House votes to give “clunkers” $2 billion more

Jul 31, 2009 19:22 UTC

Earlier I expressed my displeasure with C4C.  I’m unhappy to see the House has voted to expand it.  Reuters:

The U.S. House of Representatives approved on Friday a $2 billion extension of the “Cash-for-Clunkers” automobile sales incentive program.

The Democratic proposal would run through September 30, 2010, and tap funds from an Energy Department loan guarantee program included in the economic stimulus package enacted in February.

An expiration date of 9/30/10 is comical.  If the program keeps gobbling up $1 billion per week, another $2b won’t get us half way to Labor Day.

According to the article, the President is now fully on board:

The White House supports new funding for the program on grounds the initiative so far has provided a viable, national economic stimulus amid recession.

Earlier this week Tim Geithner promised the Chinese we were going to get serious about the deficit.  I can’t imagine they’re happy financing the American auto sector…

Could there be hope that this doesn’t get through the Senate?

Already a key senator, Energy Committee Chairman Jeff Bingaman, said he opposes using Energy Department funds for the auto program.

Sounds like a technicality to me.  Bingaman doesn’t want money to come from the Energy Dept., but he won’t stand in the way if the Senate finds $2 billion elsewhere.

COMMENT

Amazing stimulus!
You pay sales tax (most likely)
You more licence fees every year
You pay vastly more insurance

What a deal – for someone else.

Posted by thegeek | Report as abusive

Lunchtime Links 7-31

Jul 31, 2009 16:51 UTC

White House says cash for clunkers will go on (NYT)  Note that the administration hasn’t yet promised new funding.  So yeah, the program is good through the weekend, but the key will be whether there is a new appropriation.  Michigan Senator Carl Levin is quoted in the article exhorting people to rush to their dealers to buy now.  The more transactions he can stuff through the channel, the more pressure he puts on Obama to make a new appropriation.

MUST READ“Take back the beep” campaign (David Pogue)  Ever wondered why, when you’re leaving a message on someone else’s cell phone, you have to wait through 15 seconds of nonsense?  (E.g. “If you want to leave a numeric page, press 5.”  Who leaves a numeric page!?!)  In aggregate that’s a massive amount of air time being used, which adds up to billions worth of revenue for cell phone companies.  Pogue is tired of it and has organized a little protest campaign.  He lists e-mail addresses for the big four carriers where you can send a complaint.  I was happy to, and it didn’t even take 15 seconds!

Regulators are getting tougher on banks (WSJ)  This is good news.  Federal bank regulators are requiring stiffer capital cushions and restricting risky lending.  This is what bank regulators are SUPPOSED to do.  But I fear they aren’t going about it the right way.  Demanding more Tier 1 capital is certainly welcome, but they need to be demanding more tangible common equity.  Only the latter is in a true first loss position in the capital structure.  Focusing on Tier 1 allows banks to raise preferred in addition to common.  But preferred doesn’t support the capital structure like common.

Downtown Ft. Myers condo has 32 stories, and only one lonely tale (news-press.com)  The building has one family living inside…

FDIC tests “funding mechanism” of legacy loans program (FDIC)  This is the key program under which investors would get cheap, non-recourse leverage to buy whole loans off of banks’ books.  It was suspended, thank goodness, for lack of interest.  But FDIC is aware that whole loans are likely to weigh on banks and that many might be forced to move them at lower prices.  That will be very bad news for taxpayers.

Fannie/Freddie unlikely to repay U.S. in full (WSJ)  So far, Fannie and Freddie are among the biggest taxpayer money sinks.  TARP money is getting paid back and both the FDIC and Fed have yet to recognize substantial losses on their lending programs.  Fan and Fred, along with AIG and the automakers, have received tens of billions that are never coming back…

Smoking ban murder (Reuters)  “A restaurant owner in southwest Turkey was shot dead after he tried to prevent his customers from smoking to comply with a new law on the use of tobacco indoors”

Someone missing an intern? (DealBreaker)

Incredible water-color paintings from 6-year-old (Telegraph)

Man trying to find cure for cancer invents simple machine that burns salt water.  Sounds ultra-cool with lots of fantastic possibilities, BUT it’s highly unlikely this machine produces more energy than it consumes.  Note how the reporter doesn’t ask…

COMMENT

Come ON! This story is more than 2 years old and, sadly, John Kanzius has passed away.

Posted by Fred Sears | Report as abusive

Cash for Clunkers blows through $1 billion in 1 week

Jul 31, 2009 03:34 UTC

The subsidy for the auto sector cloaked as an environmental program has already run through its budget.  (WaPo):

“The program started only six days ago, giving vouchers to consumers who trade in their gas-guzzling cars for more fuel-efficient models. But the unexpectedly brisk response made federal transportation officials increasingly fearful Thursday that they would exhaust their [$1 billion of] allocated funds….”

Dealers are in the press touting the program’s “success.”  Of course it’s successful for them, they get to clear their inventory.  But the program represents a net cost to society: the money borrowed to fund it plus interest.  Since, at the rate we’re going, the debt will have to be rolled over in perpetuity, we’re talking a lot of interest.

By the way, I suspect CfC is a net negative for the environment too.  The MPG requirements—anything below 18 MPG traded in for anything over 22 MPG qualifies for the tax credit—are silly.  And the energy consumed to produce the new cars offsets any savings from a few extra MPG.

The Obama administration wants to suspend the program because it has promised to corral the deficit.  But congressmen want to keep funneling cash to the dealers in their district, a portion of which will no doubt end up in campaign coffers.  They are even talking to the administration about recycling TARP funds.

How much money are we willing to spend subsidizing the auto industry?  Already GM and Chrysler have received tens of billions that are never coming back.  Now Congress wants to spend $1 billion more per week?  Where does the spending insanity stop?

Please Mr. President, make it go away.

COMMENT

I cling on to listening to the news update talk about getting free online grant applications so I have been looking around for the finest site to get one. Could you advise me please, where could i acquire some?

Cuomo releases ugly details on bank bonuses

Jul 30, 2009 17:06 UTC

NY Attorney General Andrew Cuomo released his report on bonuses at the TARP Top 9.  At these firms alone, over 800 people made north of $3 million in 2008.  That’s a lot of scharole.  See Appendix B for the bonus breakdown at each bank.

The key info is in one particular table, however:

(Click to enlarge in new window)

picture-1

The columns to the right list the number of employees that received bonuses in excess of $3 mil/$2 mil/ $1 mil.

Banks that are still sitting on their TARP money (Citi, BofA, Wells among them) have no business paying out big bonuses before paying back the government. For that matter, neither do the others, who all continue to benefit from FDIC guarantees on debt and Fed lending facilities through which they’ve traded toxic loans in exchange for perfectly liquid Treasuries. They can use the Treasuries for repo collateral, get cash and then put that on deposit at the Fed where they now get paid interest on their excess reserves. It’s a great scam. One that feeds lots of cash into the 2009 bonus pool.

(For ease of reading, click the “toggle full screen” button at the top right of the Scribd window)

Cuomo Bonus Report 7.30.09

COMMENT

Even CIT Group—who is teetering on the brink of bankruptcy—paid bonuses earlier this year, as well as last year. This is a company that had EIGHT CONSECUTIVE QUARTERS OF LOSSES.
After they took $2.33 billion of taxpayer money in December 2008 they promptly paid out cash and retention bonuses to numerous employees in February 2009.

NOW, they discover they have no business model that is viable and so what do they do?
Go back to the government and ask for more money!!
CIT took taxpayer money when they knew they had no viable business model and still paid bonuses for that “talent” and “performance.”
And they still may end up filing for bankruptcy. If the feds cave and pay out more taxpayer funds to save the company, CIT will probably pay out more bonuses.

Posted by ex-banker | Report as abusive

Lunchtime Links 7-30

Jul 30, 2009 16:27 UTC

(send links, pics, vids to optionarmageddon at gmail)

Did Warren Burger create the health care mess (Slate)  Interesting article.  It claims a 1975 Supreme Court decision paved the way for medical entrepreneurship, which the author says has been detrimental.  I’m sure in some cases it has been.  But I scratch my head when I read this:  “The idea that health care is a legitimate arena for investment is monstrous.”  Investment in medicine is bad?  An intriguing thought, not well enough explained.

Jeremy Grantham says to take profits (Marketwatch)  The market has risen too far, too fast says the Bear who turned Bull when the S&P was down around 700.

Sorry Bud: Natty Light isn’t just for college anymore (Real Time Econ)  We were partial to Busch Light in my fraternity.  Sad to say I still prefer it to microbrews…

Weak Treasury auction raises worries (Reuters)  The bond vigilantes are back!  My colleague Chris Swann will have more to say on the topic later this afternoon.

In a savings shocker, government discovers paper has two sides (WSJ)  And the Navy will save $5 million deleting dormant e-mail accounts.  All of these budget savings (part of Obama’s $100 million challenge are “a rounding error of a rounding error.”

Thaler responds to Posner on consumer protection (PBS)  Two U of C economists duke it out over consumer protection.  I side with Thaler.  The second to last paragraph is similar to the argument I made about markets needing rules.  (ht Simon Johnson)

Hurrying into the next panic (Paul Wilmott)  On the potential dangers of high frequency trading.

Stanford and sun? (Reuters)  Accused $7 billion Ponzi schemer Allen Stanford is b**ching about his jail cell.  There’s not A/C.

A journey through 40 powers of 10….(would love to see an updated version with better animation)

COMMENT

Rolfe,

Sorry I’m late, this is the first I’ve heard of you coming over to Reuters, so excited to see you over here!

I hate to break it to R but they needed a little more legitimacy. Great move on their part :)

Foreclosures up again

Jul 30, 2009 04:38 UTC

Late last night, RealtyTrac updated its foreclosure data through the end of June.

A total of 1,905,723 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 1,528,364 U.S. properties in the first six months of 2009, a 9 percent increase in total properties from the previous six months and a nearly 15 percent increase in total properties from the first six months of 2008…The report also shows that 1.19 percent of all U.S. housing units (one in 84) received at least one foreclosure filing in the first half of the year.

Foreclosure filings were reported on 336,173 U.S. properties in June, the fourth straight monthly total exceeding 300,000 and helping to boost the second quarter total to the highest quarterly total since RealtyTrac began issuing its report in the first quarter of 2005. Foreclosure filings were reported on 889,829 U.S. properties in the second quarter, an increase of nearly 11 percent from the previous quarter and a 20 percent increase from the second quarter of 2008.

“In spite of the industry-wide [foreclosure] moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes’ are now worth represent a potentially significant future risk….

All of these foreclosures mean more real-estate owned (REOs) for banks.  Much of that supply has yet to hit the market.  Anyone who thinks the latest Case-Shiller data indicates house prices have bottomed should keep that in mind.

COMMENT

So, yeah, foreclosures are still happening. Probably will continue to drive down home prices for awhile longer. And builders will continue to build as long as they can get financing, no matter the excessive housing inventory. But the nation will gradually work its way through this with some degree of pain. It will take another year or two — maybe even three. Then with all the money the government has poured into the system, WATCH OUT! Here comes a round or two of horrific inflation. Those hoarding their dollars will lose considerable purchasing power against the other major currencies.

Evening Links 7-29

Jul 30, 2009 00:45 UTC

(send links, pics, vids to rolfe.winkler at thomsonreuters)

Desperate AZ may sell capitol buildings to raise money (Arizona Republic)

Accounting gimmicks help Wells Fargo (and others) boost profits (WSJ)

FDIC poised to split banks to lure buyers (WSJ)  “The strategy, which is likely to begin soon, is aimed at selling the most distressed hunks of failed banks to private-equity firms and other types of investors who may be more willing than traditional banks to take a flier on bad assets. The traditional banks could then bid on the deposits, branches and other bits of the failed institution that are appealing.”

Bollinger sees first amendment for economy (Bloomberg)  I’m not sure what to make of this article.  The “first amendment” thing sounds interesting, but the writer goes nowhere with it, instead he digresses into a wide-ranging piece about Bollinger and the issues he has faced at Michigan and Columbia.

Do bigger fiscal deficits necessarily mean we need China more today? (Setser)  Brad argues that we’re actually less dependent on China.  We have a smaller trade deficit, which lowers our funding needs.  And a smaller portion of the fiscal deficit is being financed externally.  But there are big problems with this argument as his commenters point out.  For instance, yeah a lower portion of debt is financed externally, but isn’t that because total issuance has exploded?  And central banks are piling into shorter maturity debt, which puts much more pressure onto Treasury when it comes time to refinance.  But Brad still has some of the best and most interesting charts in the econo-blogosphere.  Read this post if just for those, and for the contrary opinion.

Trustee liquidating Madoff’s business sues the wife (Reuters)  Ruth Madoff ain’t out of the woods.

On seasonal adjustments for data (CR)  Fascinating stuff.  Read this link in conjunction with his comments on yesterday’s Case-Shiller data, which was widely reported as showing an “increase” in house prices.  Don’t be fooled, he argues, prices will be falling again come autumn.

Big spenders tend to marry big savers (Reuters)

Senate bill would ban texting while driving (WaPo)

texting

Fed walks the tightrope

Jul 29, 2009 20:52 UTC

economist

(Cartoon from The Economist, click to enlarge)

NEW YORK, July 29 (Reuters) – The sound money set remains concerned that the Federal Reserve’s emergency actions to corral collapse could ignite hyperinflation.  In particular, they point to the explosion of excess reserves inside the banking system, which they call dry tinder just waiting for the spark of recovery.  Bill Dudley, president of the Federal Reserve Bank of New York, says this isn’t an issue because the Fed now pays interest on excess reserves.  It’s a good argument, but only in the short run.

excess-reserves

To liquefy the banking system, the Fed drastically expanded its balance sheet, which, as you can see in the chart to the right, has led to an explosion of excess reserves at banks.

(Click chart to enlarge in new window)

For decades they never rose above $10 billion. Now they’re above $700 billion. To understand why this level of excess reserves has some worried about hyperinflation, it helps to understand what they are.

The Fed requires banks to keep a certain level of assets in reserve against deposits, either cash in the vault or reserves held at the Fed.  Reserves held over this required amount are referred to as “excess” reserves which banks are free to lend out.

When banks lend money into the economy, the money borrowed typically ends up as a deposit in another bank.  Say I borrow to buy a house; the mortgage I get from the bank is money I give to the seller, who then deposits the cash in his own bank.

Lent money turns into a new deposit, which turns into more lent money, which turns into another deposit, and so on.  As the supply of money multiplies, you get inflation.  If it multiplies too quickly, you get hyperinflation. The multiplication of money that might come from banks lending out over $700 billion of excess reserves is the stuff of inflationary nightmares.

But banks aren’t lending it out.  Why not?  As Dudley points out in his speech, it’s because the Fed is now paying them an interest rate.

Before last October, banks lent out all their excess reserves.  After all, excess cash in the vault earns the bank no profit.  But then Congress gave Ben Bernanke the power to pay interest on excess reserves, which means banks now can earn a return by keeping them on deposit at the Fed. Money that could be lent isn’t, inflation remains a potential threat, not a kinetic one.

But there’s a catch. When the economy recovers banks won’t any longer want to keep their excess reserves on deposit at the Fed, not unless the Fed is willing to pay a much higher interest rate.

Walker Todd of the American Institute of Economic Research argues that “the economy won’t be able to handle the high interest rates the Fed will be forced to charge in order to keep excess reserves immobilized in its vault.”

The Fed argues it has other tools to shrink its balance sheet when the time is right. For one, its emergency lending facilities are priced high enough such that banks will stop drawing on them when the economy recovers. But even after its lending facilities are wound down the Fed acknowledges the level of excess reserves will still be huge. To keep them immobilized will require substantially higher rates.

But raising rates will cause asset prices to plummet. Weak balance sheets will collapse and the financial crisis could return in full force. This is the conundrum the Fed faces.

COMMENT

What bothers me about this sort of economic analysis, and as a layman find less than helpful, is the presumptive wisdom of the central banking system, whose tinkering and manipulation of interest rates and the money supply has all but destroyed the free-market. Speaking as a consumer, thanks to commodity profiteering, there is, as far as I can tell, no longer a discernable, predictable, rational, cause-and-effect relationship between supply, demand, and the prices we pay at check-outs and gas pumps. So, so much for the free-market. We were told the bailout was going to be used to save Main Street. Instead, at taxpayer expense, it sits idle, generating interest for the banks. In other words, we were lied to. As suggested in the article, bailout money can’t stay at the Fed forever. Sooner or later it WILL enter the economy, in drops or by the bucket, inflating dollars already in circulation. That much we can predict. I guess what I’m really wondering is, how can you guys be so calm and rational about this — while we’re all being robbed?

Posted by Pennywise | Report as abusive

“Madoff: Can’t believe I got away with it”

Jul 29, 2009 13:04 UTC

Great stuff from ABC News this morning:

“There were several times that I met with the SEC and thought ‘they got me,’” Madoff told Joseph Cotchett, a San Francisco lawyer threatening to sue his wife, sons and brother on behalf of a group of victims.

Madoff opened up to the lawyer because he’s going after his wife, whom he still cares about (and who still has liquid assets…)

“He obviously wanted to speak with us because in his opinion, certain members of his family knew nothing about it, had no involvement of it,” said Cotchett who was able to arrange the unusual session after threatening to sue Madoff’s wife Ruth. “He cares about Ruth,” said Cotchett, “but he doesn’t give a —- about his two sons, Mark and Andrew.”

The family has been rather disciplined on the advice of its lawyers:

The sons have not spoken with their father or mother since Madoff’s arrest on December 11.

COMMENT

“He looked pretty good and seems to be working out”. Maybe The Onion was on to something:

http://www.theonion.com/content/news_bri efs/hush_falls_over_prison

Lunchtime Links 7-28

Jul 28, 2009 18:00 UTC

(send links, pics, vids to optionarmageddon at gmail)

Tenacious G (NY Mag)  Another good article on Goldman.  Most useful is the commentary regarding the $13 billion AIG collateral payments and the $28 billion worth of FDIC-guaranteed debt.  Without those bailouts, Goldman would be gone.  I’d always thought that was true.  Helpful to have confirmation.

Argentina’s first couple deliver prosperity–for themselves (Guardian)

China tells U.S. to manage flood of dollars with care (Reuters)  Tim Geithner is in China with Hillary Clinton this week.  Top of the agenda is convincing the Chinese we’re actually really serious about getting the deficit under control, but not until 2013.

Treasurys lower as record auctions begin (Marketwatch)  Meanwhile, Treasury is selling a record $235 billion of bills and notes this week.  Beware of stimulus proponents who cite stagnant yields as evidence that increased issuance isn’t a problem.  A key problem with that argument is that “real” interest rates are at their highest level in a while.  Point being, deflation be driving rates lower if it weren’t for the flood of debt sales.

18 TARP recipients that skipped paying dividends to Treasury (SNL)  Four of the banks have substantial assets.  (ht MJ)

SEC issues new rules to limit naked shorting (SEC)  Ugh.  As with CDS, the regulatory response is falling short.

Blue M&Ms mend spinal injuries (Telegraph)  Who thought up this experiment?

Scientist: How cooking sets us apart from apes (NPR)  I find this fascinating.

Color-blindness simulator (webexhibits)  Simulates the different types of color-blindness.

Abstinence-only lunch program ineffective at combating obesity (The Onion)

Banks still need bigger cushions (Q2 TCE update)

Jul 28, 2009 15:57 UTC

reuters-logoIt was a surreal moment two weeks ago when analysts on Goldman Sachs’ earnings conference call pressed CFO David Viniar to jack up leverage. They seem to think that the worst of the credit crisis is behind us, so Goldman should goose its risk profile to increase returns. This is remarkably short-sighted.

Yes, leverage is down, but only relative to the obscene levels reached a year ago.  Measured by tangible common equity, the biggest banks are still levered over 20 to 1. If banks learn nothing else from the financial crisis, it’s that they should err on the side of prudence, carrying substantially more capital than appears necessary.

slide13

(Click table to enlarge in new window)

Tangible common equity remains the crucial measure of bank capital because it’s the primary cushion to absorb losses. When that cushion gets low, creditors panic. Bank runs ensue and the financial system ceases to function.

(more…)

COMMENT

Rolfe is right. Citi has already moved to shore up their TCE. Their public share exchange last week yielded over 60B bringing TCE to 100B and their current ration to 5.5% (over 9% tier 1 common). Will other banks follow suit? Will they be able?

Posted by Jim | Report as abusive

AOL’s valuation off 97% from peak. Now a good investment?

Jul 28, 2009 01:36 UTC

In a regulatory filing this evening (see page 54), Time Warner announced that it bought back Google’s stake in AOL, for a 97% discount to what it paid in January 2000.  If AOL stock gets floated at a similar valuation, it might be a good value play.

First the news:

On July 8, 2009, Time Warner repurchased Google’s 5% interest in [AOL] for $283.0 million, which amount included a payment in respect of Google’s pro rata share of cash distributions to Time Warner by AOL attributable to the period of Google’s investment in us.  Following this purchase, we became a 100%-owned subsidiary of Time Warner.

Divide $283 mil by 5% and you get a valuation of $5.7 billion for AOL.  When Google bought its stake back in 2005, it paid $1 billion, valuing AOL at $20 billion overall.  When Time Warner and AOL merged in 2000, AOL was valued at $166 billion.  From that peak, AOL’s valuation has now fallen 97%.

Google takes a sizable paper loss on its investment, but in the end it was still a great strategic move for them to lock up AOL’s search distribution.  A big reason Microsoft and Yahoo have never been able to catch Google in search is a simple matter of scale.  Most advertisers needn’t bother devoting any of their search advertising budget to Yahoo or MSFT because neither one has enough share of search distribution—does ANYone search using Yahoo.com or MSFT’s Bing?—to make it worthwhile.  Google ends up monetizing its own search traffic better because the depth and breadth of keyword bidding on its network is so much greater.  And because monetization is higher, web publishers prefer to work with Google too, increasing Google’s distribution even more.

It’s a virtuous circle that will allow Google to keep a hammer lock on the search market for a long time to come.

Ironically, advertisers often pay far LESS for clicks on Google than on Yahoo.  Yahoo still has a minimum bid of 10 cents for its keywords.  Google charges advertisers as little as a penny or two for lower volume keywords.

(By the way, the rationale behind paying up to lock down AOL’s search traffic was the same one behind the $900 million guarantee Google gave MySpace to lock up its traffic.  Another shrewd deal for Google).

So will AOL stock be a good investment when the company is spun out from Time Warner?  Possibly.  According to the company’s cash flow statement (see page F-5), it generated free cash flow of $762 million in 2008.  That amount of FCF, vs. an overall valuation of $5.66 billion, puts the company’s FCF yield at a very reasonable 13.5%.*

But investors have to tread carefully.  Yeah, the valuation seems cheap, but free cash flow continues to decline.

Before making an investment, I would want to understand the company’s two businesses in more detail, both the legacy dial-up subscription business and the advertising business.  Dial-up is bleeding to death.  But advertising may have a future.  The key questions are: can the advertising business continue to thrive after dial-up dies?  Also: What is each business’s contribution to free cash flow?

If advertising drives earnings, and it can survive on its own, then the stock may indeed be a great value.

Before closing I should note that I am not making an investment recommendation here.  I just thought readers might find a discussion of company valuation a nice change of pace.  These are all questions we’ll want to ask when (if?) Treasury/Fed/FDIC get out of the market….

———

*for a comprehensive discussion on FCF yield, and why it’s a better method to measure company valuation than a simple P/E ratio, see the 3-part tutorial on my old blog.

COMMENT

Sorry for not being clearer David. Great question.

Google made the investment as part of a larger deal with AOL to manage the latter’s search traffic. Basically, AOL has lots of people going to its website, but it doesn’t have the infrastructure to make money from those searches. Google has great search technology and an unsurpassed advertiser network.

So AOL just plugs Google’s search technology onto its website. Google’s network gains the scale benefits that come with managing AOL’s traffic.

Posted by Rolfe Winkler | Report as abusive

Morning Links 7-27

Jul 27, 2009 12:05 UTC

Fitch: Five firms hold 80% of derivatives risk (CFO)  The five banks—Chase, Goldman, Morgan Stanley, Citi and BofA—also account for 96% of exposure to credit derivatives among 100 companies studied.

The end of the end of the recession (Scribd)  Tyler D. collects lots of charts from David Rosenberg to make the point that the economy is hardly climbing out of recession.  At best we’re going to stagnate for some time before de-leveraging re-accelerates.

Loans shrink as fears linger (WSJ)  Speaking of de-leveraging, banks are cutting back on loans.  This is what drives deflation.  Since credit is money, less credit means less money.  Less money chasing goods, services (and assets) means prices fall.  But this is good.  Lending needs to fall (and capital needs to rise) for banks to heal their balance sheets.

Real Yields highest since 1994 aid record debt sales (Bloomberg)  Despite low interest rates, “real” yields on Treasuries remain high.  This is another sign of deflation.  As money (& credit) in circulation declines, the purchasing power of the dollar increases.  So you don’t need high interest rates to increase your purchasing power from one year to the next.  This is the argument folks use to dismiss concerns that rising debt will drive higher interest rates.  When deflation rules, demand for government debt will keep a lid on rates.  It’s a good argument….in the short run.

Japan’s cheap debt reassures Treasury bulls (WSJ)  Japan’s public debt outstanding has spiked since their bubble collapsed 20 years ago.  Borrowing to fund “stimulus” has left them with gross debt to GDP over 200% compared to about 90% here in the U.S.  And yet their interest rates remain at rock bottom levels thanks to deflation.  This is the argument guys like Krugman make to allay concerns that additional stimulus will cause interest rates to spike.  In the short run, I agree.  What concerns me is the long-run.  Borrowing to infinity may work for a time.  Until it doesn’t.  When confidence is finally lost in America’s ability to pay back debt, we’ll become Argentina circa 2001.  We’ll be forced to repudiate debt and the world economy, which will still be dollar-based, will stop.

Schumer wants “flash orders” banned (Reuters)  This is the system that enables certain traders with powerful computers to front-run the market.  After the story finally made it onto the front page of NYT on Friday (see Friday’s links), Schumer said he wants to see action.  When NY’s senior senator speaks about financial market regulation, things can happen quickly.

“Princelings” rule Chinese corporate world (Singapore Times)  90% of Chinese billionaires are the children of high-ranking officials.  And you thought income inequality was bad in the West?

DeBeers sales/profits crushed by recession (Telegraph)  With sales off 57% and profit off 99%, the world’s biggest diamond merchant provides more evidence that luxury goods have been hit hard by the recession.

Kyrgyzstan: At the crossroad of empires, a mouse struts (NYT)

California finds pot a huge cash cow (Seattle Times)  Gotta find revenue somewhere….

Male turtle having fun (female turtle not so much) (YouTube)

Nice shot….

Friday six-pack

Jul 24, 2009 22:24 UTC

Among tonight’s failures are the six bank subsidiaries of Security Bank in—you guessed it—Georgia.  Taken together the six are quite substantial in terms of assets and deposits.  But first…

#58

  • Failed bank:  Waterford Village Bank, Clarence NY
  • Acquiring bank: Evans Bank National Assoc., Angola NY
  • Vitals:  At March 31st, assets of $61.4 million, deposits of $58 million
  • DIF Damage:  $5.6 million

#59-#64

  • Failed bank(s):  6 subsidiaries of Security Bank Corporation, Macon GA
  • Acquiring bank: State Bank and Trust Co., Pinehurst GA
  • Vitals:  At March 31st, assets of $2.8 billion, deposits of $2.4 billion
  • DIF Damage:  $807 million

Counted separately, this brings the total number of Georgia bank failures to 21 since the beginning of 2008.

COMMENT

Someone said New Jersey is the most corrupt. FBI i think.
Anyways, the State of Georgia can’t be too far behind. Follow that money around awhile if you have the resources. I would forcast banner headlines and dead investigators (and hope to God totally humanly wrong) which would maybe indicate a bunch of greedy (your descriptive) following the trends of the BIG shots and not doing any better.

Posted by DanO | Report as abusive

Who are Bernanke’s top 25?

Jul 24, 2009 19:47 UTC

How many too-big-to-fail financials might be subject to additional oversight under Obama’s regulatory reform bill?  According to Ben Bernanke: roughly 25.

“On order of magnitude, a very rough guess would be 25 (firms). I would like to point out that virtually all those firms are organized as bank holding companies, or financial holding companies, which means the Federal Reserve already has umbrella supervision , so I would not envision the Fed’s oversight extending to any significant number of additional firms.”

Conveniently, the Fed publishes a list of the top BHCs.  Here are the top 50.  And you’ll never guess who just missed the cut at #26…

CIT.

Not on the list is GE Capital, which is certainly too-big-to-fail.  And there are more than a few insurance companies that wouldn’t be allowed to go under.  By assets, the biggest insurers–besides MetLife, which is on the BHC list–are Prudential ($380 billion assets), Hartford ($290 billion), and Berkshire Hathaway ($282 billion).

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