Lunchtime Links 7-9

July 9, 2009

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Bailouts let banks carry loans at values that are too high (NYT)  This is a very important to understand.  A big way banks avoid writedowns is by expressing “intent and ability” to hold toxic loans to maturity.  They don’t want to sell at market prices, so they have intent.  And they have an implicit government guarantee against failure, so they have ability.

Lenny Dykstra files for bankruptcy (Inquirer)  Another Schadenfreude alert.  Dykstra reminds one of Donald Trump: great at self-promotion, not so great at substance.  Yeah, he was a good ballplayer.  But a lot of his “talent” was likely due to steroid abuse.  I remember Jim Cramer being interviewed for HBO profile of Dykstra called him one of the smartest guys he knew.

Sorry, not everything can be hedged (David Merkel)  “…often the amount of CDS created exceeds the amount of debt covered….I call this a gambling market, because there are parties where the transaction takes place where neither has a relationship to the underlying assets.  There is no risk transfer, but only a bet.  My view is such gambling should be illegal…”

Buffett backs second stimulus (ABC News)  We’re not going to clean up our mess of debt folks; we’re just going to blow another credit bubble.  Count on it.

Historical unemployment data (Northern Trust)  An interesting report from Paul Kasriel, but I wonder: How have the ways we measure unemployment changed?  Is it fair to compare today’s data with data from 80 years ago?  Maybe it is.  I don’t know.

Breaking down June retail sales (Real Time Econ)  A helpful interactive table.  The box of text to the right makes the presentation a little kluge, but the text is helpful for those interested in detail.

Slump visists summer hideaway for the rich (NYT)  The top of the market is also buckling substantially.

Treasury announces first PPIP investments (Reuters)  The numbers are far smaller than initially anticipated, thank goodness.  Every dollar spent as part of this program is a dollar wasted to bail out bank creditors.

Swiss workers want 2 more weeks vacation (Swiss Info)  Four weeks isn’t enough.

Real-life Captcha….



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I think one potential benefit of the PPIP programs will be to allow the FDIC to flush the receivership assets out and get cash in.

I forsee the FDIC being the single biggest seller in the program.


Posted by Andrew | Report as abusive

Logan Square, Phila, looking east across the fountain – Cathedral of Sts. Peter & Paul in the background

The new Wash Sq fountain in the Village will need something like this soon (around the corner from Rolfe’s performance space) – Bloomberg’s lawyers won’t let the city chlorinate, and the water’s recirculatingly filthy – since the Sq re-opened, swimmers/waders galore, esp kids – somebody’s going to get sick – if the city chlorinates, it’s a pool and they need lifeguards – horns of a dilemna

Posted by fatbear | Report as abusive

Andrew….you mean FDIC will dump toxic securities through the Legacy Securities Program? Seems to me since all the financing for PPIP is coming from Uncle Sam, and it’s non-recourse, taxpayers keep most of the risk anyway. What do you think?

Posted by Rolfe Winkler | Report as abusive

Well, Rolfe, since the FDIC is only marginally “government” and funded by the banks, it would actually transfer risk to the taxpayer, not keep it there.

However, it would be a lower profile way of increasing the FDIC’s liquidity (v. drawing on the credit line with the Treasury, for instance), and likely a way for the FDIC to cut some of their estimated losses on the banks they’ve already closed (and banks they’ve yet to close).

It gives the FDIC more confidence that it will be able to move the assets that it gets stuck with, improving liquidity and allowing it to resolve more failed banks in a timely manner rather than letting them string along, and also avoids confidence-in-the-system-shaking events like the FDIC drawing on its emergency credit.

Great system? No, but it makes a lot more sense than expecting this program to actually improve struggling banks. It does provide some benefit to the FDIC’s performance ability, and the FDIC doesn’t have the problem of a lack of incentive to participate like the banks do.

Posted by Andrew | Report as abusive