BofA submits brief to Rakoff

Aug 24, 2009 19:12 UTC

Two weeks ago, Judge Jed Rakoff refused to approve the $33 million settlement between Bank of America and the SEC. He said he wanted more facts and ordered the parties to file briefs to that effect by today.

BofA published its brief earlier this afternoon. I’m reserving my opinion until I’ve had a chance to wade through the whole thing. In the meantime, I thought some readers might want to see it (click “more” below).

There are three docs: The final submission along with two affidavits, one from Stanford law professor Joseph Grundfest, the other from Dewey and LeBoeuf’s Morton Pierce (who got paid the tidy sum of $1,090 per hour for his work).

St. John’s Professor Anthony Sabino offers the following initial comments:

1. The Joe Grundfest Affidavit signifies that BofA is not fooling around.

Getting Joe Grundfest to give an affidavit is like sending up Derek Jeter to hit in the World Series—he’s “clutch.”  Grundfest is one of the greatest scholars of his generation in the securities law field….His name alone lends a gravitas to what he has to say.  Judge Rakoff will respect that.

2. The Grundfest Affidavit, particularly Para. 36.

Grundfest takes the critical step of pointing out the very powerful defenses available to BofA, essentially arguing that the gov’t could never win, and the Bank is settling this matter early rather than spend resources to litigate to a foregone conclusion, i.e., they would win anyway, but it’s cheaper to settle.  That is often the gravamen of any settlement, so it’s important that a scholar as notable as Grundfest spells it out, apparently something that was lacking the first time out.

3. Substantial likelihood Judge Rakoff will now be satisfied, and settlement will be approved, BUT there is a slim chance the Judge may still hesitate, because it was reported that at the hearings the Judge wanted disclosure about individuals and their individual actions.   From what I see of the BofA side, not much of that, so unless the SEC addresses that, the Judge may still ask questions.

But overall, I see this going through now.  I would not bet against the side with a Grundfest affidavit.

The SEC hasn’t filed its brief yet; I will share that one when it hits.

At the moment, there isn’t another public hearing on the schedule.  According to Rakoff’s office, if the judge decides to schedule another one, it will come after response briefs are filed on September 9th.

(more…)

Another not-so-small purchase by the Fed

Aug 24, 2009 17:17 UTC

There are 9.5 weeks left before the end of October, when the Fed plans to end its $300 billion Treasury purchase program.  As I wrote last week, the Fed is running low on ammo if it plans to make its money stretch all the way into October.

Today, they announced another not-so-small purchase of Treasuries, $6.1 billion to be precise.  That brings the total purchased to $268.5 billion, leaving $31.5 billion left to spend over the next 9.5 weeks.

Since the start of the program in March the Fed has averaged $12.2 billion of Treasury purchases per week.  They have enough ammo left to average $3.3 billion per week through the end of October.

What’s for certain is there won’t be any more weeks like August 5th-11th, when the Fed swallowed $23.5 billion worth of Treasuries.

As the Fed winds down its participation in Treasury markets, will investors step in to soak up the flood of supply?  If they don’t, interest rates could head higher, choking off the “recovery.”

COMMENT

So WTF, I been waitin for “higher rates” with no COLA for the next 2 years and interest as low as it is on savings, it no wonder we all stop buyin.

Just how can they say no COLA for 2011? I thought it was determined by the figures they use for a given time, those figures won’t even be known till Sept of 2010

Posted by Hoody | Report as abusive

Lunchtime Links 8-24

Aug 24, 2009 16:51 UTC

The man who sells America’s IOUs (NYT)  An interesting profile of Van Zeck, the commissioner of the public debt.

Tyler Durden’s insider trading settlement (FINRA, ht Felix)  The NY Post article that “outed” Tyler Durden as Daniel Ivandjiiski excluded key details about his banning from the securities industry. The ill-gotten profit in question?  $780. Not that I condone insider trading, I don’t. Familiar as they are with details of what happens on Wall St. trading desks, I think Tyler and his team are net contributors to the blogosphere. Like Frank Abagnale, it takes one to know one. The bigger problem is that their style — shoot first, aim later — costs ZeroHedge some credibility. All journalists do this to some degree. We have to file columns/stories by a certain deadline and go with the best information we’ve got. Sometimes it’s incomplete. On occasion it’s wrong. It’s a balancing act that should always tilt in favor of quality of information over quantity.

Fitch: Delinquency cure rates worsening for prime RMBS (BusinessWire, ht CR) “Curing” is a term lenders use to describe delinquent borrowers who get caught up on their payments. Banks engaged in “extend and pretend” tactics do so in large measure because they think delinquent borrowers will eventually make good. The fact that prime borrowers can’t dig themselves out of their hole is another negative data point that suggests the “recovery” is an illusion.

Stratfor: Mixed signals from Tehran (Cumberland Advisors)  David Kotok got permission to reprint an interesting article from Stratfor, the private intelligence service.  If you’re interested in oil markets, understanding developments in Iran is important. Read the Stratfor article itself first, then if you want, go back to the commentary above and below.

Population age affects economic growth (Examiner.com) Economic growth is a function of population and technology. Growing populations boost demand, improving technology boosts productivity. Combined the two lead to healthy expansion. This ignores issues of sustainability, of course. Anyway, when demographics turn against you, as they have in Japan and as they are in the U.S., economic growth can be difficult to pull off.

Kasriel: Why expansion of Fed’s balance sheet hasn’t been inflationary…yet (pdf)  (NTRS) Adding more detail to the argument made here last month.

Free issue of Grant’s Interest Rate Observer for the masses (Jim Grant, ht Ritholtz) JG is a must read for investors in the financial sector. This is complicated stuff; probably not suitable for general interest readers.

Rare Morning Glory clouds spotted (nasa.gov)

Clint Eastwood eat your heart out….

Gold demand declines in Q2, still high

Aug 24, 2009 03:34 UTC

Last week, the World Gold Council released demand statistics for gold for the second quarter.  From the press release (pdf):

Investment demand for gold remained very strong in the second quarter of 2009, rising 46% on year earlier levels as investors continued a flight to quality. Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand…. Although gold demand remains very high on a historical basis, total demand in Q2’09 was down 9% on the levels of a year earlier, a 6% decline in USD value terms to $21.3 billion.

Normally when I compile the data into a chart, I collapse all the “investment” categories into one to eliminate busyness.  This time around, I thought it was worth breaking out the details in order to show the dramatic swing in ETF demand.

(Click chart to enlarge in new window)

slide16

On the supply side there was an interesting bit of news.

Total supply of gold was up 14% relative to year-earlier levels at 927 tonnes, driven by lower levels of producer de-hedging, with mine output and recycling activity making a smaller contribution. Q2’09 supply was nevertheless 23% below the levels of the previous quarter. The main contributor was a 41% reduction in recycled gold, suggesting that profit-taking and distress selling has decreased.  The central bank sector had a dampening impact on supply – net purchases of 14 tonnes were recorded in Q2’09 compared to net sales of 69 tonnes in Q2’08, the figures indicating the first net purchase by central banks for a considerable length of time.

COMMENT

World Gold Council is no better than NAR for statistics. They seem to focus more on bling than reality and thus do not understand their own product which is a currency not a commodity.

Posted by walkdontrun | Report as abusive

AFP: “Viagra” effect undermines Brazil pension system

Aug 22, 2009 17:46 UTC

Boy meets girl, dies.  Girl retires.  From AFP:

The widespread tendency in Brazil for men to remarry women several decades younger — called the “Viagra effect” — is undermining the country’s pension system, researchers warned Tuesday.

The report, by Brazil’s National Social Security Institute (INSS), showed that a trend of men in their 60s marrying women half their age was leaving a big pool of young widows collecting benefits for much longer than anticipated.

I haven’t read the report, but it’s amazing to me that in a country as large as Brazil, there would be enough such couples to move the needle.

The article notes that the trend actually began in the ’70s, long before Viagra.

COMMENT

I’m with Hornydevil Joe. Hell, I’m only in my 50′ties – I should be able to get a girl in her 20ties. Hell, I’m frisky and wealthy enough for two!

Posted by fresno dan | Report as abusive

Robert Kennedy on GDP

Aug 22, 2009 14:26 UTC

Something to ponder on the weekend (ht Ecopolis):

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife. And the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

RFK, speaking at the University of Kansas, Lawrence KS, 3/18/68

COMMENT

No doubt RFK was a visionary, but the fact that he was handed a podium beause of his name does not place him above many other great people who had great morals as well as great vision.

Posted by al coholic | Report as abusive

White House: 10-yr deficit now $9 trillion

Aug 21, 2009 22:56 UTC

Some breaking news from Reuters about an updated deficit projection:

The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.

The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama’s opponents, who say his spending plans are too expensive in light of budget shortfalls.

At first glance, I’m inclined to give Obama credit for this, for updating his deficit forecasts at a politically inconvenient time. He’s pushing his health care plan pretty hard and this news gives a HUGE talking point to critics who say we just can’t afford it.

But of course there would never be a politically convenient time for this news to hit, not with the agenda to which Obama has committed himself.

And the way the news was announced is suspect. There were two deficit projections released this week. The good news — about this year’s deficit projection falling from $1.84 billion to $1.58 billion — was released mid-week.  The bad news — about the 10-yr deficit projection rising 27% — was dumped at a very convenient time: late on a Friday in August, when Congress is out of town and most folks are on vacation.

On a related note, this week the deficit passed the latest $100 billion threshold, $11.7 trillion

(Click chart to enlarge in new window)

slide15

COMMENT

I love how people still blame Bush for deficits…

The economy was sound after Bush inherited a recession from Clinton and kept the economy afloat after Enron and 9/11. It was only after 2006 when the Dems took over Congress that problems started to materialize.

Posted by Marko | Report as abusive

Bank Failure Friday + DIF details

Aug 21, 2009 22:27 UTC

Another big one bites the dust.  Guaranty is the 81st failure of the year.  Plus two more in Georgia.

Below this evening’s failure news I’ve got more detail about the Deposit Insurance Fund, including an interesting tidbit about why FDIC collected so little in premiums from 1996-2006.

#78

  • Failed Bank: eBank, Atlanta GA
  • Acquirer: Stearns Bank NA, St. Cloud MN
  • Vitals: As of 7/10/09 assets of $143 million, deposits of $130 million
  • DIF Damage: $63 million

#79

  • Failed Bank: First Coweta, Newnan GA
  • Acquirer: United Bank, Zebulon GA
  • Vitals: As of 7/31/09 assets of $167 million, deposits of $155 million
  • DIF Damage: $48 million

#80

  • Failed Bank: CapitalSouth Bank, Birmingham AL
  • Acquirer: IBERIABANK, Lafayette LA
  • Vitals: As of 6/30/09 assets of $617 million, deposits of $546 million
  • DIF Damage: $151 million

#81

  • Failed Bank: Guaranty Bank, Austin TX
  • Acquirer: BBVA Compass, Birmingham AL
  • Vitals: As of 6/30/09 assets of $13 billion, deposits of $12 billion
  • DIF Damage: $3 billion (!)

There was a confusing article in Bloomberg yesterday, which suggested FDIC is considering a new $5.6 billion fee on banks to replenish the DIF.

Just so folks are clear, that $5.6 billion was already assessed.  Banks accrued the expense on June 30th and will pay the cash into the DIF on September 30th.  That was a special assessment of 5¢ for every $100 of deposits.

We will be getting an update on the DIF’s funded status next Thursday, when FDIC publishes its Quarterly Banking Profile.

But here’s what we know about the DIF’s status right now:

  • DIF balance at 3/31 = $13.0 billion
  • Contingent Loss Reserve at 3/31= $28.5 billion (i.e. reserves set aside for current and future losses)
  • Q2 assessments = $8.9 billion ($5.6 billion one-time assessment + $3.3 billion scheduled quarterly assessment)

That’s $50.4 billion of firepower.  Since March 31st, we’ve had new bank failures that will cost an estimated $19.2 billion.

If FDIC appears to have a decent amount of reserves, will they have to draw on their credit line at Treasury?  It’s possible.

The issue is the liquidity of their assets.  A huge chunk of their balance sheet is made up of assets received from failed banks.  REO, toxic loans, etc.  That’s not cash they can use to finance bank seizures and sales.  If they run out of cash, they may have to borrow from Tim Geithner.

I’m working on getting more information about the composition of the DIF, in particular how much cash they have on hand.  I’ll follow up when I know more.

And now for tonight’s tidbit: I have been critical of FDIC in the past for not collecting deposit insurance premiums from most banks between 1996 and 2006. I wasn’t aware that FDIC was prevented by law from doing so during that period because the DIF was above 1.25% of insured deposits.

I was wrong to be critical of FDIC on this point.  It was Congress’ fault, not theirs.

They changed the law back in 2006, by the way, right before Sheila Bair was installed as Chairwoman.  For those interested, it’s 12 USC Section 1817 (b).

COMMENT

Eighty-one bank failures in 2009 alone, with another 300
predicted by the end of 2010. But don’t worry. This is
just another ‘mild’ recession. So what if the FDIC runs
out of money; just borrow some more from the Fed.
Besides the Fed is in the capable hands of Mr. Bernanke
and Mr. Geitner–nothing to be concerned about. Is there?

Afternoon Links 8-21

Aug 21, 2009 18:54 UTC

Japan turns to taxis for help in selling government bonds (Bloomberg) A peak into our own future?

Why the Austrian, Keynesian, Marxist, Monetarist, and Neo-liberal economists are all wrong (Jesse’s Cafe) A very good piece questioning various economic schools of thought. I’m a fan of the Berliner school, as in philosopher Isaiah Berlin. His pluralist approach — it’s better to know many small things than one big thing — is a better way to think, IMHO. I highly recommend his essay The Hedgehog and the Fox.

Existing Home Sales and first time buyers (Calculated Risk)  The stock market is thrilled with today’s existing home sales data.  CR notes that first-time buyers are jumping in right now, but that demand will wane.  Tax credits are driving home sales the same way C4C drove car sales.  A lot of demand is being pulled forward.  He has more in this follow-up post.

An alternative Big-mac index (Economist)

Morgan Stanley makes hiring push (WSJ) John Mack is beefing up his sales & trading teams. Someone’s got a little Goldman envy…

Schadenfreude alertRise of super-rich hits a sobering wall (NYT)

New phase of crisis, securities sink banks (WSJ) Guaranty was done in by option ARM MBS it held. Dozens of other banks are being hammered by trust preferred securities. This piece is actually all over the map, pointing to a lot of problem areas without adequately explaining how, in the grand scheme of American banking, they all fit together. A good read nonetheless.

Recession hammers booze cruises (BBC) Isn’t the liquor biz supposed to be recession proof? ;)

Just Swell.  Bill’s strength has surfers psyched (City Room, ht JL)  Hurricane Bill is bringing “EPIC” waves to the east coast.  I’m not a surfer myself, but I used to do consulting work for Surfline, the top surf-forecasting site quoted in the article.

Two days ago I linked to the video of Usain Bolt winning the 100m, yesterday he literally ran away with the 200m championship, finishing in world record time of 19.19 (the # on the clock was later revised) and beating the second-place finisher by 7 meters!

Big banks still hold FDIC captive

Aug 21, 2009 15:47 UTC

Sheila Bair has moved with impressive alacrity to shutter failed small and medium-sized banks. But she is still held hostage by the too-big-to-fail four.

Over the last eight days, her agency has been particularly busy, handling the two largest bank failures of the year. Last Friday it was Colonial Bank, today it will be Guaranty Bank.

With $25 billion and $14 billion of assets respectively, Colonial and Guaranty are the sixth- and 10th-largest failures in the history of the FDIC. Still, they pale in size compared to the biggest banks.

Bank of America Merrill Lynch, which had $2.3 trillion of assets at the end of the second quarter, is nearly 100 times larger than Colonial. JPMorgan Chase, with $2.1 trillion, and Citigroup, with $1.8 trillion, are nearly as big. Wells Fargo had $1.3 trillion, 100 times more than Guaranty. These amounts don’t include hundreds of billions of dollars of off-balance sheet assets.

Yet even Colonial and Guaranty are large enough to give the FDIC indigestion. Its deposit insurance fund had just $13 billion as of March 31. The 56 failures since then will cost it an estimated $16 billion, including nearly $3 billion for Colonial. (That amount excludes Guaranty – the FDIC should provide an estimate for those losses later today.)

It’s an unsettling thought if you have money in a bank. Officially, FDIC backs $4.8 trillion worth of deposits. If you include “temporarily” insured deposits, the total is $6.3 trillion. Yet the insurance fund protecting these deposits is going broke. Soon, the FDIC may have to draw on its credit line at Treasury.

It’s not surprising, given the sorry state of the Deposit Insurance Fund and the gargantuan heft of the big four, that FDIC is taking a bifurcated approach to bank resolutions.

Bair has moved decisively to close small and medium-sized banks. With the monsters, she not only assisted in their bailouts — providing federal insurance for their debt even as she already insures their deposits — she also sponsored their continued growth — putting WaMu in the hands of JPMorgan and pushing Wachovia into the arms of Wells Fargo.

Not that she had much choice. The biggest banks are far too big for her to resolve. One way to measure this is deposits in failed banks as a percentage of GDP.

(Click chart to enlarge in new window)deposits-in-failed-banks

In 1934, the worst year for bank failures during the Depression, the total was 6.4 percent.  In 1989, the most expensive year for the FDIC during the S&L scandal, it was 2.5 percent.  Last year, the figure was 1.6 percent.

But the 2008 figure excludes Citi, BofA and Wachovia, which properly should be dumped in the failure bucket. Citi and BofA were goners without bailouts while Wachovia failed and fell into the arms of bailout recipient Wells Fargo. When you include those three, deposits in failed banks jump to 15.7 percent of GDP for 2008.

The FDIC, which was created to protect society from deposit runs, is no longer able to fulfill its mission because the biggest banks have grown far beyond its grasp.

That’s why these banks need to be downsized dramatically. A tax on assets is a good idea, but not enough. To break them up, Washington should limit the deposits in any single bank to a threshold far below what the big four currently hold.

COMMENT

After looking into this more, I see now where the fed won’t let the FDIC go broke, it will just “bail” them out as all the other broke items. Even the stock pusher clowns on CNBC incl the one with the noise making machine say so. Only thing I guess would be next question though is if a “big” bank was to go, just how long would the FDIC decide it wanted to take to pay the “insured” accounts? My guess is a while. So I use 3 different banks and maybe even a 4th to spread things around as not all banks in my area are 5 star rated, they are 3 to 5. But I figure they won’t ALL go at the same time. ( I hope :) ) No reason to keep it in cash cause if the situation gets as bad as some think, the paper won’t be worth shit either, and since you don’t have a Ft Knox you probably won’t have that much gold around either, besides a lb of meat is edible, a lb of gold just sits there, if I had the meat why would I want the gold?

So relax, keep “some” cash available but keep the rest in the bank, you’ll get it back some time lol

Posted by Hoody | Report as abusive

Buffett’s imaginary economy

Aug 20, 2009 22:49 UTC

Warren Buffett is back as the nation’s financial conscience, publishing an op-ed in yesterday’s NYT lamenting the dangers of too much monetary and fiscal stimulus. As regular readers of this blog are aware, that’s a message with which I wholeheartedly agree. My problem with Buffett’s piece is that he makes a good argument and then totally undercuts it in his conclusion:

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

This have-your-cake-and-eat-it-too approach is typically what we get from Paul Krugman: Yeah, debt is a problem and has to be dealt with long-term, but in the meantime we should jack up deficit spending in order to boost growth. To paraphrase St. Augustine, make us fiscally and monetarily prudent, just not yet. Ben Bernanke said something of that sort in a speech. He was trying to be funny.

The problem, it seems to me, is that rising GDP and employment—i.e. “recovery”—is not compatible with de-leveraging, which is what Buffett is talking about.

When consumers try to cut debt and boost savings, the economy goes into a deflationary spiral that Keynesians argue must be counteracted with fiscal and monetary stimulus.*

Consumers de-lever, government re-levers.

Private consumption and government spending now drive something like 80% of GDP. It can’t keep rising unless consumers, the government or both continue borrowing huge sums.

The goldilocks economy Buffett describes, in which we can have “recovery” without increasing debt, is a fantasy.

My point is that in order to reduce debt we have to endure some sort of deflationary recession. The alternative is to spend and print perpetually, which Buffett points out is the worse option.

What Buffett should have said? Suck it up folks, we’ve no choice but to learn to live with less.

——

P.s.: I think Buffett actually knows this, but being asset-rich, he’s boxed in. Deflation hammers the value of all non-cash assets, so he has to support monetary/fiscal stimulus in order to preserve his own and his shareholders’ wealth.  Hence the opening of the piece, which lauds the “wisdom, courage and decisiveness” of the Bush and Obama administrations in the face of collapse, and the end of the piece, which says their emergency measures continue to be necessary. He maligns the effects of stimulus, but he’s stuck supporting it.

*The “Paradox of Thrift” this is called, a particularly problematic economic theory used to justify heavy government borrowing.

COMMENT

But Giles, the “growth” you’re talking about is financed with more debt!

All of you Keynesians are in love with the Paradox of Thrift, but you’ve never considered the Paradox of Gluttony. To wit:

“Keynes worked out that the escape route from the “paradox of thrift” was to get some agent (the government) to spend more money, thereby boosting profits, encouraging more borrowing, generating more profits, leading to a virtuous cycle of economic expansion. Keynes was concerned with finding a policy to help economies escape the Great Depression leading him to emphasise the “paradox of thrift” element of the story. Minsky, however, took Keynes’ theory to the logical conclusion, arguing that borrowing can lead to a self-reinforcing positive spiral. This positive spiral could be though of as a “paradox of gluttony” whereby higher borrowing producers higher profits, thereby ratifying the decision to borrow and spend more.

The paradox of thrift and gluttony are important because they are linked to the same credit creation process that drives asset market instability…The additional borrowing associated with an asset price boom will likely flow back into additional asset purchases, but part will also be converted into higher levels of debt-financed spending…”

Every time we hit a recession, Keynesians argue to borrow and print more. Credit never stops expanding. That is, until the bond market makes it stop.

DeLong pretends the bond market doesn’t exist, or, Krugman-like, he dismisses it as a concern since we should have no trouble borrowing more.

But at some point we CAN’T borrow more.

DeLong thinks he’s really clever because he’s got a cute theory. But it doesn’t trump common sense — we can’t borrow forever.

Posted by Rolfe Winkler | Report as abusive

Top states for mortgage delinquencies

Aug 20, 2009 19:54 UTC

As noted in today’s links, mortgage delinquencies in Q2 set a record.  Below a one-page summary from MBA that illustrates the hardest hit states.

(For easier viewing, click “Toggle Full Screen” top right and then the “+” to zoom in)

COMMENT

A problem with that graph is that it would lead people to believe that the problems exist ONLY in those areas; as a forensic loan auditor, I can tell you that it’s all over the country. Texas and Colorado are being hit hard, too–seems like you don’t hear much about those sectors, but it’s happening there, too.

Lunchtime Links 8-20

Aug 20, 2009 15:50 UTC

Ouch.  Colonial left a mark (CalculatedRisk)  CR pulls a very helpful chart from BB&T’s investor presentation regarding the Colonial deal. It shows that BB&T marked down Colonial’s loans 37%.  It also shows the marks taken on similar transactions over the past year.  While Colonial’s loans appear particularly toxic, this gives you a sense for losses that may be embedded in the loan books of other banks.

California to get $1.5 billion loan from JP Morgan (Reuters)

Average Home Price in Detroit falls to $11,596 (Carpe Diem)

TLGP shrinks (FDIC)  Debt outstanding under FDIC’s debt guarantee program fell to $320 billion this month from $339 billion last month as the shortest-term paper matures. My colleague Agnes notes that TLGP is likely to end on schedule this fall.  It won’t go to zero for some time, however, as debt previously issued remains outstanding.

Deficit estimate falls (Reuters)  Good news: The administration won’t have to ask for as much as $250 billion of additional bailout money for the financial sector, so the estimate for this year’s deficit falls from $1.84 trillion to the positively frugal $1.58 trillion.

BBVA is likely winner for Guaranty Financial (WSJ)  More to come…

Nine held in carbon trading swoop (FT)  Organized crime getting involved with carbon-trading.

100 (old) pennies worth $1.81 if melted down (Coinflation)  Check out the melt value of various U.S. coins.  An attentive reader points out that the pennies in question aren’t the ones currently being issued.  No, the mint switched over to cheaper zinc pennies in 1982.  This is how kings inflated their currencies once upon a time when they were still metallic.  They’d instruct citizens to turn in gold coins, melt them down and return an alloyed coin with lower gold content.  Sounds like confiscation, yes?  That’s what inflation is.  FDR pulled a similar stunt in 1933.

Mortgage delinquency rate sets record in Q2 (Mortgage Bankers)  The combined percentage of loans in foreclosure and at least one payment past due was 13.16 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey”

The dating agency found no matches (imgur)

Putpockets give a little extra cash (Reuters)

Commercial vs. Residential prices, June update

Aug 19, 2009 21:54 UTC

The Moody’s/REAL commercial real estate index for June was released today. Down just 1% compared to May, it suggests the pace of decline is moderating. The index was squarely in freefall the prior two months, declining 9% from March to April and 8% from April to May.

According to the index, prices are now down 35.5% from the Oct ’07 peak.

Case-Shiller data for June won’t be released till next Tuesday. But in May, the Composite 20 index actually rose slightly … for the first time since July 2006.

But don’t expect a V-shaped recovery for home prices (or for CRE prices for that matter).  While residential prices appear to have stabilized during the seasonally strong summer selling season, it’s likely they’ll turn back down later this year.

Even if prices stabilize around current levels, that would still imply large future losses for banks. They’re counting on prices to rebound sharply in order to avoid massive losses in their loan books.

(Click to enlarge in new window)

slide14

Just a reminder for everyone that comparing these two indices isn’t totally fair. There are literally millions of transactions that go into the Case-Shiller index. On the CRE side, there have been few sales recently to indicate pricing, as you can see below.  So you have to read Moody’s/REAL with a grain of salt.

(Click to enlarge in new window)

picture-2

COMMENT

It is NOT seasonally adjusted. Case-Shiller publishes a seasonally adjusted index, but I don’t believe Moody’s does. Not in the data I saw, anyway.

Posted by Rolfe Winkler | Report as abusive

Afternoon Links 8-19

Aug 19, 2009 19:13 UTC

Why we need to regulate the banks sooner, not later (FT)  This op-ed is notable because of its author, Ken Rogoff, and because of a great lead.  Overall, he rambles a lot, commenting on the problems festering inside the financial system without really offering a prescription to fix them.  But there are some good lines.  For instance: “The fact is that banks, especially large systemically important ones, are currently able to obtain cash at a near zero interest rate and engage in risky arbitrage activities, knowing that the invisible wallet of the taxpayer stands behind them. In essence, while authorities are saying that they intend to raise capital requirements on banks later, in the short run they are looking the other way while banks gamble under the umbrella of taxpayer guarantees.”

One person’s boondoggle, another’s necessity (NYT)  The most interesting part of this article is the origin of the word “boondoggle.”

Destroying market overcapacity — literally (Kedrosky)  Container ships are being scrapped at record rates.  Demolition is still the best stimulus.

WaMu Chase sells woman’s home by mistake (justnews)

A troubling source of drug-resistant pathogens: the American farm (Johns Hopkins Mag)  Force-feeding antibiotics to livestock is creating drug-resistant super bugs.

Is she really a he? (Daily Mail)

Total eclipse of the flow chart (s3)  For music fans…

“Found this disk you were looking for” (imgur)  For computer nerds….

Florida man spends three months in jail for possession of breath mints (wftv)

Skip ahead to the 2:25 mark.  It gets REALLY impressive after 4:00…

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