not so fast: Global economic crisis to continue: IMF chief - (Reuters) The global economic crisis will continue and countries must do more to adopt financial market regulations, International Monetary Fund Managing Director Dominique Strauss-Kahn told a German magazine on Saturday.Strauss-Kahn said he wanted to see more action from nations to curb bankers' pay and tighten capital requirements in the banking sector.
Fed's Yellen: The Outlook for Recovery This is a long excerpt from CalculatedRisk, but worth reading ...full text: San Francisco Fed President Janet Yellen: The Outlook for Recovery in the U.S. Economy
Fed Paying Interest on Reserves: A Primer - The Federal Reserve used all the weaponry in its arsenal during the financial crisis, and created some new ones. The Treasury’s decision to pull back one innovation — in which the Treasury sold bonds and put the money on deposit at the Fed — has put the spotlight on another one... the Fed’s target for the fed funds rates is near zero and the banking system is awash with reserves. Many of those reserves aren’t being lent to other banks which can then use them to lend them to customers. Instead, they’re on deposit with the Fed. Until recently, the Fed didn’t pay interest on these reserves. Now it does...
US credit shrinks at Great Depression rate prompting fears of double-dip recession - Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer...US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn). The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.
Lending Is Taking a Dive, Oh My! - Yves Smith - Team Obama has taken to trumpeting the idea that the recession is over. The fact that we will see inventory restocking will produce a statistical recovery, at least in reported GDP. But US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn). “There has been nothing like this in the USA since the 1930s, The rapid destruction of money balances is madness.”
Bernanke: "Recession Is Over" (Depression Has Just Begun) - Again, I come back to the same point: Credit is contracting as a consequence of borrowing ABILITY, not (so much) desire. All the "liquidity pumping" in the world does NOTHING if there are no willing and able borrowers.
Economic Donkeys - Today, a year after global financial collapse and the ensuing tragedy for millions, our economic leaders are lining us up to suffer again (and again) through the same horrible experiences. The collapse of Lehman in September 2008 demonstrated just how far our economic system in general and bank management in particular have gone awry...
Which Crisis? - People are beginning to think that the worst of the crisis is behind us. But which crisis are they referring to? If they mean the financial crisis, they may be right. In fact, I would be surprised if the apocalyptic events of last fall did not mark a high point, of sorts. However, there's plenty more trouble to come...
The Japan syndrome - The Economist - THE recovery story is in full swing, with stockmarkets continuing to move higher on the back of improving economic data. But while many people hope the economy and markets are simply returning to normal, the potential parallels with Japan are still worrying...
Stiglitz Says Bank Problems Bigger Than Pre-Lehman (Bloomberg) -- Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers. “In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said, “The problems are worse than they were in 2007 before the crisis.” Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker...
"The Triumph of Central Banking?" - Paul Volcker discusses the usefulness of macroeconomic policy: Paul A. Volcker In Conversation with Gary H. Stern, Minneapolis Fed (pdf): ...Economic knowledge and central banking...
Volcker Sees ‘Long Slog’ for U.S. Economy, Seeks Bank Limits - (Bloomberg) -- Paul Volcker, the former Federal Reserve chairman who’s an economic adviser to President Barack Obama, said there’s a “long way to go” before the economy returns to pre-recession levels. “It will be a long slog -- a matter of years -- with the risk of some relapses along the way,”
Is Paul Volcker a liquidationist? - Economist - This is the view of recession as morality play, or as the hangover after the binge, and it's generally one that saltwater economists tend to reject. Paul Krugman wrote about this hangover theory thusly: The basic idea is that a recession, is somehow a necessary thing, part of the process of “adapting the structure of production.” We have to get those people who were pounding nails in Nevada into other places and occupation
Desperately seeking an exit strategy – Nouriel Roubini - the crucial policy issue ahead is how to time and sequence the exit strategy from this massive monetary and fiscal easing. Clearly, the current fiscal path being pursued in most advanced economies – the reliance of the United States, the euro zone, the United Kingdom, Japan and others on very large budget deficits and rapid accumulation of public debt – is unsustainable
Clearing skies over U.S. economy open rift at Fed - (Reuters) - An improving U.S. economy has exposed a widening rift at the Federal Reserve over how quickly to scale back the central bank's aid measures, a debate that will be front and center when policy-makers meet next week. Heightened prospects for a strong resurgence -- rather than the sluggish rebound many still envision -- have led some officials to worry an inordinate delay in scaling back the enormous support the Fed has given the economy could squander its inflation-fighting credibility.
The Continuing Disaster of Wall Street, One Year Later - Robert Reich - Let's be clear: The Street today is up to the same tricks it was playing before its near-death experience. Derivatives, derivatives of derivatives, fancy-dance trading schemes, high-risk bets. “Our model really never changed, we’ve said very consistently that our business model remained the same,” says Goldman Sach's CFO...
Too Big to Fail’ Is Dangerous, in Finance and Health Care – NYTimes - President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion...
In Shift, Wall Street Goes to Washington - As financial firms navigate a life more closely connected to government aid and oversight than ever before, they increasingly turn to Washington, closing a chasm that was previously far greater than the 228 miles separating the nation's political and financial capitals.
Where Politics Don’t Belong - NYTimes - FOR years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating.
The Bailout Bill Comes Due, Vexing Agencies - The Federal Housing Administration, which is supporting the housing market by insuring loans for millions of struggling buyers, said Friday that its cash reserves had fallen below 2 percent for the first time. The Federal Deposit Insurance Corporation, meanwhile, is running out of money to pay back the depositors of failed banks. Taken together, the two developments indicate the limits of the government’s ability to make all the bad stuff go away...
Elizabeth Warren: Why Was Detroit Bailout Treated Differently Than Wall Street Bailout? - When car manufacturers in Detroit needed bailing out, Washington played hardball and made sweeping changes to the boards and management at both GM and Chrysler.Elizabeth Warren wants to know why two insolvent industries were treated so differently.Warren, chairwoman of the Congressional Oversight Panel, spoke with MSNBC (video incl)
For all Obama's talk of overhaul, the US has failed to wind in Wall Street - What went wrong? Have the right lessons been learned? Could it happen again? The anniversary of the freezing of the credit markets is an occasion for reflection. I fear that our collective response has been mistaken and inadequate – that we may just have made matters worse. The financial sector would like us to believe that if only the Federal Reserve and the Treasury had leapt to the rescue of Lehmans all would have been fine. Sheer nonsense...
Americans Have Been Taken Hostage - The American people have been taken hostage to a broken system. It is a system that remains in place to this day. A system where bank lobbyists have been spending in record numbers to make sure it stays that way. A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built. It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve; a system partially built by the very people who currently advise our President, run our Treasury Department and are charged with its reform.
Fed Secretly "Stuffed" $500 Billion into "Foreign Private Pockets" and Gave $230 Billion to Citi "As a Secret Bailout" - we examined the Fed balance sheet and P&L statement only to find what looked like the Fed handing over half a trillion dollars to foreigners. This was very surprising! When I asked Chairman Bernanke if this was true, he said, “Yes.” When I asked him who got the money, he said, “Fourteen foreign Central Banks.” And when I asked to who did they give the money, he said, “I don’t know.” “I don’t know” is not good enough when you’re talking about $500 billion. That’s $1700 for every man, woman, and child in this country...
Ron Paul: "Goldman Sachs Has A Lot Of Influence In Our Treasury And A Lot Of Influence In Our Federal Reserve""[The Fed] is bigger than the Congress, [it] has more power than the Congress. The Fed Chairman probably is more powerful than our president, and yet we refuse to look at it. The time has come for us to look at the Fed"
So Much For High Frequency Trading - The Securities and Exchange Commission has proposed halting high frequency and flash trading. In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice. This was a given. The real question that remains unanswered and demands a thorough investigation is this: WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?
A Short History of Fast Times on Wall Street - NYTimes - MANY fear that new technology is giving some investors unfair access to stock market information. Supercomputers allow certain traders to profit by executing trades in milliseconds, a practice known as high-frequency trading. These traders also use a technique called flash orders that gives them a sneak peek at other investors’ orders to buy and sell stock. This may seem like a 21st-century problem. But in fact, similar criticisms have been made for over 100 years...
Credit Swaps Lose Crisis Stigma as Confidence Returns – Bloomberg.com
(Bloomberg) -- A year after the bankruptcy of Lehman Brothers Holdings Inc., credit-default swaps have lost their stigma for disaster and are contributing to the growing confidence in the credit markets. The cost to protect against a failure by the biggest derivatives dealers dropped 66 percent in the past six months, according to an index of swaps compiled by Credit Derivatives Research LLC.
Financial Armageddon: I Admit It - I admit to thinking "I told you so" when I read the following article, "Derivatives Still Pose Huge Risk, Says BIS," from The Telegraph, in which those-in-the-know acknowledge that gross exposure, among other things, really does matter after all: "The global market for derivatives rebounded to $426 trillion in the second quarter as risk appetite returned, but the system remains unstable and prone to crises, according to the Bank for International Settlements (BIS)."
Maybe Securitization Didn't Cause The Crisis - Soon forthcoming in the top-ranked Quarterly Journal of Economics is a very well- received paper by four economists with convincing evidence of what many believe was the primary cause of the subprime boom and bust: That securitization took away the incentive for lenders to properly vet borrowers. But there's some new evidence questioning the paper's findings...
Wells Fargo's Ticking Time Bomb: Credit Default Swaps On Commercial MortgagesOutside experts hired by Wells Fargo to examine its books are reportedly shocked at the bank’s exposure to derivatives trades it took on when it acquired Wachovia may trigger huge losses at the bank, as per BankImplode.com It appears that Wachovia wrote credit default swaps on the junior tranches of commercial mortgage backed securities it was selling, which means that it is on the hook for losses in the riskiest CMBS tranches it sold. Wells itself might not even know the size of its exposure
Let them eat equity tranches - A curious proposal for securitisation reform has appeared in BIS’s latest quarterly review. The argument, so it goes, is that securitisation didn’t do so well in the recent financial crisis — structured financial products weren’t immune (or even that well protected) from losses in underlying collateral. Now that resecuritisation seems to be gaining pace, it might be a good idea to try to improve the process — that is, to try to “align the incentives” of those involved in securitisation
BIS Advises Higher Taxes For Big Banks - WSJ - Big banks' risks to the system increase more than proportionately with their size, and these financial giants should pay higher taxes to offset their potential threats to the system, a new study by the Bank for International Settlements says...
Fed Considers Bank Pay Limits - NYTimes— The Federal Reserve and the Treasury are preparing broad new rules that would force banks to rein in practices that made multimillionaires out of many financial executives during the housing bubble. The rules depart from the hands-off approach that dominated bank regulation for the last three decades, but are not as strict as proposals from some European leaders and suggestions from some members of Congress angered by the financial troubles of the last year.
The Federal Reserve contemplates compensation rules for banks -TIME - I was a little nonplussed this morning when I read the not-very-shocking WSJ article that came with the shocking headline, "Bankers Face Sweeping Curbs on Pay." What's happening is that the Federal Reserve is contemplating a rule that would allow bank examiners to veto compensation policies that they think encourage undue risk-taking...
Fed Plays Politics on Banker Pay - Yves Smith - The Wall Street Journal has a headline that would warm the cockles of any populist’s heart: “Bankers Face Sweeping Curbs on Pay.” And even more impressive, who is going to rein in banker compensation? The Fed. That alone should tell you there is less here than meets they eye. Let’s look at the outline of the idea...
Reforming the Financial System - Editorial - NYTimes - important work of regulatory reform remains undone. The proposed legislation that would bring most of the financial system under a regulatory umbrella, and impose higher capital requirements to cushion against losses. But in specific areas, like consumer protection, officials will have to fight to ensure that lawmakers do not water down the administration’s intent. In another area — the regulation of derivatives — Congress must improve the administration’s proposal...
The Hard Truth About Financial Regulation - Forbes - For all the talk and hand wringing $and billions in direct government equity stakes in major banks and loan and debt guarantees$ there's also been little real progress on how, or if, Washington might regulate its way out of this kind of mess in the future. Don't expect that to change anytime soon, as markets become more, not less, complex and interconnected...
But Who Is Watching the Regulators? - NYTimes - Senior regulators who stood idly by for years as financial firms built their houses of cards have been rewarded with even bigger jobs or are jockeying for increased responsibilities. The Federal Reserve Board, for example, wants to become the financial system’s uber-regulator, even though its officials did nothing as banks made deadly decisions to lend recklessly and leverage themselves to the max...
Why a meltdown could happen again -What have President Barack Obama and Congress done to prevent them from doing it to us again? Pretty much what Obama did when he spoke to Wall Street earlier this week. Talk. "They really haven't done anything that could prevent another meltdown," says Joseph Mason, a financial-sector expert who used to work for one of the main national banking regulators, the Office of the Comptroller of the Currency...
Text of Obama’s Financial Speech - SF Fed - Presentation to the San Francisco Society of Certified Financial Analysts on Monday
Why Didn’t The Major Bank CEOs Show Up On Monday? - Baseline Scenario - More than any technical discussion of raising capital standards or tightening leverage ratios, this presumably uncoordinated failure to show up speaks volumes about current attitudes on Wall Street. The CEOs of our biggest banks have weighed the man and done the trade. They have no more use for this President, and see no reason to show support. They have moved on – presumably back to whatever they were doing before...
Too-Big Banks Can Take Comfort in Obama’s Math (Bloomberg) -- President Barack Obama did Americans a great service yesterday. He boiled down what’s wrong with his administration’s approach to the financial crisis into a single, symbolic statistic. Let’s be clear: Taxpayers have not earned a 17 percent return on the bailout. Real-life investors don’t count only their winners. It is clear that, despite the rhetoric, the reforms will be timid and that the time has passed for true reform with other policy items now taking star billing
Why Wall Street Reforms Have Stalled - NY Times Debate Forum - commentary on why it’s so hard to regulate Wall Street from seven finance talking heads
John Hempton: Vested self interest and the future of Fannie Mae and Freddie Mac
- Wall Street always hated Fannie and Freddie taking interest rate risk – it encroached on the profitability of Wall Street trading desks. Trading interest rate risk is the core business of Wall Street trading desks – and they hated having GSEs (with funding advantages) crowding them out of their own game. But Wall Street loved Fannie and Freddie taking credit risk – that meant that Wall Street could splice and dice mortgages all they like – and know that eventually Uncle Sam will pick up any credit losses.
Reforming Banking by Reforming Housing - Like heart disease, there may be many different significant risk factors for banking crises. However, the evidence to date suggests that real estate volatility is one of the most important, if not the most important. Reducing the risk of future crises (and their drain on the public treasury) requires that something be done to address this risk factor...
Regulation in Defense of Capitalism - Will regulation hobble capitalism? I think the opposite is true. Properly done, government regulation of the financial industry will move the industry closer to the capitalist ideal. By capitalism, I mean where those who take the risks and put up the money get the fruits of their labor. And, importantly, where those who take the risks and put up the money actually do take the risks, bearing the full costs of failure as well as success.
Why capitalism fails - if Minsky was as right as he seems to have been, the news is not exactly encouraging. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.
The Origin of Development as Cover for Imperialism and Racism - The British feared that non-white people in the colonies might side with the Japanese rather than their colonial masters. The British had to come up with a new justification for colonial rule to replace the unpopular and increasingly implausible idea that they were a superior race destined to rule inferior races. In response, they invented the concept of economic development.
The Imperial Origins of State-Led Development - Globalization protesters routinely link American imperialism to promotion of capitalism overseas. For example, Naomi Klein’s 2008 book The Shock Doctrine: The Rise of Disaster Capitalism draws a vivid connection between American interventions overseas (like the CIA overthrowing Allende in Chile, or today’s Iraq) and the promotion of free markets (“neoliberal economics”).
Why the corporation? - Recently I posted about C. Wright Mills and his analysis of power elites in America (post). A major theme in Mills's book is the new power associated with the American corporation following World War II. Charles Perrow's Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (2002) offers an historical account of how this system of power came into being. The topic is particularly relevant today, when the Supreme Court is considering whether "corporations have a right to free speech", and therefore a right to further deepen their influence on political directions and policies through their funding of political messages.
Ben Bernanke and the Missing $165 Large - $165 large (billion) is missing from the economy, or soon may be, about 1.2 percent of GDP including the vig, and Ben Bernanke knows the whereabouts, or, rather, the where-it-isn'ts. We're referring, of course, to the Federal Reserve's Consumer Credit Report, the July G.19 released today, which shows a seventh consecutive monthly decline in revolving charge card balances, the longest pay-down streak seen since a similar stretch in 1980. Now charge-card credit is falling at an 8.0 percent pace, seasonally adjusted...
Charging People For Not Having Enough Money Is Big Business - By not warning customers that they're close to running out of money, and just letting them run out of money, banks are making a lot of money -- charging people for not having enough money. The New York Times reports that "this year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance. In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards."
The giant sucking sound of US private sector credit contraction - Private sector deleveraging accelerated fairly dramatically in Q2, even as financial market conditions were showing material improvement. Private sector credit contracted by $2.32 trn at an annul rate after shrinking $1.84trn in Q1. This is an unprecedented event in the postwar period and highlights the fragility of the recent recovery.
U.S. Credit-Card Defaults Resume Ascent as Unemployment Worsens - Bloomberg.com(Bloomberg) - The biggest U.S. credit- card lenders said defaults climbed in August as the unemployment rate jumped and the impact of tax refunds waned. The industry’s data may signal that the second quarter’s improvement will be short-lived as tax refunds and federal efforts to stimulate the economy run out. Defaults tend to track the jobless rate...
Adviser: High Unemployment For Years - The president’s chief economic adviser warned Friday that the nation’s unemployment rate could stay “unacceptably high” for years to come — a situation that would seriously complicate Barack Obama’s ability to convince Americans that he’s beating back the recession.“The level of unemployment is unacceptably high,” Larry Summers said Friday. “And will, by all forecasts, remain unacceptably high for a number of years.”
Manpower Employment Outlook Survey: No Respite In Sight - When seasonal variations are removed from the data, the results suggest that employers expect a slight decrease in the rate of hiring when compared to Quarter 3 2009. The fourth quarter Net Employment Outlook for the U.S. is considerably weaker than one year ago at this time.
New York Faces Dramatic Consequences of Crisis - Der Spiegel - The global financial crisis began in Manhattan, and its effects are being felt far more strongly there than elsewhere. Mayor Michael Bloomberg says the situation is critical. Millions are fighting to keep their jobs. Is what is happening in New York today a harbinger of the fate of the rest of the world?
As Jobs Are Lost in Recession, So Is the Middle Class - Across the United States a sense has taken hold that the Great Recession and the financial crisis are predominantly a result of national profligacy, yet that is only part of the explanation. Many have lived beyond their incomes simply because incomes have been outstripped by the costs of middle-class life. “For middle- and low-wage workers, the median wage basically went nowhere over these years.
How about those jobless claims? - The Economist - THEY'RE still high. News outlets may trumpet that they feel by more than expected, to 545,000, but the numbers continue to be where they've been, more or less, since the beginning of July. That's nearly three months with no significant improvement. As usual, Calculated Risk has the helpful chart
Nearly Half Of US Households Hit By Job Losses Or Pay Cuts - Nearly half the country has had a pay cut or job loss in the last year, according to a new poll from the Washington Post and ABC News. A shocking 41 percent say that in the last year someone in their household has had their pay or work hours cut. Twenty-seven percent say someone in their home has been laid off or lost their job.
Fed: Household Net Worth Off $12.2 Trillion From Peak - The Fed released the Q2 2009 Flow of Funds report today: Flow of Funds. According to the Fed, household net worth is now off $12.2 Trillion from the peak in 2007. (graph) This is the Households and Nonprofit net worth as a percent of GDP.
The Poverty Rate Is Vastly Understated - Very little to add to this story, other than the official definition of poverty by government statisticians borders on criminal. Either this figure has never been indexed to inflation, or government workers have never lived life in the real world paying for basics such as shelter or food. Obviously the true numbers (and percent) of Americans living in poverty is much higher than below - but whatever the actual number, this economy is not working for a great many.
Economic Inequality: The Wall Street Journal is Just Wrong - The Wall Street Journal front page story last week was shocking. It’s use of bad data was a misuse of this important forum. In effect, the article says that economic inequality was never really a problem, and even if it is we no longer have to worry about it. These conclusions are just plain wrong.The Journal article effectively leads the reader to two conclusions: First, any issues that may exist around economic inequality are disappearing, because of the likely decline in the outsize incomes of the top 1% of Americans, those with a minimum income of $400,000. Second, the problem was never really that bad in the first place
Wrongheaded and Incomplete on Incomes - This morning’s page-one Wall Street Journal story on incomes in America contains many bungled facts and concepts in a single sentence, giving a false impression about income distribution in America. The piece follows the curious look at the fortunes of the rich published August 20 by The New York Times...These reports display a puzzling sympathy for the best-off in America...
Press Accuracy Rating Hits Two Decade Low: Overview - Pew Research - (surveys, graphs, tables) - Just 29% of Americans say that news organizations generally get the facts straight, while 63% say that news stories are often inaccurate. Similarly, only about a quarter (26%) now say that news organizations are careful that their reporting is not politically biased, compared with 60% who say news organizations are politically biased. And the percentages saying that news organizations are independent of powerful people and organizations (20%) or are willing to admit their mistakes (21%) now also match all-time lows.
Annual Decline In CNBC Viewership Accelerates: Down 37% In Overall Viewers Category - CNBC continues to bleed vierwers. Whereas the last time we provided an update of CNBC's vierewship as measured by Nielsen, the GE subsidiary was down 28% YoY, the September decline is even more pronounced: at a 37% decline in total viewers and a 26% decline in the 25-54 demographic.
Reducing media bias through regulation - VoxEU - Is there a crisis in the media and journalism? This column alleges that advertising has seriously interfered with the quality, accuracy, and breadth of content and programming in the media. It calls for vigorous competition in media markets and public funding of informative media as a public good.
Will Obama, Fed tolerate another jobless recovery? - As the economy begins to grow again, the nation faces a huge challenge: Consumers drive roughly 70 percent of U.S. economic activity, but job growth is expected to be quite slow even as the recovery gains steam. Think of it as America's chicken-and-egg dilemma: The economy needs a big jump in consumer spending to spur exceptional growth, but that won't happen as long as unemployment remains high.
Consumer spending on the mend? - There is some evidence out there that consumer spending has dropped so low, that with confidence anew (see national Consumer Confidence and Sentiment surveys), consumers are taking baby steps back into the spending picture. According to Gallup, consumers spent and average $66/day on 9/13/09, up from $59/day at the end of August.(w/ chart of 14-day moving average)
Quick Note on Confidence - As Calculated Risk noted, the commentary on the August Consumer Sentiment number from the University of Michigan ran along the generally positive tone echoed by the Wall Street Journal. Looking at a charts, it is tough to see much of a rebound in August; the bounce happened in April, and the index has been moving sideways since: (charts follow)
Someone Is Lying - The most recent reading of the increasignly unreliable UMichigan Consumer Confidence index was recently at multiyear highs, yet today the ABC Consumer Index turned down yet again. The most recent reading was -49, a one point reduction from -48 in the prior week, and below the SM Average of -48.57. Not surprisingly, this week 43% of Americans feel the economy is getting worse, up 12% from last month!
A confession from a home ownership advocate - The game of finding someone to pin the blame on for the US housing market collapse has gone on long enough. Are the bankers responsible? The analysts who didn’t see it coming? The McMansion mums who bought homes that they couldn’t afford? No. I did it. It was me. In 2003, I worked for one of those well-meaning organisations that promoted home ownership in low-income communities.
Lehman is a footnote in the great East-West globalisation crisis - As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.
Homeowners who 'strategically default' on loans a growing problem - Who is more likely to walk away from a house and a mortgage -- a person with super-prime credit scores or someone with lower scores? Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers.
"Option" mortgages to explode, officials warn (Reuters) - The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset. "Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a meeting with members of President Barack Obama's administration. Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth.
The Credit Score Impact of Mortgage Choices ... short sales can trigger big drops in credit scores. ... strategic defaults [lead to even larger credit hits] "plus negative marks on their credit bureau files for as long as seven years." ... People who file for bankruptcy protection covering all their debts (mortgage, credit cards, auto loans, etc.) will get hit [the hardest]. Bankruptcies remain on borrowers' credit bureau files for 10 years.
More on Housing Tax Credit - From Bloomberg: Homebuyer Tax-Credit Extension Gains Lawmaker Support - An extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million.
This is terrible policy, and hopefully the bill will be scuttled.
The Housing Tax Credit Debate - From David Streitfeld at the NY Times: Fight Looming on Tax Break to Buy Houses. Streitfeld discusses some of the proponents of extending and expanding the tax credit (like the NAR), and some of the opponents (most economists on the right and left. Mark Zandi at Economy.com supports extending and expanding the tax credit because he believes the housing market is still in serious trouble. But if we actually look at the numbers, this is a poor choice for a second stimulus package....
BlackRock’s Fink Says Obama Loan Rules Threaten Mortgage Market (Bloomberg) -- BlackRock Inc. Chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties.
The Impact on Mortgage Rates of the Fed buying MBS - The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets were basically flat at $2.14 trillion. This graph from the Atlanta Fed shows the breakdown in the assets. This raises an interesting question: What is the impact from Fed MBS buying on mortgage rates?
FTC Considers Total Ban on Upfront Loan Modification Fees. - The head of the Federal Trade Commission said Thursday the agency is considering banning upfront payments to companies that advertise help for borrowers who are in trouble on their home loans. Government officials say scammers seeking to take advantage of borrowers in danger of default often charge upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.
Unable To Sell Their Houses, Millions Of Homeowners Are Turning Into Landlordsmaybe - Since 2007 about 2.5 million homes have been converted into rentals, according to an analysis performed for The Huffington Post by Foresight Analytics, a real estate market research firm. The conversions account for about 85 percent of the increase in rental homes.
Fed Reviewing Banks' Commercial Real Estate Exposure (CNBC) The Federal Reserve is involved a broad review of commercial real estate exposures at the nation's largest regional banks, which Fed sources say is both the result of concern in that area but part of the "new normal" for how they will be supervising banks...People familiar with the examinations say the fed is "getting granular" looking, for example, at the differences in banks' concentration of construction loans vs. multifamily vs. motels and retail.
Quelle Surprise! Regulators Starting to Worry Re Bank Commercial Real Estate Exposures - Yves Smith - Apollo Management, which is a very savvy real estate player, warned of a coming “black hole” in commercial real estate six months ago. - US bank regulators seem to be taking warnings of his sort seriously only now. The Fed is poking its nose into the portfolios of some banks, oddly taking great care to say these are NOT stress tests...
Another Year, Another Decline in Employer-Based Coverage - Ezra Klein shows the new Census figures on the uninsured. The long-term trend is absolutely clear: employer-based coverage is declining and public coverage is increasing, but not enough to make up the gap. Looking at the underlying data, we can see that 2008 was the eighth consecutive year in which the proportion of people covered by employer-based health insurance declined.
A Modern Safety Net - The Great Recession has revealed that our social safety net--primarily established by Franklin D. Roosevelt during the Great Depression--is more hole than net...the fundamental income-support programs for those in need--unemployment insurance, cash welfare through the Temporary Assistance for Needy Families (TANF) program, and food assistance through the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps)--have been off the front burner in the policy debate and are in need of reforms
Closing The Book On The Bush Legacy - On every major measurement, the Census Bureau report shows that the country lost ground during Bush's two terms. While Bush was in office, the median household income declined, poverty increased, childhood poverty increased even more, and the number of Americans without health insurance spiked.
The Wild Card - NYTimes - there’s a wild card out there undermining the chances for real reform, and it’s not the crazies who have been disrupting health care forums. It’s the ordinary working men and women of America who are struggling with the worst economic downturn they have ever seen and who are worried that the big new plans that the Democrats have in store may not be in their best interests — and may not be affordable.
How Does the NYT Know that Republicans Are Opposed to a Public Health Insurance Option: “Because They Are Worried About the Costly Commitments Undertaken by the Government to Stave Off Economic Collapse?" - This is certainly a more politically appealing line then saying that they oppose a public option because of their close ties to the insurance industry. Since the NYT does not know the real reason that Republican members of Congress oppose a public option, it should refrain from making assertions about their reasons, and simply report what they say.
Kung Fu Monkey: I Miss Republicans. - No, seriously. Remember Republicans? Sober men in suits, pipes, who'd nod thoughtfully over their latest tract on market-driven fiscal conservatism while grinding out the numbers on rocket science. Remember those serious-looking 1950's-1960's science guys in the movies - Republican to a one. They were the grown-ups. They were the realists. How did they become the party of fairy dust and make believe? How did they become the anti-science guys? The anti-fact guys? The anti-logic guys?
Dem Senator Warns of 'Big, Big Tax' on Middle Class in Baucus Bill - It's not every day that you hear a Democratic senator charge that a fellow Democrat is proposing to raise taxes on the middle class, but that is what happened when Sen. Jay Rockefeller, D-W.Va., ripped into the health-care bill developed by Sen. Max Baucus, D-Mt The Baucus proposal would impose, starting in 2013, a 35 percent excise tax on insurance companies for "high-cost plans" -- defined as those above $8,000 for individuals and $21,000 for family plans.
Baucus and the Threshold, by Paul Krugman - NYTimes - ... whatever health-care bill finally emerges will fall far short of reformers’ hopes. Yet even a bad bill could be much better than nothing. ... How bad does a bill have to be to make it too bad to vote for?
International Health Care Spending Comparisons - re: business week table - the analysis is flawed. Note it is in terms of Purchasing Power Parity (PPP)...it could mean that spending in the domestic currency was unchanged and the exchange rate used to calculate it in PPP terms changed... Because of this these growth rate comparisons are meaningless.
Unhealthy men ‘may lose 10 years’ - BBC - Middle-aged male smokers with high blood pressure and raised cholesterol levels face dying about 10 years before healthier counterparts, a study warns. The UK study looked at more than 19,000 civil servants aged 40-69 and traced what happened to them 38 years later
Lack of insurance causes more than 44,000 U.S. deaths annually - SciAm - Going without health insurance can delay when people obtain primary and preventative care, potentially resulting in poorer health. Even more gravely, a lack of private health insurance brings an increased risk of death; uninsurance is to blame for some 44,789 adult deaths across the U.S. every year, according to a new study published online today in the American Journal of Public Health
Physician Views on the Public Health Insurance Option and Medicare Expansions - RWJFA RWJF survey summarized in the September 14, 2009 edition of the New England Journal of Medicine shows that 62.9 percent of physicians nationwide support proposals to expand health care coverage that include both public and private insurance options
Birthers, Deathers and Truthers - the reason behind the madness - Birthers believe Barack Obama's birth certificate was faked. Deathers believe Obama's health care reform bill is Soylent Green in disguise. Truthers believe the 9/11 attack was an inside job So should we mock the weak, or, with greater wisdom, accept that Reason is a hard road that few follow? I would say neither. I have had the opportunity to observe someone with a quite low IQ be right when I am wrong...
The Recession’s Racial Divide – NYTimes - What do you get when you combine the worst economic downturn since the Depression with the first black president? A surge of white racial resentment, loosely disguised as a populist revolt…An article on the Fox News Web site has put forth the theory that health reform is a stealth version of reparations for slavery: whites will foot the bill and, by some undisclosed mechanism, blacks will get all the care. President Obama, in such fantasies, is depicted as a befeathered African witch doctor with little tusks coming out of his nostrils.
The Return of the Repressed - Now that popular conservatism has given itself over so avidly to racial resentment, it's curious to remember how hard the right once tried to scrub itself of the lingering taint of prejudice. Indeed, for a decade and a half the Christian right -- until recently the most powerful and visible grassroots conservative movement -- struggled mightily to escape its own bigoted history...
Barack Obama Does Something Really Stupid: Tire Tariffs - Let's see... 250 million cars in America... need 4 tires per car... need new tires every 2.5 years. 400 million tires a year... $1.4 billion dollars a year... 10,000 worker jobs saved... $140,000 dollars per worker-job per year.Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.
China Investigating U.S. Exports - NYTimes - China unexpectedly increased pressure Sunday on the United States in a widening trade dispute, taking the first steps toward imposing tariffs on American exports of automotive products and chicken meat in retaliation for President Obama’s decision late Friday to levy tariffs on tires from China. The Chinese government’s strong countermove followed a weekend of nationalistic vitriol against the United States on Chinese Web sites in response to the tire tariff.
Tire tariffs and the general cluenessness of the New York Times - China’s response is only unexpected if you know nothing about international trade and Chinese politics. The Chinese response is perfectly expected if you have the slightest idea of what is going on. What would you expect the Chinese government to do, hug and kiss the US trade negotiators and heap love and praise on them. Thank you, thank you, thank you for imposing tire tariffs. Sheesssshhh.
US tyre duties spark clash - Financial Times - A full-blown trade row erupted between the US and China after Beijing accused Washington of “rampant protectionism” for imposing heavy duties on imported Chinese tyres and threatened action against imports of US poultry and vehicles. Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.
China Reacts Quickly and Badly to Tire Tariffs - Yves Smith - when the US imposed stiff tariffs on imported tires from China late on Friday, we noted, “This could get interesting in a bad way.” The Chinese responded quickly over the weekend to announce they were investigating US auto parts and chicken, which together account for roughly as much as the disputed tires ($1.2 billion versus $1.3 billion for tires). The Financial Times branded the harsh reaction from China as elevating the US action to “a full-blown trade row.”
China scorns focus on imbalances - "China – which reacted angrily to US moves to slap countervailing duties on tyre imports this week – wants the G20 to make a strong commitment to avoiding protectionism…US officials see co-ordinated efforts to reduce global imbalances as essential to underpin the recovery from the global recession and ensure the future pattern of global growth does not rely on bubble-fuelled spending in the US."
an editorial from the Economist: Barack Obama does a bad thing - THIS is not good. Not good at all....while the direct effects of the move are sufficient to move the tariffs into bad idea territory, the loss from the tire tariff is small relative to the potential loss of a series of retaliatory measures from both countries.
Economists React: China Tariff “Disappointing” and Timing “Unfortunate” - WSJ - capsule comments from several blogs, with links to the blog articles...
FT.com – Obama’s decision on tariffs is calculated cynicism - "The US may import fewer tyres from China, but this decision is not going to jumpstart moribund domestic tyre production. This is protectionism without the protection...
Behind the scenes with China and America - The Economist - "China scrupulously avoids using its Treasury holdings to air such frustrations. The risk of self-sabotage is simply too great, especially as its pile of Treasuries has grown: Even a couple-percentage-point loss on a trillion-dollar portfolio translates to tens of billions of dollars."
Murder-Suicide in Chimerica - With this trade war looming, one must wonder if Chimerica, the marriage of China and America as one economic entity, will end in murder-suicide, taking the global economy down with it. I now see a trade war between China and the United States as the biggest threat to global economic recovery.
The “noodle bowl” of free trade agreements in East Asia - Vox EU - East Asian economies adopted numerous preferential trade agreements over the last decade. This column summarises the results of a survey of firms in the region examining the effects of those trade deals. The region’s exporting manufacturers largely view trade preferences positively, though further policy action is needed to maximise the potential benefits.
Revealed: The ghost fleet of the recession on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers - all should be steaming fully laden between China, Britain, Europe and the US. Never before photographed, it is has no crew, no cargo and no destination. (incl. satellite photos and more)
What’s “Hot” and What’s Not, in International Money - China during the years 2004-2008 was pretty much the first large country to face charges of unfairly manipulating its currency to keep it undervalued. But US Congressmen who have for years urged China to abandon its link to the dollar could well live to regret it, if they were to get their way and the People’s Bank of China did in fact stop buying US treasury bills...
Peking Over Our Shoulder - Our Chinese shareholders get nosy - The Chinese bureaucrats at his table mostly wanted to know about health care reform. "They were intrigued by the most recent legislative developments," Orszag says. "It was like, 'You're fresh from the field, what can you tell us?' " As it happens, health care is much on the minds of the Chinese these days. Over the last few years, as China has become the world's largest purchaser of Treasury bonds, the government has grown increasingly sophisticated in its understanding of U.S. budget deficits.
China’s recovery starts to accelerate - FT -China’s economy showed fresh signs on Friday that its recovery was gathering pace, with data showing that investment, industrial output and credit all expanded more rapidly in August, although the government still believes it is too soon to begin tightening policy.
China Will Be an Even Bigger Bubble Than Japan - the Chinese economy has many similarities to the Japanese economy before it imploded in the 90’s. 8 reasons why the Chinese economy is likely to be an even larger implosion than the Japanese economy...
China to world: No more shiny metals for you - China may ban export of gold, silverLast week Alan Greenspan noted that “Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies.” In other words, people are buying gold as a hedge against inflation.
Nicolas Sarkozy wants ‘well-being’ measure to replace GDP – Telegraph - Nicolas Sarkozy, the French President, has called on politicians to ditch GDP as a measure of national wealth and replace it with one that quantifies well-being alongside economic strength Speaking at the launch of a report he commissioned from Nobel Prize winning economist Joseph Stiglitz , President Sarkozy said France would pioneer the new technique and urge other countries to follow suit.
Towards a better measure of well-being - FT -A political leader will be graded on economic performance but there are many other dimensions to the quality of life, including the state of the environment. While there is no single indicator that can capture something as complex as our society, the metrics commonly used, such as gross domestic product, suggest a trade-off: one can improve the environment only by sacrificing growth. But if we had a comprehensive measure of well-being, perhaps we would see this as a false choice...
Public Spending and Child Well-being Rankings, OECD countries (table)
FT - Lending in Europe continues to shrink - The credit crunch in Europe worsened over the summer as corporate bond finance issuance failed to plug the gap left by a sharp contraction of bank lending. Net lending by banks went further into negative territory in July as companies paid back more loans than they took out new ones. Loans outstanding contracted by a net €25bn ($36bn) in the month, the fifth successive month of an increasing shrinkage of supply. At the same time, there was a retreat in the recent record corporate bond issuance.
Industrial Policy Showdown at World Bank: the policy that may not exist also may not work (Aid Watch - The World Bank’s PSD Blog has a good discussion of the debate last Monday between Justin Lin (Chief Economist of the World Bank), Ann Harrison (Head of trade policy division at the Bank and well-known trade economist), and myself (random trouble-maker). The debate was very civil, and I am very grateful to Justin Lin for being so willing to debate his ideas openly (as opposed say to a former Chief Economist who forced me to seek political asylum to escape his enforcers...
House prices will take five years to return - Times UK - The recent rise in property values is a “false dawn” that will not last beyond spring...House prices will not return to the peak reached in autumn 2007 for at least another five years, according to Ernst & Young’s Item Club. The influential group’s gloomy forecast contradicts the increasingly optimistic outlook of the Government and some commentators that the British economy has begun a sustained recovery.
UK 'could face blackouts by 2016' - BBC -The government's new energy adviser says the UK could face blackouts by 2016 because green energy is not coming on stream fast enough. MacKay blamed the public for opposing wind farms, nuclear power, and energy imports, whilst demanding an unchanged lifestyle. You cannot oppose them all, he said, and hope to have a viable policy on energy and climate change.
Europe fears winter energy crisis as Russia tightens grip on oil supplies - UK Guardian - Russia's stranglehold over dwindling global energy resources was dramatically confirmed yesterday when new figures showed that the country has become the world's biggest exporter of oil.
With production in August hitting record levels, Russia toppled Saudi Arabia from the number one spot. It is already the world's largest exporter of gas, and supplies around a third of the European Union's consumption.
Road to Harmonious Decline in Japan - Tokyo University economist Fumio Hayashi has demonstrated that the main reason behind Japan's 20 years of stagnation has been the decrease in the quantity of work performed by the Japanese. The government itself has led the way here, starting with its decision to close public administration buildings on Saturdays. Japan's banks followed suit.
Pentagon preps for economic warfare - The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.
But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies
Will Peak Oil Pricing = Perma Recession? - Last year when oil was skyrocketing, peak oil talk was all the rage. Now you hear nary a peep save from the diehards. But commodity prices are grinding upward, in the face of rather sizable inventories...this article presents an interesting theory on the relationship of oil prices and growth. Bottom line: historically, when the cost of oil expenses reaches 4% of GDP, the economy shrinks. And we are not that far from that trigger...
Total’s Victoria Find May Hold Less Gas, Norway Says (Bloomberg) -- Total SA’s Victoria, considered Norway’s biggest undeveloped natural gas find, may hold less fuel than originally estimated, possibly delaying development of areas in the Norwegian Sea, the Petroleum Directorate said.
Number of active rigs drops - The number of rigs actively exploring for oil and natural gas in the U.S. fell by 10 this week to 999. Houston-based Baker Hughes Inc. reported Friday that 699 of the rigs were exploring for natural gas and 288 for oil. Twelve were listed as miscellaneous. A year ago this week, the rig count stood at 2,031.
Daydreams of Destruction one of the crucial facts about the future, after all, is that the fossil fuels that prop up current lifestyles across the industrial world, and provide the basis for survival for hundreds of millions in the Third World, are depleting rapidly with no adequate replacements in sight. That hard fact pretty much guarantees a future in which poverty, hunger, warfare, and early death will be vastly more common than their opposites, and in which a great many of the comforts and opportunities we now take for granted will no longer be available.
One of those good news/bad news things, maybe - German ships successfully make "Arctic Passage" Two German cargo ships have successfully navigated across Russia's Arctic-facing northern shore from South Korea to Siberia without the help of icebreakers The Northern Sea Route trims 4,000 nautical miles (7,400 km) off the usual 11,000-mile journey via the Suez Canal a substantial savings in fuel costs and reductions in CO2 emissions The two merchant ships were able to make the cost-saving voyage by the fabled Northeast Passage because of the reduction in the polar ice cap due to global warming...
Pause in Arctic's melting trend - This summer's melt of Arctic sea ice has not been as profound as in the last two years, scientists said as the ice began its annual Autumn recovery. This leaves 2007's record low of 4.1 million sq km (1.6 million sq miles) intact.
But scientists note the long-term trend is still downwards
Yglesias - Beer and Climate Change - new research out of the Czech Republic indicates that climate change is bad for beer quality.Which seems like as good a time as any to discuss the perversity of agriculturally-oriented Americans tendency to oppose climate change legislation. Generally speaking, when you see some stuff being grown somewhere that’s because the climate in that place is well-suited to growing the stuff that’s being grown...
Ocean acidification: impact on key organisms of oceanic fauna - In addition to global warming, carbon dioxide emissions cause another, less well-known but equally serious and worrying phenomenon: ocean acidification. Researchers in the Laboratoire d'Océanographie (France), have just demonstrated that key marine organisms, such as deep-water corals and pteropods (shelled pelagic mollusks) will be profoundly affected by this phenomenon during the years to come.
August Seas Warmest in at Least 120 Years - NYTimes - The National Climatic Data Center has released its review of worldwide sea surface temperatures for August and for the stretch from June through August and finds that both the month and the “summer” (as looked at from the Northern Hemisphere) were the warmest at least since 1880, when such records were first systematically compiled. Sea ice in the Arctic appears to be starting the slow late-summer freeze after reaching its minimum extent several days ago, by a couple of estimates ( National Snow and Ice Data Center; International Arctic Research Center / Japan Aerospace Exploration Agency). Here’s the global sea ice trend, combining what’s going on up north and down south...
We're pumping out CO2 to the point of no return. It's time to alter course - A paper published in Proceedings of the National Academy of Sciences showed that the climate change we cause today will be "largely irreversible for 1,000 years after emissions stop". About 40% of the carbon dioxide produced by humans this century will remain in the atmosphere until at least the year 3000. Moreover, thanks to the peculiar ways in which the oceans absorb heat from the atmosphere, global average temperatures are likely to "remain approximately constant … until the end of the millennium despite zero further emissions". In other words, governments' hopes about the trajectory of temperature change are ill-founded...
Human-made Crises 'Outrunning Our Ability To Deal With Them,' Scientists Warn - The world faces a compounding series of crises driven by human activity, which existing governments and institutions are increasingly powerless to cope with, a group of eminent environmental scientists and economists has warned. Writing in the journal Science, the researchers say that nations alone are unable to resolve the sorts of planet-wide challenges now arising.