The Weekend Economists' City Slickers Edition April 24-26, 2009

[Demeter]

By popular request (Hugin, AnneD et al.) this is a City Slickers themed weekend.
Not having seen the film, and having spent nearly 2 hours trying to remember 18th Century music (Schutz) after a healthy glass of wine with dinner, I leave it to others to pontificate and draw analogies between the state of the economy and Billy Crystal's mid-life crisis. He needs a little whine with his dinner, too.

It's been a quiet week in Nation Wobegon. Congress was unwound by the Easter recess, and is only now getting "cranked" back up. the GOP has been making the kind of noises that a bloated animal carcass on the side of the road makes, should one be foolish enough to puncture, kick, or even get close to one. Aside from Jane Harman, the Democrats have been mercifully silent.

President Obama has been playing coy, rather like Queen Gertrude in Hamlet(...now there's a theme we could use one weekend, and probably sooner than one expects!) So, is he, or isn't he: Chess master, Zen Master, Jedi Master? Vulcan, Romulan, or Klingon? Paper or plastic? Coffee, tea or milk? How about a martini? (Old joke from INSIDE SHELLEY BERMAN (1959) vinyl recording...remember them?)

Enough! I'll never make it as a stand-up comedienne, especially if I drink!

On with the Economy!

[Demeter]

1. Four (COUNT 'EM, 4!) banks closed by regulators as credit crunch shakes out

http://www.marketwatch.com/news/story/georgia-michigan-banks-closed-regulators/story.aspx?guid={982438DE-54E6-4F2E-84FF-FA3F1556A589}&siteid=yahoomy


By John Letzing, MarketWatch
Last update: 8:56 p.m. EDT April 24, 2009

SAN FRANCISCO (MarketWatch) -- Four banks in Georgia, Michigan, California and Idaho were closed by regulators Friday, costing the Federal Deposit Insurance Corp.'s deposit insurance fund nearly $700 million as the effects of the credit crisis continued rippling throughout the U.S. economy.

Kennesaw, Ga.-based American Southern Bank marked the 26th bank failure of the year and the fifth in the state of Georgia, the FDIC said.

Farmington Hills, Mich.-based Michigan Heritage Bank then became the 27th failure of 2009, followed by the closure of Calabasas, Ca.-based First Bank of Beverly Hills.

Alpharetta, Ga.-based Bank of North Georgia has agreed to assume American Southern Bank's deposits, the FDIC said in a statement. American Southern's one office will reopen as a branch of Bank of North Georgia on Monday.

American Southern had roughly $112.3 million in assets and $104.3 million in deposits as of March 30, according to the FDIC.

Bank of North Georgia has also agreed to buy roughly $31.3 million of the failed bank's assets, the FDIC said. The FDIC estimated the cost of American Southern's failure to its deposit insurance fund will be $41.9 million.

American Southern's collapse marks the 51st bank failure since the credit crisis began last year. During that time, an inordinate amount of the total bank failures have occurred in Georgia.

The last bank to fail in Georgia was Atlanta-based Omni National Bank on March 29, the FDIC said.

The failure of First Bank of Beverly Hills is also only the latest in a string of California bank closures. The FDIC said it marks the fourth failure in that state this year, with County Bank, of Merced, being the most recent California closure, on Feb. 6.

The FDIC said, "an assuming institution could not be located" for First Bank of Beverly Hills' deposits and assets, and said it will mail checks to insured depositors on Monday.

First Bank of Beverly Hills had $1.5 billion in assets as of Dec. 31, the FDIC said, and $1 billion in deposits. The FDIC estimated the bank had $179,000 in uninsured deposits, and that its failure will cost the FDIC's deposit insurance fund $394 million.

Michigan Heritage Bank is the first in that state to be closed this year. The bank had $184.6 million in total assets as of Dec. 31, and $151.7 million in deposits, according to the FDIC.

Farmington Hills-based Level One Bank has agreed to assume Michigan Heritage Bank's deposits, and on Monday Michigan Heritage's three offices will reopen as branches of Level One Bank, the FDIC said.

Level One has agreed to buy roughly $46.1 million of the failed bank's assets, the FDIC said.

The FDIC estimated the cost of Michigan Heritage Bank's failure to its deposit insurance fund will be $71.3 million.

Ketchum, Idaho-based First Bank of Idaho also became the first bank closure for that state this year, and the 29th in the U.S. this year- it was the first failure in Idaho since 1988, the FDIC said.

Minneapolis-based U.S. Bank has assumed First Bank of Idaho's deposits, the FDIC said. First Bank of Idaho had $374 million in deposits and $488.9 million in assets as of Dec. 31.

The FDIC estimated the closure of First Bank of Idaho will cost its deposit insurance fund $191.2 million. End of Story

[Demeter]

2. Deadly new flu strain erupts in Mexico, U.S.

http://news.yahoo.com/s/nm/20090424/ts_nm/us_flu_21

By Alistair Bell and Noel Randewich Alistair Bell And Noel Randewich

MEXICO CITY (Reuters) – A strain of flu never seen before has killed up to 60 people in Mexico and also appeared in the United States, where eight people were infected but recovered, health officials said on Friday.

Mexico's government said at least 20 people have died of the flu and it may also be responsible for 40 other deaths.

It shut down schools and canceled major public events in Mexico City to try to prevent more deaths in the sprawling, overcrowded capital. Authorities said they had enough antiviral medicine to treat about 1,000 suspected cases reported so far.

The World Health Organization said tests showed the virus from 12 of the Mexican patients was the same genetically as a new strain of swine flu, designated H1N1, seen in eight people in California and Texas.

"Our concern has grown as of yesterday," Dr. Richard Besser, acting director of the U.S. Centers for Disease Control and Prevention told reporters in a telephone briefing.

Global health officials were not ready to declare a pandemic -- a global epidemic of a new and deadly disease such as flu. "So far there has not been any change in the pandemic threat level," Besser said.

But the human-to-human spread of the new virus raised fears of a major outbreak. Mexico's government suspended classes for millions of children in Mexico City, where scared residents rushed out to buy face masks and kept their kids at home.

"We're frightened because they say it's not exactly flu, it's another kind of virus and we're not vaccinated," said Angeles Rivera, 34, a government worker who fetched her son from a public kindergarten that was closing.

Close analysis showed the disease is a mixture of swine, human and avian viruses, according to the CDC.

Humans can occasionally catch swine flu from pigs but rarely have they been known to pass it on to other people.

Mexico reported 1,004 suspected cases of the new virus, including four possible cases in Mexicali on the border with California.

Most of the dead were aged between 25 and 45, a health official said. It was a worrying sign as seasonal flu can be more deadly among the very young and the very old but a hallmark of pandemics is that they affect healthy young adults.

Health Minister Jose Angel Cordova said Mexico has enough antiviral drugs to combat the outbreak for the moment. "In the last 20 hours, fewer serious cases of this disease and fewer deaths have been reported," he told reporters.

The WHO said the virus appears to be susceptible to Roche AG's flu drug Tamiflu, also known as oseltamivir, but not to older flu drugs such as amantadine.

NO CONTAINMENT

Canada has not reported any cases of the flu and is not issuing a travel warning for Mexico, but the country's chief public health officer David Butler-Jones said the outbreak was "very concerning" and Canada was paying close attention.

The CDC's Besser said it was probably too late to contain the outbreak. "There are things that we see that suggest that containment is not very likely," he said. Once it has spread beyond a limited geographical area it would be difficult to control.

But there is no reason to avoid Mexico, CDC and the WHO said. "CDC is not recommending any additional recommendations for travelers to California, Texas and Mexico," Besser said.

Worldwide, seasonal flu kills between 250,000 and 500,000 people in an average year, but the flu season for North America should have been winding down.

The U.S. government said it was closely following the new cases. "The White House is taking the situation seriously and monitoring for any new developments. The president has been fully briefed," an administration official said.

In California, where six people have been infected with the flu, Governor Arnold Schwarzenegger said authorities were monitoring patients with flu-like symptoms and communicating with Mexican health officials.

Mexico's government cautioned people not to shake hands or kiss when greeting or to share food, glasses or cutlery. Flu virus can be spread on the hands, and handwashing is one of the most important ways to prevent its spread.

The outbreak jolted residents of the Mexican capital, one of the world's biggest cities with around 20 million residents. One pharmacy ran out of surgical face masks after selling 300 in a day.

The virus is an influenza A virus, carrying the designation H1N1. It contains DNA from avian, swine and human viruses, including elements from European and Asian swine viruses, said the CDC, which is already working on a vaccine.

Scientists were trying to understand why there are so many deaths in Mexico when the infections in the United States seem mild, Besser said.

The CDC said it will issue daily updates at http://www.cdc.gov/flu/swine/investigation.htm.

Surveillance for and scrutiny of influenza has been stepped up since 2003, when H5N1 bird flu reappeared in Asia. Experts fear that or another strain could cause a pandemic that could kill millions.

The last flu pandemic was in 1968 when "Hong Kong" flu killed about a million people globally.

(Additional reporting by Stephanie Nebehay in Geneva, Maggie Fox in Washington and David Ljunggren in Ottawa; Writing by Kieran Murray)

[AnneD]

31. Hi de ho weekenders.....

:toast: This swine flu has me working this weekend. I had to do a let's not panic but be alert e-mail this am to the school staff. I am in Houston Elementary school, and a Nurse so you know I'm all over this like white on rice or a cheap suit (take yor pic cow pokes).

And speaking of cow pokes, I sat down with hubby earlier this week and we saw Lonesome Dove. He really liked it but has now taken to asking me for a 'poke' :eyes: which tends to send me into gales of laughter. I told him Indians didn't ask for pokes :rofl: I think he's becoming a bono fide Texan.

Anyway, I hope they get thing under control in Mexico soon because this has all the makings of a perfect storm for the health care system in the US. Of course, it might help the economy what with a lot of people dieing, causing the unemployment roles to drop and jobs to open up...Oh did I say that out loud-I must have been channeling my inner Republican:hide: Nah those of you that know me know I have a very black sense of humour. As a School Nurse exposed to God knows what and living through it-I stand ready to offer my blood and immune system for research.

Look foreword to reading this thread, sipping a cooler and listening to the Dixie Chicks.

Catch you later.

[Demeter]

38. They Are Calling It a Nightmare Already

Identified cases in California, Texas, Kansas and New York City. I am wondering if that's what the Kid has, and why she's been driving me crazy for a week and still is.

If a vaccine comes out, I'm getting it and so are both kids and I never get flu vaccines. 1918 was nothing I want to repeat in my lifetime. It figures that they'd save all the crap for our "Golden Years".

Not to get all tinfoil hattish, but there was that theft at the germ lab, and Tamiflu is what makes Rumsfeld rich, and they had to have something in their back pockets when everything went south and torture prosecutions became a real possibility...

As Tansy said (I think it was Tansy) the GOP has been awfully quiet lately...as have the PTB.

[Demeter]

39. Swine flu could become pandemic, health officials say

http://www.marketwatch.com/news/story/swine-flu-could-become-global/story.aspx?guid={7C79F349-0C03-4A74-99F8-5ACE4A8AD98B}&siteid=yahoomy


World Health Organization cites 'emergency of international concern'

By Jonathan Burton, MarketWatch

Last update: 5:25 p.m. EDT April 25, 2009

SAN FRANCISCO (MarketWatch) -- A growing number of swine flu cases in Mexico and the U.S. has international health officials concerned that the aggressive virus could infect people worldwide.

The World Health Organization Saturday declared the outbreak of the previously unknown virus "a public health emergency of international concern." In a statement posted on its Web site, the agency advised health workers in all countries to monitor patients closely for signs of flu-like illness and severe pneumonia.

A deadly new flu strain has infected thousands in Mexico. In a bid to halt the virus from spreading the government has closed schools, museums and other public buildings.

The Geneva-based agency's recommendation came after a committee of international experts gathered in an emergency session Saturday to consider raising the alert level for the outbreak to 6 -- a pandemic -- which could have led to travel advisories and additional restrictions to combat the disease.

The WHO's alert for the virus remains at phase 3, meaning a flu with "no or very limited human-to-human transmission." The committee said it needs more information before changing the threat level. But Dr. Margaret Chan, the agency's director-general, told reporters Saturday that the outbreak has "pandemic potential."

About the same time the WHO committee issued its statement, two new U.S. cases of the flu were confirmed in Kansas. New York health officials, meanwhile, had evidence of eight probable cases, CNN reported.

"People are taking this extremely seriously. We have a very severe situation," said Dr. Anne Schuchat, the interim deputy director for science and public health program at the U.S. Centers for Disease Control and Prevention in Atlanta.

Speaking to reporters by telephone earlier Saturday, Schuchat said the CDC is aiming its efforts at slowing the spread of the disease, which has killed at least 68 people in Mexico in the past month. More than 1,000 others in the Mexico City area have developed flu-like symptoms, according to media reports.
In addition to the latest cases, eight people in the U.S. -- six in California and two in Texas -- were confirmed to have come down with a similar strain of the flu found in Mexico, according to the CDC. All eight have recovered, the CDC said, with only one patient needing hospitalization.

Given that the new virus has appeared in diverse populations and in many communities, containing it is no longer feasible, Schuchat said.
"We're not at a point where we can keep this virus in just one place," she noted. "We do expect more cases and we do expect them in other communities."

Stockpiling vaccine

World health authorities are also making sure that flu vaccines can be distributed to countries that need them.

Both the WHO and the CDC have been in contact with Swiss pharmaceutical giant Roche Holding Ltd. , a company spokeswoman said. Roche's Tamiflu antiviral flu medicine seems effective against the virus, which is a combination of human, pig and bird flu strains.

The WHO has also contacted British drugmaker GlaxoSmithKline PLC, which manufactures Relenza, another antiviral treatment.

The Roche spokeswoman said 5 million units of Tamiflu -- 2 million of which are already with the WHO -- have been donated and are stockpiled for emergency use. She added that if requested the company would be able to speed production of the drug. End of Story

[DemReadingDU]

78. Charles Hugh Smith: Swine Flu and The Economy: Disconnect or Tipping Point?

4/27/09
Swine Flu and The Economy: Disconnect or Tipping Point?
Charles Hugh Smith

As the mainstream media picks up the Swine Flue story, there is a weird disconnect in the financial media, which is essentially silent on the potential for pandemic to disrupt the Mexican and U.S. economies and thus the stock market.

If you scan the financial news, swine flu is a non-event; it's the rear-view mirror of the (heavily massaged) first quarter GDP number which dominates the "news". I say it's massaged because the game is played thusly: a positively spun GDP number is released (it doesn't have to do anything but beat lowered expectations by .1% to work its bullish magic) and then a month or two later it is "revised downward" in a tiny news item nobody notices. Oops, that means it really wasn't so great, huh. But no matter--the "good news" has already been hyped.

Isn't it rather peculiar that an unpredictable and potentially fatal flu epidemic apparently has no potential business-financial impact? What happens when Americans stop visiting Mexico? How many people are tossing aside prudence and taking the next plane for Mexico City?

How many business travelers are deciding to postpone their trip to their Mexican HQ? How many people trust the Mexican authorities to 1) fully disclose the spread of the virus and 2) control a highly communicable disease in a nation with many rural areas unserved by authority or healthcare?

Would you trust your health in these circumstances to any authority's calm assurances that "everything's under control"?

How many enterprises in the U.S. will decide to delay trucking from Mexico? Isn't that mere prudence?

And as the flu pops up in California and Texas, won't some cautious parents cancel that visit to Anaheim Disneyland? I mean, why take chances?

Or is the financial media's silence just part and parcel of the usual propaganda, the dismissal of potentially negative news and the constant hyping of "good news" even if the numbers are suspect or manipulated?

It seems rather obvious to me that swine flu may well have already tipped a skittish American psyche back into bunker-defense-saving mode. If you read or watch even a single news story about this flu, ignoring the most sensationalist aspects, it is still a very sobering turn of events.

Let's say the blogosphere bits about it being a bioweapon are false. Nonetheless, it is worrisome that this strain has recombined features of influenza from several continents, that it has killed people in their prime, just as the 1918-1919 pandemic did, and that it is obviously highly communicable, unlike say, HIV.

These are worrisome features, and caution is a highly rational response to the many unknowns we collectively face.

Since the financial media isn't asking many questions, allow me to step into the journalistic breach:

How many people will absorb the news and decide their teens don't need to go to the mall this week, or indeed, the next few weeks, until the extent of this epidemic becomes clearer?

How many people will decide it is prudent not to frequent airports, theaters, malls, concert halls, etc.? What will that do to revenues, incomes and tax receipts?

How many small businesses connected to tourism and what might be called the "animal spirits" sectors like restaurants--that is, those enterprises which depend on consumers feeling confident and ebulllient--will feel a sudden chill from this potential epidemic?

How many corporate titans can look ahead and be absolutely confident that a global pandemic--even one with a low fatality rate--will have absolutely no impact on their sales, profits or operations?

Consider the history of recent near-pandemics: bird flu in Hong Kong and SARS in the People's Republic of China. The authorities in Hong Kong went to extraordinary lengths to insure that every chicken in Hong Kong was killed and properly disposed of. That required a well-funded and staffed command-control structure and an authority which commanded the respect or fear of the populace, and a central authority that could order something done and actually get it done.

The same was true of China and SARS. Entire cities were shuttered in a matter of hours, no questions allowed, no lawsuits, no protests--it was ordered and it was done.

Can anyone seriously believe either Mexico or the U.S. has the same authority in place and the same compliant populaces as did Hong Kong and China? You can bet that if China shared a border with Mexico it would already be closed. Meanwhile, the U.S. is dithering, as if the threat is modest and easily controllable.

Isn't it obvious the key driver in the decision to leave the border open is the fear that closing it would have financial/business repercussions? Profits might take a hit, for goodness' sakes, were trade disrupted. One wonders if the authorities in the U.S. and Mexico, in their urgency to calm their citizenry, are responding not to public health realities but to the financially inspired fear that any large-scale response to this potent swine flu might have undesirable financial consequences.

So is acting like it's all under control taking care of the two nations' health, or the "health" of their deeply intertwined economies? Money talks and public health walks-- or so it seems at this point.

While the financial media gushes over "the bottom is in" hype--earnings are up! GDP is no longer falling as fast as it was! The recession will end in 3-6 months, so jump into stocks now!--I wonder if the swine flu will tip the stock market from bullish euphoria back into fear of the unknown.

It is a truism that the market hates uncertainty above all. Here the government and the media have worked overtime to establish the narrative that "the bottom is in, so buy buy buy" and this "outlier" swine flu pops up and throws a monkey wrench into this well-oiled propaganda machine.

Does anybody really give a darn about the bogus "bank stress test" or retail sales if they are concerned for their kids' health? Here we have the World Health Organization declaring a "public health emergency," but the border is wide open for "business as usual," and we're all supposed to focus on Verizon's earnings or the profitable wonders of Apple's apps store?

None of that matters, and it is the towering height of propaganda that the financial media is silent on the easily forseeable consequences of a swine flu epidemic, never mind a pandemic. The financial Powers That Be want very desperately for you to base your decisions on the flickering image in the rear view mirror--GDP only fell 5% instead of 6%, etc.--instead of what is buckling the road just ahead.

This is not just hubris but irresponsible. The Wall Stret Journal might not breathe a word about it, but anyone with a restaurant can look ahead and feel their stomach drop. The first--and the most prudent--response to the outbreak of a disease which spreads in droplets in the air is to simply not go out.

And indeed, large-scale public health studies have shown that isolating those carrying the disease is the only way to put the brakes on its spread.

The public health infrastructure is the U.S. is certainly competently staffed, but I have no idea if it is competently funded. Americans might well be thinking not of their hard-working public health officials and scientists but of the Federal government's incompetence in Hurricane Katrina. Federal officials really have to get this right, and quite frankly I fear not that science won't be up to the task but that politicians won't be up to the task.

I can already hear the whispered warnings being passed around the White House and Congress: the economy is in a fragile state, we don't need any upsets right now; let's be careful.

Yes, let's be careful: not about the stupid economy, but about the health and safety of our citizens. The world won't end if the lumbering, hollowed-out U.S. economy spends another quarter or two in recession, but the world may well end if someone in your own family or circle of friends contracts swine flu due to the authorities' fear of "disrupting the economic recovery."

Just don't expect to read anything remotely cautious in the financial media: everything's on track for a "recovery" in the stock market and everyone's bonuses, and no swine flu is going to be allowed to derail that enrichment.

http://www.oftwominds.com/blogapr09/swine-flu04-09.html

[Demeter]

80. Exactly, In Spades

and if it IS a bioweapon attack, then the Powers that Be are fighting amongst themselves, the fascists against the greedheads. Which one will win, do you think?


The fascists are down several points and facing serious penalties. Plague is one of the tools in their toolkit. If they haven't enough money to get off the war crime list (is there enough money for that?) then perhaps they figure a health emergency would be sufficient diversion to drop the whole idea of prosecution and investigation. And maybe a bit of extortion from Wall St. in the bargain?

The Greedheads are going to be upset that their bloodsucking will be interrupted, and maybe scuttled entirely to deal with the health crisis. Will they retaliate, and if so, how?

I'm so glad I'm not in Pelosi's shoes. She's running out of dodging room. As for Harry Reid, he'll never know what hit him (he never does).

But of course, there is no battle of the Giants. The two teams are one and the same, and they will make common cause in finishing off the little people.

It sucks to be us.

[DemReadingDU]

81. For all the talk about swine flu

and it can be extremely contagious and deadly. But is this a real threat due to contagious disease? a hyped threat because 80 people have died and the media makes it sound like 8000000, a plague unleash by PTB so that large numbers get sick and die? a diversion from the financial mess?

Should we be more panicky about swine flu than a global financial meltdown?


H1N1 Swine flu in 2009
Pink markers are suspect
Purple markers are confirmed
Deaths lack a dot in marker
http://maps.google.com/maps/ms?ie=UTF8&hl=en&t=p&msa=0&msid=106484775090296685271.0004681a37b713f6b5950&ll=36.315125,-45&spn=92.320899,188.085938&z=2&source=embed

[Demeter]

83. A Pandemic will certainly distract from the looting of the Treasury

and may shut down Geithner's efforts to plump up his buddies. The rest of the economy will keep avalanching, regardless....

[Demeter]

40. One Less Thing To Worry About: Cure For Honey Bee Colony Collapse?

http://www.sciencedaily.com/releases/2009/04/090414084627.htm

For the first time, scientists have isolated the parasite Nosema ceranae (Microsporidia) from professional apiaries suffering from honey bee colony depopulation syndrome. They then went on to treat the infection with complete success.

In a study published in the new journal from the Society for Applied Microbiology: Environmental Microbiology Reports, scientists from Spain analysed two apiaries and found evidence of honey bee colony depopulation syndrome (also known as colony collapse disorder in the USA). They found no evidence of any other cause of the disease (such as the Varroa destructor, IAPV or pesticides), other than infection with Nosema ceranae. The researchers then treated the infected surviving under-populated colonies with the antibiotic drug, flumagillin and demonstrated complete recovery of all infected colonies.

The loss of honey bees could have an enormous horticultural and economic impact worldwide. Honeybees are important pollinators of crops, fruit and wild flowers and are indispensable for a sustainable and profitable agriculture as well as for the maintenance of the non-agricultural ecosystem. Honeybees are attacked by numerous pathogens including viruses, bacteria, fungi and parasites.

For most of these diseases, the molecular pathogenesis is poorly understood, hampering the development of new ways to prevent and combat honeybee diseases. So, any progress made in identifying causes and subsequent treatments of honey bee colony collapse is invaluable. There have been other hypothesis for colony collapse in Europe and the USA, but never has this bug been identified as the primary cause in professional apiaries.

“Now that we know one strain of parasite that could be responsible, we can look for signs of infection and treat any infected colonies before the infection spreads” said Dr Higes, principle researcher.

This finding could help prevent the continual decline in honey bee population which has recently been seen in Europe and the USA.

[DemReadingDU]

4. and a credit union

4/24/09
Eastern Financial Florida Credit Union Placed In Conservatorship

Eastern Financial Florida Credit Union is Open and Operating; Member Accounts are Safe and Federally Insured

April 24, 2009, Alexandria, Va. -- The National Credit Union Administration (NCUA) today assumed control of the operations of Eastern Financial Florida Credit Union, a state-chartered, federally insured credit union headquartered in Miramar, Florida.

The Florida Office of Financial Regulations, Bureau of Credit Union Regulation appointed NCUA as conservator today after placing Eastern Financial Florida Credit Union into conservatorship. NCUA has assumed control of the credit union and has appointed officials from Space Coast Credit Union of Melbourne, Fla., to temporarily manage Eastern Financial Florida Credit Union’s day-to-day operations. NCUA’s goal is to continue credit union service to the members and ensure safe and sound credit union operations.

Service continues uninterrupted at Eastern Financial Florida Credit Union and members are free to make deposits, access funds, make loan payments and use share drafts. While the credit union was placed into conservatorship because of declining financial condition, the decision to conserve a credit union enables the institution to continue normal operations with expert management in place.

Member accounts are insured to at least $250,000 coverage provided by the National Credit Union Share Insurance Fund, a federal fund backed by the full faith and credit of the U.S. Government. Members with questions about their insurance coverage can contact NCUA’s Share Insurance Call center at 1-800-755-1030, Press 1, Monday through Friday during normal business hours.

Eastern Financial Florida Credit Union was originally chartered in 1937 and today serves Broward, Miami-Dade, Palm Beach, Hillsborough, Pinellas counties and the Jacksonville area. The credit union has approximately $1.6 billion in assets and just over 200,000 members.

The National Credit Union Administration (NCUA) is the independent federal agency that charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates the National Credit Union Share Insurance Fund (NCUSIF), insuring the deposits of over 89 million account holders in all federal credit unions and the vast majority of state-chartered credit unions. NCUA is funded by credit unions, not tax dollars.

http://www.ncua.gov/news/press_releases/2009/MR09-0424a.htm

[Demeter]

8. thanks!

Good Catch!

[pravin404]

20. Map & List of Failed Banks in 2009

FDIC closed 4 banks today.

"Heritage Bank, Farmington Hills, MI" , "American Southern Bank, Kennesaw, GA" ,"First Bank of Beverly Hills, Calabasas, CA" and "First Bank of Idaho, Ketchum, ID"

Till now 29 banks have failed this year and 54 from 2008.

Check the list of all the failed banks at :
www.portalseven.com/Failed-Banks-2009

And on google map see where the banks are failing at :
www.portalseven.com/finance/Failed_Banks_Map_2009.jsp


Some statistics about the bank failures :

American Southern Bank:
#26th bank to fail this year in USA
#First bank from Michigan to fail this year and 2nd since 2008
#Has $112.3 million in assets and $104.3 million in deposits

Heritage bank:
#27th bank to fail this year in USA
#5th bank from Georgia to fail this year and 10th since 2008
#Has $184.6 million in assets and $151.7 million in deposits
#Maximum banks failed in Georgia since 2008

First Bank of Beverly Hills, Calabasas, CA
# 28th bank to fail this year in USA
# 4th bank from California to fail this year and 9th since 2008
# Has $1.5 billion in assets and $1.0 billion in deposits

First Bank of Idaho, Ketchum, ID:
# 29th bank to fail this year in USA
# 1st bank from Idaho to fail since 2008
# Has $374 million in assets and $488 million in deposits


Also check the layoff tracker at :
www.portalseven.com/Layoffs

[Hugin]

23. One more clip for this Saturday Morning... 'Day ain't over yet'

City Slickers - 'Day ain't over yet'

http://www.youtube.com/watch?v=5XBi2p428tE

Thanks for the excellent post, pravin404! Lots of Info.

[Demeter]

3. Bank of America’s Lewis May Face SEC Probe on Merrill (Update3)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJbR4ycD20iA&refer=home


By David Mildenberg and Karen Freifeld

April 24 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth D. Lewis may face scrutiny by the U.S. Securities and Exchange Commission for failing to disclose mounting losses at Merrill Lynch & Co. because of pressure from federal regulators to complete the takeover.

“We have been actively reviewing the disclosure surrounding the merger between Bank of America and Merrill Lynch,” said agency spokesman John Nester. “The issues identified in New York Attorney General Andrew Cuomo’s letter are part of our review.”

Cuomo revealed in a letter yesterday to Congress and federal regulators that Lewis testified in December that then- Treasury Secretary Henry Paulson may have threatened to remove the bank’s management and directors if the lender tried to back out of buying Merrill. Lewis said he was instructed by federal officials not to disclose Merrill’s losses, his desire to back out of the merger or the intervention of regulators, according to Cuomo.

Former SEC Chairman Harvey Pitt said he has “no doubt” the agency will investigate. Lewis was obligated to make full disclosure to shareholders even with the regulators’ pressure, Pitt said in a Bloomberg Television interview.

“At least he could have demonstrated he was acting at the request of an official of the U.S. government,” Pitt said.

‘Clear Violation’

The allegations in Cuomo’s letter suggest Paulson and other policy makers may have resorted to breaking securities laws to protect a fragile financial system, according to Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which has about $13.3 billion under management and doesn’t own stock in Charlotte, North Carolina- based Bank of America.

“Everyone involved knew that was a clear violation, that’s material non-public information, so basically we just closed the rule book during the crisis and said we don’t care, we need to keep the lights on, and we’ll deal with that manana,” Sorrentino said. “Logic went out the window and they were just acting out of fear,” he said. It was “completely panic mode.”

Both Paulson and Federal Reserve Chairman Ben S. Bernanke said they hadn’t advised Lewis to conceal Merrill’s mounting losses from his shareholders.

Paulson on ‘Disclosures’

“Questions of Bank of America’s disclosures were left up to Bank of America,” Paulson said in statements e-mailed by a spokesperson. “Secretary Paulson does not take exception with the Attorney General’s characterization of his conversation with Ken Lewis. His prediction of what could happen to Lewis and the Board was his language, but based on what he knew to be the Fed’s strong opposition to Bank of America attempting to renounce the deal.”

Lewis testified for four hours in Cuomo’s New York offices on Feb. 26 as part of an investigation by Cuomo of $3.6 billion in bonuses paid at Merrill just before it merged with the bank. Cuomo’s letter was based on Lewis’s recollections of a Dec. 21 conversation with Paulson. Cuomo, in his letter to SEC Chairman Mary Schapiro and members of Congress, said the SEC “appears to have been kept in the dark” about talks between Bank of America and the Fed and Treasury.

Cuomo’s letter didn’t dissuade critics who want the 62- year-old Lewis ousted from the bank’s board at next week’s annual shareholders meeting in Charlotte.

“Mr. Lewis and the board owe their fiduciary obligation to the corporation and shareholders, not to the regulators who reportedly pressed them to close the deal,” Michael Garland, research director at CtW Investment Group, said in an e-mailed statement.

‘Little Choice’

Lewis had little choice but to follow the Fed’s direction, Hugh McColl Jr., Lewis’s predecessor as Bank of America’s CEO, said in a telephone interview yesterday.

“Anyone who has ever run a big national bank knows that when the Fed tells you to do something, you will do it,” McColl said. “It’s an order.”

MUCH MORE AT LINK--OH WHAT A TANGLED WEB WE WEAVE, WHEN FIRST WE PRACTICE TO DECEIVE!

[Demeter]

10. Control without accountability

http://interfluidity.powerblogs.com/posts/1240552418.shtml

I've been unimpressed with this oft-quoted bit from Phillip Swagel's insider account of the Paulson Treasury.

Legal constraints were omnipresent throughout the crisis, since Treasury and other government agencies such as the Federal Reserve must operate within existing legal authorities. Some steps that are attractive in principle turn out to be impractical in reality—with two key examples being the notion of forcing debt-for-equity swaps to address debt overhangs and forcing banks to accept government capital. These both run hard afoul of the constraint that there is no legal mechanism to make them happen. A lesson for academics is that any time the word "force" is used as a verb ("the policy should be to force banks to do X or Y"), the next sentence should set forth the section of the U.S. legal code that allows such a course of action—otherwise, the policy suggestion is of theoretical but not practical interest. Legal constraints bound in other ways as well, including with respect to modifications of loans.

Today's news (Clusterstock + source docs, WSJ Deal Journal, McArdle, Naked Capitalism, Calculated Risk, Marketwatch), that Henry Paulson, um, forced Bank of America's near suicidal merger with Merill Lynch kind of clinches the case. Pre-Merrill, BOA was viewed as relatively healthy among large banks. What's the statute under which a Treasury secretary unilaterally fires and replaces the board of a healthy bank? The Paulson Treasury talked up legal constraints whenever they were faced with something Paulson didn't want to do. When Paulson, or Bernanke, really did want to do something, they were very creative about bending the law to their will. The Fed's "special purpose vehicles" are clearly not lending in the sense that the architects of the Federal Reserve Acts "unusual and exigent circumstances" clause foresaw. The FDIC has no statutory authority to issue ad hoc guarantees of bank debt, but flexibility was read into the laws.

With respect to the banks, the Paulson Treasury could have forced any big bank into a bail-out or receivership scenario just by looking at it funny, or by having the Fed take a conservative view of bank asset collateral values under the special liquidity programs. It's worth noting that Treasury very ostentatiously forced banks to accept TARP capital, and Geithner's Treasury was able to persuade holders of Citi preferred to convert to common equity.

It's not exactly right to say that our don't-ask-don't-tell quasinationalization policy has given us "ownership but not control". An assertive Treasury secretary has tremendous leverage over zombie bank managers. Instead, what we have is is control without accountability. An informal, unauditable, hydra-headed set of private managers and public officials controls how quasinationalized banks behave. Neither taxpayers nor shareholders have reason to believe that decisions are being taken in their interest. The informality and disunity of control impedes the kind of hands-on, detail-oriented supervision and risk management that ought to be the core preoccupation of bank managers. Exactly as opponents of nationalization feared, America's large banks are poorly run behemoths that routinely make idiotic commercial decisions to satisfy tacit political mandates. No one really knows who is responsible for what....

[Demeter]

Simon (Johnson) Says: "Break up the banks"

http://www.salon.com/tech/htww/feature/2009/04/23/simon_johnson/index.html


Simon Johnson is the former chief economist of the International Monetary Fund and in recent months has emerged as one of the most cogent critics of how the Obama administration is addressing the banking crisis. On Tuesday, Johnson, Joseph Stiglitz and Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, testified before Congress' Joint Economic Committee on the topic of the day: "Too Big to Fail or Too Big to Save? Examining the Systemic Threats of Large Financial Institutions."

It's time to get all Teddy Roosevelt on Wall Street, declares the former chief economist of the IMF. Bring out the big antitrust artillery and fire away.

On Wednesday, Salon caught up with professor Johnson for the second time this month, and this time, managed to successfully record the interview....

LENGTHY INTERVIEW AT LINK

[Demeter]

16. Break Up the Banks By Harold Meyerson

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/23/AR2009042303799.html?wprss=rss_opinions


Friday, April 24, 2009

This week in banking:

Our leading financial institutions announced that they had actually made a profit in the year's first quarter through the creative manipulation of rules and regulations, lobbied Congress to preserve their ability to raise credit card interest rates just for the heck of it and opposed the administration's plan for restructuring Chrysler, which would save some jobs and honor pension obligations, in the hope that they can redeem the company's bonds at a higher level than they're trading at just now. And, to round out the picture, the Wall Street Journal reported this week that lending at the 19 largest TARP recipients was 23 percent lower in February -- by which time these banks had received hundreds of billions of dollars in public funds intended to enable them to lend more -- than it had been in October, before the floodgates of tax dollars had been fully opened.

This is what our major banks are up to at a time when it is our largess that is keeping them afloat.

The week began with a burst of creative accounting. Citigroup, into which we've sunk more dough than any other company, with the possible exception of AIG, claimed a profit for the first quarter of this year because its bonded debt has lost value, which under the rules of accountancy enabled it to register a one-time gain equal to that lost value, because Citi could, in theory, buy back its own bonds for less. J.P. Morgan Chase, whose fire-sale purchase of Bear Stearns we taxpayers backed, declared a similar profit because of a similar decline in the value of its bonds.

As events would have it, the very same Citigroup and J.P. Morgan Chase are the lead negotiators for the banks that are objecting to the Obama administration's efforts to restructure Chrysler. Chrysler's bonds, which these banks hold, are trading at 15 cents on the dollar, the amount the government offered to pay the banks in its initial proposal to restore the company to viability. Yesterday, the government upped that amount to 22 cents, plus a 5 percent equity share in the company. Citigroup and J.P. Morgan Chase, however, insist that they and their fellow banks are entitled to more, though that "more" could only come at the expense of Fiat (the auto company that is providing the new car lines and technology without which Chrysler will fold) or the company's retirees (to whose health-care fund Chrysler is legally obligated) who built the company, or the taxpayers who are keeping Chrysler alive.

Instead of playing Scrooge (and a publicly subsidized Scrooge, at that), what the banks should do is lend Chrysler their accountants. Maybe they'd show that the company turned a profit last year.

The banks' lobbyists, meanwhile, have been hard at work, too. Bills to limit credit card fees and penalties -- my favorite fee is the one banks charge some customers for making (not missing, making) a payment -- are moving through both houses of Congress, but the Senate version has yet to receive any support from Republicans. A bill that would enable bankruptcy judges to modify mortgage terms has also hit a wall in the Senate, with Republican leaders claiming the backing of all 41 of their members to filibuster the bill when it comes to the floor.

President Obama told representatives of the major banks yesterday that he backs the limits on credit card charges. The question here is whether the administration and congressional Democrats will use this issue to go after the Republicans, whose decision to align themselves with the banks, particularly on the issue of credit card fees, is incomprehensibly dumb even by their standards. Socially liberal bankers may be a financial mainstay of the new-model Democratic Party, but if the Democratic Senate and House campaign committees don't run against the Republicans for backing the moral sewer and economic disaster that is our modern banking industry, they will be derelict in their political duties.

And that should just be the beginning. The Democrat in the White House and the Democrats on the Hill are committed to legislation that regulates our dysfunctional wards in the banking industry, but regulations by themselves won't solve the problem of the banks being too big to fail -- and so big that they dominate campaign finance and, with it, much of the business of lawmaking. We need to amend our antitrust laws so we can scale down banks to the point that they no longer imperil our economic and political systems. As things stand now, it's we who are serving their needs, not they who are serving ours. It's time to turn that around.

[e-mail]

[Demeter]

5. Investors move against mortgage securities bill

http://www.ft.com/cms/s/0/14a75952-304c-11de-88e3-00144feabdc0.html

By Aline van Duyn and Saskia Scholtes in New York


Bond investors are lobbying hard to change federal policies aimed at reducing foreclosures in the US, saying the measures discriminate against holders of top-rated securities backed by mortgages.

The investors are set to meet senators next week. The next step could be legal action against the US government if the law is passed, on the basis that it could violate the Fifth Amendment, which prohibits the taking of private property for public use without compensation.

“Serious investors are committing significant resources to this issue,” said Eric Brenner, partner at Boies Schiller and Flexner, which is advising investors that hold mortgage-backed securities. “They are really troubled that government action could prevent enforcement of their contracts and are considering the potential for legal action to protect their property rights.”

The plans, introduced by Barack Obama, US president, last month to try to stem the surge in foreclosures, could go before Congress next month.

MORE CHICANERY AT LINK

[Demeter]

6. Financial Innovation Takes the Homework Out of Banking

http://yglesias.thinkprogress.org/archives/2009/04/financial-innovation-takes-the-homework-out-of-banking.php

I got a mortgage back in October and found myself a bit taken aback by how little was involved in it. I gave some information about my income, about the size of the loan I wanted, and about my credit rating. Then in went a formula and out came approval. If someone was asking me for a big loan in the middle of a recession, I would want to know more. Like what’s the guy’s employment situation? Are there decent odds he might get laid off and have his income drop to $0? I think I could have mounted a strong case that layoffs at CAP were very unlikely (too much voluntary attrition of people going to work in government post-election) but nobody asked.

Now say what you will about this, but the lack of detailed inquiry into the situation definitely made it easier for me to get the loan. And not even because a detailed inquiry would have wound up with me getting declined. It just spared me some hassle. But like Ryan Avent I have to wonder if this is really a good thing:

A lot of recent financial innovation has been defended on grounds that it improved the flow of credit or made credit easier to obtain. But increasingly it seems that it did this by allowing everyone to stop doing their homework. Magical de-risking processes made the need to do homework before investing unnecessary. Magical hedging formulas did the same thing, and saved lenders the trouble of caring when a borrower got in trouble. The financial system became like a fancy new car — full of top-of-the-line safety features, traction control, ABS, and so on. And like drivers who seem so effortlessly in control and completely safe that they forget how deadly two tons of steel traveling at 80 miles per hour can be, market participants were lulled into forgetting how dangerous finance can be.

This seems to me to be related to some of the issues about the scale of financial institutions. To a certain extent, bigger size makes you a better lender because you’re more able to manage risk. If someone offers Google to flip a coin, with Google getting $2 million if it comes up heads and Google losing $1 million if it comes up tails, Google will take the bet—the odds are great and they’ve got a ton of cash. But offer me the bet and I’ll have to turn it down. I can’t afford to lose $1 million even on good odds.

But the flipside of this is that when institutions get really big they can’t really be doing much homework. An old-school local bank can expect the people supervising loan applications to have specific knowledge about situations. And perhaps more importantly, the head of a small institution can directly monitor what his subordinates are doing. And while he perhaps can’t have detailed information about everything that’s going on, he can have general knowledge of the local economic situation.

But when I got my mortgage from Bank of America, it’s not like there was some plausible worry that Ken Lewis was going to knock on the guy’s door unexpectedly and make sure that everything was being done right. You can’t really have a homework-based system at a giant institution. Things need to be handled through bureaucratic processes and rules and formulae.

In the real world, of course, anything’s going to fall on a spectrum between homework-based risk-assessment and formula-based risk assessment. Innovation, in large part, looks to have been a process by which an institution could claim to be able to viably shift further toward the formula-based side of the spectrum. That, in turn, could justify larger firm size since less monitoring was now necessary. And larger firm size leads to larger executive pay packages. It also leads to a larger amount of safe leverage if you assume you’re not increasing the amount of risk by doing less homework and that also means larger pay packages. And the lure of bigger salaries seems to have been enough to tempt management into papering over problems with the underlying theory.

Then underlying how you evaluate this trend from a policy perspective depends to some extent on underlying economic theory. According to a prevailing brand of neoliberal rationalism, if firms were all trending in one direction then the fact that the trend was happening was sufficient proof that it’s a good idea. After all, if it wasn’t a good idea then the market would price the badness of the idea into the firms’ share prices and that would have caused the trend to turn around. That’s a nutty way of looking at the world, but that seems to have been the prevailing view of policymakers for most of the past 20 years.

[Demeter]

7. The Unbearable Vagueness of Timothy Geithner

http://www.motherjones.com/politics/2009/04/unbearable-vagueness-timothy-geithner

By Nomi Prins | Fri April 24, 2009 5:01 AM PST

On Friday, the Treasury Department will share the preliminary results of its so-called "stress tests" with the nation's troubled banks—but this week Timothy Geithner missed another opportunity to open up the books and tell the American public what's really happening with the country's financial system. When the treasury secretary addressed the five-member panel overseeing the Troubled Asset Relief Program on Tuesday, he stressed the administration's commitment to "transparency, accountability, and oversight." Then he proceeded to deliver a characteristically opaque assessment of the economic crisis, without providing much in the way of specific information. He didn't provide much clarity regarding TARP expenditures, the amount of leverage remaining on the books of imperiled banks, or the volume of toxic assets hovering like storm clouds on the financial horizon. Never mind that some of this data was contained in the 250-page report produced by TARP Inspector General Neil Barofsky, which was released on April 21.

Barofsky reported that the TARP now spans 12 federal programs, totaling almost $3 trillion, or "roughly the equivalent of last year's entire Federal budget." That figure doesn't count the nearly $10 trillion that the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Treasury have put up via various loans, guarantees, and other backing. Of the $700 billion bailout component approved by Congress (the rest of the $3 trillion is parceled out through an acronym soup of other programs), $590.4 billion has been committed, of which $328.6 billion has already been spent.

In his testimony, Geithner highlighted the importance of getting the securitization markets moving again. And he blamed ongoing uncertainty over the value of "legacy" (a kinder word for "toxic") assets for the lack of confidence in the banks, and their well-publicized lending shyness. He failed to mention the fact that many banks continue to hoard capital to cover the losses they're not exposing.

Elizabeth Warren, chair of the Congressional Oversight Panel (or COP) has consistently called for greater transparency and evaluation methods for TARP money, and a more critical view of the securitization process that introduced so much risk and leverage into the financial system. Her concerns go to the heart of the question of whether it's wise to prop up a system that wasn't working by rewarding companies with cheap capital and the incentive to maintain the status quo, rather than restructuring the system outright. Geithner should listen to her.

MORE AT LINK

[ozymandius]

13. Let it be said: Elizabeth Warren is the coolest head in that culture.

When she speaks, I do not get the impression that she's selling something. She certainly does not lie by omission like that Geith.. Geithn.. asshole over there.

[Demeter]

27. Here's Somebody Beating Up on Elizabeth

http://blogs.wsj.com/economics/2009/04/24/guest-contribution-tarps-66-cent-myth/


TARP’s 66-Cent Myth

Concerns that TARP isn’t getting enough value for the government from banks have been raised since the legislation was first enacted. Jon Faust, director of the Center for Financial Economics at Johns Hopkins University, argues that at least one claim about TARP valuation is a myth.

Elizabeth Warren, Chairperson of the Congressional Oversight Panel charged with overseeing the TARP program, has been prominently chastising the Treasury for getting only 66 cents in value for every TARP dollar spent. This accusation would be troubling if true, but the 66 cent claim is a myth.

The source of this myth is a valuation report prepared for Warren’s panel by an investment banking firm. Of course, it was Wall Street valuation errors that brought us the crisis, and the 66 cent conclusion is no more sound than a subprime mortgage.

The report’s valuation is based on the view that market prices “provide the best indications of economic value.” Usually, perhaps, but the very essence of the crisis is that markets for key assets have broken down. By the time of the report, many experts were calling for changes in accounting rules precisely because market prices were not reliable signals of value; the Financial Accounting Standards Board recently adopted such changes. The valuation report acknowledges this problem, and “to mitigate the concern” the analysts checked several market prices. Of course, the one thing markets do nearly flawlessly is to price equivalent assets the same way. Thus, checking multiple prices is little better than reading several copies of the same newspaper to mitigate concerns that there is an error in one of them.

Even more troubling is the fact that the 66 cent figure, according to the report, is what the TARP assets would fetch if all of them were dumped on the market at once–in contrast to being sold in an orderly manner. The report knocks off between 5 and 20 cents of value due to this panic selling. Did Treasury get a bad deal because it would lose money in a panic sale? If so, most big deals are bad deals.

Finally, because bank participation was voluntary, the Treasury had to offer a good enough deal that the recipient banks would be willing to get in bed with the government. You didn’t have to be Nostradamus to foresee that Congress might, ex post, impose restrictions on TARP recipients that were driven by politics not business. Indeed, the valuation report, in reviewing a prior case, concludes that this risk of government meddling might account for as much as a 20% premium. This premium inexplicably goes unmentioned when the report gets around to the TARP.

Overall, the 66 cent myth is based on the assumption that markets were functioning normally, that the Treasury would pursue a panic sale, and that banks required no compensation due to risk of Congressional meddling.

These arguments are not revelations. Before Warren’s panel commissioned the market-value report, the Panel asked Treasury to perform this valuation. According to testimony, Treasury replied that the market valuation was not relevant. Indeed, Treasury agreed that the assets would be below par if valued at prevailing market prices but argued that the investments would be “at or near par” on a more reasonable basis.

Finally, Treasury reminded the panel that part of the value to the taxpayer was to come in “ensuring the stability of the financial system,” a factor that plays no role in market valuations.

Rather than evaluating these arguments, Warren complained that Treasury didn’t explain itself sufficiently well. Perhaps Treasury could have been clearer, but the basic ideas sketched above are not subtle. If Warren’s panel had insufficient expertise to understand these arguments, the investment bank it hired could easily have explained them.

Let’s be clear: Treasury’s position that it got something close to fair value deserves careful scrutiny. There are serious questions about the soundness of some of Treasury’s actions. Ignoring Treasury’s explanations and instead trumpeting the 66 cent myth leaves the taxpayers without the serious TARP scrutiny we deserve.

Moreover, I fear that the lingering 66 cent myth may greatly complicate implementing the new policies Treasury is now rolling out. We need to put the myth behind us and instead pursue a good faith effort to understand and carefully scrutinize Treasury’s policies and explanations.

[ozymandius]

9. Just thought I'd drop by since I was in the neighborhood.

About to call it a night... love the 'toon. Geithner... Geithner... Geithner... There's someone else I would like to introduce to my club.

[Demeter]

11. Sleep tight!

No matter what these clowns do, the sun will come up tomorrow....

[Hugin]

12. OMG! A "City Slickers" Edition!

You did it! :bounce:

Thanks Demeter! :hug:

[Demeter]

14. You Will Have To Do The Annotating, Hugin

So fire at Will! (and don't hit Harry by mistake)

[Hugin]

18. This'll be the root'n-est toot'n-est shoot'n-est WEE evah! Rawhide!

I'm paging AnneD now...

"the GOP has been making the kind of noises that a bloated animal carcass on the side of the road makes, should one be foolish enough to puncture, kick, or even get close to one."

Here, I think you're mistaking "City Slickers" for "Red Sky at Morning"(1971), but, it's close enough to work! :D

http://en.wikipedia.org/wiki/Red_Sky_at_Morning_(Bradford_novel)

Edit to add link to RSaM Novel... The IMDB link just doesn't give the story it's full due.

Aw, heck... I can't find a reference to the scene from RSaM I was thinking of, anywhere!

Since I don't want to leave you wondering... I'll describe it here.

The main character in RSaM is a young teenaged boy in the Southwest. Somewhere near Santa Fe, NM. He has recently moved to the area from the East and has only had time to make a couple of friends before graduation. His local friend, would-be girlfriend and he are out walking in the desert and they come upon a cow in the trail in the condition you describe above. His friends collude on a prank to pull on him by claiming there is a scared rite of passage known as "Dead Cow Jumping" and if he does it he will be considered 'A Man' from then on... So, each in turn, runs toward the dead animal and jumps over it. Except, the protagonist has some leg problems (That's the reason for his family moving to the dry area, as therapy.) causing him to trip at the very last second and drive his head into the side of the bloated bovine. Much to the amusement of his friends. Of course, he's angry as they pull him out. But, IIRC he finally starts laughing too.

That's it in a nut-shell.

You see the symmetry.

Oh, and I think Hanks stole this for Forrest Gump. :tinfoilhat:

[Hugin]

21. "Finding your one thing" (YouTube)

It's the secret of life...

Finding your one thing

http://www.youtube.com/watch?v=2k1uOqRb0HU

[Demeter]

15. James K. Galbraith on the Recovery to Come

http://www.newamericancontract.net/james-k-galbraith-recovery-come

Remarks to the 18th Annual Conference Honoring Hyman Minsky

Levy Economics Institute, At the Ford Foundation, New York City

April 17, 2009

By James K. Galbraith

Let me first congratulate Dimitri Papadimitriou and the Levy Economics Institute. Clearly the Minsky conference is the go-to event on these issues at this important moment.

The economist Dean Baker has a small book entitled Plunder and Blunder, in which he explains how he saw the housing bubble when others did not. The story is quite simple: Dean plotted price/rental ratios, and when these departed sharply from trend he assumed they would return. What went up, had to come down.

The question before us is: does the same analytical principle apply to the slump? Will what went down, come back up? Does the fact that there was No New Paradigm imply that there must also be No New Depression?

Early in this crisis I attacked the baseline forecasting models of the Congressional Budget Office, which asserted that the economy would revert to a natural rate of unemployment - arbitrarily set at 4.80 percent -- in about five years, even if no action were taken. This assertion provided a rationale for a smaller, shorter expansion package than we might otherwise have demanded. The rationale was purely mystical, and it was unfounded in the strict sense.

_________________________________________________________________________



"In the expansion the early easy buck, especially for speculators, may well be in commodities, especially oil. A rapid increase in imported energy costs would reverse the effective stimulus now being given by low oil prices."

________________________________________________________________________

Today, though, we have heard (from the bank economists) a Keynesian case for an imminent turnaround and relatively rapid expansion - the Obamaboom, as Warren Mosler has named it. The case has four major elements:



- The fact that recessions are self-limiting through the inventory cycle. In the slump, production always falls much more than consumption, so that inventories are liquidated, and as this process is completed, production must be restarted. To this, we can add the fact that sharply falling commodity prices have helped restore real purchasing power.

- The fact that services are more stable than either manufacturing or agriculture and that they are a much larger part of the total economy than they were eight decades back.

- Even more important, the fact that rock-stable government is much larger, in proportion to the economy, than in 1929. To this we can add that falling income taxes and rising unemployment insurance provide massively for automatic stabilization as unemployment rises. It's ugly but it works.

- Finally, the fact that the fiscal expansion package (including the recent increase in social security benefits) is the largest on the post-war record, and also the longest-lasting, with expenditures expected to surge for two years rather than the norm of one.

That is the optimistic Keynesian case. It's noteworthy that it is a Keynesian case. It bears no resemblance to the easy automaticity of market equilibrium. Nor does it rely on the magical powers of money creation. And these are good things. At least our discourse has stabilized around a sensible and realistic, which is to say Keynes-Minsky, analytical framework. As such, plainly this case has a good deal of practical force.

At the same time, in an equally Keynes-Minsky spirit, one can offer three caveats or reservations, which may affect how events play out.

The first caveat concerns the debt position of the household sector. The Levy Institute Strategic Analyses see no alternative to a continuing paydown of household debts, on average and in relation to income - until such time as more "normal" levels are restored.<1> Then there are the effects of the flight to liquidity and the collapse of home equity and therefore of debt collateral. And (to some, though I do not share this view) there is a question whether the banks would be willing to lend, even if willing borrowers with good credit and sound collateral were to present themselves.

The more aggressively households insist on holding cash and reducing debts, the more their collateral has collapsed and the more frightened are the banks, then the larger the fiscal stimulus has to be in order to stabilize, let alone reverse, the course of total demand and production. Some fear that politicians will not allow the budget deficit to go high enough. It was a reasonable fear ex ante, though for the moment it seems that truly gigantic deficits are evoking no adverse reaction. Perhaps the political world has resigned itself to deficits as large as the economic system can produce - and if so, we are saved.

A second caveat concerns the marginal propensity to import in the upturn, particularly if a large part of the domestic capital stock (especially in the automotive sector) is wiped out by bankruptcy or otherwise in the slump. Twenty years ago in a book called Balancing Acts and an article entitled, "North-South Trade and the Destabilization of the North" I described a process of "trade-distorting business cycles," in which differential rates of capital destruction ensure that each successive upturn has a larger import component than the one before. The result is an unbalanced and largely jobless recovery, at least until capital spending in the technology sectors takes over, far down the road.

_________________________________________________________________________



"A turnaround could bring the deficit hawks back out of the woodwork, arguing vociferously that "now is the time" for tax increases and entitlement cuts. Should they prevail, the process could be thrown into reverse, in a recapitulation of Roosevelt's balance-the-budget recession of 1937-38."

_________________________________________________________________________

The third caveat concerns shoes that may yet drop, in domestic finance (commercial mortgages, credit card debt, insurance companies, credit default swaps) or in overseas. The world break-down of the 1930s occurred, in part, because of the system's failure to coordinate a settlement of German reparations. Germany owed Britain and France, who owed America, which had lent to Germany, and no one was willing to be the first to sacrifice their link in the chain. Something similar is going on today, in the breakdown of the carry trade from the US to Western Europe to Central Europe, and while the situation is surely manageable in principle no one can be certain that it will be managed in practice.



These reservations are serious. But they are also imponderable. They rest on intangibles of psychology and of disasters that have not quite yet happened. When you stand them against the mechanical processes of the Keynesian optimists, they lack the same statistical foundation. It reasonable, at least for purposes of argument, to grant that the optimists' position is plausible. So let us ask a conditional question. If a recovery starts later this year, what will it be like?

It seems to me that there are four essential points to make about the expansion to come.

- It will surely be very slow to restore employment. At present writing jobs are being lost at the rate of over 600,000 per month. To reverse this in six months would require a swing to job creation of the same amount, or a net swing of 1.2 million jobs a month for half a year. This is not going to happen - not even close. Among many reasons, homebuilding is likely to be depressed for a long time, while elsewhere production gains will be backed by productivity increases. As a result, we can expect the human wreckage of this slump to persist and to deepen as the period of unemployment lengthens. Without direct employment measures, many of the people most hurt will not again find decent jobs.

- As a result of the administration's determination to save the big banks, we will emerge from this slump with an unreformed financial sector in the hands of the same people who produced the disaster in the first place. While some bad assets will recover value, many will not, and losses will either go unrecognized or they will be transferred, via the public-private partnerships, first off the balance sheets of the banks and then to the taxpayer, when the mortgages default, via the non-recourse feature of the FDIC's loans. We could assess the likelihood of this happening, if we chose, by the simple step of auditing the loan tapes underlying a fair sample of sub-prime securities, to determine the prevalence of missing documentation, misrepresentation and prima facie fraud. Such a study would constitute minimum due diligence and that fact that one is not underway is a very bad sign.

- In the expansion the early easy buck, especially for speculators, may well be in commodities, especially oil. A rapid increase in imported energy costs would reverse the effective stimulus now being given by low oil prices. It will also generate CPI inflation, perhaps inducing the Federal Reserve to slam on the brakes. There is little reason to hope that the recovery will be allowed to march us all the way back to full employment unless we overcome our vulnerability to volatile oil prices, and nothing in the plans so far suggests we have faced up to that elementary necessity.

- A turnaround could bring the deficit hawks back out of the woodwork, arguing vociferously that "now is the time" for tax increases and entitlement cuts. Should they prevail, the process could be thrown into reverse, in a recapitulation of Roosevelt's balance-the-budget recession of 1937-38.

The British used to call this scenario "stop-and-go." A future of short and incomplete expansions may be the most likely case, with no prospect for a return to full employment. For the working population of the country, this is no recovery at all. And it will be made all the worse rising financial markets and premature declarations of victory, the gloating of the bailed-out.

The next question is, is this the best we can do?

Let me close by laying out four steps that would help to avert this future, and help to assure a long and relatively stable expansion, leading ultimately back to high employment.

- Treasury should change its bank plan, recognize that too-big-to-fail is also too-big-to- regulate, and too-big-to-regulate is also too-big-to-manage. A financial institution that cannot be controlled by its own top leadership is an intrinsically dangerous thing. Since the financial sector must and will shrink in any event in the post-crisis economy, the strategic choice facing policy is how to do it. That choice is between preserving vast rogue companies whose major functions are tax and regulatory arbitrage, or allowing the smaller banks that have largely played by the rules to grow into the legitimate market niches the big players may vacate. Apart from the vast political power of the big banks, this is not a difficult choice.

- The unmet human disaster of this slump remains urgent, and the way to meet it is to strengthen, not weaken, the social safety net. Given the triple hit to the elderly as a group - in home values, stock values and interest on cash holdings - Social Security benefits should be increased, not cut. Medicare eligibility should be reduced to age 55 as an emergency measure. The payroll tax should be placed on holiday, and measures to mitigate foreclosures or otherwise keep people in their homes taken urgently. Fiscal assistance to states and localities should be made open-ended, putting an end to job cuts in those vital public sectors, indeed permitting them to grow and add employment.

- For the long term, we should build institutions now, including a National Infrastructure Fund and a cabinet Department for Energy and Climate, capable of planning and funding the reconstruction of the country. The point of this is to build expectations for a sustained expansion and also to give it a direction, charting the course that private investments will follow when they eventually return.

- Finally, we should recognize that we are fortunate in this country to have the governing institutions established for us in the New Deal and Great Society, including a central bank with unlimited lending powers, a national government that can borrow and spend at will, and the global reserve currency. These institutions have -- despite flaws and mistakes -- served us well. But we should recognize that the rest of the world is not so favored. In particular, Europe lacks the mechanisms and the inclination to take action as we can, and all the pathologies of structural adjustment that we avoid here are routinely imposed everywhere else.

It is therefore quite possible that the rest of the world will not cooperate in economic recovery even if one gets started here. It is possible that credit, debt and exchange-rate crises still to come will overwhelm the capacity of the global system to cope. We should be prepared, if we can, to deal with that risk.




<1> Exactly what constitutes a normal level for the household debt-income ratio is, however, not clear. And there is a question whether the levels may not be reduced, much more rapidly and effectively than through repayment, simply by mass defaults. Mortgages are, after all, non-recourse loans in most of the country.

[ozymandius]

19. Good morning. Here's the trouble with Galbraith's perspective.

He makes too much sense.

No one in either Treasury or the Federal Reserve will listen to him. There are those inside government who are in Galbraith's camp. I am pretty certain that Paul Volker would see eye-to-eye with 93% of his stance (except possibly open-ended deficits - sure he has a mental list of things to cut) but rate at 100% with the way to settle the overall regulatory structure of banks. Elizabeth Warren is already there, too.

This plan sounds, to me, as a new brand of Keyenesian economics. I contend that Keynes probably would have proposed something like this had he lived into the Nixon administration, when classical Keynesian ideas stopped working, and witnessed fully matured New Deal structures.

In sum, Galbraith here, like his father, understands when Keynes is needed and how his ideas function when applied in the proper scenario. We live in a wildly different world than the one Keynes knew in 1936. Still his ideas have merit. After all, we still use mathematical instruments to measure economic performance that he created (C+I+G+Nx = GDP for one example) and a substantial host of others. Core ideas of Keynes just need a little updating. Galbraith is one of the sharpest tools in the shed: ideal for this task.

So how do we push aside the clunkers who block a sensible and orderly dissolution of the institutions who ushered us to this morass? From my perspective, we can't get there from here. The Geithner plan does not appear to embrace any scenario in which our eight major banks are any different in size and structure than they were three years ago.

What next?

[Demeter]

24. A BIG Goldman Sachs Scandal Wipes All the Cronies Out of Office

and then Obama can put some real economists in.

Hey, a girl can dream!

[Demeter]

17. Finger of blame points to shadow banking’s implosion By Gillian Tett

http://www.ft.com/cms/s/0/36b8e90c-3033-11de-88e3-00144feabdc0.html


These days, banker-bashing is a popular sport for politicians of all stripes. For not only are the banks being blamed for unleashing financial disaster – while paying the bankers fat bonuses – they are also being blamed for slashing loans in a way that is now triggering a recession.

But is that perception really right? If you take a look at some recent research produced by Citigroup, it might seem not. For if Citi data are correct, the real source of the current credit crunch is not a collapse in bank loans, but the implosion of the shadow banking world.

And that in turn provokes a wider question: namely whether there is anything that policymakers could, or should, be doing now to revive the activities that were once performed by those peculiar shadow banks.

The numbers highlight the scale of the challenge. According to Citi (which has crunched its own figures and those of Dealogic), almost $1,500bn worth of new corporate loans were issued across the global financial system in 2008. That was well down from 2007, when more than $2,000bn of loans were made.

But the loan total last year was similar to that seen in 2006, and twice the scale of activity in 2004. Moreover, when non-financial loans are measured, an even more notable pattern crops up: at the end of last year, the volume of non-financial corporate loans was still growing at an annual rate of 10 per cent in both the US and Europe. That was well below the 20 per cent expansion seen in Europe before the peak of the boom, and in some sectors new bank-lending has tumbled. But those figures do not point to a credit drought. After all, from 2002-2004, loans to non-financial companies in the US shrank at an annual rate of more than 5 per cent.

What is imploding though is the securitisation world. If you exclude agency-backed bonds, in 2006 banks issued about $1,800bn of securities backed by mortgages, credit cards and other debts. Last year, though, a mere $200bn of bonds were sold in markets, and this year market issuance is minimal.

Indeed, the only group really acquiring repackaged debt now are western central banks, which have taken huge volumes of securities on to their own books (and away from the market), as part of their liquidity-injection measures.

So far this pattern has prompted relatively little wider political debate. After all, before the summer of 2007, most non-bankers had no idea that a shadow banking world even existed.

But the longer that this drought continues, the bigger the policy issues become. After all, no politician wants to see the government buying mortgage-backed bonds forever; but nobody really believes that traditional, old-fashioned lending can take up all the slack. So either the system needs to find a way to restart securitisation or we face a world where credit will remain a highly rationed commodity for a long time to come.

Is there any answer? This week the UK government made one attempt to break the impasse by unveiling a scheme to provide state guarantees for some mortgage-backed bonds (the idea, as my colleague Paul J Davies explains, is to prod the banks into repackaging such debt again). In America, officials are playing around with similar ideas. One concept being mooted, for example, is that the Federal Deposit Insurance Corporation should help troubled banks securitise a swathe of assets.

On both sides of the Atlantic, industry leaders are also drawing up plans to make the securitisation process much more transparent, and thus, hopefully, more credible to future investors. Another idea is to impose a so-called “5 per cent rule”. This would force banks that issue securities to retain at least 5 per cent of them on their own books, to ensure they have a vested interest in monitoring the creditworthiness of end borrowers.

On paper many of those ideas look sensible. And if they are all implemented, they might eventually enable the securitisation market to return to life, albeit on a more sober scale. But “eventually” is the key word here: right now, most parts of the securitisation market are all but dead. The longer that politicians wail about the supposed “failure of banks to lend”, while ignoring the bigger source of the credit crunch, the harder it will be to wean the system away from government support.

[e-mail]

[Hugin]

22. Could this scene be a metaphor for the whole Economic Crisis?

Watch and decide.

City Slickers Rattlesnake Scene

http://www.youtube.com/watch?v=UKTHOFkYA64

Talk about toxic assets... ;)

[Demeter]

25. Sounds Like GM-Chrysler-Fiat Etc

and this is TOO a guy movie. It's got Dave Barry written all over it.

[Hugin]

29. Oh, and "Godfather" weekend at the WEE wasn't a guy thing?

City Slickers 2 - Godfather Scene

http://www.youtube.com/watch?v=zyT2LggS-SY

See! City Slickers has everything!

Granted, it's from the sequel... But, who's counting?

[AnneD]

32. Oh oh...I have the sequel too....

Hugin...we must have been separated at birth. That or my father roamed more than we thought.

[Demeter]

37. I Do Try Not To Be a Total Misanthrope

in the event lightning strikes (3rd time's the charm, they say).

[Demeter]

26. How Business Schools Have Failed Business

http://online.wsj.com/article/SB124052874488350333.html#mod=rss_opinion_main


Why not more education on the responsibility of boards?


By MICHAEL JACOBS

As we try to understand why our economy is so troubled, fingers are increasingly being pointed at the academic institutions that educated those who got us into this mess. What have business schools failed to teach our business leaders and policy makers? There are three profound failures of sound business practices at the root of the economic crisis, and none of them have been adequately addressed by our business schools.

Just about everyone agrees that misaligned incentive programs are at the core of what brought our financial system to its knees. Countless individuals became multimillionaires by gambling away shareholders' money. Incentive systems that rewarded short-term gain took precedence over those designed for long-term value creation.

We could chalk this all up to greed, as many pundits have. But first we should ask how many of the business schools attended by America's CEOs and directors educate their students about the best way to design management compensation systems. Amazingly, this subject is not systematically addressed at most business schools, and not even discussed at others.

Secondly, as Washington scrambles to restructure the financial regulatory system, those who still believe in the private sector are asking why corporate boards were AWOL as institution after institution crumbled. Why did it take rumors of nationalization and a drop in Citicorp stock to below $2 a share to inspire Citigroup to nominate directors with experience in financial markets?

American icon General Electric was stripped of its coveted AAA-rating because of problems emanating from its financial services unit. Yet its board has only one director with experience in a financial institution. If it is the board's job to oversee a corporation, it seems logical that there would be a segment in the core curriculum of every business school devoted to board structure, composition and processes. But most programs don't cover the topic.

The third breakdown came in the investment community. Nearly 20 years ago I wrote a book titled "Short-Term America" that warned about the growing chasm between those who provide capital and the companies who use it. The concept is simple: When money provided to homeowners or businesses comes from an anonymous source, possibly half way around the world, there are serious challenges to operating a functioning system of accountability.

Nationally, finance departments at business schools offer hundreds of courses in asset securitization and portfolio diversification. They have taught a generation of financial leaders that risk can be diversified away. But in their B-school days, few investment bankers examined the notion of "agency costs." That concept explains that as the gulf between the provider and the user of capital widens, the risks involved with selecting and monitoring the participants in the portfolio increase. It should come as no surprise that financial institutions amassed securities that consist of a diversified portfolio of deadbeats.

About 70% of the shares of American corporations are held by institutional investors such as pension and mutual funds. These organizations are brimming with MBAs. But how many of these MBAs took a class devoted to how shareholders should exercise their rights and obligations as the owners of America's corporations? Few, if any. When shareholders are uneducated about their obligations, how can a corporate accountability system function properly?

Recently, when I delivered a guest lecture at another school, a distraught-looking student pulled me aside after class. She explained that my talk was very disturbing to her. After investing two years and $100,000, she was only weeks away from receiving her MBA. But prior to our class, she had never heard a discussion about board responsibilities or the rights of shareholders. She said she felt cheated.

By failing to teach the principles of corporate governance, our business schools have failed our students. And by not internalizing sound principles of governance and accountability, B-school graduates have matured into executives and investment bankers who have failed American workers and retirees who have witnessed their jobs and savings vanish.

Most B-schools paper over the topic by requiring first-year students to take a compulsory ethics class, which is necessary, but not sufficient. Would Bernie Madoff have acted differently if he had aced his ethics final?

Could we have avoided most of the economic problems we now face if we had a generation of business leaders who were trained in designing compensation systems that promote long-term value? And who were educated in the proper make-up and responsibilities of boards? And who were enlightened as to how shareholders can use their proxies to affect accountability? I think we could have.

America's business schools need to rethink what we are teaching -- and not teaching -- the next generation of leaders.

Mr. Jacobs, a professor at the University of North Carolina's Kenan-Flagler Business School, was director of corporate finance policy at the U.S. Treasury from 1989 to 1991.


WHEN EVEN THE WSJ ENTERTAINS THE NOTION--I SCORED ON THAT ONE!

[Demeter]

28. Have at It, WEE Enthusiasts. I Have to Make Hay While the Sun Shines

Have a good Saturday. See you after sunset!

[Hugin]

30. and now for a Musical Interlude... (Courtesy of City Slickers)

City Slickers- Tumbling Tumbleweeds Scene

http://www.youtube.com/watch?v=zAA5e6oH2Zs


Jack Palance was no Susan Boyle... But, he held his own with the likes of, say... William Shatner, Pierce Brosnan and the ever popular Lee Marvin and Clint Eastwood duo in "Paint Your Wagon (1969)" ;)

[AnneD]

33. Hugin....

your knowlege of City Slickers makes me feel inadequate. But I did buy a copy of Seirra Madre after seeing City Slicker II just to see 'the dance'. It was a good movie too. Infact I recently got The Magnificent 7 too. I have Clint Eastwood and the man with no name series and finally got Butch Cassidy and the Sundance Kid. I have Unforgiven, Young Guns, and a few more.

For my money-next weekend should be Butch Cassidy and the Sundance Kid-it has Bank Robbery, Train Robbery you knkow-the same things that are making the financial headlines today.:spray:

[Demeter]

36. Paint Your Wagon Was Unbearably Awful

I'm surprised you watched it at all. What was the draw? Clint Eastwood, Lee Marvin?

[UpInArms]

34. Ewww! Look at this mass layoffs chart!

from this link:

http://www.reliableplant.com/article.aspx?articleid=17198&pagetitle=Chart%3A+Mass+layoff+events+by+month+since+Jan.+2001

Employers took 2,933 mass layoff actions in March that resulted in the separation of 299,388 workers, seasonally adjusted, as measured by initial claims for unemployment insurance benefits filed during the month. This is according to data released by the U.S. Department of Labor's Bureau of Labor Statistics. Layoff events and initial claims rose to their highest levels on record, with data available back to 1995.

...more...

[burf]

35. You know its getting bad

when the person running layoffdaily.com claims to be burnt out and the site is under new management. It is as one poster here or at SMW said, there can be no recovery without jobs.

[Demeter]

41. New Worries for Next Tier of Banks By ERIC DASH

http://www.nytimes.com/2009/04/25/business/economy/25bank.html?_r=1&ref=business



...While Citigroup and Bank of America remain troubled, regional banks subject to the government’s tests — including Regions Financial of Alabama, SunTrust Banks of Georgia and KeyCorp and Fifth Third of Ohio — are girding for huge losses. They are among the hardest hit by the housing bust, and are saddled with a pile of commercial real estate and corporate loans expected to sour further this year. Regions Financial, for example, added just $35 million to its reserves for future loan losses in the first quarter, an amount analysts say may not be enough to cover a surge in its nonperforming loans...

On Friday, Morgan Stanley came forward with its own analysis of which banks might need to raise capital, the latest in a series of private estimates being tallied to allow gambling investors to position themselves to profit from fluctuations in the stock prices of the banks.

The report identified SunTrust, KeyCorp and Regions Financial — all major regional banks — as those that the government would probably determine needed billions in additional capital. Bank of America and Wells Fargo fall into a “gray zone,” the report said. Earlier this week, Keefe, Bruyette & Woods, a boutique investment bank, said all of the 19 banks might need a total of $1 trillion of fresh capital.

David H. Ellison, the chief investment officer of FBR Equity Funds, a mutual fund that invests in financial stocks, said all the uncertainty around the stress test results might provide opportunities for big gains. He has viewed at least a half dozen of such makeshift stress tests produced by research firms. “You make most of your money in financial stocks from going from ugly to O.K., not from good to great,” he said. “Right now, we are ugly.”

Even before official stress test results are released, the gap between the strongest and weakest banks has been widening. Among those best positioned to withstand a sharp downtown without needing capital, analysts say, are the major investment and custodial banks, including Goldman Sachs, Morgan Stanley, the State Street Corporation and Bank of New York Mellon. A handful of well-run commercial banks, like JPMorgan Chase and U.S. Bancorp, are unlikely to need additional money.

Besides the regional lenders, a few big banks are also staring down trouble. Citigroup, which has been bruised by the credit crisis, has already announced plans to strengthen itself by converting a portion of the government’s $45 billion preferred stock investment into common shares. Some analysts say that GMAC, the privately held finance arm of General Motors, and Bank of America may need to consider taking similar action.

Federal officials said that some banks might need to raise additional capital. Others might need to change the form of their existing capital by converting preferred shares into common stock, which is better at absorbing losses. Both measures could dilute existing shareholders or give the government a greater stake.

The prospects of the remaining lenders are even more unclear. Their fate rests wherever federal banking regulators draw the line on how much capital is enough to provide a cushion. Big credit card lenders, like American Express and Capital One, have huge numbers of customers defaulting on their bills, but they typically set aside more money to cover losses than traditional banks. The BB&T Corporation of North Carolina, PNC Financial and Wells Fargo all showcased their ability to generate earnings in the first quarter, but face a coming wave of heavy losses. MetLife Bank, which is part of the insurance giant, is also a wild card.

Even so, investors found some relief in the vague 21-page report on stress tests put out Friday afternoon by the Fed. In fact, after starting the day down on nervousness that the report would reveal more trouble at the banks, financial stocks rose sharply when the report suggested the 19 banks were well capitalized.

Mr. Ellison said the Fed’s report seemed to suggest that the stress test results would not be worse than Wall Street expected.

“Three months ago, all the banks were going to be nationalized and you might just give up and go home,” he said. “We are now getting a reality check on how bad it is: sure, it’s bad, but it’s not the end of the world.”

[Demeter]

42. Recession, Far From Over, Already Setting Records By FLOYD NORRIS

http://www.nytimes.com/2009/04/25/business/economy/25charts.html?ref=business

THE current recession has become the second-worst in the last half-century and is close to surpassing the severe 1973-75 downturn, according to the Index of Coincident Indicators, based on government data and compiled each month by the Conference Board, a private organization.

Unlike the more widely followed Index of Leading Indicators, which is supposed to help forecast changes in the economy, the coincident index is aimed at simply recording how the economy is doing now.

The accompanying chart shows how far that index has declined from prerecession peaks during each downturn since 1960. The figure for March, released this week, showed a decline of 5.6 percent from the high set in November 2007, the month before the recession began, according to the National Bureau of Economic Research.



The decline in the 1970s recession was 6 percent, a figure that is likely to be eclipsed within a few months.

The index is based on four elements, covering different aspects of economic activity. The strongest performance in this cycle is in the area of personal income, excluding transfer payments, like Social Security and unemployment benefits, and adjusted for inflation. The sharpest fall so far in the current recession was a decline of 2.4 percent through February, and the indicator rose a little in March.

If that proves to be the worst reading for this recession, it will be a smaller decline than in the downturns of 1990 to 1991, or in the brief 1980 recession, and less than half the decline in the 1973-75 recession.

That performance may be misleading, however. Personal income includes the cost of benefits, so rising health care expenses for employees count in that number. The decline would be larger if it were based strictly on wage and salary receipts.

The two areas in which this is already the worst recession since 1960 are employment and industrial production. The number of jobs in the country has fallen by 3.9 percent, exceeding the 3.2 percent decline in the 1981-82 recession. Economists generally expect those numbers to get worse before they stabilize.

The 15.4 percent fall in industrial production, while worse than in previous recessions, is better than in some countries. The worldwide recession has slashed both production and international trade, and the impact is being felt most in export-driven economies in Asia.

The fourth category used in the coincident indicators is manufacturing and trade sales, a broad picture of total transactions in the economy. Adjusted for inflation, that has fallen 10.8 percent since the peak, a bit more than the decline in 1981-82 but not yet close to the 14.8 percent decline in the 1970s recession.

This recession is also bidding to be the longest in recent history. If it ends in May — which seems unlikely — it will have lasted 16 months, tying it with the 1973-75 and 1981-82 downturns as the longest since World War II.

The Index of Coincident Indicators did not exist in the 1930s. But there is no doubt that the declines in the Great Depression would have been far greater than anything experienced since.

It also lasted much longer. As measured by the National Bureau, there were actually two recessions during the period we now remember as the Great Depression — 1929 to 1933 and 1937 to 1938 — separated by a recovery that did not come close to restoring the economy to its pre-Depression size. That first downturn lasted 43 months, nearly three times as long as this recession has lasted until now.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

[Demeter]

43. Tracking (Mortgage) Loans Through a Firm That Holds Millions By MIKE McINTIRE

http://www.nytimes.com/2009/04/24/business/24mers.html?_r=2&pagewanted=1&ref=todayspaper



Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a reportby NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie Mae, Freddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

[Demeter]

44. NPR Conspires With Realtors to Fleece First Time Home Buyers

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=04&year=2009&base_name=npr_conspires_with_realtors_to

This one is very close to true. Morning Edition had a piece this morning about the increase in the number of first-time home buyers. Its two sources were Lawrence Yun, the chief economist with the National Association of Realtors and a realtor.

NPR did not include any analysts to give the obvious downside to buying right now, specifically that house prices nationwide are falling at the rate of almost 2 percent a month. In some former bubble markets prices are falling at the rate of 3-4 percent a month. The sharpest declines are at the lower end of the market, the homes that first-time buyers are most likely to purchase.

This means that they are enormous potential gains from deferring a home purchase. For example, at the current rate of price decline, someone thinking of buying a home in the bottom third of the market in Los Angeles can save themselves more than $40,000 by putting off their purchase by six months.

This is why experts on asset building encourage people to delay home purchases at the moment, if at all possible. NPR should have spoken to someone for this story who did not earn their living by selling real estate.

--Dean Baker

[Demeter]

57. The credit crisis has stymied a unique feature of American society

http://clicks.dailyreckoning.com//t/AQ/F0M/GsY/E40/Ag/AeDDpw/cs9q

"According to the Census bureau, 35.2 million people changed their residence from March 2008 to March 2009 - the lowest number since 1962. And back then, there were 120 million fewer Americans."


http://www.agorafinancial.com/5min/

[Demeter]

45. UPDATE

http://www.correntewire.com/day_3_why_wont_krugman_post_bill_black_watch

MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes. .... MERS is a confidential computer registry for trading mortgage loans .... If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. ... But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

Of course, of course. And I'm totally confident that the banksters "recreated" or "replaced" mortgage notes with the utmost integritude. Not.

In this case, we erected an entire structure of derivatives on the back of assets whose titles weren't in the public domain???? To my simple mind, that looks like an open invitation to fraud. Particularly if all the parties believed that the shell game would never stop, that the hall of mirrors would never shatter, and the assets would never actually need to be examined.

.......................

[Demeter]

54. (MORTGAGE) Cramdown Legislation Hits Senate Roadblock

http://www.housingwire.com/2009/04/22/cramdown-legislation-hits-senate-roadblock/

A hotly-contested legislative proposal that would allow bankruptcy judges to modify mortgage debt in certain bankruptcy cases appears to be losing momentum in the U.S. Senate, various sources said this week. So-called ‘cramdown’ legislation, which passed a key vote in the House of Representatives in early March, has been facing much stiffer opposition in the Senate and has forced the Senate bill 61’s primary sponsor, Richard Durbin (D-IL), to back away from a harsher stance he had taken with respect to the cramdown proposal.

“Durbin has remained wedded to the cramdown bill,” said Dr. Joseph Mason, professor of banking at Louisiana State University and a senior fellow at the Wharton School. “The industry is done with it, as is the rest of Congress. He might get it tacked on to something else, though.”

Both the American Bankers Association and the Mortgage Bankers Association have come out strongly against proposed cramdown legislation, with the MBA arguing that such legislation would increase primary mortgage rates, as investors adjust their risk tolerances. The MBA’s assertion has been met with criticism from some researchers, including Adam Levitin, a Georgetown law professor. “There is no empirical evidence that supports a conclusion that permitting either strip-down or other forms of modification of principal home mortgage loans in bankruptcy would have more than a minor impact on mortgage interest rates,” he said in Congressional testimony early last year.

Nonetheless, bankers say that the current Obama administration’s Homeowners Affordability and Stability Plan, which includes provisions to modify loan payments down to 31 percent of a borrower’s income, effectively makes further modifications via bankruptcy somewhat repetitive.

In February, Durbin had suggested to American Banker that Democrats might be willing to limit cramdown authority to just subprime mortgages, in an effort to quell industry unrest and long-standing opposition to the proposal.

“We’ve talked about that as a possibility,” he told the news service. “I am willing to negotiate. I want this to be a reasonable approach, but we have to include . If we don’t include it, we’ll be stuck in the same mess we’re in today.”

Durbin apparently wasn’t as willing to negotiate on the Senate bill as he had originally claimed in February. The ABA says they walked away from Senate negotiations earlier this month, because Durbin would not concede to allowing cramdowns to apply only to subprime loans. Durbin spokesman Max Gleischman denied the suggestion that the Senate version of the cramdown bill was DOA, however, telling HousingWire that “all terms are being negotiated right now, there is not one main sticking point.”

Over the congressional recess, Durbin’s team had worked furiously with the nation’s bulge banks, including JP Morgan Chase & Co. (JPM: 33.38 +0.51%), Wells Fargo & Co. (WFC: 21.40 +6.52%), and Bank of America Corp. (BAC: 9.10 +3.17%), as well as key credit unions, in hopes of swaying more Democrats in the Senate to support the proposal, according to sources involved in the negotiations. Press reports earlier this week from Durbin’s camp said progress had been made, but sources inside the negotiations now admit that the deal on the table currently would likely still not encourage enough votes to pass a vote in the Senate.

Much of the behind-the-scenes opposition has come from Arizona Senator Jon Kyl, a Republican, who sources say has been strongly in the corner of bankers over the proposed bankrupty reform; Democrats, including Durbin, had originally attempted to push cramdown legislation through the Senate by tying the legislation to a proposal that would see the Federal Deposit Insurance Corp.’s borrowing authority from the Treasury increased from $50bn to $100bn. Sources say Senate Republicans are now confident they will get the FDIC expansion measure through the Senate, irrespective of the fate of the controversial bankruptcy proposal.

“Democrats have tried to strike a compromise with some in the banking community by holding FDIC borrowing authority hostage to passing cramdown,” Kyl told an industry conference on April 1.

“Fortunately, the industry has politely declined. There is no reason to concede on cram down when you have the votes to stop it. As Senator Phil Gramm once said, ‘Never take hostages you’re not willing to shoot.’ On , the Majority Leader signaled that he wouldn’t shoot the hostage, FDIC relief. He said, ‘If we can’t get the votes for , and I am hopeful we can — I am semi-confident we can — then what I’ll do is take that off and do the other banking provisions.’”

“Durbin had a hell of a time coming up with a bill that’d pass the Senate,” said Burt Ely, a banking expert and principal of Ely & Co. “He’s watered it down so much that his proposal now limits the accessibility or intention of the bill. Even if he got it passed, the gulf is so big it wouldn’t even get out of conference committee to be enacted into law.”

Not surprisingly, consumer advocates are seeing red.

“With Durbin, Dodd and Reid doing the bidding for the banks, this current state of the cramdown bill will have virtually no impact for at-risk borrowers,” says Bruce Marks, CEO of Neighborhood Assistance Corp. of America, a mortgage broker and consumer activist. “The Senate Democrats have made no measurable actions this year to help the housing crisis.”

Late Tuesday, in an apparent effort to save a measure he feels is important to help distressed homeowners facing foreclosure, Senator Charles Schumer (D-NY) said he would instead try to tack the cramdown measure to other pending banking/housing legislation being considered in the Senate, rather than including it directly in proposed legislation, bringing it up for a quick vote as the Senate considers its options.

Editor’s note: Teri Buhl is an investigative journalist covering Wall Street who has written for the New York Post Sunday Business and Trader Monthly. Contact her at [e-mail].

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

[Demeter]

46. More Servicers Approved for Treasury (TARP) Funds

http://www.housingwire.com/2009/04/24/more-servicers-approved-for-treasury-funds/

Four more institutions joined the list of servicers set to receive Troubled Asset Relief Program (TARP) funds through the U.S. Treasury Department.

Bank of America, Countrywide Home Loans Servicing, Home Loan Services and Wilshire Credit became the eighth, ninth, tenth and eleventh firm to be pre-approved for TARP funds, under the Making Home Affordable loan modification system.

Simi Valley, Calif.-based Bank of America, will be allowed to draw up to $798.9m of government funds. Countrywide Home Loans has been promised a maximum of $1.86bn. Home Loan Services and Wilshire Credit can draw up to $319m and $366m, respectively.

The other seven servicers on tap to receive funds include Chase Home Finance (which was allotted the largest share thus far — up to $3.55bn), Wells Fargo Bank ($2.87bn), CitiMortgage ($2.07bn), GMAC Mortgage ($633m), Saxon Mortgage Services ($407m), Select Portfolio Servicing ($376m) and Ocwen Financial ($659m).

It’s unclear at this time how much of those allotted funds the institutions have actually received. The rate at which they’re stepping up to the deposit window — if at all — is unknown.

The Treasury bases investment figures on the size of each company’s servicing portfolios, however the government lender may adjust the actual dollar amount based on servicer usage. So far, program funds allocate a total of $13.92bn to the 11 servicers, just a fraction of the Treasury’s $75bn program to prevent foreclosures and help borrowers refinance into new loans.

The government plans to pay servicers a $1,000 one-time fee for modifying a mortgage down to a 38% payment-to-income ratio for five years. Modified loans must survive a 90-day trial in order to be eligible for the incentive payment. Government funds will also match the cost of further interest-rate reductions or other modifications to bring payments down to 31% of a borrower’s income. If borrowers perform in their newly-modified mortgages, servicers would be eligible to receive $1,000 per annum for three years under the government incentive program.

A Treasury spokesperson told HW that servicers are being added to the program on a rolling basis — suggesting this list is just the beginning, and other servicers are likely in the pipeline.

Write to Kelly Curran at [e-mail].

[Demeter]

47. TALF Disappointment and the Fed's Balance Sheet

http://economistsview.typepad.com/timduy/2009/04/talf-dissapointment-and-the-feds-balance-sheet.html



Mark Thoma directs us to a Washington Post article detailing the slow start-up of the Federal Reserve's much discussed but little used TALF program. At this juncture, a critical constraint appears to be counterparty risk - no one trusts the US government to hold parties to their contractual obligations:

Sources involved in the program said private investors have been reluctant to work with the government, which they view as an unreliable business partner. ... There are restrictions on the business activities of participants in the program. ... But perhaps more significant ... is a fear that the government could retroactively change the terms, exacting new limits on what investors can pay their executives, for example, or trying to claw back profits that firms make in the program. ...

Perhaps TALF will gain traction in the months ahead. For now, however, I imagine that no amount of lipstick is able to conceal what must be official disappointment with the program. The question on my mind is will slow take up on TALF induce the Federal Reserve to step up its purchases of mortgage assets and longer term Treasuries. From the last Fed minutes:

Members expressed a range of views as to the preferred size of the increase in purchases. Several members felt that the significant deterioration in the economic outlook merited a very substantial increase in purchases of longer-term assets. In contrast, the potential for a large increase over time in the size of the balance sheet from the TALF program was seen as supporting a more modest, though still substantial, increase in asset purchases.

It looks like the expected success of TALF was a reason for moderating the size of the balance sheet expansion via longer term assets. It would stand to reason, all else equal, that TALF's slow start would trigger the Fed to step up purchases of other assets.

Also, one would think the Fed would take note that expanding their purchases of longer term assets has been a relatively successful policy, especially if the goal was to pull mortgage and Treasury rates lower. To be sure, the ultimate impact on spending in the near term is likely to be muted - the benefits of lower mortgage rates are limited to households that are not credit impaired or underwater on their homes, and we are not likely to see much equity withdrawal this time around. But lower rates are triggering a wave of refinancings, which will lessen the cash drain of maintaining household balance sheets, and free up some additional spending power. Overall, however, the Fed will be wary that the benefits of their last policy expansion will wane if Treasury rates pull above 3%, and thus will be induced to expand purchases of those assets, trying to offset the impact of the massive supply issuing forth from Treasury.

It is interesting that a relatively simply policy - one that does not require and army of lawyers and financial managers - has been much more successful and quick to execute than the exceedingly complex TALF program. If policymakers were not so blinded by the fetish of finance, they would see this as an example of the time honored KISS principle.

Another policy change to be watching for - when will the Fed commit to a quantitative goal for a sustained rate of expansion in the balance sheet? From Federal Reserve Vice-Chair Donald Kohn:

In gauging the effects of market interventions in the current crisis, one approach is to look to the size of increases in the quantity of reserves and money to judge whether sufficient liquidity is being provided to forestall deflation and support a turnaround in growth--an approach often known as quantitative easing. The linkages between reserves and money and between either reserves or money and nominal spending are highly variable and not especially reliable under normal circumstances. And the relationships among these variables become even more tenuous when so many short-term interest rates are pinned near zero and monetary and some nonmonetary assets are near-perfect substitutes. In our approach to policy, the amount of reserves has been a result of our market interventions rather than a goal in itself. And, depending on the circumstances, declines in reserves may indicate that markets are improving, not that policy is effectively tightening or failing to lean against weaker demand. Still, we on the Federal Open Market Committee (FOMC) recognize that high levels of Federal Reserve assets and resulting reserves are likely to be essential to fostering recovery, and we have discussed whether some explicit objectives for growth in the size of our balance sheet or for the quantity of the monetary base or reserves would provide some assurance that policy is pointed in the right direction.

What conditions could force the Fed from "credit" easing to "quantitative" easing, the latter being explicit policy guides for monetary expansion? The Fed could seek to force a firmer lid on longer-term Treasury rates. Another is that the Fed believes that setting a quantitative target is necessary to keep inflation expectations anchored in the face of the deflationary potential of persistently wide output gaps. Alternatively, the Fed could choose to forgo quantitative targets as they evaluate the durability of the green shoots emerging from the economic wasteland.

Bottom line: The challenges of setting in motion the complex TALF program suggests that the Fed will step up purchases of longer term Treasuries. The next policy line to cross is the formation of explicit policy objectives for the growth of a monetary aggregate. I would be looking for language in Fedspeak that points in that direction.

[Demeter]

48. Guest Post: Handicapping the Stress Test, TCE data @ 3/31

http://www.nakedcapitalism.com/2009/04/guest-post-handicapping-stress-test-tce.html

[Demeter]

49. Markets Cheer Stress Test Double Speak

http://www.nakedcapitalism.com/2009/04/markets-cheer-stress-test-double-speak.html


....
Yves here. A surprisingly large number of market participants are of the view that the current rally is at least in part the result of market manipulation. I can't recall ever seeing so much commentary to that effect. It amounts to an open secret. Even during the commodities run-up of last year, if you dared suggest there was a speculative component, you were treated as a conspiracy theorist. Now a fair number of commentators are making more aggressive claims, and they don't seem terribly far out.

The latest sign of something out of whack is via Jesse, who tells us that insider sales are at high levels. When did that last happen? October 2007. Admittedly, not long ago, but nevertheless not a sign of confidence.
................

The strategy is TinkerBell: if enough people applaud, belief alone will restore goners. That may work in theater, but I'm loath to rely on mere faith in matters of consequence. And as this blog has stressed, there does not seem to be a Plan B (the ideas of Paul Volcker and others not in the Summers/Geithner camp have been relegated to a policy gulag).

[Demeter]

50. The Insiders Are Selling Into This Rally.... Heavily

http://jessescrossroadscafe.blogspot.com/2009/04/insiders-are-selling-into-this-rally.html


Do you need to buy a vowel?

Again?

Keep the possibility of a significant monetary inflation in mind, with no advance in real terms but a handsome nominal rally.

Yes, they are that desperate and reckless and short-sighted. That's what they did in 2003 in creating the housing bubble to save Wall Street and the financial markets.

But the greater probability remains that this is an engineered short squeeze that will fail about this level and fall back to the bottom of the trend channel.

Bloomberg
Insider Selling Jumps to Highest Level Since ‘07 as Stocks Gain
By Michael Tsang and Eric Martin

April 24 (Bloomberg) -- Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

... While the Standard & Poor’s 500 Index climbed 26 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc.

“They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone, chief investment strategist at PNC’s wealth management unit, which oversees $110 billion in Philadelphia. “Whether it’s a sustainable rebound is still in question. I’d prefer they were buying.”

Insiders Sell

Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 mostly institutional clients.

That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4 percent slide in the S&P 500 in August 1992....

The S&P 500 has rallied 26 percent over 32 trading days, the sharpest rally since 1938, as speculation increased that the longest contraction since World War II will soon end....

[Demeter]

56. The Short Term Set Up in US Equity Markets Served by Jesse of Le Café Américain

http://www.nakedcapitalism.com/2009/04/guest-post-short-term-set-up-in-us.html


The action in the SP futures market has been particularly heavy handed and blatant since the heads of the money center banks met with the Community-Organizer-in-Chief at the White House. This market is being shoved around like a gaijin granny on the Tokyo subway in rush hour.

To our minds, it is just as likely that we are being set up for a terrific leg down. In our experience the big dogs tend to dominate certain portions of the short side at the apogee of a stock market pump. Our target for a failure point on the SP June futures is about 858-864.

This market is utterly overbought according to the McClellan Summation Index. It can become more overbought, especially considering the huge sums of liquidity added to the market with few productive outlets. Hot money eats beta for breakfast.

Let's see if they can keep it floating up. This does not look like a sustained ramp however, but the pump that sets up the dump.

At some point the equity market will start moving higher and keep going, to fantastic levels perhaps, if a serious inflation sets in. The stock markets in the Weimar Republic were spectacular, if one ignored the reality behind the appearance. The Fed and Treasury are obviously trying to reflate the economy by printing money and not changing the fundamentals through systemic reforms. Should we be surprised if we obtain yet another dangerous bubble?

We think it is far too early in the game for this, but are keeping an open mind to all possibilities. The market will reveal its intentions, in time.

The best probability based on the data at hand is that we are seeing a pump and dump, in order to provide some income to the beleaguered banks through their proprietary trading desks.

We have not been tracking it, but we wonder if Goldman Sachs has fully placed its large secondary equity offering designed to pay back their TARP funds. The markets often miraculously levitate in sympathetic conjunction with key IPOs and equity tranches.

If they have, then the pump and dump gains in likelihood.

[DemReadingDU]

60. If insiders are selling, time to get out of the markets

assuming anyone is still in.

:eyes:

[ozymandius]

67. Just posted at #65 - highest insider selling volume in 70 years.

Talk about pump-n-dump!

[Demeter]

51. (More About) China has been secretly stocking up on gold

http://www.nakedcapitalism.com/2009/04/guest-post-breaking-news-china-has-been.html


Guest post: Submitted by Edward Harrison of the site Credit Writedowns

China is really looking at a lot of other options to get away from the U.S. dollar. The latest report is that it has been building huge gold reserves. There is no doubt that China wants to get out and away from the U.S. dollar now. We have heard SDRs, copper and precious metals all mentioned as plays out of U.S. dollars. How this will play out on currency markets and in the U.S. government bond market is not at all clear.

China revealed on Friday that it built up its gold reserves by three quarters since 2003, making it the world’s fifth largest holder of bullion.

The move comes as European central banks continue to sell their gold and the International Monetary Fund has discussed selling some of its bullion reserves.

“This is probably the most significant central bank announcement since the Central Bank of Russia announced at the LBMA gold conference in Johannesburg in 2005 that it wanted to hold 10 per cent of its foreign exchange reserves in gold,” said John Reade of UBS.

Ahead of this month’s G20 meeting in London, China said reliance on the dollar as the world’s reserve currency should be reduced by making greater use of special drawing rights, the synthetic currency run by the International Monetary Fund.

This led to speculation China was considering changing its policy which has seen the majority of its foreign exchange reserves channelled into the US government bond market and other dollar denominated assets.

This has raised the question of whether China plans to increase the proportion of its foreign exchange reserves that it holds in gold and how much it could buy


Now, let's review the chain of events:


* The U.S. sub-prime mortgage market implodes, causing Fannie and Freddie to go bust. The Chinese start dumping GSE paper. (27 Aug 2008 post)

* Meanwhile, Tim Geithner was putting his foot in his mouth and telling everyone the U.S. was 'manipulating' its currency. Vice President Biden had to correct him, but the damage was done and the Chinese went on a rampage, savaging the U.S. at Davos (Geithner: 28 Jan 2009 post ; World Economic Forum: 29 Jan 2009 post)

* Then, in March, the Chinese premier started making the same noises about Treasuries that he had about GSEs earlier (13 Mar 2009 post). Was he bluffing? Marshall Auerback said so at the time. I am a bit more concerned.

* Showing increasing signs that they were not bluffing, the Chinese started avoiding using dollars in transactions in deals with countries like Argentina (31 Mar 2009 post)

* Then, before the G-20 summit this past month, the Chinese start floating the idea that it wants to move to a SDR (special drawing right)-centric world, loosening the U.S. grip on being the world's reserve currency. Of course, there was the chatter about the Chinese pegging their currency to copper instead of the U.S. dollar. Obviously, they had worked this out with the Russians ahead of time. (1 Apr 2009 post)

* After the summit, the whole lets-not-settle-trade-in-dollars meme continued as the Chinese struck yet more deals to do so (9 Apr 2009 post)


So, here we are, three weeks out from the G-20 and now we learn the Chinese have been buying gold. In my mind, there is no doubt that China is looking to topple he U.S. dollar as the world's reserve currency. And this will happen over time. The Europeans want it - they are a rival in currency terms. The Asians want it - they want to stick it to an arrogant country which caused great hardship to Asia through the IMF in the Asian Crisis. And the oil exporters like Saudi Arabia, Iran and Venezuela all want it too. It will happen. The question is when and what will replace the dollar.

Another question comes to mind as well. Isn't this de-stabilizing for a world in a global recession. The economists over at Vox have a few points to provide on that score using France and the United Kingdom as 1920s parallels for China and the United States. I have highlighted some important bits.

China’s “dollar trap” has many analysts worried about its future resolution. This column discusses a similar situation in the in the 1920s when France held more than half the world’s foreign reserves. France’s “sterling trap” ended disastrously. Sterling suffered a major currency crisis, French authorities lost a lot of money, and subsequent policy reactions deepened the Great Depression.

What are the lessons for today? China’s objective function today certainly differs from those of France in the interwar years. But French experiences in the early 1930s are a reminder that when there is growing risk on reserves currencies, foreign reserves can be both a source of instability for the international monetary system, and a burden for large holders.

China’s huge volume of dollar reserves is now at the centre of serious concerns about the future of the US currency. The origin of this situation dates back to the early 2000s, after the East Asian and Russian crises. At that time, accumulating foreign reserves was considered benign policy. Developing and emerging countries were encouraged in this way in order to insure against sudden reversals of capital inflows. China was pegging its currency against the dollar and, due to the US trade deficits, started acquiring US assets.

Ten years on, the People’s Bank of China (PBOC) has an extraordinary stock of dollars, and one pressing question: “What to do out of them?” Increasing political tensions have given rise to fears that it might get rid of this huge bulk of securities and precipitate a dollar crash. In August 2007, a Chinese official indeed reminded that Beijing was in a position to provoke a “mass depreciation” of the dollar if it decided to do so. Recent suggestion by Zhou Xiaochuan that China’s central bank might shift from the dollar has put the issue on newspapers’ headlines once again.

But bold statements are one thing, and actual policy another. Up to now, China’s authorities have shown few signs of attempting to weaken the dollar. The reason for this seems straightforward. After all, China is the world’s largest dollar investor, and no one else would have less interest in seeing the value of the US currency plummet. The PBOC might be the promptest to support the dollar, not least because it would suffer a huge capital loss in the event of a dollar depreciation. In a recent New York Times column, Paul Krugman argues that China has “driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place.”

This situation might appear unprecedented. But in truth, all this is not brand-new.

French foreign reserves policy during the Great Depression

Economic history offers one striking example of a country being trapped by the huge volume of its foreign reserves. This country was France, the period was the early 1930s, and the currency at stake the pound sterling. The episode ended up dramatically. Sterling suffered a major currency crisis, French authorities lost a lot of money, and their subsequent policy largely contributed to the Great Depression.

The origin of the problem lay in the government’s decision of 1926 to peg the franc to the sterling and dollar, two years before re-establishing the gold standard. Since the trade balance was in surplus and capital was flowing into the country, this goal was achieved through public purchases of foreign exchange. The Bank of France therefore accumulated a bulging portfolio of foreign holdings. At the end of the 1920s, the country held more than half of the world’s volume of foreign reserves.

French policy over subsequent years has been heavily criticized for being destabilizing. British contemporaries, like Paul Einzig, accused France of using its reserves in order to weaken the pound before the sterling crisis of September 1931. Others have noted that French conversions of foreign assets into gold after 1931, by imposing constraints on their money supplies, put intense deflationary pressures on other countries on the gold standard.

France’s Sterling Trap in 1931

Why did France engage in a policy that had such dramatic consequences? In a recent work, I explore the motivations behind the French reserves policy of this period. Spending time in the archives, I was able first to reconstitute the evolution of the reserves currency composition, and second, to identify the reasons invoked for the allocation decisions. Last, I have combined this information with market indicators of the perceived risk of reserves currencies.

France’s problems were similar to those of China today. The Bank of France was a private institution and its primary objective was to avoid capital losses. Its reserves were allocated between sterling and dollar. From 1929 to 1931, there were fears that the pound might be devalued and the Bank started shifting to the dollar.

However, in implementing this policy, the Bank was also constrained by its position as a large player on the exchange market. So, as sterling’s weakness worsened at the end of 1930, the Bank was in a trap: it could not continue selling pounds without precipitating a sterling collapse and a huge exchange loss for itself. The only workable option left was to support the pound. French policy therefore suddenly turned cooperative. The Bank halted the sterling liquidations, and even intervened on the market in order to support the British currency.

When the pound eventually collapsed, the Bank of France was put into a state of technical bankruptcy. It was only able to survive thanks to a state’s rescue, obtained under tough conditions. Moreover, there were now rising fears over the dollar. The will to avoid further losses therefore led authorities to convert all their dollar assets into gold (figure 2), a policy that heavily contributed to the global monetary contraction of the 1930s.

Lessons for today?

What are the lessons for today? China’s objective function today certainly differs from those of France in the interwar years. But French experiences in the early 1930s are a reminder that when there is growing risk on reserves currencies, foreign reserves can be both a source of instability for the international monetary system, and a burden for large holders.


There are some graphs on Vox's site associated with this essay that you should have a look at. My analysis is this: The Chinese want to weaken the U.S.'s power derived through its currency status. They have been setting the stage to do so for some time. However, they want to act in a way that benefits them in the short- and long-term. Cutting loose in an uncontrolled fashion now benefits no one with the world economy in dire straits. However, when the economy does right itself, you should see some major changes in the currency markets.

[Demeter]

52. China’s Syndrome: The “dollar trap” in historical perspective

http://www.voxeu.org/index.php?q=node/3490

SUPPLEMENTAL READING AND GRAPHS

[Demeter]

53. Outstanding CDS fall 29% globally (AIG WIND DOWN?)

http://www.ft.com/cms/s/0/56fd99e8-2f5b-11de-a8f6-00144feabdc0.html


The volume of outstanding credit default swaps globally fell 29 per cent to $38,600bn in the second half of last year as investors and issuers cancelled offsetting trades, the International Swaps and Derivatives Association said on Wednesday.

But in spite of the huge drop in outstanding CDS contracts, ISDA said that new trading activity “remained solid” last year and had picked up again in the first quarter.

The notional amount of outstanding CDS fell from $62,200bn at the end of 2007 to $54,600bn in the middle of 2008.

However, the decline accelerated in the second half of last year as new trades were unable to compensate for the huge volume of contracts torn up by market participants.

“In the current environment, firms are intensely focused on shrinking their balance sheets and allocating capital most productively,” said Robert Pickel, ISDA chief executive, at the association’s annual general meeting in Beijing.

Credit default swaps are tradable, over-the-counter derivatives that provide a kind of insurance against non-payment of corporate debt, allowing companies to hedge the risk of holding corporate bonds.

The market for CDS grew more than 100-fold between 2001 and the peak at the end of 2007.

Because the market is dominated by a relatively small number of large financial institutions that both buy and sell protection against debt defaults many of these positions offset each other.

Since the outbreak of the financial crisis the industry has increased efforts to eliminate such trades in a process known as “compression”.

Those efforts accelerated in the second half of last year and gathered pace in the first quarter as the industry shrank the enormous notional volumes to address regulators’ concerns about the systemic risks posed by the market.

The credit derivatives industry has been hit hard by the global financial crisis and has become a key focus for politicians and regulators wanting to reform the world’s financial architecture.

“Credit default swaps have come in for a very hard time,” said Mr Pickel. “So far, they haven’t actually been blamed for causing the crisis, but they are at times cited as having made the problem worse.”

ISDA board members and participants at the annual meeting, being held in China for the first time, were careful to stress the distinction between CDS and more complicated financial derivatives such as collateralised debt obligations.

Volumes of outstanding interest-rate derivatives globally fell 13 per cent in the second half of last year to $403,100bn although the notional amount rose 5 per cent over 2007, according to ISDA.

The reduction was also caused by a reduction in offsetting trades.

The volume of privately traded equity derivatives fell 27 per cent in the second half of 2008 to $8,700bn.

[Demeter]

55. Japan Pays Foreign Workers to Go Home By HIROKO TABUCHI

http://www.nytimes.com/2009/04/23/business/global/23immigrant.html?ref=business

HAMAMATSU, Japan — Rita Yamaoka, a mother of three who immigrated from Brazil, recently lost her factory job here. Now, Japan has made her an offer she might not be able to refuse.

The government will pay thousands of dollars to fly Mrs. Yamaoka; her husband, who is a Brazilian citizen of Japanese descent; and their family back to Brazil. But in exchange, Mrs. Yamaoka and her husband must agree never to seek to work in Japan again.

“I feel immense stress. I’ve been crying very often,” Mrs. Yamaoka, 38, said after a meeting where local officials detailed the offer in this industrial town in central Japan.

“I tell my husband that we should take the money and go back,” she said, her eyes teary. “We can’t afford to stay here much longer.”

Japan’s offer, extended to hundreds of thousands of blue-collar Latin American immigrants, is part of a new drive to encourage them to leave this recession-racked country. So far, at least 100 workers and their families have agreed to leave, Japanese officials said.

But critics denounce the program as shortsighted, inhumane and a threat to what little progress Japan has made in opening its economy to foreign workers.

“It’s a disgrace. It’s cold-hearted,” said Hidenori Sakanaka, director of the Japan Immigration Policy Institute, an independent research organization.

“And Japan is kicking itself in the foot,” he added. “We might be in a recession now, but it’s clear it doesn’t have a future without workers from overseas.”

The program is limited to the country’s Latin American guest workers, whose Japanese parents and grandparents emigrated to Brazil and neighboring countries a century ago to work on coffee plantations.

In 1990, Japan — facing a growing industrial labor shortage — started issuing thousands of special work visas to descendants of these emigrants. An estimated 366,000 Brazilians and Peruvians now live in Japan.

The guest workers quickly became the largest group of foreign blue-collar workers in an otherwise immigration-averse country, filling the so-called three-K jobs (kitsui, kitanai, kiken — hard, dirty and dangerous).

But the nation’s manufacturing sector has slumped as demand for Japanese goods evaporated, pushing unemployment to a three-year high of 4.4 percent. Japan’s exports plunged 45.6 percent in March from a year earlier, and industrial production is at its lowest level in 25 years.

New data from the Japanese trade ministry suggested manufacturing output could rise in March and April, as manufacturers start to ease production cuts. But the numbers could have more to do with inventories falling so low that they need to be replenished than with any increase in demand.

While Japan waits for that to happen, it has been keen to help foreign workers leave, which could ease pressure on domestic labor markets and the unemployment rolls.

“There won’t be good employment opportunities for a while, so that’s why we’re suggesting that the Nikkei Brazilians go home,” said Jiro Kawasaki, a former health minister and senior lawmaker of the ruling Liberal Democratic Party.

“Nikkei” visas are special visas granted because of Japanese ancestry or association.

Mr. Kawasaki led the ruling party task force that devised the repatriation plan, part of a wider emergency strategy to combat rising unemployment.

Under the emergency program, introduced this month, the country’s Brazilian and other Latin American guest workers are offered $3,000 toward air fare, plus $2,000 for each dependent — attractive lump sums for many immigrants here. Workers who leave have been told they can pocket any amount left over.

But those who travel home on Japan’s dime will not be allowed to reapply for a work visa. Stripped of that status, most would find it all but impossible to return. They could come back on three-month tourist visas. Or, if they became doctors or bankers or held certain other positions, and had a company sponsor, they could apply for professional visas.

Spain, with a unemployment rate of 15.5 percent, has adopted a similar program, but immigrants are allowed to reclaim their residency and work visas after three years.

Japan is under pressure to allow returns. Officials have said they will consider such a modification, but have not committed to it.

“Naturally, we don’t want those same people back in Japan after a couple of months,” Mr. Kawasaki said. “Japanese taxpayers would ask, ‘What kind of ridiculous policy is this?’ ”

The plan came as a shock to many, especially after the government introduced a number of measures in recent months to help jobless foreigners, including free Japanese-language courses, vocational training and job counseling. Guest workers are eligible for limited cash unemployment benefits, provided they have paid monthly premiums.

“It’s baffling,” said Angelo Ishi, an associate professor in sociology at Musashi University in Tokyo. “The Japanese government has previously made it clear that they welcome Japanese-Brazilians, but this is an insult to the community.”

It could also hurt Japan in the long run. The aging country faces an impending labor shortage. The population has been falling since 2005, and its working-age population could fall by a third by 2050. Though manufacturers have been laying off workers, sectors like farming and care for the elderly still face shortages.

But Mr. Kawasaki said the economic slump was a good opportunity to overhaul Japan’s immigration policy as a whole.

“We should stop letting unskilled laborers into Japan. We should make sure that even the three-K jobs are paid well, and that they are filled by Japanese,” he said. “I do not think that Japan should ever become a multiethnic society.”

He said the United States had been “a failure on the immigration front,” and cited extreme income inequalities between rich Americans and poor immigrants.

At the packed town hall meeting in Hamamatsu, immigrants voiced disbelief that they would be barred from returning. Angry members of the audience converged on officials. Others walked out of the meeting room.

“Are you saying even our children will not be able to come back?” one man shouted.

“That is correct, they will not be able to come back,” a local labor official, Masahiro Watai, answered calmly.

Claudio Nishimori, 30, said he was considering returning to Brazil because his shifts at a electronics parts factory were recently reduced. But he felt anxious about going back to a country he had left so long ago.

“I’ve lived in Japan for 13 years. I’m not sure what job I can find when I return to Brazil,” he said. But his wife has been unemployed since being laid off last year and he can no longer afford to support his family.

Mrs. Yamaoka and her husband, Sergio, who settled here three years ago at the height of the export boom, are undecided. But they have both lost jobs at auto factories. Others have made up their minds to leave. About 1,000 of Hamamatsu’s Brazilian inhabitants left the city before the aid was even announced. The city’s Brazilian elementary school closed last month.

“They put up with us as long as they needed the labor,” said Wellington Shibuya, who came six years ago and lost his job at a stove factory in October. “But now that the economy is bad, they throw us a bit of cash and say goodbye.”

He recently applied for the government repatriation aid and is set to leave in June.

“We worked hard; we tried to fit in. Yet they’re so quick to kick us out,” he said. “I’m happy to leave a country like this.”

NOTE: THIS IS A DIRECT RESULT OF THE GRAYING OF THE JAPANESE POPULATION. THEY IMPORTED YOUNG WORKERS--AND NOW THEY WANT TO BOOT THEM OUT!

[Demeter]

58. Chapter 13 Rate Down Sharply in March

http://www.creditslips.org/creditslips/2009/04/chapter-13-rate-down-sharply-in-march.html

SEE LINK FOR GRAPH

The 2005 changes to the U.S. bankruptcy law were supposed to move more debtors into chapter 13 with the idea that they would have to pay at least a portion of their debts. In March, however, the chapter 13 rate dipped below the old chapter 13 filing rate. Not only do these latest figures suggest the 2005 law is not working as its supporters promised but also that the latest spikes in bankruptcy filing rates are from persons in the most desperate financial conditions.

Of the noncommercial petitions filed in March 2009, only 25.5% were chapter 13 cases. These data come from Automated Access to Court Electronic Records (AACER), which defines a "commercial" case as one that involves a corporation, limited liability company, or similar entity, one with an employer identification number (EIN) (instead of or in addition to a Social Security number), or one with a designation such as "doing business as" (d/b/a). All other cases are noncommercial cases.

From 2001-2004, the Administrative Office of U.S. Courts (AO) reported that 29.3% of nonbusiness cases were chapter 13s. "Nonbusiness" is not the same as "noncommercial." AACER uses a better, more comprehensive definition to calculate "noncommercial" cases, but if we look at all bankruptcy cases together, the numbers don't change much. The AO reports 28.7% of all cases as a chapter 13 from 2001-2004, and 25.0% of all cases in the AACER data during March 2009 were chapter 13s.

Anyway it gets counted, the percentage of cases in March 2009 that were chapter 13s is now below the rate during the years before the 2005 bankruptcy law. As the graph shows, however, March always experiences a lower percentage of chapter 13s, which probably is a result of March being a traditionally high filing month for bankruptcy generally. The increase in the bankruptcy filing rate in March comes principally from increased chapter 7s, and that was true even before the 2005 changes. I don't expect the chapter 13 rate to remain below the pre-2005 rate.

At the same time, I do not expect the chapter 13 rate to rise above back above the 2005 rate. Rather, like the overall bankruptcy filing rate, the chapter 13 rate is returning to what it was before the 2005 law. The 2005 law deterred people from filing because of its increased costs, because of the rhetoric and rumors about the law, and because of the law's provisions. The effect was to depress bankruptcy filings overall and especially depress chapter 7 filings (with the effect that chapter 13 filings were a higher percentage of filings). It's been about 3 1/2 years since the law went into effect, and we're pretty much back to where we were before the law went into effect.

[Demeter]

59. That Ought to Keep the Insomniacs Busy

and the news is so bad, anyone reading it is bound to develop insomnia...sigh.

Who could have expected that the gang that couldn't shoot straight could so completely bollix everything up beyond hope of ever repairing the damage?

I can't take anymore, and there's a storm blowing up.

Stay warm, stay dry, and stay sane!

[DemReadingDU]

61. Charles Hugh Smith: Madoffing the U.S. Financial System

Madoffing the U.S. Financial System (April 25, 2009)
Charles Hugh Smith

I reprint Zeus Y.'s important essay today because it makes a critical point few emphasize--that the lies we're being told are being swallowed whole because many of us don't seem to want to know the reality looming behind the smoke and mirrors.

I received the following incisive comments from Zeus in an email:

It continues to amaze me how much people try to divert the obvious. I'm tired of people using words like "unthinkable" and "unknowable" to describe the value of CDS (credit default swaps) and now they might as well be screaming, "We don't want to know. Tell us lies, tell us whatever, just don't cause me anxiety." Am I in the minority? My anxiety disappears when I know. It's this surreal Emperor-with-no-clothes train wreck that everyone is trying to paint as a mere blip that makes no sense to me.

"C'mon," I want to say. "They've already proven that they've consistently and thoroughly enriched themselves at your expense." It is central to their operation. The whole system runs on it. Do you want to continue to be taken after the con has already been exposed? How can that lessen anxiety? "Oh, I've been ripped off. They're doing the same things without any transparency or accountability. Now, I feel so much better!" It's flat-out loony.

We're seeing as much a social psychological watershed moment here (as well as financial, and frankly environmental watershed). We've got to understand the benefit and joy of reality and stop with the damaging fantasies we've bought into. They don't work even when they "work". If everyone could actually be a king (instead of a sucker), the environment would collapse and we would die in a much shorter time. Consider this collapse a grace period to get our crap together and create another system.

This one has proven it does not work, and thankfully, proven it before it takes out the entire globe.

Thank you, Zeus. Here is his insightful essay, in case you missed it. If you reprint it or link to it, please credit it to Zeus Y.

Madoffing the U.S. Financial System

We are seeing unfold before us nothing short than the Madoffing of the U.S. financial system. The recent reports of profitability for the major financial companies—Bank of America, Goldman Sachs, Citigroup, etc. are exactly Bernie Madoff on a large scale.

Here is the recipe: 1) Cannibalize incoming capital and investment to keep the bonus, fee, and salary gravy train going for broker and firm, 2) Sustain the illusion of solvency by paying dividends and claiming a profit, and 3) Ensure through accounting tricks that liabilities are never counted. It’s very easy. Hand out phony returns, based on laundered incoming bailout and investment money. Skim your take. Hide liabilities. Delude people into thinking you are profitable.

Investment banks have all they need to keep the fraudulent charade going: 1) Highly fungible bailout money, much or most of which has no strings, no requirement even to notify lending authorities where the money is going. 2) The power to price assets, including so-called "toxic assets" (sic), in any way that suits them , 3) An immense amount of greed, entitlement, opportunism, and nihilistic amorality among the leaders and managers of financial institutions, and 4) political enablement which accedes to "too big to fail" blackmail, conducts inconsequential and invisible "stress tests," and assures institutions that no matter how badly or corruptly they perform they will not be taken over.

Forget that manic or addicted behavior has never been solved by enablement. Enablement, in fact, only makes the problem worse by delaying the inevitable and necessary coming to terms.

The Financial Accounting Standards Board’s (FASB) recent ruling that banks can establish prices for their assets any way they choose leaves us with a huge valuation-of-assets problem: "I think it's a mistake. If it's too cold in the room, you don't fix the problem by holding a candle under the thermometer," William Poole, former Federal Reserve Bank of St. Louis president, told Reuters at a conference in New Orleans. "It may increase reported bank earnings by 20 percent, but it has nothing to do with the reality of bank earnings. It's very important to maintain that distinction," Poole said. (http://www.bnet.com/2407-13071_23-284495.html)

This might alternatively by called the "90 trillion dollar blender" problem ( www.calculatedriskblog.com). South Park did an unfortunately "truth is stranger than fiction" satire on the finance industry in which the industry leaders claimed a Margaritaville blender was worth 90 trillion dollars. FASB’s ruling allows them to do just that. If you live by the market (including wildly inflated values), then you should die by the market. Even if you feel your assets are undervalued, you should at least give an accounting as to what they are, why you think they are undervalued, and submit your reasoning to public scrutiny and debate.

As far as I know there is no such requirement presently, and therefore no transparency or accountability. Banks can simply assign whatever worth is convenient for their purposes. This gets back to the counterfeiting charge I leveled against credit default swaps. This is simply phony money. If I can say my pen is worth 3 million dollars and then borrow against that to try to make a quick buck in some investment scheme, I am committing fraud. Banks do it, and they are acting legally? If past performance is any indication of future behavior, investment banks are probably right now continuing to make highly risky, highly leveraged investments to stoke their personal largesse, while hoping for a Hail Mary patch for their company’s books. These addicts won’t be kept from their crack.

I know President Obama is trying with his conventional approaches to buy time, space out damage from financial mismanagement, and avoid a panic. There is probably some wisdom to that. However, trusting these companies to right their own ship after the atrocities they have consistently committed is suicidal. Why don’t we just pick off these institutions one at a time. I am almost certain that even generous stress tests have shown the major players to be insolvent.

Instead of indulging in corporate welfare to bail out these crooks, force the worst in order, one by one, into receivership (with adequate time in between to absorb and reallocate assets), wipe out the stockholders and bondholders, and sell off the healthy parts. If fraud has been committed, seek criminal conviction and set up a special civil court to allow stockholders and bondholders to seek damages. This will help avoid the "Oh, crap" factor and attendant market panic.

However, it will also mean we as a society will need to take the heat and full responsibility. Gray Davis, according to the documentary "Enron: The Smartest Guys in the Room," had the power to do this with Enron (go in and take them over), but he demurred, as Obama has, to the mistaken notion that private market players are always the better arbiter of the mistakes created by those same players.

This protracted travesty is the logical outcome of an economy increasingly dependent upon financialization--the notion that, "Your money can work for you; you don’t have to work." Increasingly endless and abstract mechanisms must be developed to create a notion of “growth” that has lost its foundation in real productivity. Our whole economy is being kept afloat by international demand directed, at first, at our derivatives and other phony high-yield financial vehicles, and now (in a reactive spasm) conveniently directed at our "secure" bonds (which is as you noted, Charles, another emerging bubble).

As long as we insist upon enabling this money-for-nothing illusion in ourselves and our financial institutions, our problems will get worse and our character will take a beating.

http://www.oftwominds.com/blogapr09/madoffing04-09.html

[Dr.Phool]

62. If you get a chance, this is one of the best interviews I've ever seen.

http://www.pbs.org/moyers/journal/04172009/profile.html

David Simon, the creator of "The Wire". You had to have HBO to see it, but it was a great series, that ran for 5 seasons.

He really puts, politics, the media, and the economy into a unique perspective, from his years as a Baltimore Sun reporter.

-------------------------------------------------------

The executive producer of HBO's critically-acclaimed show THE WIRE, David Simon talks with Bill Moyers about inner-city crime and politics, storytelling and the future of journalism today. After a dozen years covering crime for the BALTIMORE SUN, David Simon left journalism to write books and tell stories for NBC and HBO, including his Peabody-winning cop show THE WIRE, which looked at the drug wars and the gritty underbelly of the inner-city. Simon is now producing the pilot for a series about musicians in post-Katrina New Orleans, called TREME.

Simon on Fact and Fiction
Dickensian childIn his extended conversation with Bill Moyers, David Simon touched not only on the plight of America's cities, the drug war and prison numbers and the state of the news media, but also on the art of telling hard truths through stories rather than statistics.

I started to realize "Dickensian" was a shorthand for "I don't really actually care about the underlying economic dynamic that is creating this nightmare. I don't want to examine that. I just want some sweet stories about some kids who are poor and are being hurt. I could win a prize in that. Be Dickensian." And I thought it was sort of an affront to Dickens almost. I mean, if Dickens heard it, I think he would have gotten mad.
Watch Video

Biography
David Simon is a Baltimore-based author, journalist and writer-producer of television specializing in criminal justice and urban issues. Born in Washington, he came north to Baltimore after graduating from the University of Maryland to work as a police reporter at the BALTIMORE SUN. In 1988, after four years on the crime beat, he took a leave of absence from the newspaper to write HOMICIDE: A YEAR ON THE KILLING STREETS.

Homicide Published in 1991, the Edgar-award winning account of a year inside the Baltimore Police Department Homicide Unit became the basis for NBC's HOMICIDE: LIFE ON THE STREET, which was broadcast from 1993 to 1999. Simon worked as a writer, and later as a producer on the award-winning drama.

In 1993, Simon took a second leave from the BALTIMORE SUN to research and write THE CORNER: A YEAR IN THE LIFE OF AN INNER-CITY NEIGHBORHOOD. Published in 1997 and co-authored with Edward Burns, the true account of life in a West Baltimore community dominated by an open-air drug market was named a Notable Book of the Year by the NEW YORK TIMES.

Simon then co-wrote and produced THE CORNER as a six-hour miniseries for HBO. That production, which aired in 2000, won an Emmy as the year's best miniseries. Simon and David Mills also won the Emmy for best writing in a movie or miniseries. For his writing on NBC's HOMICIDE, Simon has won the Writers Guild of America Award for best writing in an episodic drama, as well as the Humanitas Award in the same category.

Having left the BALTIMORE SUN in 1995, Simon continues to work as a freelance journalist and author, writing for publications as varied as the WASHINGTON POST, the NEW REPUBLIC and DETAILS magazine.

[CatholicEdHead]

63. Another classic Pearls Before Swine

[Demeter]

64. Could Food Shortages Bring Down Civilization?

http://www.sciam.com/article.cfm?id=civilization-food-shortages

...For many years I have studied global agricultural, population, environmental and economic trends and their interactions. The combined effects of those trends and the political tensions they generate point to the breakdown of governments and societies. Yet I, too, have resisted the idea that food shortages could bring down not only individual governments but also our global civilization.

I can no longer ignore that risk. Our continuing failure to deal with the environmental declines that are undermining the world food economy—most important, falling water tables, eroding soils and rising temperatures—forces me to conclude that such a collapse is possible....

[ozymandius]

65. Atrios: SELL SELL SELL

A bit of a signal.

April 24 (Bloomberg) -- Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

Atrios link.

[Hugin]

70. This week's SMWEI stands at (-5.7) (minus-five-point-seven)

(-5.7)(minus-five-point-seven)

Down a tenth of a point since last week's (-5.6) SMWEI reading.

It's still pretty consistent... Although, based on the historical unemployment graph posted by UIA (above in the WEE).

I'm considering a revision.

Unemployment is significantly higher recently than it was right after the tech bubble burst in the early 2000s. Also, with the exception of that odd spike in around the 2003-2005 time frame... (Which I have no explanation for, does anyone?)

The 2003-ish "Jobless Recovery" has actually panned out to be a "Negative Jobs Recovery" which really has no meaning as a recovery to the Middle-Class. Seeing a chart really helps.

[Demeter]

66. Goldman's Hypocrisy Never Ends

http://skepticaltexascpa.blogspot.com/2009/04/goldmans-hypocrisy-never-ends.html

"Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd Blankfein called for broad changes to how Wall Street pays employees and is regulated, saying 'the loss of public confidence from failing to live up to the expectations that we created will take years to rebuild.'

... Blankfein also recommended that stock awards be held for at least three years before they could be collected, a move that would rein in excessive risk-taking.

... 'We have a higher responsibility ... to act like an owner responsible for the integrity of the system.' ...


Many of the recommendations made by Mr. Blankfein are being adopted or at least considered by some Wall Street firms as they react to public ire over their culpability for the financial crisis and bonus payments that to many Americans seem out of touch with reality.

... Blankfein didn't concede that Goldman has done anything wrong in how it pays employees. Indeed, some compensation experts noted that much of what Mr. Blankfein advocated is already in practice at Goldman.

... When deciding on pay for traders, bankers and other employees, Wall Street firms should take into account not only the contribution the employee made to profit or loss, but also the risks taken and the overall contribution to the better functioning of markets", my emphasis, Aaron Luchetti at the WSJ, 8 April 2009.

"A former chairman of Tajikistan's Central bank diverted more than $850 million to a company run by himself and his family, according to an independent audit posted on the bank's Web site on Monday", WSJ, 14 April 2009.

GSG and LB make me sick. GSG's shareholders should run LB out and tar and feather him. He admits he did not do his job properly. Stock awards be held for at least three years? Hmm. LB doesn't read IA, does he? See my 13 January 2009 post:

http://skepticaltexascpa.blogspot.com/2009/01/incentives-count-for-bankers-too-3.html.
Compensation experts? Where were these "experts" ten years ago? Act "like an owner"? What were you doing all along LB?

How much did former GSGer Hank Paulson "divert" to the members of his adopted family? We live in Tajikistan.

[Dr.Phool]

68. Kick!

And now back to yardwork.

[Demeter]

69. Jumping The Shark In HY(High Yield) On Record Low Recoveries

http://zerohedge.blogspot.com/2009/04/jumping-shark-in-hy-on-record-low.html


Among the more important facts skipped by the general public in its fascination with the equity bear market rally, is that the perspective for leveraged corporate issuers is getting worse and worse, never more so than just this March, when the monthly annualized default rate surged to a 20 year record high of 19.4%, on par with rating agency expectations for 2009 actual default rates. This has been coupled with unprecedented low unsecured recovery rates of 9%. Yet these two facts have not prevented the high yield cash market to post NASDAQ like YTD returns. In this sense, the HY market is merely another example of an asset class becoming completely unhinged from its news flow and fundamentals: that in itself is not surprising - most assets lately are trading on deferred hope and good intentions than actual facts.




And as in the equity market, people are left scratching their heads why this disconnect. One point of view provided by Goldman Sachs' credit team seems plausible enough:

We think the explanation is partly fundamental, and partly technical. First, as we argued last week, tentative signs of stabilization in macro data suggest that the recession is near a bottom. As the tail risk of an even deeper recession recedes – and we agree that is has – credit spreads should rally, especially HY. But we also suspect a strong technical component because money flows are high and liquidity is low. Since Dec. 1, 2008, retail investors have allocated over $8 billion of net new money to HY mutual funds. And finally, we think these bullish forces have been magnified by the fact that most investors were underinvested in the market. This presumably damped selling pressure as bond investors felt compelled to cover their “short position” in cash.

Zero Hedge disagrees with Goldman on their assessment that the recession is bottoming, however the technical fund flow observation has credibility, although curious it is mostly at the expense of equity mutual funds (see most recent TrimTabs data). Furthermore, as Zero Hedge recently discussed, the fixed income investment community's concern with participating in the sub-BBB+ rated primary market has manifested in a substantial increase in secondary market prevailing price levels. Even Goldman itself acknowledges:

Economic growth is still deeply negative, which translates into very negative cash flows. As banks and insurance companies digest continuing losses amid heightened regulatory pressure to raise new capital, we expect credit supply to remain relatively tight.

As earlier pointed out, another unique feature of the current "D-process" is that recovery rates on unsecured defaults are less than half of what prior recessions have demonstrated. While in prior downcycles recovery rates have averaged about 20%, empirical data since December 1 shows an average unsecured rate of 9%. And the trends is only getting more acute: the last four CDS settlement auctions that have taken place over the past 2 weeks have averaged less than 6%, as seen by Chemtura's 15%, Abitibi's 3.25%, Chater's 2.375% and Idearc's 1.75 recoveries! Another troubling data point is that secured recovery rates, as demonstrated by LCDX auctions, demonstrate an almost statistically insignificant difference from unsecured recoveries at 15.4%.




An interesting side-phenomenon is that bankruptcies are becoming the true Litmus test of the current economic fiasco. Once the "hope" element is removed from asset pricing, the real lack of clothing become imminently apparent. Nowhere is this more evident than in Lehman's unsecured recovery rate, as Zero Hedge has discussed previously. With Lehman's unsecured bonds clearing at a 8.625% recovery rate, one can only speculate what is the true worth of the other financial institutions if they were to be seen in the same perspective as Lehman. After all the 8.625% recovery rate (which, of course, implies there is over 91% of value deficiency to the equity tranche), if even haircut by a generous 50%, implies that banks who hold comparable assets to Lehman (most of them) are impaired beyond repair. The conclusion is that while Lehman is trading purely on run-off or liquidation value, there is some magical "hand" that is allowing the other banks to trade at exponential multiples of value compared to real, market tested run off asset value. If one does a back of the envelope analysis for Citi, BofA and Wells Fargo, and projects asset values based on Lehman unsecured obligations' trading price, the equity value in each and every one of the abovementioned banks is staggeringly negative.

One last thing to point out, is that while pure cash HY bonds have benefited from the same old technical aberrations, the same can not be said of the synthetic market, best seen in the performance of the HY11 index. Unlike standalone credits, defaults have a direct impact in the pricing, and thus value, of this index. The chart below demonstrates that HY11 is down 8% for the year, and the bulk of this underperformance is due to default losses on 6 names! These have more than offset the positive carry and mark-to-giddy-market gains. It is only a matter of time before cash fundamentals on single names revert back to some form of rationality and retrace a substantial portion of the undeserved MTGM gains year to date.

[Demeter]

71. The capital well is running dry and some economies will wither

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5220118/The-capital-well-is-running-dry-and-some-economies-will-wither.html


The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.


By Ambrose Evans-Pritchard


Unless this capital is forthcoming, a clutch of countries will prove unable to roll over their debts at a bearable cost. Those that cannot print money to tide them through, either because they no longer have a national currency (Ireland, Club Med), or because they borrowed abroad (East Europe), run the biggest risk of default.

Traders already whisper that some governments are buying their own debt through proxies at bond auctions to keep up illusions – not to be confused with transparent buying by central banks under quantitative easing. This cannot continue for long.

Commerzbank said every European bond auction is turning into an "event risk". Britain too finds itself some way down the AAA pecking order as it tries to sell £220bn of Gilts this year to irascible investors, astonished by 5pc deficits into the middle of the next decade.

US hedge fund Hayman Advisers is betting on the biggest wave of state bankruptcies and restructurings since 1934. The worst profiles are almost all in Europe – the epicentre of leverage, and denial. As the IMF said last week, Europe's banks have written down 17pc of their losses – American banks have swallowed half.

"We have spent a good part of six months combing through the world's sovereign balance sheets to understand how much leverage we are dealing with. The results are shocking," said Hayman's Kyle Bass.

It looked easy for Western governments during the credit bubble, when China, Russia, emerging Asia, and petro-powers were accumulating $1.3 trillion a year in reserves, recycling this wealth back into US Treasuries and agency debt, or European bonds.

The tap has been turned off. These countries have become net sellers. Central bank holdings have fallen by $248bn to $6.7 trillion over the last six months. The oil crash has forced both Russia and Venezuela to slash reserves by a third. China let slip last week that it would use more of its $40bn monthly surplus to shore up growth at home and invest in harder assets – perhaps mining companies.

The National Institute for Economic and Social Research (NIESR) said last week that since UK debt topped 200pc of GDP after the Second World War, we can comfortably manage the debt-load in this debacle (80pc to 100pc). Variants of this argument are often made for the rest of the OECD club.

But our world is nothing like the late 1940s, when large families were rearing the workforce that would master the debt. Today we face demographic retreat. West and East are both tipping into old-aged atrophy (though the US is in best shape, nota bene).

Japan's $1.5 trillion state pension fund – the world's biggest – dropped a bombshell this month. It will start selling holdings of Japanese state bonds this year to cover a $40bn shortfall on its books. So how is the Ministry of Finance going to fund a sovereign debt expected to reach 200pc of GDP by 2010 – also the world's biggest – even assuming that Japan's industry recovers from its 38pc crash?

Japan is the first country to face a shrinking workforce in absolute terms, crossing the dreaded line in 2005. Its army of pensioners is dipping into the collective coffers. Japan's savings rate has fallen from 14pc of GDP to 2pc since 1990. Such a fate looms for Germany, Italy, Korea, Eastern Europe, and eventually China as well.

So where is the $6 trillion going to come from this year, and beyond? For now we must fall back on the Fed, the Bank of England, and fellow central banks, relying on QE (printing money) to pay for our schools, roads, and administration. It is necessary, alas, to stave off debt deflation. But it is also a slippery slope, as Fed hawks keep reminding their chairman Ben Bernanke.

Threadneedle Street may soon have to double its dose to £150bn, increasing the Gilt load that must eventually be fed back onto the market. The longer this goes on, the bigger the headache later. The Fed is in much the same bind. One wonders if Mr Bernanke regrets saying so blithely that Washington can create unlimited dollars "at essentially no cost".

Hayman Advisers says the default threat lies in the cocktail of spiralling public debt and the liabilities of banks – like RBS, Fortis, or Hypo Real – that are landing on sovereign ledger books.

"The crux of the problem is not sub-prime, or Alt-A mortgage loans, or this or that bank. Governments around the world allowed their banking systems to grow unchecked, in some cases growing into an untenable liability for the host country," said Mr Bass.

A disturbing number of states look like Iceland once you dig into the entrails, and most are in Europe where liabilities average 4.2 times GDP, compared with 2pc for the US. "There could be a cluster of defaults over the next three years, possibly sooner," he said.

Research by former IMF chief economist Ken Rogoff and professor Carmen Reinhart found that spasms of default occur every couple of generations, each time shattering the illusions of bondholders. Half the world succumbed in the 1830s and again in the 1930s.

The G20 deal to triple the IMF's
fire-fighting fund to $750bn buys time for the likes of Ukraine and Argentina. But the deeper malaise is that so many of the IMF's backers are themselves exhausting their credit lines and cultural reserves.

Great bankruptcies change the world. Spain's defaults under Philip II ruined the Catholic banking dynasties of Italy and south Germany, shifting the locus of financial power to Amsterdam. Anglo-Dutch forces were able to halt the Counter-Reformation, free northern Europe from absolutism, and break into North America.

Who knows what revolution may come from this crisis if it ever reaches defaults. My hunch is that it would expose Europe's deep fatigue – brutally so – reducing the Old World to a backwater. Whether US hegemony remains intact is an open question. I would bet on US-China condominium for a quarter century, or just G2 for short.

NOW I ASK IF THIS IS TRULY A SHORTAGE OF CAPITAL, OR MERELY A SHORTAGE OF SUCKERS? WOULD IT KILL THE US TO HAVE TO STOP BURNING THROUGH BORROWED MONEY TO KEEP UP ENDLESS, POINTLESS, ILLEGAL WARS IN IRAQ AND AFGHANISTAN? WOULD THE WORLD END IF THE US DIDN'T HAVE A FORT IN EVERY PORT? WOULD PEOPLE DIE IF THEY HAD TO PAY TAXES (THOSE WHO HAVE OBSCENE WEALTH, ESPECIALLY)? IF MANUFACTURING RETURNED HOME BECAUSE WE COULDN'T PAY THE CHINESE TO MAKE CRAP AND POISONED FOOD?

THE ONLY PROBLEM IS, DO ALL OTHER COUNTRIES HAVE TO STARVE SO THAT WE GET PUT ON A DIET?

[Hugin]

73. How were they to know we'd hit 'Peak Suckers' before 'Peak Oil'?

"MERELY A SHORTAGE OF SUCKERS"

Actually, I'm quite impressed by the Average American's resistance to getting back into the Debt Bubble again.

Kudos to them and a gold star for today. :)

[Demeter]

72. On Pelosi's Duplicity and Apparent Sandbagging of Elizabeth Warren

http://www.nakedcapitalism.com/2009/04/on-pelosis-duplicity-and-apparent.html

Despite her longevity as a California pol, house speaker Nancy Pelosi is looking like every bit as much of a dyed-in-the-wool financial services industry backer as the Congressmen on the New York-Boston corridor.(YA tHINK? I'VE HAD PELOSI'S NUMBER FOR YEARS NOW: ZERO!)

As readers will know, this blog does not dwell much on the inside baseball of politics. But once in a while things become so obvious as to merit comment.

Recall how instrumental Pelosi was in getting the TARP passed. The widely mentioned gambit of Paulson getting on bended knee to plead for her support was a nice bit of theater to cover how readily she fell into line. The other justification for the Democratic leadership support was the claim that Treasury had given a closed door briefing to Senate and House leadership telling them the world would end if the TARP was not passed yesterday.

Some have suggested that Treasury provided data on the potentially disastrous money market fund withdrawals around the time of the Lehman failure (recall the death of Lehman led Reserve to break the buck). But that problem had already been addressed in September in part via the Fed providing non-recourse loans to purchase asset backed commercial paper, and more fully in October via yet another Fed facility. In other words, if the money market fund panic was indeed the scare tactic, the TARP was not the remedy.

But even if we give the devil its due, the performance of the Democratic leadership was pathetic. The most heinous aspect of the bill, putting the Treasury secretary outside the reach of law, was never cut back. The first draft, a doodle on a napkin, was offensive to democratic processes, the second draft added a lot more words but was still way too thin on basics, like objectives, criteria, procedures, and the final draft loaded tons of pork in to assure passage. And the ironies kept multiplying. The bill was wildly unpopular even with the media falling into line (and in the later stages, a clearly orchestrated campaign to have financial services industry employees contact legislators to counter the groundswell of opposition). And it was Senate Republicans who were the last holdouts.

Let us not put too fine a point on how brazen the TARP was on another axis. As a reader wrote at the time:

Finally, it is hard to escape the political implications of all this. Basically the President is trying almost to nullify the coming election by getting far reaching legislation in place that should have been left to the next Administration. He creates crises and then calls for comprehensive and badly drafted legislation under panic conditions, and the Democrats in Congress give the President what he wants. With both parties on board now these things will be difficult to reverse. The FISA bill was an important example of this, and TARP would be another. With important pieces of very bad policy almost fixed in stone, what will voters have left to decide in November? Other than the very crucial question of Supreme Court nominees, I am drawing a bit of a blank.



So why are we pointing a finger at Pelosi in particular? The next chapter is her appointment of one Richard Nieman to the Congressional Oversight Panel. Under the TARP rules, the House Majority leader selects one of the oversight panel members, so this choice was completely under her control.

Nieman is the New York Superintendant of Banks. He helped Goldman set up its bank holding company.

Nieman fell out with the other Democrats and wrote a joint opinion with John Sununu (see page 88 of the document). If you were somehow ignorant of the fact that the Summers/Geithner programs embody massive hidden and inefficient subsidies to banks (the Public Private Investment Partnership), questionable uses of the FDIC, and the employment of the Fed as quasi-fiscal agent, the critique might sound reasaonable. But to anyone with a passing acquaintance with the facts, the dissenting views are absurd. To give you an idea of how far they have to stretch to make their arguments sound plausible, they grasp at the straw of "oh yeah, that over 50 point spread between market price and bank valuation for toxic assets is due to a liquidity discount."

There is also sophisticated mud-slinging, for instance, suggesting that the panel's recommendations run against the

...preference for maintaining a private banking system via temporary public support or partnership, which is consistent with this country’s tradition of private rather than government control of business


That's code for "Warren is a commie". Didn't anyone tell these clowns that no private investor with an operating brain cell would give so much money to a private enterprise without demanding a good deal of oversight and control? And at a time like this, the public versus private polarity that they invoke has been blunted. Pretending that wards of the state are entitled to the rights of normal private concerns is absurd, yet that's the fiction that Nieman and Sununu present.

Maybe I'm too cynical, but this sure looks like the behavior of someone looking for his next, bigger meal ticket.

But then we come back to Pelosi. I can't imagine that Nieman would have fallen in with the Republicans without at least as a courtesy informing Pelosi in advance. And if she had a big problem, she would have gotten him to back down (either not siding with the opposition or issuing a separate view that was more ambivalent). So Pelosi is at a minimum sitting this one out (which I deem unlikely) or on board with the program to undermine Warren.

And let us not kid ourselves, the knives are coming out. Here's a mix of some stories and parsing of commentary, a random selection from Google News:

McArdle distracted by Warren's efforts

http://culture11.com/diary/37901

TARP Watchdog Elizabeth Warren Blowing Her Credibility, Overstepping Her Bounds

http://www.businessinsider.com/tarp-watchdog-elizabeth-warren-blowing-her-credibility-overstepping-her-bounds-2009-4

Elizabeth Warren's Holy Crusade

http://www.forbes.com/2009/04/21/congressional-oversight-panel-tarp-opinions-columnists-elizabeth-warren.html


I hate to say it, but I think Warren's days as COP head are numbered. She is clearly now boxed in by being in the weird position of being in the minority. The opposition reports took issue with the very premise of her approach. If, as I suspect, the behind the scenes fight is worse than what can be seen at a remove, the longer she stays on, the greater the risk of being tainted.

And what do we make of Pelosi's recent sponsorship of a new version of a Pecora Commission? Her sudden interest, after the COP report came out, seems very oddly timed and inconsistent with her choice of and failure to rein in Nieman.

My reading is if any panel results, it will be a sham effort, designed to make only a superficial inquiry and shake a finger at a few extreme practices.

If Team Obama will give torturers a free pass (a very small group that has nevertheless done tremendous damage to America's standing in the world), there is absolutely no way it has any appetite for exposing the massive fraud in the financial system. Obama does not do conflict, and his "Let's not dwell on the past" is tantamount to appeasement of the oligarchs and coddling of the worst practices of the Bush regime.

But if we are lucky (and we'd need to be very lucky) history might repeat itself. The original Depression investigation was also a sham exercise, but Pecora, brought in to write the final report after three previous investigators were fired or quit, asked to reopen the hearings, and some initial successes, plus the arrival of the Roosevelt administration, gave the probe a new leash on life.

But with the both the Democrats and the Republicans firmly in the hold of the banking classes, it will take something more on the order of a miracle to get a serious inquiry underway.

[Demeter]

74. When We Are Led to Believe a Lie (GM) By Gregg Shotwell

http://informationclearinghouse.info/article22463.htm


...If it smells like b.s. and it looks like b.s., trust your common sense and skip the taste test.

Thanks to corporate welfare GM accumulated more tax deductions than they could take in a year. So they deferred the tax deductions and booked them as an asset until the asset got so fat it attracted the attention of auditors who asked – “quote unquote” – What the f##k is this?

Chairman and CEO of General Motors (at the time) Rick Wagoner was quick to assure the Fools not to puzzle their pretty heads. The $39-billion wasn't actually a loss of cash, he said, since it never had a tangible, marketable existence. It was merely an accounting gimmick – a fancy – like paper wings.

The Fools refer to compensation like pension and health care as “welfare,” despite the fact that unlike “deferred tax credits,” the compensation was earned by productive labour. It's no wonder the Fools are having trouble figuring out what part of GM is losing what, and how much, and why. They ignore the obvious and thumb their noses at analysis. For example:

GM sold 4.4 million vehicles in the U.S. in 1992 and employed 265,000 UAW members.

GM sold 4.5 million vehicles in the U.S. in 2007 and employed 73,000 UAW members.

A company can't make productivity improvements as astounding as that and lose money on labour. Something else is shaking the timbers. Maybe we should question the competitiveness of salary workers? How do they compare with their Japanese counterparts in compensation and achievement? Or more precisely, who's controlling the money?

Since GM sold as many vehicles in the U.S. in 2007 as they did in 1992 and employed 192,000 less UAW members, profits should be way up by any accounting standard. Unless of course, profits were siphoned off into investments overseas, dividends, bonuses, or unaccountable black holes of financial rigamarole. (In 2005 GM paid Fiat $2-billion to get out of a “put option” that would have required GM to purchase Fiat.)

GM sold over 9 million vehicles worldwide in 2005, 06, and 07. If GM lost money on sales that enormous, Wagoner wouldn't have been awarded a $23-million payoff. He would've been put up against the wall and shot. What does the Board of Bystanders know that we don't know?

GM Expands

For starters, GM manufactures vehicles in thirty-five countries. GM has been expanding in emerging markets for twenty years and hasn't let up on the gas. In September 2008 GM launched construction of a $250-million corporate campus in Shanghai. GM invests about $1-billion per year to expand production in China. In April 2008 GM announced a plan to build a $200-million engine plant in Brazil. GM opened a second plant in India in September 2008, bringing its production capacity there to 225,000 vehicles per year. It also announced plans to double the number of dealerships and service centers throughout India. In November 2008, GM opened a $300-million plant on the outskirts of St. Petersburg that will produce 70,000 cars per year. In March 2009 a venture partly owned by GM through its Korean subsidiary Daewoo, announced a plan to open a new car plant in Tashkent, the capital of Uzbekistan, to produce 15,000 Chevrolets per year and create 1,200 jobs. Along side this international expansion GM announced the closure of twelve plants in the U.S. in 2007. In 2008 GM added five more to the list of plant closings.

GM is on the march but according to the folks who call $39-billion in “deferred tax credits” an asset, the UAW must get leaner and “welfare” for blue collar workers should be axed so “unearned income” for the leisure class can get jacked up.

The $39-billion asset was a boondoggle, it never existed, not even as an unhatched egg, let alone a chicken. It wasn't a loss of cash, it was an auditor's correction of crooked bookkeeping. But it helped steamroll the union and trumpet the demand to dump legacy costs. Labour's legacy of profit was invested outside North America, but that shouldn't make the debt uncollectable. Labour deserves to benefit from the investment of its legacy profits. Labour has a legitimate lien on capital.

Soldiers Of Solidarity has been saying this since 2005 when Delphi first filed for bankruptcy. Delphi transferred assets overseas. They insisted that assets outside the jurisdiction of U.S. courts were profitable, but untouchable. When Delphi proposed to cut wages in half and eliminate retirement benefits, we warned that Delphi was the lead domino, and the wage and legacy cut would ripple through the economy. We warned that the restructuring would spiral down and the impact on the economy would be profound and permanent.

It doesn't require a degree in economics to figure out that workers making $14 per hour don't buy new cars. They don't buy homes and they don't invest their savings in the stock market. They live paycheck to paycheck. Restricted income leads to boycott by default. The economic blowback won't end with the Detroit Three.

When GM's labour costs reach parity with Toyota, Toyota will ratchet wages down again. The automotive industry is too entrenched in our national economy not to have a cascading impact on wages throughout the country. The dominos won't stop falling at the end of the assembly line. They'll keep tumbling until every one is down.

If the Detroit Three can't sell cars to their own workers, it doesn't matter how cheap they buy labour. The market is going down. It's the paradox of thrift. When savings isn't invested at home, in production as opposed to speculation, it reduces demand and inhibits growth.

The double whammy of free trade and de-unionization in the U.S. compounded the thrift paradox. The savings extracted from cheap, non-union labour was invested overseas. The companies' thrift strategy undermined their most loyal customers – employees and communities in the United States.

What can workers do? What's our alternative? Strikes are worse than useless when the company wants to reduce inventory.

We are left with one option: the wallet vote. We aren't buying your crap anymore.

We won't buy anything we can't eat and we'll be growing our own. We aren't investing our life savings in banks or stocks or bonds. We are opting out of the system controlled by crooks and liars. In a rational society workers could petition the government to invest in productive enterprises that create jobs, but we don't have a socialist democracy. We have a government controlled by money changers and pissant politicians.

Unaccounted billions are turned over to private financial institutions. A pittance is dedicated to temporary job creation, and nothing is invested in manufacturing. Stop-loss loans that require collateral damage – layoffs and plant closings – as a condition of remission do not constitute investment. The arsenal of democracy has been outsourced to China, Brazil, and Uzbekistan.

Stuffing pockets at AIG, Bank of America, etcetera.... is not investing, it's speculation, it's casino capitalism. It's a massive transfer of wealth from the working class to a cadre of people who live off unearned income.

Zero dollars have been invested by our government in regenerative, productive, industrial capacity. The paradox of thrift is self defeat. If government funds aren't used to promote the prowess and ingenuity of manufacturing in the U.S., we won't see recovery, we'll see depression in capital letters.

The U.S. market didn't dry up naturally, it was raped and murdered. Unlike the Fools, we know the perps aren't the ones with dirt under their fingernails. The government has not, to date, gone door to door confiscating guns, but the oligarchy is methodically stripping the nation of toolmakers.

We are led to believe a lie when leaders degrade labour in honor of false profits.

Preserve your skills. We're going to need them. •

Gregg Shotwell is a recently retired UAW activist.

[Demeter]

75. The Housing Bust Takes Center-stage By Mike Whitney

http://informationclearinghouse.info/article22465.htm

April 21, 2009 "Information Clearing House" -- -The Fed's $12.8 trillion of monetary stimulus has triggered a six week-long surge in the stock market. Think of it as Bernanke's Bear Market Rally, a torrent of capital gushing from every leaky valve and rusty pipe in the financial system. The Fed's so-called "lending facilities" are a joke; stocks rocket into the stratosphere while the broader economy is stretched out corpse-like on a cold marble slab. Is this an economic recovery or just more of Bernanke's "no down" zero-percent "no doc" faux prosperity?

Bernanke has provided generous "100 cents on the dollar" loans for Triple A mortgage-backed collateral that is now worth 30 cents on the dollar. The Fed stands to lose trillions of dollars on these loans because the assets will never regain their original value. Eventually the taxpayer will have to pony up the difference in higher taxes, fewer public services and a weaker dollar.

Naturally, some of Bernanke's liquidity has made its way into the stock market where the prospects for maximizing profit are still the best. The Fed's creditors didn't borrowed the money just to stick it in a dusty vault in their offices. They've put it where they think it will do them some good. At the same time, the relentless systemwide contraction continues apace and hasn't been eased by Bernanke's low interest rates or lending programs. All of the economic indicators point to a deepening recession that will last for two years or more. Here's a clip from a recent statement from the IMF:


"Recessions associated with financial crises have typically been severe and protracted. Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others. Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992. The duration of a synchronous recession is, on average, nearly 1½ time as long as the duration of the typical recession. Recoveries are usually sluggish, owing to weak external demand..."

The recession will be a long uphill slog regardless of developments in the stock market. Bernanke admitted as much last Thursday when he said that the collapse of U.S. lending will cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be....The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting.”


Unlike Treasury Secretary Geithner, Bernanke has been surprisingly candid in his analysis of the crisis. That doesn't mean that his policies have been worker-friendly; far from it. But he has been honest about the shortcomings of deregulation and financial innovation. So far, the meltdown has wiped out more than $11 trillion of household wealth, ignited soaring unemployment, and pushed millions of people from their homes. As Bernanke admits, the country will not quickly bounce back from this 100-year economic flood.

Economists Kenneth Rogoff and Carmen Reinhart have conducted a study on the last 18 international financial crises and compiled their findings in a document called: "Is the 2007 U.S. Subprime Financial Crisis So Different?" What they discovered was that "rising public debt is a near universal precursor of other post-war crises" and that countries that experienced large capital inflows were particularly vulnerable to crises. By 2006, two-thirds of the world's surplus capital was flowing into the United States via its current account deficit. This flood of foreign capital kept interest rates low, housing and equity prices high, and Wall Street flush with money. Now foreign investment is drying up, housing prices are falling, the secondary market is frozen, and deflation is setting in across all sectors of the economy. Rogoff and Reinhart believe that "recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011." (Newsweek, "Don't Buy the Chirpy Forecasts")

The proliferation of opaque, unregulated debt-instruments (MBSs, CDOs, CDSs) also played a big role in the present crash by reducing transparency and increasing systemic instability. Here's Rogoff and Reinhart in their Newsweek article "Don't Buy the Chirpy Forecasts:

"Assuming the U.S. continues going down the tracks of past financial crises, perhaps the scariest prospect is the likely evolution of public debt, which tends to soar in the aftermath of a crisis. A base-line forecast, using the benchmark of recent past crises, suggests that U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession. Eight and a half trillion dollars may sound like a lot. It is more than 50 percent of U.S. national income. But if one looks at the Obama administration's stunning budget-deficit projections, with exceedingly optimistic projections on growth and bank-bailout costs, we think the U.S. is right on track."

Tax revenues are already falling sharply across the country as the recession deepens. In fact, Bloomberg News reports that “State and local sales-tax revenue fell more sharply in the fourth quarter of 2008 than at any time in the past half century"… (Corporate and personal income taxes are also declining at a record pace.) This makes it impossible to predict the ultimate cost of the crisis. But what makes it even harder is that Treasury Secretary Timothy Geithner refuses to remove toxic assets from the banks balance sheets using the usual "tried and true" methods. A recent report from a congressional oversight committee (The Warren Report) revealed that there are three ways to fix the banking system; liquidation, reorganization and subsidization. Geithner has rejected all three of these preferring to implement his own make-shift Public Private Investment Program (PPIP) which is thoroughly untested, has no base of public or political support, and is clearly designed to shift the toxic debts of the banks onto the taxpayer through publicly-funded non recourse loans. (Geithner's plan will allow the banks to establish off-balance sheet operations so they can buy their own bad assets from themselves using 94 percent public money) The whole thing is a obvious swindle papered-over with gibberish.

So far, less than $10 billion has been transacted through Giethner's PPIP; a mere drop in the bucket. The IMF estimates that the banks and other financial institutions may be holding up to $4 trillion in toxic assets. At the current rate, Geithner's strategy will take a century to succeed. There's simply not enough time. The Treasury Secretary knows his plan won't fix the banking system; he's just hoping that the economy rebounds before the government is forced to nationalize the big banks. It's just a stalling ploy, but, even so, there are risks. As the economy worsens, the likelihood of another financial meltdown or a run on the dollar increases. Foreign central banks and investors on getting antsy and are starting to rattle Geithner's cage. In recent months China has slowed it purchases of US Treasuries, traded tens of billions of USD in currency swaps, and gone on a spending spree for raw materials; all to protect itself from perceived weakness in the dollar....

HOUSING BUST REDUX: Shadow Inventory Portends an even Bigger Crash

Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program--which is a combination of mortgage modifications and refinancing--a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes. But it's clear now that the program will fall well-short of its objective. (Legislation for cram-downs, that is, allowing judges to reduce the face-value of the mortgage, is still bogged-down in Congress. Most economists believe that cramdows are the only way to keep people from abandoning their homes when they are underwater on their loans.)

In March, housing prices fell faster than anytime in the last two years. Trend-lines are now steeper than ever before, nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 million more foreclosures between now and 2011. This is a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting major hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

Here's a excerpt from the SF Gate explaining the mystery:

"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)


If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is insolvent.

Here is more on the story from Mr. Mortgage "California Foreclosures About to Soar...Again"

"Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing a brutal ajustment straight ahead. According to the Wall Street Journal:

"Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008." (Ruth Simon, "The housing crisis is about to take center stage once again" Wall Street Journal

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too...

[Demeter]

76. No Light In The Tunnel: A Housing Crash Update By Mike Whitney

http://informationclearinghouse.info/article22493.htm

April 25, 2009 "Information Clearing House" --- Why is the press misleading the public about housing? The housing market is crashing. There are no "green shoots" or "glimmers of hope"; the market is worn to a stump, it's kaput. Still, whenever new housing figures are released, they're crunched and tweaked and spin-dried until they tell a totally different story; a hopeful story about an elusive "light in the tunnel". But there is no light in the tunnel; it's dark as pitch as far as the eye can see. There’s no sign of a turnaround or a "bottom" in housing at all; not yet, at least. The real estate market is freefalling and it looks like it’s got a long way to go. So why are the media still peddling the same "rose-colored" claptrap that put the country in this pickle to begin with? Here's an example of media spin which appeared in Bloomberg News on Wednesday:

"US home prices rose 0.7 percent in February from the month before, the Federal Housing Finance Agency said in Washington today, a sign that low interest rates may be moderating declines in real estate values....Housing market data indicates prices are starting to “stabilize,” and households’ available cash should improve through each quarter of 2009 and into 2010." (Bloomberg)

This report is complete gibberish. The only way to get a fix on what's really happening with housing is to compare prices year over year (yoy) not month to month. Clearly, the journalist decided to spin the story from this angle because it offered the one flimsy sign of hope in a sector that's been reduced to rubble. But, don't be fooled, housing isn't staging a comeback. Not by a long shot.

This is from Marketwatch:

"The Case-Shiller index of 20 major cities fell 2.8 per cent in January, the fastest decline on record. The Case-Shiller index rose more than the Federal Housing Finance Agency (FHFA) index did during the bubble, and it's fallen faster since the bubble burst....The index was down 19 per cent year-over-year in January."

So, the only reason that housing prices rebounded (slightly) in February was because, one month earlier, they were "declining at the fastest pace on record." That's not a sign of "green shoots" like the Pollyannas say. It's a sign of a ferocious ongoing contraction.

The only thing that's keeping housing from collapsing completely is the Fed's purchases of Fannie and Freddie mortgage-backed securities. (MBS) Bernanke's action has pushed interest rates to record lows giving homeowners a chance to refinance rather than default on their loans. Struggling homeowners have been granted a one-time reprieve courtesy of the US taxpayer. That's great, but the fact that the Fed is subsidizing the industry to the tune of $1.25 trillion is hardly cause for celebration. What Bernanke should have done is prevented the credit bubble from inflating in the first place.

Check out this chart on The Big Picture to see a chilling illustration of a market in capitulation-phase.

As the caption states:

"We are now in uncharted territory — new home starts have never fallen to these levels for as long as the Commerce Department has been tracking this data (since 1959). Note also the magnitude of the drop — it is unprecedented, having easily surpassed the 1982 collapse, the present circumstances have now become slightly worse than the 1973-75 fall."

Housing will continue to deteriorate no matter what the Fed does; the downward momentum is too great to resist. And although the refi-business is booming, new home sales are still flat. Buyers are just too scared or too broke to take advantage of the ultra-low interest rates. (4.80 per cent 30-year fixed) And now that Obama's foreclosure moratorium is over, delinquencies are stacking up faster than ever before, auguring another wave of foreclosures. This is from DataQuick: "Golden State Mortgage Defaults jump to record High":

"Lenders filed a record number of mortgage default notices against California homeowners during the first three months of this year, the result of the recession and of lenders playing catch-up after a temporary lull in foreclosure activity ...

A total of 135,431 default notices were sent out during the January- to-March period. That was up 80.0 percent from 75,230 for the prior quarter and up 19.0 percent from 113,809 in first quarter 2008, according to MDA DataQuick.

And from Bloomberg:

"Fannie Mae and Freddie Mac mortgage delinquencies among the most creditworthy homeowners rose 50 per cent in a month as borrowers said drops in income or too much debt caused them to fall behind, according to data from federal regulators.

The number of so-called prime borrowers at least 60 days behind on mortgages owned or guaranteed by the companies rose to 743,686 in January, from 497,131 in December, and is almost double the total for October, the Federal Housing Finance Agency said in a report to Congress today." (Bloomberg)

So, even top-of-the-line prime borrowers are having trouble making their payments. The debt-virus has now spread to all loan categories. But what about Obama's mortgage relief program; won't that help keep people in their homes?

In the last two months, roughly 9,000 mortgage modifications have been worked out under Obama's Streamlined Modification Program. At the same time delinquencies have increased by roughly 195,000 per month. That means there are 186,000 more delinquencies than modifications per month. Obama's program is like a re-staging of grunting Sisyphus pushing his boulder up the hill; utter futility.

Many economists believe that "cramdowns" are the only way to slow the rate of foreclosures and stop the precipitous decline in housing prices. Cramdowns allow a judge to modify mortgages by marking down the face-value (the principle) of the loan. When mortgages accurately reflect current market prices, people tend to stay in their homes. But when prices fall sharply and homeowners owe more on their mortgage than their home is worth, (negative equity) they simply stop making their payments and leave.

So far, cramdown legislation has passed the House, but has stalled in the Senate where it looks like it will be defeated. Powerful groups of bond holders have taken their case to Capital Hill where they're waging a pitch-battle against the Obama plan. At this point, it doesn't look good for supporters of debt-relief even though cramdowns are desperately needed to stop the hemorrhaging of foreclosures.

The backlog of homes on the market is still in the vicinity of 10 months. But that excludes the vast "shadow inventory" the banks are keeping off the market. ...

[DemReadingDU]

77. wow, what a difference in extra memory!

Computer is older, only had 512mb memory. Everything was slow. I knew I did not have any viruses hogging the resources due to weekly diligence of computer anti-virus, anti-spyware, anti-adware. Then this past week, I started getting yellow warning messages that virtual memory was low. Ah!

I now have 2GB, and is this computer quick. In the same amount of time, I should be able to read twice as much now! If only I had a spare brain to remember it all. Oh, that's what a computer is for!

:)

[antigop]

79. Swiss ask U.S. to drop UBS tax evasion case

http://news.yahoo.com/s/nm/20090425/bs_nm/us_swiss_tax_merz

Switzerland, under pressure to join a global crackdown on tax fraud, asked the United States Saturday to drop a legal case involving UBS bank in return for a new tax accord the two countries are about to negotiate.

UBS agreed recently to pay a $780 million fine and disclose the identity of about 300 of its U.S. clients to avert criminal charges but U.S. authorities are still pursuing it, seeking to access the data of another 52,000 Americans they say are hiding about $14.8 billion in assets in Swiss bank accounts.

Swiss President Hans-Rudolf Merz, whose country is famous for strict bank secrecy, told a news conference U.S. Treasury Secretary Timothy Geithner seemed sympathetic to his call, put to Geithner at a meeting in Washington.

The two sides start talks Tuesday on a new bilateral tax treaty and Merz said he hoped the negotiations would move swiftly.

Any such accord needed to be adopted by lawmakers in both countries, though, and perhaps put to referendum in Switzerland, where it could stumble if the U.S. tax evasion case was still hanging over UBS (UBSN.VX) (UBS.N), Merz said.

[Demeter]

82. I'm Beat, Folks

It's the freaky weather. Mother Nature's thermostat is broken. There appears to be no realizable temperature between 49F and 85F. Just once I'd like to have an April of more than 5 days...

Still beating the 17th century music into my head....

Next weekend I am going away for my sanity. Who wants to run the thread?

If no one steps in, then I'll see you all in 2 weeks, after the outing and the concert and all the rest....