The people who brought you the Long-Term Capital Management debacle want banks to get serious about cutting their own leverage, applying fair value accounting to a wider range of assets.
Steve Hanke and Alex Kwok just published a paper calculating last year’s hyperinflation in Zimbabwe, when “conventional inflation measures were not available.” Their conclusion is that in mid-November, prices were doubling every day. That means Zimbabwe’s hyperinflation ranks second worst in world history.
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Cost of credit card debt soaring (Sun-Times) Terry Savage on the way credit card terms are changing as recently passed legislation goes into effect. Lots of good detail in here, and I like how she concludes the piece: Unhappy with high interest rates? Then pay off your balance.
On Monday the Fed announced it had purchased another $7 billion worth of Treasuries under its quantitative easing program. Readers will recall that in last week’s FOMC statement, the Fed said it was extending the Treasury purchase program by a month, to the end of October, while maintaining its total purchase commitment of $300 billion.
Squeaking by on $300k (WaPo)
Failed Banks weighing on FDIC (WSJ) The key paragraph is this: “For the 102 banks that have collapsed in the past two years, the FDIC’s estimated cost averaged 25% of assets. That is up from the 19% rate between 1989 and 1995, when 747 financial institutions were closed by regulators, according to the FDIC.” I wonder: Is that a weighted average? Elsewhere the writer notes that 3 of the 5 failures last Friday will cost the DIF >50% of the failed banks assets. But that’s misleading. The biggest failure by far was Colonial, and the estimated losses there are 11% of assets. I also would have liked the writer to have drilled down on Joe Patten’s quote, that this crisis won’t cost FDIC as much as the S&L crisis. If that turns out to be true it will only be because bailouts rescued FDIC from having to deal with failed behemoths Citi and BofA.
Five bank failures tonight, bringing the total for the year to 77. See below for a video clip and for details about the Deposit Insurance Fund’s resources.
Must Read–Next bubble to burst is banks’ big loan values ( Jonathan Weil, ht AK) In their latest quarterly filings, banks were required to list the fair value of their loan books next to their carrying value. No surprise, most banks are carrying loans at far above their fair value. And the difference is enough to wipe out most of their capital. I’d been working on a table of this data in conjunction with my own column, should be coming shortly.
Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 360,149 U.S. properties during the month, an increase of nearly 7 percent from the previous month and an increase of 32 percent from July 2008. The report also shows that one in every 355 U.S. housing units received a foreclosure filing in July….
From the FOMC statement released a few minutes ago by the Fed:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
Fears of financial collapse have receded, but they shouldn’t be forgotten. This blog has argued repeatedly that the economy is still very much infected by the disease that caused last year’s collapse: excessive debt. And the problem isn’t going away, what with runaway government spending on stimulus, bailouts, and, potentially, a new national health care plan.