Lunchtime Links 8-5

August 5, 2009

MUST READThe debt-inflation myth, debunked by UBS (Alphaville, ht Yves)  Tracy Alloway has a GREAT piece today debunking the idea that we can “inflate our way out of debt.”  As I’ve argued previously, this assumes debt doesn’t have to be rolled over.  But of course is does, especially when you’re operating with deficits as high as our own.  The consequence of higher inflation, then, is that lenders demand higher interest rates on new debt.  As legacy debt is inflated away, new debt issuance is MUCH more expensive.

Taylor Bean suspended from making FHA loans (WSJ)  Funny business going on at the nation’s third-largest FHA lender.  Taylor Bean was one of the two targets of the Neil Barofsky’s raids earlier this week.  The other was big bank Colonial.   Taylor is dependent on Colonial for its warehouse line of credit.  With Colonial is on the ropes, Taylor investors put together a quick $300m to keep them afloat, and make them eligible to receive government money.  This is just another way lenders are scamming taxpayers and the government to get bailout funding to support home loans.  Dirty business.  Read the last three paragraphs of this article.

New York seeks millions of back taxes from Lehman (NYT)  This article has some good detail regarding the bankruptcy process, but the actual news is old.  My colleague Matt Goldstein reported it June 29th.

Post office considers closings, consolidations (AP)  The headline number is 1,000 POs may be on the chopping block.  Seems big, but consider that there are nearly 33,000.  The post office has been struggling for years due to e-mail and, lately, onlinebillpay.  The PO wants to make adjustments to its pension plan and reduce mail delivery to five days per week.

Clunker-nomics (David Kotok)  It’s all been said, but Kotok says it rather articulately.

SEC memo says Guaranty Bank to be seized, not sold (GoingConcern, ht AK)  Teri Buhl has an OTS source that claims Guaranty will cost the deposit insurance fund “at least” $5.3 billion and, even more stunning, that it’s too late to find a buyer, that FDIC will be forced to wind them down.  I wonder if that’s actually going to happen, as a reader commented to me: “I can’t believe they can’t even find someone to take the branches and deposits.  Sure, they can wind down stupid Frontier Bank of Greely, Co with all of what, 3 branches or whatever, GFG is a much different story.  It’d have to be the largest wind down since the S/L problem.  It’d look terrible in the press, too.  I’d still guess they’ll strong arm someone into taking over the branches/non brokered deposits, even if the acquirer pays basically nothing.” Still, it’s a great story from Teri.  Lots to chew on for future bank failure Fridays…

Alumna sues college b/c she can’t land a job (CNN)  She wants a refund on $72,000 in tuition.

Marines ban Twitter, Facebook, MySpace (Wired)

Obama’s birthday cake delivery (BBC)  Sociologist Max Weber might have much to say about Obama’s charisma.  Me?  I’d prefer a guy who wasn’t afraid to say no once in awhile.  As in, no we can’t deliver more free lunches financed by government borrowing.

Finally the spleen gets some respect (NYT)  Scientists have finally discovered why we have a spleen: “The parallel in military terms is a standing army….You don’t want to have to recruit an entire fighting force from the ground up every time you need it.”

One person’s first experience with a store-bought pizza…aka “Pizza Fail”

pizzafail

Comments

great stuff today.

TWB made a $300M *offer* to CNB, but backed out at the end of last month. Colonial therefore never received any TARP CPP monies. I think that TARP investigation stems from TWB’s dealings with GNMA and not so much from the Colonial angle.

Interesting stuff on GFG, but I’m not sure how much is actually really “news”. When was the last time the FDIC sold a bank without seizing it? Was there a creditable rumor that someone was actually interested in buying GFG straight up? If this was reporting that GFG was going to be seized then wound down after paying out depositors, then THAT would be a story. As it stands, its stating the obvious in such as way so that it seems like news.

And the “prominent hedge fund manager” that is quoted in the story? Needs to get his/her head out of their ass. All that hedge fund manager is admitting is that they haven’t been paying attention until after a bank is closed. FFED, GFG, CORS, CNB have ALL been publicly cited as been undercapitalized (CNB and FFED as merely less than “well capitalized”).

Also… a 0.5bps assesment? Please. That’d be $1 per $20,000 insured. Maybe they mean 50 bps, $1 per $200 insured. Current annual assesments are at least 14 bps, and the last special was at least 5 bps.

Paying 50 bps in a lump sum on insured deposits will also never happen because that would be something in the area of $5B from BAC alone. Not saying it’s not needed, just saying if you hold your breath for it you’ll wake up in the hospital. 5 bps could happen again in the fall, or even 10. Not 50.

Posted by Andrew | Report as abusive
 

MUST READ–The debt-inflation myth, debunked by UBS

Absent hyperinflation – case rested. The only outcome possible then must be hyperinflation.

Posted by walkdontrun | Report as abusive
 

Pizza Fail: The greasy masses fall through the cracks, but the upper crust stays dry?

Posted by Andrew | Report as abusive
 

“The problem with the idea of governments inflating their way out of a debt burden is that it does not work. Absent episodes of hyper-inflation, it is a strategy that has never worked.”

This will not stop them from trying.
It was tried repeatedly in the past and failed. It must have been the only politically expedient solution available to govts. at the time. Watch them try it again.

Posted by molecule | Report as abusive
 

Regarding the debt/inflation question – debt may have to be rolled over at higher costs, but what’s the alternative? Is the gov gonna stand by and watch as total collapse ensues? Run balanced budgets by raising taxes and slashing services? Seems unlikely. Has that ever worked to solve a problem near this size? I’m honestly asking, don’t know.

The scale of our debt seems too big to be solved by traditional means. Maybe they can postpone the day of reckoning another 5-10 years, but it seems inevitable. Also, wouldn’t a dollar collapse have the same basic effect as QE-based inflation?

 

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