pay themselves in toxic waste. They're the ones that approve all of this. Alan Greenspan said for years, 'This is good! This is GOOD that's happening!'" (CNNC)

Saturday, September 26, 2009

Saturday roundup (9-26-09)

IMF chief warns we may NOT have "avoided the worst situation":

"International Monetary Fund Managing Director Dominique Strauss-Kahn said the worst financial crisis in seven decades will have long-term consequences.

"'We will still have rising unemployment at least for a year,' Strauss-Kahn said via videolink in an address to the Yalta European Strategy Conference from Washington. 'From this point of view, the crisis isn’t over. It is too early to claim victory, even that we have avoided the worst situation. The consequences will be there for a long time.'" (Bloomberg)

In fact ... "Money figures show there's trouble ahead":

"Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise. ...

"If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23pc in August; Japan's were down 36pc; industrial production has dropped by 23pc in Japan, 18pc in Italy, 17pc in Germany, 13pc in France and Russia and 11pc in the US.

"Call this a 'V-shaped' recovery if you want. Markets are pricing in economic growth that is not occurring." (The Daily Telegraph)

In the job market, there are NO "signs of light at the end of the tunnel":

"Despite signs that the economy has resumed growing, unemployed Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse.

"Job seekers now outnumber openings by six to one, the worst ratio since the government began tracking open positions in 2000. ...

"'They have tons of room to increase work without hiring a single person,' said Heidi Shierholz, an economist at the Economic Policy Institute ... 'For people who are out of work, we do not see signs of light at the end of the tunnel.'" (The New York Times)

Squatters may be trading up:

'Miami's squatter problem has garnered national media attention over the past year and a half, as the foreclosure crisis threatened to transform the Magic City into something resembling a lawless, 'Mad Max'-esque landscape.

"The squatters mostly kept a low profile, moving in -- with the help of activist group Take Back the Land -- to neighborhoods where they could take over unnoticed. ...

"But now come reports that squatters are seeking out more ritzy neighborhoods, including the pricey, tree-lined streets of Coral Gables." (NBC Miami)

In connection with the foregoing, it is interesting that cycle student Martin Armstrong has written an article, just posted Thursday, entitled "The Collapse of the Rule of Law: A Prelude to Disaster" (Scribd).

Friday, September 25, 2009

Friday roundup (9-25-09)

Durable goods were weak in August:

"Orders for durable goods like aircraft and electronics fell unexpectedly in August, while sales of new homes rose less than expected. The weak reports renewed concerns about whether the U.S. economy can sustain a recovery with consumer spending held back by job losses, tight credit and falling home values." (The Associated Press)

"'The recession in business investment isn’t over yet,' Paul Ashworth, a senior U.S. economist at Capital Economics Ltd. in Toronto, said in a note to clients. The report is 'a wake up call for anyone expecting a smooth transition to a strong economic recovery.'" (Bloomberg)

Are housing sales slowing down?

"New-home sales rose 0.7% in August, from the previous month, to a seasonally adjusted annual rate of 429,000, the Commerce Department said Friday. ...

"'[But] analysts expressed some concern that housing numbers weren't stronger last month. On Thursday, a report showed that existing-home sales dropped 2.7% in August after four months of improvements.

"'On the whole, this was a somewhat disappointing report, and when combined with the poor existing-home sales report yesterday, suggests that the recent positive momentum in the U.S. housing market may be slowing,' TD Securities' Millan L.B. Mulraine wrote in a note to clients." (The Wall Street Journal)

The National Association of Realtors "is still 'lobbying very hard' for Congress to extend and expand the $8,000 tax credit for first-time home buyers, [Lawrence Yun, their chief economist] said.

"Sales must be closed by Nov. 30 to qualify for the credit.

"'It is perfectly clear that realtors are scared to death of the tax credit's expiration,' wrote Dan Greeenhaus, chief economic strategist for Miller Tabak & Co., noting the phrase 'tax credit' appears six times in the group's press release." (Marketwatch)

Another bank fails:

"Regulators on Friday shut down Atlanta-based Georgian Bank, the 95th U.S. bank to fail this year as loan defaults rise in the worst financial climate in decades.

"In coming months, more banks are expected to buckle under the weight of commercial real estate and other loans that go sour. Those failures could imperil the insurance fund for deposits, already at the lowest point in nearly 20 years." (The Associated Press)

It is "the eighth biggest failure in the United States this year." (AFP)

Are more bank bailouts in the offing?:

"Treasury officials and regulators are weighing a fresh round of bailouts for banks that were deemed too risky to qualify for earlier aid.

"Representatives from the Treasury Department, Federal Deposit Insurance Corp. and House Financial Services Committee discussed the plan by phone Thursday, said California Bankers Association Chairman Dan Doyle, who was on the call." (The Associated Press)

"U.S. regulators said total losses from large loans at banks and other financial institutions nearly tripled to $53 billion in 2009, due to a deteriorating economic environment and continued weak underwriting standards. ...

"'While we expected a year-over-year increase in problem assets, given the weak economic environment, declining (commercial real estate) values, and previously weak underwriting, we were surprised by the magnitude of the increase,' wrote FBR Capital Markets analyst Scott Valentin in a research note to clients Friday." (The Associated Press)

And more bankruptcies?:

"Bankruptcy professionals have noted a curious calm in the pace of corporate Chapter 11 filings, But don't relax yet, they say. A recent slowdown just marks a calm period before another storm of business collapses. ...

"'The commercial real estate market is starting to fall apart now,'" said Lawrence Adelman, co-founder of restructuring advisory firm AEG Partners. (Reuters)

The Fed is now eyeing money-market funds, according to the FT:

"The U.S. Federal Reserve is studying the idea of borrowing from money market mutual funds as part of eventual steps to withdraw stimulus, the Financial Times reported on Thursday." (Reuters)

Meanwhile, is Britain getting edgy about its own financial sector?:

Mervyn King, governor of the Bank of England: "The banking sector is not in good shape and it will take a long time before the balance sheets of the banks are fully repaired and the ability to provide credit to the economy to finance expansion will be returned to normal." (The Guardian)

"The Bank [of England] will host a seminar of all London's major economists next Tuesday [Sept. 29] – the first time it has invited them in en masse in recent memory – in what has been construed as a sign that it fears market participants are starting to lose faith in its efforts to pump cash into the economy." (The Daily Telegraph)

Analyst Marc Faber sees a worthless dollar on deck:

"Mr. Faber, is, to put it mildly, a pessimist. 'You can’t find anyone more negative about the world than I am,' he said. ...

"'The dollar in the long run is a doomed currency,' he said. 'This is the short of the century…The government’s policy is to make it worthless.'" (The Wall Street Journal blogs)

Elizabeth Warren, head of the Congressional Oversight Panel is a voice crying in the wilderness:

"'The toxic assets remain on the books of the banks,' she said. 'The commercial real estate mortgages are a coming crisis. Small banks are continuing to fail. We were talking a year ago about too big to fail. We are now facing an industry that's more concentrated than it was a year ago and too big to fail is up on us now in a much larger sense.'

"'Until we get down to dirt, to something that's solid, that we can put our feet on, our financial institutions are standing in a secure place, we can't rebuild and know that we are safely past this crisis,' Warren said.

"'The question about how we're going to get these toxic assets out of here at a time when the real estate mortgage market is still in trouble and the commercial real estate mortgage market may be getting into more and more trouble – I'm not hearing the plan,' she said." (ABC)

Even Geithner says there has been no victory:

"'We still have a very damaged system,' Treasury Secretary Timothy Geithner told lawmakers Wednesday when asked if he planned to end the [Troubled Assets Relief] program by the end of this year. ...

"Many economists warn that a too-slow recovery could dip into recession again.

"'It is too early for anyone to declare victory,' Geithner told members of the House Financial Services Committee on Wednesday." (The Associated Press)

Buried in your newspaper is more evidence that the economy is in grave shape:

"The Wall Street Journal reports that cemeteries and funeral-property web sites have had a spike in the sale of burial plots, many of which have been in families for years. 'If a customer has something that's worth $3,000, that could pay for utility bills and living expenses,' Olga Fernandez, owner of California based Caskets-N-More told the Wall Street Journal. 'They're not thinking of the future. They have something they're able to sell and get money for now.'" (

Thursday, September 24, 2009

Thursday roundup (9-24-09)

True recovery has yet to take hold, TARP overseer says:

"'We still have a long way to go before true recovery takes hold, but we are now pointed in the right direction,' Assistant Treasury Secretary Herbert M. Allison Jr. told the Senate Banking, Housing and Urban Affairs Committee on Thursday. ...

"'Our [economic] situation requires continued action and vigilance,' he said. 'The recovery has just begun, the financial system remains fragile, and the credit markets are not fully functioning.'" (The Washington Times)

At G-20 meeting that started tonight, the dollar's status as reserve currency will likely be a topic ...

"The embattled US dollar is expected to come under scrutiny at a summit of developing and industrialized nations following China-led calls to review its role as a reserve currency.

"The dollar issue is bound to surface at the two-day meeting in Pittsburgh as US President Barack Obama and other leaders of the Group of 20 economies debate a new framework for tackling the so called global 'economic imbalances' blamed for fuelling the latest financial crisis." (AFP)

... while the recent action in gold prices is evidence that people "don't believe in the strength of the U.S. dollar":

"The price of gold has been hanging near its historic highs, selling for more than $1,000 per ounce. ...

"That means a growing number of investors, traders -- and, most troublingly, foreign governments -- don't believe in the strength of the U.S. dollar, analysts warn. People buy gold when there's fear.

"'It's not the fear of an event of some sort,' such as a terrorist attack, said Peter Boockvar, equity strategist at Miller Tabak, whom I spoke to this week. 'It's the fear that the piece of paper in your pocket you call money will devalue over time.'" (The Washington Post)

Volcker seeks limits to "too big to fail" notion:

"A top White House economic adviser says the Obama administration's proposed overhaul of financial rules preserves the policy of 'too big to fail,' and could lead to future bailouts.

"Former Federal Reserve Chairman Paul Volcker said Thursday that ... he opposed bailouts of insurance firms like American International Group Inc., automakers' finance arms and others.

"'The safety net has been extended outside the banking system,' Volcker said. "That's what I want to change.'" (The Associated Press)

In Congressional testimony, two scholars also express their doubts about current policy. John H. Cochrane, professor of finance at the University of Chicago Booth School of Business says "Too large to fail must become too large to exist" and Jeffrey Miron, senior lecturer and director of undergraduate studies in the department of economics at Harvard, says "A broad guarantee that no financial institution can fail is not the answer." (Washington's Blog)

Government support of the economy can't last forever:

"Investors ... worry about what will happen once the government scales back its various economic stimulus efforts. ...

"'The U.S. government can only support the economy for so long,' said Michael Devlin, managing director at Source Trading in Stamford, Conn. 'It's hard to determine ... how much these subsidy programs are supporting the economy. You only know when you take them away.'" (The Associated Press)

Spain slips toward depression:

"Spain is sliding into a full-blown economic depression with unemployment approaching levels not seen since the Second Republic of the 1930s and little chance of recovery until well into the next decade, according to a clutch of reports over recent days." (The Daily Telegraph)

Japan's exports sink ...

"Japan’s exports fell for an 11th month in August as the economic recovery struggled to gain traction.

"Shipments abroad dropped 36 percent from a year earlier ... From a month earlier, exports fell 0.7 percent, the second straight decrease.

"Today’s report suggests the boost in overseas demand that helped the economy expand in the second quarter may be moderating as governments exhaust stimulus spending." (Bloomberg)

... and their flagship airline wants a bailout:

"Japan Airlines has asked for a government bailout, the company’s chief executive said Thursday, as the struggling carrier battles for survival by canceling flights and laying off workers.

"Before the announcement, the company’s shares tumbled to a record low on reports that lenders might seek to break up the carrier and a media report of the bailout plea." (The New York Times)

Prestigious magazine to cease publication:

"One of Asia's leading print publications, the Far Eastern Economic Review, is to be closed in December.

"Dow Jones, now owned by News Corporation, ... said the continued loss of readers and advertising revenues made its existence unsustainable." (BBC)

Are we dependent on China and Japan?:

Julian Robertson, founder and chairman of Tigr Management, says, "It's almost Armageddon if the Japanese and Chinese don't buy our debt. ... It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy." (CNBC)

Retrospective: Two major British banks almost collapsed:

"Bank of England Governor Mervyn King said two British banks got within hours of a liquidity shortfall on Oct. 6, 2008, and the day after as the U.K. financial system came to the brink of collapse.

"'Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day,' the BBC cited King as saying in an interview to be broadcast later today." (Bloomberg)

The banks, the BBC reports, were HBOS and RBS. (BBC)

Meanwhile, "'Party' over, Britain's [chancellor of the exchequer Alistair] Darling tells banks" (The Globe and Mail)

Is it a recovery yet? (Weekly report, 9-24-09)

As noted earlier here, initial jobless claims below 500,000 would be a sign of recovery.


"Applications fell by 21,000 to 530,000 in the week ended Sept. 19, from a revised 551,000 the week before, Labor Department data showed today in Washington. The total number of people collecting unemployment insurance fell in the prior week to 6.14 million, lower than forecast." (Bloomberg)

"'The fact we are not improving faster has been an ongoing disappointment,' Wrightson ICAP economist Lou Crandall said in a Wednesday interview, adding that other employment indicators have proved more encouraging than jobless claims." (The Wall Street Journal)

But even our threshold at 500,000 may be high.

"Economists say initial claims below 400,000 would be a signal that employers are adding to the net total of jobs." (The Associated Press)

Wednesday, September 23, 2009

Wednesday roundup (9-23-09)

Fed sends muted message on alleged "recovery":

"The Federal Reserve held interest rates steady at historic lows Wednesday, deciding it was too soon to rollback more of its rescue efforts. ...

"'Nobody at the Fed thinks now is the right time' to embark on exit strategies, said former Federal Reserve vice-chairman Alan Blinder. This sentiment is likely to remain in place at the Fed's next meeting in early November, he added. ...

"As statements of economic recovery go, this was hardly in the 'jump for joy' category, noted Josh Shapiro, chief U.S. economist at MFR Inc. ...

"Bill Cheney, chief economist at John Hancock in Boston, said the Fed was being extremely cautious.

"'They think the economy is going to grow but it is not a real sure thing - it may need help,' Cheney said." (Marketwatch)

"Any recovery is likely to be 'weak for some time,' the policy makers said, and inflation is likely to 'remain subdued for some time' because there is so much slack in the economy to restrain pricing power." (Marketwatch)

"U.S. Debt Crisis May Cause ‘Fall of Rome’ Scenario ..."

"U.S. budget deficits will continue to pile up in the next decade, eventually reaching an unsustainable level that may result in an economic collapse, according to Richard Duncan, author of 'The Dollar Crisis.'

"The U.S. has little chance of resolving its deteriorating financial position because the manufacturing industry continues to shrink, leaving the nation with few goods to export, said Duncan, now at Singapore-based Blackhorse Asset Management." (Bloomberg)

Strength and preeminence of the dollar at risk due to deficit spending, Agora Financial publisher says:

"The fact that the dollar has been the reserve currency of the world has allowed us to live beyond our means for a long enough period of time to get into trouble and that's what the crisis is," [Addison Wiggin, executive publisher of Agora Financial, a financial research firm in Baltimore, Md.,] said. "The deficit spending in Washington is the biggest threat to the dollar's status as the reserve currency." (Pittsburgh Post-Gazette)

Millions upon millions of homes still teeter on the brink:

"The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said." (Bloomberg)

Another study shows that efforts to broker agreements to keep people in their homes are not succeeding:

"State foreclosure-prevention programs have failed to save borrowers from losing their homes and haven’t improved their chances of modifying loans, a consumer advocacy group’s study found.

"'There is as yet no data to confirm that foreclosure mediation programs anywhere have led to a substantial number of affordable and sustainable loan modifications,' according to the report released today by the Boston-based National Consumer Law Center." (Bloomberg)

Lenders Gone Wild:

The Star Tribune of Minneapolis-St. Paul MN does a three-part series on the subject. (Star Tribune)

"U.S. credit card defaults rise to record: Moody's":

"The U.S. credit card charge-off rate rose to a record high in August, as more Americans lost their jobs, Moody's Investors Service said on Wednesday, in another sign consumers remain under stress.

"The Moody's credit card charge-off index -- which measures credit card loans that banks do not expect to be repaid -- rose to 11.49 percent in August from 10.52 percent in July." (Reuters)

"August's rise in charge-offs was accompanied by a rise in delinquencies to nearly 5.8 percent, snapping a four-month string of improvement. The August increase was driven by a spike in early-stage delinquencies, or account balances overdue by 30 to 60 days.

"'More increases should continue as back-to-school and holiday expenditures compete with credit card payments,' [Moody's Senior Vice President Will] Black said." (The Associated Press)

Jingle all the way? Well, not quite ALL the way:

"Nearly half the nation's 25 biggest retail chains expect to hire fewer holiday workers this season than they did last year, another sign that retailers aren't counting on recession-strained shoppers to relax the tight grip on their pocketbooks this year. ...

"'Retailers are not planning inventory or staffing for any sales growth this holiday,' said Craig Rowley, vice president of the global retail sector for Hay Group." (The Wall Street Journal)

California is struggling to stay afloat; so put it out of its misery, says this analyst:

"California cannot get out of debt without drastic cuts in spending, meaning layoffs and higher unemployment, meaning less cash flow back into businesses. The state cannot get out of debt without higher taxes, which means borderline businesses folding, creating more unemployment and depressing revenues. ...

"The only real solution to save California from the inevitable actually is the inevitable: Declare bankruptcy, and reset the system." (Marketwatch)

David Tice, chief portfolio strategist of Federated Equity Management, makes the bearish case:

“The economy is in really, really bad shape.” S&P to 400. Film at 11. (Bloomberg)

Tuesday, September 22, 2009

Tuesday roundup (9-22-09)

Can we throw good money after bad?:

The FDIC is examining the idea of having healthy banks lend their money to the FDIC to replenish its insurance fund, depleted by the closings of failing banks. (The New York Times)

Corporate insiders apparently have no faith in "recovery" talk:

"... the message from the insiders is rather sobering: They are selling a whole lot more of their companies' stock than they are buying. The net difference is even larger than it was two months ago, when I noted that insiders were already selling at a greater pace than at any time since the top of the bull market in the fall of 2007. ...

"For the week ended last Friday, according to Vickers, insiders sold 6.31 shares for every one than they bought. The comparable ratio two months ago was 4.16-to-1, and at the March lows the ratio was 0.34-to-1." (Marketwatch)

Derivatives trouble this money manager:

"Derivatives caused the market Armageddon of recent years and if left unchecked by global leaders, the same market could cause another catastrophe, Mark Mobius, executive chairman of Templeton Asset Management, told CNBC Monday." (CNBC)

"Retirement? Good luck with that":

IRAs and 401ks were bashed in the economic downturn, the value of houses dropped, and threats to Social Security loom.

"The retirement-savings system in the U.S. is 'a failed experiment,' said Teresa Ghilarducci, the Bernard Schwartz professor of economics at The New School for Social Research in New York.

"The U.S. system is 'headed for a serious train wreck,' said John Bogle, founder and former chief executive of the Vanguard Group, in testimony to a House committee hearing on retirement security in February." (Marketwatch)

Gloom, boom, and doom:

"'The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,' Marc Faber writes in the September issue of The Gloom, Boom & Doom Report." (Yahoo! Tech Ticker)

In the interview, he agrees he is talking about economic Armageddon. "Yes, absolutely. That I'm convinced. That is a high-confidence prediction, that total collapse will come." And, in Faber's view, when economic collapse comes, there will be a new currency or a revalued currency issued. The idea that a devalued dollar was the only way out of our crisis was also expressed last year by Larry Edelson of Weiss Research, Inc. (Money and Markets). The Faber clip follows.

Worst is yet to come:

Sociologist Immanuel Wallerstein, senior research scholar at Yale University, says the worst is yet to come for the economy, that US hegemony is over (rather than the US being an indispensible nation, "it's become the dispensible nation"), and that the result of these facts will be a collapse of the US dollar and the end of its role as the world's reserve currency.

Monday, September 21, 2009

Monday roundup (9-21-09)

Recession has had deep impact:

"The recession is profoundly disrupting American life: More people are delaying marriage and home-buying, turning to carpools yet stuck in ever-worse traffic, staying put rather than moving to a new city." (The Associated Press)

Bank of International Settlements head says don't get your hopes up too high as far as bank soundness is concerned:

"The world should not assume that the financial sector has rebounded for good, despite stock market rallies, the head of the body that oversees global banking regulation said in the Financial Times on Monday.

"Jaime Caruana, general manager of the Bank for International Settlements (BIS), warned against complacency after a surge in global stock markets over the last few months." (ABC)

"'It is not the right time for complacency,' he told the Financial Times.

"'The profile of the recovery is not clear. Obviously things have improved significantly ... but my sentiment would be that we have to be cautious about this improvement.'" (The Daily Telegraph)

Housing "recovery" could be a dead-cat bounce:

"The recovering housing market may be heading for a relapse ...

"'Things could get ugly,' said [economist Thomas] Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage-finance company. 'We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.'" (Bloomberg)

Meanwhile, homeowner delinquencies are still going up ...

"High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax credit bureau showed on Monday.

"Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters.

"August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace." (Reuters)

... and commercial real estate may be about to reach 18-year low:

"Commercial real estate prices in the U.S. resumed a 'steep decline' in July ... Moody’s Investors Service said ...

"The Moody’s/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody’s said today in a statement. ... The decline in June was 1 percent.

"Commercial property sales this year may fall to an 18-year low." (Bloomberg)

GAO says AIG may never pay back bailout billions:

"'AIG's ability to restructure its business and repay the government is unclear at this time,' the Government Accountability Office said in a new report released Monday.

"As of the start of September, the company's outstanding balance of taxpayer aid was $120 billion." (ABC)

Student loan defaults rise:

"Deep into this recession, we know that an increasing number of people can no longer pay their mortgages, their credit card balances or their car loans. Now throw into the mix the rising number of defaults on student loans.

"The percentage of those loans in default grew to 6.7, up from 5.2 percent in 2006." (The Washington Post)

"10 Big Companies That Are Veering Toward Bankruptcy":

They are Hertz, Textron, Sprint Nextel, Macy's, Mylan, Goodyear, CBS, AMD, Las Vegas Sands, and Interpublic Group. (The Business Insider)

Dollar, if it does not hold technical support, could go off a cliff:

Robin Griffiths, technical strategist at Cazenove Capital, says a "fully fledged dollar crisis" could happen if the dollar breaks support and he says that agrees with the view that we are virtually in an economic depression. Click to see video. (CNBC)

Sunday, September 20, 2009

Sunday roundup (9-20-2009)

President Obama says it could get even tougher to find a job (and jobs would derive any real recovery of an economy that is 70% based on consumer spending):

"The jobs situation could worsen slightly over the coming few months, US President Barack Obama warned Sunday as he declined to spell out whether the world's largest economy was out of recession.

"'I want to be clear, that probably the jobs picture is not going to improve considerably and it could even get a little bit worse over the next couple of months,' Obama said in an interview with CNN." (AFP)

"Are you ready for the FDIC to be down as much as $400 billion?":

Respected analyst John Mauldin previews "an explosive report from Institutional Risk Analytics." (Safe Haven)

In wake of economic crisis thus far, Europeans emerge as supreme:

"The worst global recession in decades has left its mark on the world's economic powers, but no nation has been affected quite as badly as the US, wealth dropped by 22 percent -- almost double the worldwide average. The 'Global Wealth Report' released by the Boston Consulting Group (BCG) on the anniversary of the Lehman Brother's bank collapse indicates that Europe has overtaken North America to become the world's wealthiest region." (Der Spiegel)

"HSBC bids farewell to dollar supremacy":

"The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC."

"'The dollar looks awfully like sterling after the First World War,' said David Bloom, the bank's currency chief." (The Daily Telegraph)

"Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world." (HSBC)

The British pound, after World War I, had lost its "supremacy," that is to say, its role as the world's reserve currency. What that means is explained by Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management in Beijing, China: "... only a handful of currencies meet the requirements to be desirable and practical as widely-held 'reserve currencies,' and of these, only one tends to play a dominant role at a given time. From 1816 to 1914, that role belonged to the British Pound (backed by the gold standard). From 1914 to the present day, it has resided in the U.S. dollar (sometimes backed by gold, but as often not)." He examines whether or not the baton might be passed to China's currency in the future. (Seeking Alpha)

Adjustable-rate mortgages may be a local phenomenon:

But when they come due, they hit hard.

"'When option ARMs recast, the payment shock is much more intense than we've seen (with other types of loans, such as subprime),' said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates in Oakland, a consumer advocacy group. 'That makes them potentially much more damaging.'" Recommended reading. (San Francisco Chronicle)

"Meltdown Jolts Consumers From Financial Fairyland":

"... Meltdown shakes up consumers' money views, investing habits" (The Associated Press)

The way the governments are taking things, never-ending economic depression is in our future:

So says Prof. Steve Keen from Australia.

Steve Keen (1)

Steve Keen (2)

For more, see Steve Keen's blog.

Saturday, September 19, 2009

Saturday roundup (9-19-09)

Employment still a bleak picture:

"In 14 states and the District of Columbia at least a tenth of the work force was unemployed in August, according to a Bureau of Labor Statistics report released Friday. ...

"Compared with the same time last year, unemployment rates increased in every state and the District of Columbia, fueling expectations that the many government efforts to tame the recession will not prevent a jobless recovery.

"'We’re not really seeing recovery anywhere yet, and it’ll still be awhile before we see much of a difference,' said Dean Baker, co-director of the Center for Economic and Policy Research." (The New York Times)

"California’s unemployment rate in August hit its highest point in nearly 70 years, starkly underscoring how the nation’s incipient economic recovery continues to elude millions of Americans looking for work." (The New York Times)

Troubled FHA plays a vital role:

"The Federal Housing Administration, which insures mortgages, announced Friday that its reserves are set to fall below the legally mandated level.

" ... after the market collapsed, the FHA has taken on a greater role. The agency now insures 23% of the mortgage market, compared with about 2% in 2006.

"'They're absolutely critical,' said Josh Denney, associate vice president for public policy at the Mortgage Bankers Assn. 'They're the tool for many first-time homeowners or anyone else who doesn't have a 20% down payment right now.'" (The Los Angeles Times)

"The only way they will survive without taxpayer assistance is if the housing market turns around and the labor market turns around fairly soon," said [director of financial regulation studies at the Cato Institute Mark] Calabria, a former Republican staffer on the Senate Banking Committee." (The Washington Post)

Grim news for automakers:

"September’s light-vehicle sales rate will fall to 8.8 million units, consumer auto site said. That would be the lowest rate in nearly 28 years, tying the worst demand on record.

"After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once -- in December 1981 -- with records stretching back to January 1976." (Automotive News)

People with the best credit are defaulting the most:

"Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to 'strategically default' -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers. ...

"Among researchers' findings are these eye-openers ..." Keep reading. (Los Angeles Times)

"Safe Harbour No More":

"The US dollar (USD) is the world’s 'reserve currency'. ... And it has worked quite well … until now." (Sprott Asset Management)

A year ago and now:

"A year ago, as the financial system was threatening to collapse, federal regulators offered all sorts of assistance to ward off catastrophe." But now the FHA's cash reserves are low and the FDIC needs cash as well.

"Taken together, the two developments indicate 'the limits of the government’s ability to make all the bad stuff go away,' said the investment strategist Ed Yardeni." (The New York Times)

On Sept. 18, 2008, that the Treasury Secretary and the Fed Chairman held a closed-door meeting with key members of Congress to warn them of a crisis of colossal proportions and to urge action in bailing out a troubled economy. Are we safer now than we were then? Click on the hyperlink below to see the Economic Signs of the Times report.

Troubled Assets Revisited

"America’s Casino Culture":

"It has encouraged ordinary people to accept debt in the name of accelerated gain — more comfortable homes, higher education, late-model cars.

"Yet in recent times this eagerness to augment the present by borrowing against a seemingly lucrative future has reached dangerous levels. Excessive optimism and its close relation — a reckless disregard of risk — are widely blamed for helping carry the United States into the worst financial panic since the Great Depression. Millions bought homes they could not afford ..." (The New York Times)

Friday, September 18, 2009

Friday roundup (9-18-09)

FDIC is looking for ways to raise money ...

"U.S. bank regulators are considering tapping a line of credit with the U.S. Treasury Department and may explore other lesser-known options to replenish the dwindling fund that safeguards bank deposits." (Reuters)

"A rising number of bank failures this year has depleted the deposit insurance fund to a level not seen since the US was in the middle of the savings and loans crisis. ...

"'Unfortunately, measures taken during the past year, while necessary, have only reinforced the idea that some financial firms are simply too big to fail,' [FDIC chairman Sheila Bair] said. 'Unless we adopt needed reforms, our system will be more, not less, fragile after this crisis.'" (The Financial Times)

"Regulators closed subsidiaries of Irwin Financial Corporation in Kentucky and Indiana Friday ...

"A total of 94 banks have failed so far this year, with an average of about 10 per month. That's nearly four times the number of banks that failed in 2008, and it's the highest tally since 1992, when 181 banks failed." (CNN)

... while the FHA faces a "very serious" problem, according to its own commissioner:

"The Federal Housing Administration is tightening rules for lenders after reporting that its financial cushion will sink below mandatory levels for the first time in its 75-year history." (The Associated Press)

"... with the FHA insuring more and more mortgages as banks have tightened their credit requirements, it might be only matter a time before the struggling housing market and rough economic conditions cause the agency's losses to outstrip its reserves, said Bert Ely, an independent banking consultant.

"'They're putting a lot of mortgages on their books, weak borrowers with a rising unemployment rate . . . none of this bodes very well for the FHA down the road,' Ely said." (The Los Angeles Times)

"The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.

"'It's very serious," FHA Commissioner David H. Stevens said in an interview. "There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue.' ...

"The agency lost much of its relevance during the housing boom when home prices soared and borrowers raced to aggressive subprime lenders. But after the subprime market collapsed, borrowers flocked back to the FHA, the only option for those who lack stellar credit or hefty down payments. Its historic role in backing loans is more crucial now than ever." (The Washington Post)

And Moody's says it could be more than decade before housing comes back:

"Moody's Investors Service threw cold water on optimistic projections of a V-shaped recovery in the battered U.S. housing market, predicting it could take more than 10 years to get back to boom-level prices. ...

"'The bursting of the housing bubble precipitated a crisis in financial markets the likes of which have not been seen since the Great Depression and plummeted the nation into recession,' Moody's said.

"'The scars that this downturn will leave on the economy and the housing market will be long lasting and persist in nearly all facets of the housing industry, including the demand for homes, ownership patterns, homebuilding, and house price appreciation,' the analysts forecast." (Marketwatch)

Meanwhile, one state official says adjustable-rate mortgages "are about to explode" ...

"The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset.

"'Payment option ARMs are about to explode,' Iowa Attorney General Tom Miller said ... Thursday ...

"'That's the next round of potential foreclosures in our country,' he said. ...

"It's the other shoe," [Arizona state attorney general Terry Goddard] said. "I can't say it's waiting to drop. It's dropping now.' ...

"Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they 'threaten a much greater hit to the consumer than the subprimes,' Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis." (Reuters)

... as other experts warn that commercial real estate failures could lead to "explosion of bank failures":

"So what is Washington going to do about the second wave of the credit crisis caused by the unfolding collapse in commercial real estate and the potential explosion of bank failures across the U.S.?

"... without immediate changes in bank regulations and laws governing Real Estate Mortgage Investment Conduits (REMICs), this next wave of the credit crisis will sabotage economic recovery — driving up bank failures and bailouts by the FDIC. The recession could become a depression." (Atlanta Journal-Constitution)

"Most commercial properties bought or refinanced in the last five years are now upside-down on their loans -- that is, the property can't be sold for its finance value or purchase price. Real Capital Analytics reports that owners have lost their entire down payments on about $1.3 trillion worth of property. ...

"As things stand, this next wave of the crisis will sabotage the recovery -- driving up bank failures, FDIC bailouts and problems for some large insurance companies. Indeed, Congress will surely wind up having to bail out the FDIC itself." (The New York Post)

Furthermore ... "The Global Credit Crunch Is Not Receding, It Is Intensifying":

Albert Edwards, analyst with Société Générale, says "US bank lending is contracting at an unprecedented annualized pace" (Zerohedge)

Across the pond, Britain sees "collapse in revenues," bringing on record budget deficit for August:

"Britain posted the biggest budget deficit for any August since modern records began in 1993 as the recession destroyed tax revenue and welfare costs soared." (Bloomberg)

"The U.K. government borrowed a net £16.1 billion ($26.5 billion) in August, the third highest monthly amount on record, the Office for National Statistics reported Friday as the government confirmed Chancellor of the Exchequer Alistair Darling has been meeting fellow ministers to discuss public spending plans. ...

"'Today's figures confirm the dire state of the public finances,' said John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP. 'It seems likely that budget deficits will overshoot Treasury forecasts not only in 2009/10 but for some years to come, resulting in pressure to tighten fiscal policy by more in the medium term than the Treasury's Budget plans suggested.'" (The Wall Street Journal)

"Deterioration in the public finances has been a result more of a collapse in revenues – total tax receipts have fallen by 11.4 per cent so far this financial year compared with a year earlier – than of a jump in spending." (The Financial Times)

"Colin Ellis, economist at Daiwa Securities, warned that the fragile state of the economy meant either of the main [political] parties would be unwise to tighten fiscal policy too rapidly.

"'With households already keeping a tight grip on their purse strings, and unemployment still rising, fiscal retrenchment could pose a risk to the gradual pace of recovery,' he said." (The Guardian)

And as for the US, its own debt will cause its status to diminish, economist says:

"As an economic power, the U.S. may go the way of the British Empire because of the government’s increasing debt burden, according to Richard A. Posner, an economist and federal judge." (Bloomberg)

Analyst Meredith Whitney sees no roaring recovery ahead:

Indeed she predicts a 25% drop in housing prices and higher fees on credit cards and says "live off of what you have, not what you aspire to have."

And on that note, check out changes in household income:

"Despite the recession, median income for all households -- half had more and half had less -- rose in some states in 2007-08 compared with 2005-06, according to the latest Census Bureau data." The map will show you how your state did. (USA Today)