In the Bank of America Merrill Lynch bonus imbroglio, the SEC has proposed a settlement in which, once again, the defendants neither admit nor deny wrongdoing.
Food among the ruins of Detroit (Guernica) Previously I linked to an article noting Detroit no longer has a single major grocery store within city limits. Keeping that in mind we have this very interesting article. One tidbit: “There is such a dire shortage of protein in the city that Glemie Dean Beasley, a seventy-year-old retired truck driver, is able to augment his Social Security by selling raccoon carcasses (twelve dollars a piece, serves a family of four) from animals he has treed and shot at undisclosed hunting grounds around the city.”
Hopped over to courtroom 14-B at 500 Pearl Street yesterday afternoon where I saw Judge Jed Rakoff hammer SEC and Bank of America lawyers over the proposed settlement regarding Merrill Lynch bonuses.
Gluskin Sheff’s David Rosenberg on last week’s consumer credit figures.
U.S. consumer credit outstanding fell $10 billion in June, the fifth decline in a row during which the debt balance has shrunk $60 billion or 5.5% at an annual rate. Both figures are unprecedented. As the chart below shows, the YoY trend, at -2.8%, is also running at its steepest contractionary rate in over five decades. Welcome to the new paradigm of savings, asset liquidation and debt repayment [in] the era of consumer frugality. After 20 years of living beyond their means, American consumers will be spending the next several years living below their means, and no, this will not be the end of the world, but it will put a firm ceiling on overall demand growth for some time to come.
MUST READ — Paulson’s calls to Goldman tested ethics (NYT) Grethchen Morgenson got copies of Hank Paulson’s call schedule via a Freedom of Information Act request. Paulson swears he had nothing to do with the Fed’s rescue of AIG and the $13 billion worth of bailout money that Goldman received for contracts it had with AIG, but he made absolutely sure to seek an “ethics waiver” to speak with Goldman CEO Blankfein on Sept 16th, the day AIG was bailed out. “At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.” 24 times between Sept 16th and Sept 21st. And that’s just on his office phone. It doesn’t include calls Paulson might have made from his cell or home phones.
Late yesterday Freddie Mac surprised markets by reporting a profit and by not requesting additional bailout money from Treasury. Before we celebrate, however, let’s consider a few revealing footnotes from the company’s quarterly filing. But first, some key financial ratios.
In a phone conversation yesterday, John Williams at Shadow Government Statistics warned me not to read too much good news from the better-than-expected jobs figure. The government’s seasonal adjustments aren’t, well, adjusting properly. They’re still keying off “typical” fluctuations in employment. But of course today’s economic climate is anything but typical. Yesterday the official unemployment rate ticked down a tenth of a percent to 9.4%, but according to Williams it should have ticked up a tenth of a percent to 9.6%.
Al Yoon reporting on the ever-expanding bailout of Fannie Mae…. (Reuters)
Fannie Mae … on Thursday reported a $14.8 billion quarterly net loss …. [I]ts regulator requested $10.7 billion from the Treasury to erase a deficit in its net worth, bringing total draws under a senior preferred stock purchase program to $45.9 billion.
More homeowners upside down on mortgages (CR) According to a Deutsche Bank report published yesterday, 16 million homeowners owe more on their mortgage than their home is worth. And the figure will go to 25 million by 2011 as house prices keep falling. These folks don’t actually own anything, since their home equity is negative. What they own is a pile of debt that is owed to the bank, which itself owns ALL of the home’s value. This is bad news for bank balance sheets, which will be seeing write-downs on bad loans for a while.
Earlier this evening, Reuters’ Jon Stempel reported that Taylor, Bean & Whitaker has ceased lending. That makes TBW #351 on the Mortgage Lender Implode-o-Meter. Questions swirl about what happened. One possibility seems to be that the company just couldn’t manage its own growth. As other lenders disappeared and TBW’s FHA business exploded, it’s possible they just didn’t have sufficient internal controls to insure loans met FHA underwriting standards. When the company failed to file its annual financials with the government, things started to unravel.
MUST READ—The 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.