Commentaries

from Rolfe Winkler:

Evening links 12-14

Substantial bank losses needed to fix housing (Bloomberg) To avoid foreclosures, principal has to be written down. That implies hefty losses, especially for banks that hold lots of home equity loans on their balance sheet. Such loans get wiped out before first mortgages lose a penny. Complicating matters, many big banks service both the first and the second mortgage, which means they are highly conflicted. They don't want to eat a loss on the second mortgage, even if writing it down would make the first perform much better...

Greece defies Europe as crisis grows deadly serious (Evans Pritchard, Telegraph) Provocative idea: To relieve its debt burden, Ambrose says Greece should devalue its currency. That's not easy since they use the Euro. He recommends Greece ditch the Euro, "restore its currency, devalue, pass a law switching internal euro debt into drachmas, and "restructure" foreign contracts. This is the 'kitchen-sink' option. Such action would allow Greece to break out of its death loop." Call it the nuclear option... (ht Implode-o-Meter)

Whole Foods Republicans (Petrilli, WSJ) The Republican party is missing an opportunity to reach independent college-educated voters...

Cuts come to New York: Two subway lines may get eliminated, along with subsidized fares for students. In the meantime, Gov. Paterson announced that he will withhold payments to schools and local governments.

Monsanto seed biz role revealed (Leonard, AP) Abusing quasi-monopoly power.

For America's Santas, it's hard to be jolly (Woo, WSJ)

The other Lamborghini (Wikipedia)

from Rolfe Winkler:

America’s debt burden starts to shrink*

Last week, when I published data showing that U.S. households were beginning to reduce their debt burden, I commented that the government is more than offsetting this with increased federal and state borrowing. I was wrong.

The Flow of Funds report often revises historical data. The latest revisions show a slightly improving picture.*

Here's the chart:

Economist Steve Keen, who helped me process the data, characterizes it as...

...a dramatic increase in government debt--just as in the Great Depression--but even so the deleveraging by the finance sector in particular, and the private sector in general, more than outweighs the increase in public debt to compensate.

*But this data comes with a BIG asterisk. Government debt as counted in the flow of funds report only counts "publicly-held" Treasury debt, which currently stands at $7.7 trillion.

from Rolfe Winkler:

Lunchtime Links 12-11

Jamie gets a deal! (Bloomberg) Prof. Linus Wilson had been estimated that warrants the government got as part of its TARP bailout for JP Morgan were worth $11-$37.  They ended up selling for $10.75. The lower price is most likely because these are not common securities, are illiquid, and therefore worth less than we all thought. Can't really complain. The market spoke. Dimon looks smart for refusing to negotiate bilaterally with Treasury to repurchase them. Treasury was driving too hard a bargain. IIn retrospect, that means the deals on TARP warrants for the likes of AmEx and Goldman ended up going off much better for taxpayers. But Hank Paulson still did far worse negotiating with banks for emergency capital than Warren Buffett. Shame.

Ginnie Mae's growth puts taxpayers on the hook (Grow/Goldfarb, WaPo...via Patrick) Ginnie packages FHA mortgages into mortgage-backed securities. It's the next Fannie/Freddie....

Stratfor: It's not just Greece, other Eurozone countries (Delivingne, Money Game)

Wealth rebound in Q3, is it sustainable? (EconomPIC data) More fun from the Fed's flow of funds report.

Why women are hottest in coutries with too few dudes (Hooking up smart) Supply and demand at work.

Craigslist and eBay in legal fight (Hals, Reuters)

The Morgan Freeman chain of command (Maxim)

from Rolfe Winkler:

Evening Links 12-10

Loopholes lurk in bank bill (Paletta/Enrich, WSJ) Companies with connections get to buy exemptions...

Treasury yield curve widens to most since 1992 (Walker, Bloomberg)

Dems want to raise debt ceiling a whopping $1.8 trillion (Rogers, Politico) So they don't have to revisit the issue before the 2010 midterm elections...

The job market: Is a college degree worth less? (Oloffson, Time) Yes! The net present value of a B.A. has been declining for years. Look for the trend to continue as tuitions increase even as unemployment stays high and wages fall. Don't go into debt to buy that fancy degree from a private school kids. A good state school is a much better deal right now. Save your money for an advanced degree...

Wells writing off principal on option ARMs (Cambell, Bloomberg) This is the proper way to modify mortgages if you're hoping to keep people paying. My question is whether Wells has to write down the loan on its balance sheet and take a hit to capital. My impression was that they already took huge writedowns on Wachovia's book of option ARM loans when they acquired it. So would guess principal forgiveness is not leading to asset writedowns.

AT&T to charge for heavy data usage on iPhones (Svennson, AP)

Shooting in Times Square, perp had Mac-10 (CityRoom) A couple hundred yards up the street from Reuters' office....

from Rolfe Winkler:

Wells Fargo forecloses farm, animals fend for themselves

I smell a PR problem here, at least locally. "Glocester farmer, evicted in foreclosure, seeks to compel care for animals" (Djuardin, Projo)

The evicted owner of Bonniedale Farms, upset with the way 136 animals on his farm have been treated since he was forced off the property Monday by Wells Fargo Bank, plans to go before a Superior Court judge Wednesday to get a restraining order to force the bank or its agents to provide food, water and care for the animals left behind.

Guy Settipane, the lawyer for Dan MacKenzie, said his client became concerned Tuesday morning after neighbors described chaotic conditions on the property on Snake Hill Road. He said MacKenzie became alarmed when he went to the site and saw, from a distance, “total strangers walking off with his animals.”

But the lawyer said his main concern was for the animals — including cats, dogs, chickens, pigs, horses, sheep, goats and others — that he said had been left to fend for themselves despite assurances by Wells Fargo that it had arranged to have the Rhode Island Society for the Prevention of Cruelty to Animals take care of them.

There's more in the article.

from Rolfe Winkler:

Households cut debt, have long way to go

U.S. households are slowly repairing their (private) balance sheet. We've a long way to go, but according to the latest Flow of Funds report, we're making progress.

See the chart below

As households and businesses cut debt, governments (state and federal) are adding debt to soften the blow. The good news appears to be that consumers are de-levering faster than the government is re-levering, a figure I'm trying to nail down at the moment.

More soon....

from Rolfe Winkler:

Parsons says Citi can repay TARP

I've got a question below...but first the story: "Citi positioned to repay TARP, report" (Eder/Wilchins, Reuters) --

Citigroup Inc is in a position to repay TARP, the bank's chairman, Dick Parsons, told cable television network CNBC on Wednesday.

Parsons told CNBC that Citigroup was in talks with regulators about repaying its $45 billion bailout from the U.S. Treasury's Troubled Asset Relief Program....

Reuters reported on Monday that Citigroup and the U.S. government were disagreeing over how much the bank should raise to repay taxpayers, according to people briefed on the matter. The people said talks could take weeks or months.

Good that Treasury is pressing Citi to raise substantial equity to get out of the program. It should also sell its common shares back to the market...bank the paper gain taxpayers sitting on....

One question I've got: What about Citi's "ring-fenced assets?" Remember the $306 billion loss-sharing deal that Citi signed with Treasury and FDIC? BofA almost got themselves involved in a similar deal, but it was never signed.

Presumably those ring-fenced assets are still on Citi's balance sheet and are still backstopped. Should the company be allowed to exit TARP -- allowing it to pay whatever bonuses it sees fit -- if a large chunk of its most toxic assets are still backstopped by the government?

from Rolfe Winkler:

Ireland, ahead of the curve

At least one country is making tough choices. From John Murray Brown (FT): Ireland poised for harsh budget

The Irish government is set to unveil the harshest budget in decades on Wednesday as it seeks to curb a ballooning deficit and restore credibility with international debt markets....

This will be Mr Lenihan’s third budget announcement in 14 months, after emergency measures in April that included new income and health levies.

Economists expect Mr Lenihan to tighten the budget by a further 2.5 per cent, which some say could exacerbate Ireland’s recession.

But speaking on Tuesday evening Mr Lenihan sought to offer Irish taxpayers some light at the end of the tunnel, insisting that Wednesday’s announcement would be “the last of the very difficult budgets”.

Economists expect cuts in public sector pay, social welfare entitlements and child benefit to be among €4bn-worth of savings aimed at restraining public borrowing next year to about 12 per cent of GDP.

This is what happens when debt problems get out of hand. Ireland, like California, is engaged in round after round of budget cuts, yet their deficit is still huge.

I was on Oregon Public Radio yesterday discussing what to do with TARP "savings." (You can listen there or download an mp3, my segment begins 15 minutes in.)

A caller made the good point that government stimulus for jobs is a bad use of money, once the stimulus is gone, so is the job. The caller didn't finish the point: after the stimulus and job are gone, the debt is still there.

The idea articulated by my interlocutor, Chadwick Matlin from Slate, was that it's short-sighted to be worried about debt today what with unemployment at 10%.

But more than a jobs problem we have a debt problem. If we try to solve the first with more of the second, we'll only make unemployment worse in the long run.

from Rolfe Winkler:

Calling all design feedback!

Now that readers have had a few days to see the new Reuters blog format, we want to hear from you. What do you like? What do you hate? Send me an e-mail or leave a comment. I've been asked by the design team to compile feedback so now's your chance. Please don't be shy.

Topics for discussion:

1. The automatic "continue reading" feature on the front page of the blog.

2. Having comments appear on the front-page.

3. The color, font and size of text.

4. ....

from Rolfe Winkler:

CIT to emerge from bankruptcy

CIT expects to exit bankruptcy protection on December 10, having filed for it only 40 days previously on November 1. (Chasan, Reuters)

The firm, one of the largest financial victims of the credit crisis, will be the first of the financial bankruptcies to emerge from bankruptcy protection, unlike Lehman Brothers, Washington Mutual, IndyMac and other financial companies that have been unable to continue on their own.

CIT's reorganization plan will reduce its debt by about $10.5 billion and defer significant debt obligations for three years, CIT said.

Under the plan, CIT's unsecured debtholders are to receive 70 cents on the dollar of new notes, plus new common stock. The company had won support from bondholders for the plan substantially in excess of the minimum amount required under U.S. bankruptcy law.

Common and preferred stockholders, including the U.S. government, will be wiped out.

The U.S. Treasury had received preferred stock in CIT for a $2.33 billion investment in the company through the Troubled Asset Relief Program. This represents one of the first losses of taxpayer money through investments made under that program.

One of the first recognized losses. It won't be the last.