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from Rolfe Winkler:
Lunchtime Links 11-23
Reader note: I'm taking the week off for Thanksgiving, so blogging will be light. Back next Monday.
Sewers at capacity, waste poisons waterways (Duhigg, NYT) Fascinating. Yet another example of how society is overgrown. Everywhere you look, there's another piece of antiquated American infrastructure that is completely unable to handle capacity thrown at it by the modern economy. Sewers, the electric grid, air traffic control systems, the list goes on. But it's just too expensive to build any of them out: "As much as $400 billion in extra spending is needed over the next decade to fix the nation’s sewer infrastructure, according to estimates by the E.P.A. and the [GAO]." $400 billion. Just for sewers. We don't, nor will we ever, have the money for that. Not w/o sacrificing all the other stuff we want. Economists are trying to convince you that debt-financed "growth" is the only way to solve our economic problems. They're wrong. Debt-financed consolidation is the best we can hope for.
Wave of debt payments facing U.S. government (Andrews, NYT) Is the NYT editorial board getting budget conscious? (See again their pitch for fiscal prudence in NY State). This front-pager doesn't contain much new info, but it articulates clearly the debt problem we face. And they put it next to the article on sewers above. By the way, the quote from Bill Gross is interesting. Out of one side of his mouth he tells the government to borrow to "support asset prices," out of the other he wants us to stock away nuts for the Winter. Which is it Bill?
Gold reaches $1,174 (kitco) What kills the gold rally? Action from the Federal Reserve to defend the dollar. But we're getting the opposite. Yesterday St. Louis Fed President Bullard said the Fed should keep its QE program open after it finishes its planned purchase of $1.45 trillion of mortgage securities next March.
Buffalo's slow-moving Katrina (Carey, Reuters) Route to recovery is a great series from the folks here at Reuters. Detroit gets all the press, but there are plenty of other post-industrial neighborhoods that are suffering.
Wells Fargo underestimating off balance sheet exposures (Whalen, ZeroHedge) If you look at Wells Fargo's latest 10-Q (page 31), the company has over $2.0 trillion of off-balance sheet assets. But they only plan to consolidate $48 billion worth, according to their most recent estimate. Chris makes the point that, although $1.1 trillion of the OBS assets are "conforming" mortgages (and therefore eligible for government guarantees) it's not fair for Wells to pretend these mortgages pose zero risk for their balance sheet.
Taking taxpayers for a ride (Niedermayer, NYT) Last week Fritz Henderson said GM would "repay" part of its bailout? LOL!
from Rolfe Winkler:
Lunchtime Links 11-22
The talented Mr. Pang (Maremont, WSJ) Maremont uncovered the long and sordid history of Mr. Pang. The Journal also broke the Norman Hsu story. Both were high-flying con-artists before the Journal got on their case. Great stories.
The 70% discount on Goldman's $500m gift (Ransom, SmartMoney) Really great work from Diana Ransom. Goldman will get a tax writeoff for much of its "gift." Other parts of it are actually loans the company expects will be repaid with interest. BTW, people know that Warren Buffett isn't actually contributing any money, right? He's just lending his time. Hmmm. What's he going to do? Get on the phone with a Denny's franchisee to talk about the stock market?
Congresswoman passes leverage amendment (Grim, HuffPo) It's hard to keep track of the House Financial Services Committee these days. The amendment would apparently limit leverage to 12x. I'm trying to get my hands on a copy to determine how it defines leverage. And in any case, all of this may be a dead issue. The Congressional Black Caucus canceled a vote on the package Thursday arguing that not enough is being done about unemployment. Ugh. There are lots of problems with the financial reform package, but now it's looking like we may not get anything signed into law before 2011.
Millions may have to repay part of stimulus tax credit (Puzzanghera/Hsu, LA Times)
Tim Geithner, mad as hell and not going to take it anymore (Tech Ticker) This quote from Geithner, in response to criticism from a Republican congressman, is just another reason he has to go: "What I can't take responsibility for is the legacy of the crises you've bequeathed this country." But Geithner bears as much responsibility for the banking crisis as anyone. Recall that he was chief of the NY Fed before he joined the administration. In that role he was supposed to regulate banks. Clearly he wasn't a very tough regulator if, when the CEO spot at Citigroup opened up two years ago, Geithner was Sandy Weill's first choice.
The Louisiana Purchase redux (Milbank, WaPo)
Unburied bodies tell the tale of Detroit (Reid, Times Online)
Strange conclusion:
“Recall that he was chief of the NY Fed before he joined the administration. In that role he was supposed to regulate banks. Clearly he wasn’t a very tough regulator if, when the CEO spot at Citigroup opened up two years ago, Geithner was Sandy Weill’s first choice.”
Either you think Sandy Weill was very incapable so he would choose an easy push-over to replace himself, or, maybe, Geithner had shown himself a very capable chief of NY FED and regulator and therefore he was wanted by Weill? Clearly if he was not very good at his job he would not have been asked or even considered.
from Rolfe Winkler:
Morning Links 11-20
Bill Gross says chase risk! (PIMCO) In his December letter, Gross laments the ultra low yields available to investors. Holding cash is a terrible idea he argues. (Luckily he's not saying to go far out on the risk curve.) Still, I disagree. While I believe there's an outside chance of a dollar crisis (highly inflationary...hence the reason many investors have a 5-10% position in gold for insurance), the more likely scenario over the next few years is the one laid out by the SocGen guys: debt deflation. In that case the purchasing power of cash goes up. Looking at the .01% nominal yield on cash equivalents is therefore unfair. The deflation-adjusted yield would be much higher. This is not a reason to try to "inflate away" debt however as that's not actually a solution. It just gets us closer to the dollar crisis scenario. 90% cash + 10% gold has done very well over the past two years (especially on a risk-adjusted basis!) I guess you can jump back into risky assets if you feel you "need" yield. Of course that's the mistake so many people made in response to Alan Greenspan's low rates. How well did that strategy work?
Fed makes capital foremost concern (Torres/McKee, Bloomberg) With the Fed/Treasury actively engaged in reflating the asset bubble (see next link), it's good to know they're paying attention to capital levels...
With FHA Help, easy loans in expensive areas (Streitfeld, NYT) Anecdotally this is quite scary. Remember a year ago when the size of "conforming" mortgage loans was raised over $700k? That means FHA is backing much larger home purchases (I'd forgotten this when I linked to that article on Toll calling FHA the new subprime). The scary quote (ht CR) comes from some technology guys who went in on a $900k property having been busted just a year ago: “We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”
Can the postal service be saved? (Montopoli, CBS)
Asia considers capital controls to stem bubble dangers (Adam, Bloomberg) Low rates in the developed world are putting emerging markets in a dangerous position. With no returns available at home, hot money is again flowing East (and South, to Brazil).
SocGen's worst-case debt scenario (Murphy, Alphaville) Good sleuthing from Paul. He has a link to the report that Ambrose Evans Pritchard wrote up. Ambrose embellished a bit. Also the report is over a month old. Still, pessimism porn at its finest.
Texas accidentally bans straight marriage (Spak, Newser) HT Felix.
Re “Satan the Great Motivator”
It would have probably been helpful if unscrupulous lenders, fudging borrowers and two-faced politicians feared some consequences for their actions.
Americans lied en masse on their mortgage applications, behavior that has never really happened before. Derivative garbage and short termism by investment banks is a monument weak morals.
The popular religion these days is Joel Osteen’s “Your Best Life Now”…. Live for the moment… Pray for God to bless me me me! Holy cow, our ancestors would barely call this religion…
from Rolfe Winkler:
Midnight Links 11-18(19?)
Rep. DeFazio calls for Geithner and Summers to be fired (YouTube) Geithner has done many other things wrong besides paying out 100% to AIG's counterparties. Slamming banks together to avoid resolving their balance sheets was another big one. As for Summers, I still don't understand why he's so revered at the top of Democratic policy circles. His prior support of the CFMA and Gramm, Leach, Bliley -- two of the biggest regulatory blunders of our time -- should be enough to disqualify him from his current post.
FHA-backed lending is a train wreck says Toll (Gittelsohn, Bloomberg) Maybe a reader can correct me, but I'm guessing Toll Brothers, because it's a higher-end builder, doesn't rely much on FHA-backed lending to move its inventory. Still, it's interesting that a homebuilder would criticize the government for providing too loose credit. Homebuilders wouldn't have much of a business without it.
Jobless benefits to end for 1 million in January (Eckholm, NYT)
Audit the Fed effort under threat in House (Grim, HuffPo)
Cash for caulkers (Leonhardt, NYT)
Costco no longer carrying Coke products (AP)
California faces new $21 billion budget hole (Goldmacher, LA Times) CA lawmakers have more tough decisions to make...
“Jobless benefits to end for 1 million in January (Eckholm, NYT)”
At some point, the BLS data will show unempolyment going down (because it tracks unemployment claims) but everyone will know that more and more people don’t have jobs. Trust in government will go down some more
from Rolfe Winkler:
Morning links 11-16
Taxpayers on hook as some bailed out firms prove frail (Tse, WaPo) TARP investments in CIT and United Commercial bank were recently wiped out (= $2.6 billion). AIG and GM have received tens of billions they'll never be able to pay back. Taxpayers may have purchased a bit of breathing room with TARP, but busted balance sheets will eventually have to be recapitalized anyway, as shareholders are wiped out while certain creditors eat their share of losses.
Bankruptcy rise slows with thaw in lending (Spector/Haywood, WSJ) Great article. The writers emphasize how the supposed "thaw" in lending markets is largely a head fake, that junky companies are being allowed to paper over their problems because the Fed is forcing investors to chase risk.
Unemployment rates by county (americanobserver, ht MW) Seeing maps like this, one understands why Krugman and other liberals are calling for another stimulus jobs bill. The trouble is, the reason we have so much unemployment today is because of all the debt we're trying to work off from yesterday. Adding more debt doesn't solve this problem.
After a summer of mixed messages, Roubini is back! (Wiesenthal, BusinessInsider)
GM says it will start paying back taxpayers (Isidore, CNN Money) Taxpayers shouldn't expect to get much back. The $1 billion payment GM says it will make in December would be about 2% of what we put in...
The Great Wallop (Ferguson/Schularick, NYT) Talking Chimerica.
Chinese bank regulator says low rates inflating asset bubble (Zengerle/Choonsik, Reuters) The Fed maintains there's no pressure on inflation. Trouble is, they don't measure inflation the right way. They're looking at things like the cost of goods and labor in the U.S. They're ignoring the inflated price of assets, for instance junk debt (see again second link). Greenspan also ignored asset bubbles, choosing instead to focus on the unemployment rate and goods prices. How well did that work out?
Jeff;
Seriously? The photog shopped all the pictures? That’s a pretty fine job of fakery if so.
from Rolfe Winkler:
Weekend links 11-14
Lawyer crashes after life in fast lane (Koppel/Esterl, WSJ) Big Florida ponzi.
Buffett admits: Burlington not cheap (Frye, Bloomberg) Buffett was so eager to deploy his cash that he was willing to overpay for Burlington. What I think may be going on in his head: in a world likely to experience many more bubbles and busts, lots of paper wealth will be wiped out. Not a bad idea to turn cash into tangible assets.
After spending binge, administration says it will focus on deficits (Allen/Vandehei, Politico) Not sure if I believe this. The Senate is already planning a third stimulus dressed up as a "jobs" bill.
Treasury confident Congress will increase debt ceiling (Christie, Bloomberg)
Deeds, not words, on the US dollar (David Merkel) Well said.
The last of the Bluefin Tuna? (Estabrook, Atlantic)
VIDEO: Balloon boy parents plead guilty (Reuters)
the tuna quota dropped from 22,000 metric tons this year to 13,500 next year. a bit more than what NOAA wanted (8,000).
http://www.noaanews.noaa.gov/stories2009 /20091116_iccat.html
from Rolfe Winkler:
Lunchtime Links 11-12
Wall Street faces "live ammo" as Congress aims to unravel banks (Vekshin/Schmidt, Bloomberg) Yves complains that this isn't enough, that size isn't the only problem. She's right, but I think these are good discussions to have. We'll have to wait to see what's in theKanjorski amendment, but I like where his head's at. To Smith's point, we desperately need to SIMPLIFY banks, not just shrink them. Ironically, today is the 10 year anniversary of theGramm-Leach-Bliley Act, which repealed the last vestiges of Glass-Steagall. Besides GLB, we also need to dump the CFMA....
Have we reached peak gold? (Evans Pritchard, ht frog) Exploration budgets are up, but results have been poor. On the flip side, William Buiter is not a fan of gold. He makes some good points, though Jesse disagrees.
FDIC helps securitization market (Shrivastava, Dow Jones) Interesting,
The dollar is the most crowded long in history (Johnson, Alphaville) A very good point. I like to think of all the paper we've shipped overseas as "latent" inflation.
FHA's cash reserves down sharply (Streitfeld, NYT) It's capital reserves have dwindled to 0.53% from 3% a year ago. Given the high quantity and poor quality of loans FHA has been making of late -- little down, low doc -- it's a good bet they'll need a bailout.
The looming problem of corporate debt (Marketplace, ht Clusterstock)
Unsolicited principal reduction offer from B of A (CalculatedRisk)
Odyssey, XVII
There lay the hound Argos, full of vermin; yet even now, when he marked Odysseus standing near, he wagged his tail and dropped both his ears, but nearer to his master he had no longer strength to move. Then Odysseus looked aside and wiped away a tear….
from Rolfe Winkler:
Afternoon Links 11-10
Mishkin defends bubbles (Yves Smith) Yves tears apart former Fed Governor Frederic Mishkin's op-ed in FT, for good reason.
Bank told to raise more common equity (8-k filing, ht frog) Hanmi bank in CA was told to raise capital, tangible capital in particular. Hopefully regulators continue in this direction with other banks.
FDIC's "merit" reviews preceded failures (Sterngold, Bloomberg) At least three U.S. banks failed in the past year after the Federal Deposit Insurance Corp. deemed them healthy enough to qualify for a program that reduced the time examiners spent on reviews by at least 20 percent.
F150 the most common purchase in Clunkers program (Felix)
Dodd proposes bold financial overhaul (Drawbaugh, Reuters) Like the original systemic risk bill in the House, this one would have taxpayers front the cost of resolutions. Sheila Bair and Tim Geithner are on opposite sides of this argument. Geithner says a standing fund for financial resolutions would feed moral hazard. He's right. Her argument is that financial firms would never pay back taxpayers. She's also right. To me, this gets to the heart of why relying on resolution authority to solve the TBTF problem isn't enough. You need to get medieval on these guys, breaking them up and simplifying their biz models so that they don't pose a systemic risk in the first place.
Schabowski shrugged (Meyer, Slate) The unanswered phone calls and misunderstood memos that helped bring down the Berlin Wall.
from Rolfe Winkler:
Lunchtime Links 11-8
The economics of trust (Harford, Forbes) A great article. I've argued that markets need rules because without them the division of labor breaks down.
Big bank break up idea gains ground in Congress (Drawbaugh, Reuters) Senator Sanders just introduced a bill to do that. As noted earlier, Kanjorski is working on amendment to do same.
Treasury to block sale of Fannie Mae tax credits to Goldman (Reuters)
Hedge fund giant surfaces in insider trading probe (Pulliam, WSJ) Steve Cohen's SAC Capital is now under the microscope.
Einhorn: first let's kill all CDS (NakedCapitalsim) The post refers to comments from Einhorn's speech at VIC, but expands on it nicely, arguing among other things, that these financial weapons of mass destruction probably can't be made safe no matter how aggressively you regulate them...
Michael Jackson's father seeks allowance from dead son's estate (BBC) His expenses are $20k per month, but he only gets $1700 from Social Security.
Why doesn't exercise lead to weight loss? (Reynolds, NYT)
Fat bonuses result in thin people. Consolidation of smaller and community institutions result in middleweight fighters, in any playing field.
from Rolfe Winkler:
Lunchtime Links 11-6
Fannie asks for another $15 billion (press release) That brings the company's total draw on Treasury to $59.9 billion. Here's the paragraph that scares me: "Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008." Why is the value of nonperforming loans growing so much faster than foreclosures? If Fannie's not going to foreclose, then why bother paying the mortgage?
Fannie owed $15.8 billion by Lehman (Fannie 10-q) see page 103.
With tax break, a bigger carbon footprint (Glaeser, Boston Globe) "The real problem with the [home buyer tax] credit is that it continues the long-standing federal push toward far-flung McMansions and away from dense, apartment living." It's not just about carbon consumption. It's about encouraging the expansion of a footprint that our incomes can no longer support.
Goodbye to reforms of 2002 (Norris, NYT) Floyd chimes in on Sarbox.
Pre-retirees in denial on savings (CalculatedRisk) Future generations (including mine) will look back in wonder at the 20-year retirements that were typical through the 80s/90s/00s.
950th time is the charm for learner driver (Couzens, Sky News, ht Troy M) Is this multiple choice? Surely a monkey filling ovals at random would have managed the necessary 60% at some point. Nevermind that the questions can't change all that often. A regular should figure out the right answers by a simple process of elimination...
Student stuns Iran by criticizing Ayatollah Khamenei to his face (Faramarzi, AP)
Sure, there’s some can kicking going on at Fannie, but Fannie is also selling inventory out of OREO at the same time that they’re making new foreclosures. OREO inventory is also booked at current appraised value, so if FNMA forecloses a $400,000 mortgage and appraises the house at $200,000 they charge off $200,000 and book $200,000 to OREO.
Also, in a lot of areas the courts are really backed up, so it’s taking a long time to get foreclosures through.
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The Wall
Trying to parse Bill Gross’s apparent schizophrenia…
He wants asset prices propped up at present with a concrete plan of fiscal austerity upon exit maybe?
El Erian talks of the need for exit strategy (presumably involving fiscal prudence) to make present levering up more palatible.
The problem with this is that congress will never willingly cut entitlement spending on the elderly, which is the bulk of it. They are owned by the AARP even more than big business.
We risk calcifying like Europe or Japan, where the young exist as indentured servants to the old, GDP has stagnated for 30 years and consequent low birthrates put national solvency at risk.