Afternoon Links 2-26

Feb 26, 2010 21:01 UTC

Existing home sales/more existing home sales (Calculated Risk) Existing homes sales were down sharply from November, but the Nov number was high because of folks rushing to take advantage of the first time homebuyers tax credit, which has since been extended. Anyway, existing home sales were actually up versus January ’09.

Schadenfreude alert: AIG cut 20,000 jobs in 2009 on asset sales, defections, layoffs (Son, Bloomberg)

FDIC to test principal reduction for underwater borrowers (Merle, WaPo) Small program to start….it’s only on mortgages acquired by FDIC as part of bank failures, which is less than 1% of mortgages.

Bernanke delivers blunt warning on U.S. debt (Hill, Wash Times) He says the Fed won’t monetize debt, but it already has. It’s probably the economy will be fighting deflation for years to the degree that credit losses continue to make it hard for banks to create credit money….see Japan. As that cycle continues, the Fed will be forced into successive rounds of quantitative easing, which likely means more Treasury bond purchases down the line. It’s good that Bernanke is being vocal about unsustainable deficits, but it’s all just talk until he actually puts monetary policy where his mouth is…

China buying IMF gold story unfounded: author (Miles, Reuters) Gold was up 1% on a false rumor yesterday….

…of the river… (imgur) subtle and brilliant

North Korean stoplights (flickr) Reuters wrote a good story on this a while back. The video makes the story even more interesting.

The Dawning of Aquarius in South Dakota (Discover Mag) I’m guessing astrology doesn’t have an impact on climate…

Afternoon Links 2-25

Feb 25, 2010 20:46 UTC

The Euro’s final battleground: Spain (Fidler, WSJ) The folks at Variant Perception warned the world about the impending disaster in Spain last August. Here’s a copy of their report, which they’ve graciously allowed me to share. (Though they’re famous for that one, they do write about more than Spain.) Anyway, Spain’s economic problems are prompting mainstream discussion that the euro could actually collapse. Greece is small enough that it can be rescued by Germany and France. Spain not so much.

What Greece tells us about Europe (Defterios, CNN) “It is not often discussed, but many [striking] government workers enjoy preferential tax rates, can retire at the age of 54 (in some cases earlier) and enjoy 14 months of pay for 12 months worked.”

Detroit Mayor emphasizes need to shrink city (MacDonald, Detroit News) Detroit is at the forefront of dealing with economic decline. The U.S. economy is overgrown and collapsing under its own weight. More to the point, we don’t have the resources to support all of our commitments. Some mode of shrinkage is necessary. Doing it proactively, as Mayor Bing seeks to do in Detroit, is better than the alternative….

Cash-strapped L.A. goes after unlicensed dogs (AP)

Madoff whistleblower Markopolos says he thought about killing Madoff in new book (Baram, HuffPo)

Idol winners: not just fame but big bucks (Wyatt, NYT) And you don’t have to win Idol to cash in….you just need to finish near the top.

Henderson back at GM, for $3,000 an hour (Taylor, Fortune)

Stand up while you read this (Judson, Opinionator) “Your chair is your enemy.”

Cringeworthy video resume…(more examples at Gawker)…be sure to check out the Michael Cera parody at the bottom. Disappointed that Gawker forgot the most infamous video resume of all time.

COMMENT

VARIANT PERCEPTION??? THIS IS HILARIOUS STUFF: Are you sure he hasn’t confused Spanish banks with American banks?

“Why have the Spanish banks not experienced the same fate as American…..
We believe that Spanish banks are hiding their problems. We explore how they are doing this
through:
1) Getting a boost from accounting changes
2) Not marking loans to market
3) Continued lending to zombie companies
4) Making 40 year and 100% loan-to-value loans”

Posted by csodak | Report as abusive

Lunchtime Links 2-24

Feb 24, 2010 16:45 UTC

Rogoff says China crisis may trigger regional slump (Ito/Rial, Bloomberg)

Fed to get $200 billion boost (Hilsenrath, WSJ) The Treasury will borrow the money and put it on deposit at the Fed. Bernanke could use that money to fund Fed interventions in the economy instead of printing more money.

The extended period continues (Bernanke) In his semiannual monetary policy report for the House, Bernanke reiterates that rates will stay low for an “extended period.” Go the the “monetary policy” section of the speech.

New home sales fall to record low in January (CR) “…another extremely weak report.” And imagine what will happen to home sales if the extended period ever ends…

Greenspan: U.S. recovery extremely unbalanced (Lawder, Reuters) He also says that the 10-year yield is the one stat he looks at morning and afternoon….higher rates will surely nip the recovery in the bud.

Second strike paralyzes Greece (Kitsantonis, NYT) Greece may be bankrupt, but Greek workers won’t settle for pay cuts.

Italy’s worse, and the Nazis stole our gold (Reuters, ht Stacy-Marie Ishmael) Meanwhile, Greece’s deputy prime minister is making excuses.

The Bankruptcy Boys (Krugman, NYT) Krugman is entirely correct that Republicans are all talk and no action when it comes to deficit control. And he doesn’t even mention that the biggest recent increase to America’s long-term obligations was the Medicare drug benefit signed by George Bush.

Happy birthday! (imgur)

Floating, ice-breaking backhoe (imgur) This looks like a lot of fun…

i77sH

CoreLogic: 24% of residential properties upside down

Feb 23, 2010 22:58 UTC

You don’t keep paying for something that you own.

From FirstAmerican Core Logic:

…more than 11.3 million, or 24 percent, of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

Negative equity means the mortgage balance is higher than the value of the home.

The bulk of underwater properties are concentrated in five states: California, Florida, Nevada, Arizona and Michigan. Nevada leads the way in terms of most homes with negative equity at a whopping 70 percent.

“Home-ownership” is badly defined by, for instance, the Census Bureau, which considers all “owner-occupied housing units” in its calculation of the home-ownership rate.

But the rate would be far lower if one simply calculated the amount of equity that Americans have in their homes. Since this is the portion of real estate for which they don’t pay anything, it is the only portion that is truly “owned.”

Subtract folks who owe more on their homes than they are worth and the home-ownership rate drops from 67% to 43%.

Update: Reader Dan Hess offers a better calculation in the comments. He correctly notes that underwater homes are 24% of homes with mortgages, not 24% of all homes as I implied in the math above. Backing out these homes would reduce the homeownership rate to 57%. Though backing out ALL mortgage debt, even on homes with owner equity, would lower the ownership rate even more.

This isn’t merely academic. Having equity in their homes is a big reason homeowners keep paying their mortgage, which is necessary for banks to stay solvent.

COMMENT

Market analysis based on homeownership

Posted by dogster | Report as abusive

Night of the living dead banks

Feb 23, 2010 22:17 UTC

Cross-posted from today’s NYT.

Killing zombies isn’t just a job for horror-movie heroines. It’s also one of Sheila Bair’s primary tasks. And the Federal Deposit Insurance Corp chief’s challenge has increased as the number of scary banks on the regulator’s watch list has spiked. Thankfully, there’s no financial excuse to keep FDIC from quickly exterminating the industry’s living dead.

On Tuesday, the agency reported 702 institutions on its “problem” list at the end of the fourth quarter — up from 552 in the third quarter. Moreover, total assets for banks on the list increased to $403 billion, or 3 percent of GDP. While these are terrifying figures, the FDIC also managed to collect $46 billion of fresh cash from banks, bringing its total cash and liquid securities to $66 billion.

That may not sound like enough. After all, the average estimated loss rate for failures since 2007 — excluding the collapse and simultaneous sale of Washington Mutual to JPMorgan – is 23 percent of assets. On that basis, FDIC’s kitty would appear to be some $27 billion shy of being able to handle its current list of troubled institutions.
But not all of the banks FDIC diagnoses as sick will need to be seized. As is often the case, many banks work their way through their difficulties, raise fresh private capital or are taken over by healthier rivals. And the FDIC can levy another special assessment on banks before asking the U.S. taxpayer for help anyway. Add it all up and the FDIC has no financial excuse not to get busy cleaning up the mess.

Yet the pace of bank seizures — up by half year-to-date — hasn’t kept pace with the growth of the problem bank list, which has nearly tripled. The worry is that has left too many zombies hobbling along, sucking up deposits and hoarding capital that might otherwise be lent by healthy institutions, thereby helping the economy to rebound.

True, the “Snowmaggedon” storms that closed Washington earlier this month complicated travel plans for FDIC staff. But the key lesson from the savings and loan debacle was that delays in closing insolvent banks increases the resolution costs for FDIC and, ultimately, taxpayers. With spring just around the corner, Bair needs to set her sights on a big zombie hunting trip.

Lunchtime Links 2-23

Feb 23, 2010 16:13 UTC

FDIC has $66 billion in cash (FDIC) The quarterly banking profile was released today. The headline in some press will be that the DIF’s net worth is -$20.9 billion, but that ignores $46 billion of new cash recorded as deferred revenue, along with FDIC’s contingent loss reserve. Still not enough to swallow a major bank, were one to fail. But FDIC has cash to deal with the problem bank list, which now stands at 702 institutions (up from 552 last quarter and 252 a year ago) and $403 billion of assets…

House prices up slightly in December — seasonally adjusted (Calculated Risk). This chart shows how the 20-city index has varied versus the previous month and the year ago month:

xez42j

Basically, it’s over (Munger, Slate) Buffett’s consigliere Charles Munger writes “a parable about how one nation came to financial ruin.” Great piece, though keep in mind that Buffett/Munger, each with substantial paper wealth, benefited as much as anyone from the bailouts. At the end of the day, the bailouts are essentially price supports to prop up the value of paper wealth…

Wall Street’s bailout hustle (Taibbi, Rolling Stone) Taibbi previously penned the article in Rolling Stone calling Goldman a “vampire squid” wrapped around the face of humanity. This is fun reading if only because Rolling Stone will let Taibbi use expletives where most biz press won’t.

Rakoff OKs “half-baked” SEC – BofA settlement (Stempel, Reuters) I highly recommend the judge’s 15-page order. The judge explains his thinking quite clearly. He has a nuanced view of the issue and was able to see through Bank of America’s absurd initial objections while also forcing the SEC to do a bit more legwork and come up with a better and larger settlement than the first one it proposed. He has set a high bar for the SEC and for judges approving future settlements. Well done.

Five former Treasury Secretaries: Congress should approve Volcker rule for banks (Blumenthal/Brady/O’Neill/Shultz/Snow, WSJ) Probably won’t happen. And that’s a shame.

Doomsday is here for Illinois (McKinney, Sun-Times) Besides tax increases and drastic budget cuts, a watchdog group says unions have to pay more towards their pension and medical benefits. Though those benefits threaten to bankrupt the state, unions are pushing back. Like basket case countries Greece, Ireland, Argentina and others, the U.S. is likely to see massive general strikes by public sector workers as state/local governments try to get spending in line with income. Collective bargaining is not a bad thing in and of itself, but unions have overplayed their hand. On a related note, the Rockefeller Institute reports a 5th consecutive quarterly drop in state tax collections.

Abrupt eviction, narrowly averted (Ruger, HeraldTribune)

The doomsday cycle (Boone/Johnson, VoxEU)

IMF changes its mind on capital controls (Economist)

4 trillion degrees Celsius creates quark soup (bnl.gov)

History in the remaking (Symmes, Newsweek) “A temple complex in Turkey that predates even the pyramids is rewriting the story of human evolution.”

Bank failure Friday

Feb 20, 2010 01:16 UTC

Reader note: As always, this post will be updated as bank failures are announced. One large one so far tonight…and it was acquired by OneWest, the former IndyMac, which was the subject of a controversial web video a week ago. The video went viral and FDIC was forced to respond. Though the video was badly misguided, the episode highlighted the fact that FDIC doesn’t provide as much disclosure as it could about loss-share agreements. But before getting to bank failures, a note on upcoming FDIC news.

The quarterly banking profile is due out next Tuesday the 23rd. Key information to look for will include the updated problem bank list, the number of banks on it as well as their total assets and deposits.

Also the funded status of the DIF will be updated. Be careful here. The fund’s balance will likely fall deeper into negative territory, but in fact it will be in better position than last quarter.

Why? Last quarter banks prepaid 3 years worth of regular assessments all at once….should work out to about $45 billion in cash that went to FDIC. But on the DIF’s balance sheet the cash all counts as deferred revenue, not capital.

The flip side of the coin is that the banking system doesn’t have to write down $45 billion worth of capital. Instead they get to treat the $45 billion payment as a “prepaid asset,” to be drawn down in equal parts over the next twelve quarters as payments come due.

This accounting treatment is the reason banks supported prepaying $45 billion worth of “regular” assessments even though they screamed bloody murder about paying a one-time $5.6 billion “special” assessment last June 30. The special assessment counted as a hit to capital….

It’s hard to explain how this works without a lesson in accrual accounting. Imagine prepaying 12 months of your cable bill in January. On your personal income statement, which is designed to match up expenses and income for a given period, you would recognize your monthly bill as it comes due even though you paid the bill in advance.

For more, check out this September story from Reuters’ Karey Wutkowski.

#17

  • Failed bank: Marco Community Bank, Marco Island FL
  • Acquiring bank: Mutual of Omaha Bank, Omaha NE
  • Vitals: at 12/31/09, assets of $119.6 million, deposits of $117.1 million
  • Estimated DIF damage: $38.1 million

#18

  • Failed bank: La Coste National Bank, La Coste TX
  • Acquiring bank: Community National Bank, Hondo TX
  • Vitals: at 12/31/09, assets of $53.9 million, deposits of $49.3 million
  • Estimated DIF damage: $3.7 million

#19

  • Failed bank: George Washington Savings Bank, Oak Park IL
  • Acquiring bank: FirstMerit Bank NA, Akron OH
  • Vitals: at 12/31/09, assets of $412.8 million, deposits of $397 million
  • Estimated DIF damage: $141.4 million

#20

  • Failed bank: La Jolla Bank, FSB, La Jolla CA
  • Acquiring bank: OneWest Bank, FSB, Pasadena CA
  • Vitals: at 12/31/09, assets of $3.6 billion, deposits of $2.8 billion
  • Estimated DIF damage: $882.3 million

And so tightening begins?

Feb 19, 2010 00:15 UTC

No, not really.

Raising the discount rate a quarter point is a start, but as the Fed went to pains to explain, it doesn’t indicate broader tightening of credit. For that we have to wait for some combination of the Fed shrinking its balance sheet along with a hike in the Fed funds rate and, perhaps more importantly, a hike in the rate paid on banks’ excess reserves.

But meaningful tightening may never happen. Unless we get a dollar crisis — a possibility if the printing press runs on high too long — the Fed won’t be able to raise rates for the simple reason that it is trapped.

Why? Two reasons jump to mind:

1. Banks are still carrying trillions of dollars of loans collateralized by real estate, loans that will lose significant value and wipe out still-thin capital cushions if interest rates move up in any substantial fashion.

Remember that real estate prices move in the opposite direction of interest rates. Incomes can support a certain monthly payment for a mortgage. Higher rates mean a larger component of that monthly payment has to go towards interest. The price has to correct accordingly.

2. America is still deep in debt. Federal, state and municipal governments, private pension plans, households, in the aggregate we still owe lots of money. And that debt is constantly being rolled over. Raising rates would make rolling the debt much more difficult, stopping the “recovery” in its tracks and leading to massive deflation.

The Fed would only risk that if it were faced with a dollar crisis. It would be wrong to expect such a crisis any time soon. But after multiple cycles of quantitative easing — the first round may be winding down, but expect it to come back in the future — a dollar crisis may not seem so far-fetched.

In the meantime, don’t be fooled. Bernanke has shown no sign that he’s willing to put up with the kind of recession that is needed for the economy to de-lever. Meanwhile the federal government will keep borrowing to make sure that we don’t.

COMMENT

Hi Rolfe
Are you concerned with the $640 Trillion dollar derivates market?
I just don’t see how the American Economy will escape that 600 LB gorilla.
It’s like everyone thinks it’s not there or they pretend it’s not.

Posted by BrianOmdahl | Report as abusive

Lunchtime Links 2-18

Feb 18, 2010 15:58 UTC

Reader note: off on vacation the next few days so posting will be light. But LOTS of great links today….2 days of reading here!

Must Read – Volcker’s rules: DOA (Pethokoukis, Reuters) It appears the administration was never seriously considering a big push to get the “Volcker Rules” limiting bank size and proprietary trading added to financial reform legislation. My colleague Jimmy P. has a pithy, incisive analysis of what’s happening.

Must ReadHow JP Morgan treats its clients, scandalously and in bad faith (Felix) Great find from Felix. Judge Rakoff is at it again, this time ruling against JP Morgan, which Rakoff says acted in bad faith. “The gist is that JP Morgan took one of its longest-standing clients in Mexico — Grupo Televisa — and tried to hand all of its secrets over to its biggest rival, Carlos Slim. And the way it tried to do that was by selling Slim a loan larded up with covenants which would essentially force Televisa to reveal any and all information to the holder of the debt.”

China sells Treasurys….or did they? (EconompicData) Great post. The WSJ follows their lead today.

Stripping away the disguise of derivatives (Das, FT) Explaining how derivatives can be used to mask debt. Not a long piece, but read slowly if you’re not familiar with the terms.

Treasury Secretary would lead new systemic risk council (Chan, NYT) The idea that a systemic risk council will help avert crises is foolish when you think about it. None of the regulators that will be on the council has done a very good job “leaning against the wind” in the past.  Yet together they are going to be able to not only reach consensus about systemically risk firms, but actually take corrective action?

IMF to sell 191 tons of gold on open market (Pardomuan/Wroughton, Reuters) It sold 400 tons not long ago, half of which was scooped up by India. Gold still makes sense in the long-run as insurance against a dollar crisis, but with the dollar likely to get stronger in the short run on the back of continued debt problems in Europe, it may be possible to add to gold positions below $1,000…

Ackman may make $170 million on grand-slam General Growth bet (Taub/Burton, Bloomberg) And he could make much more if Simon ups its bid or another bidder emerges at a price higher than Simon’s offer of $9. The market expects a higher price in the end, what with the shares trading near $13. Ackman bought his for 46¢! He’s said the shares are worth at least $24, but with the cash component of Simon’s offer just $6, it would make sense to take some profits…

Goldman’s Rococo PR prince (Abelson, NY Observer)

States sink in benefits hole (Merrick, WSJ) As of June 30, 2008 the 50 states collectively faced a $1 trillion funding deficit between what they’ve promised to public sector retirees and the funds they’ve actually set aside. And the data were collected before the bottom fell out of the market, so the gap is likely worse. Keep this in mind when liberal economists try to explain away the federal debt as manageable. If banks got bailouts, you can bet public sector employees will, so consider these funding gaps as obligations of the federal government…

Muni threat: Cities weigh Chapter 9 (Dugan/Maher, WSJ) It isn’t just states facing budget trouble.

Feather starfish swimming (Youtube) Wow.

Gadget Noir…

qQ4wx

COMMENT

We already know that Obama was really born in Iran, or Indonesia or India…wherever. But what I want to know – is it true that at one time he worked for Goldman?

Posted by Chicagoboy | Report as abusive

Evening Links 2-17

Feb 17, 2010 22:43 UTC

Worldwide cumulative current account (Wikipedia) Interesting chart…

Fed officials debated shrinking balance sheet (Bloomberg) The latest FOMC minutes were released. The Fed is ever so slowly moving towards shrinking its balance sheet. Most likely it will happen without outright asset sales. Bernanke can let the balance sheet shrink slowly as mortgages underlying MBS are prepaid.

The Fed’s real exit strategy (Hussman) While the Fed exits, Treasury will pick up the slack.

The $550k student loan burden (Pilon, WSJ) This is not a typical amount of debt, but even much smaller levels can be so burdensome as to make higher education not so valuable. Again, if you define the benefit of higher education as the extra income you’ll earn over your lifetime as a result of getting a degree, then you have to compare that against the cost of the debt incurred to pay for it. Student debt can be so oppressive as to cancel out much of the extra income. If you could strategically default on student loans there might be a way out. But student debt can’t discharged easily. (at all?)

SEC: BofA fired counsel to keep Moynihan, not for advice (Stempel, Reuters) So, uh, this is weird. Did the SEC just undermine Andrew Cuomo’s case against Ken Lewis? In his complaint accusing Lewis of securities fraud, Cuomo alleges that BofA had fired its general counsel, Timothy Mayopolous because he said the bank should disclose Merrill’s growing losses. But the SEC, which doesn’t want to bring charges against Lewis individually, said Mayopolous was fired to keep now-CEO Brian Moynihan from leaving the bank. Hmmm.

Tiger to apologize, discuss future on Friday (Lamport-Stokes, Reuters)

Tea party lights fuse for rebellion on right (Barstow, NYT) Interesting and detailed piece. ht CB

Job-years (Felix)

Lunchtime Links 2-16

Feb 16, 2010 20:00 UTC

New flower for North Korea may be succession ploy (Lim, Bloomberg)

Greece’s Goldman Sachs swaps spawn EU dispute on disclosure (Martinuzzi/Finch, Bloomberg) Greece was rebuked as early as 2004 by the EU for “deficit inaccuracies,” and again last month for under-reporting deficit figures for the past decade. The latest disclosure about swaps used to hide debt may make a bailout more distasteful, but won’t stop it. Too much is at stake.

The Greek derivatives aren’t Goldman’s fault (Felix, Reuters) Risk magazine was talking about this long before the NYT…

Why Greece should default (Kemp, Reuters)

Investors recruit terminally ill to outwit insurance cos on annuities (Maremont/Scism, WSJ) An underhanded variant of the life settlement business…

Japan eclipses China as top holder of Treasurys (AFP) China’s holdings dropped while Japan’s grew.

Leaving Ireland (Capell, BusinessWeek) Unemployment is driving a generation away.

Roger Ebert: The essential man (Jones, Esquire) “It has been nearly four years since Roger Ebert lost his lower jaw and his ability to speak. Now television’s most famous movie critic is rarely seen and never heard, but his words have never stopped.”

Tortoise vs. cat (pogpog)

Rubik’s cube solver (built entirely from “Lego elements”)

No MSG Please

Feb 15, 2010 13:25 UTC

Cross-posted from today’s Times.

The formidable skills of LeBron James probably won’t reach the stock market. Speculation is rampant he could soon be headed to the New York Knicks basketball team, whose owner is now trading on the Nasdaq.

The listing followed a spinoff of Madison Square Garden Inc. from the cable operator Cablevision to its shareholders last week. MSG is a collection of trophy assets but doesn’t seem to be a gold-plated investment.

In addition to the Knicks, MSG owns the New York Rangers hockey team, the Madison Square Garden arena, Radio City Music Hall and some lesser-known teams and theaters. But the teams lose money, and the entertainment division, home to the Rockettes Christmas show, only broke even last year. The real value is in MSG’s two regional sports networks, where the Knicks and Rangers are the primary draw.

The shares look fully priced already, after rising to $19.76, or 8.5 percent, in their first days of trading. Analysts expect MSG to generate about $95 million in earnings before interest, tax, depreciation and amortization, or Ebitda, for 2009. Add $30 million from a new broadcast deal with Cablevision, a better year for the Rockettes, other television-contract renewals and narrower losses for the teams, and MSG might just have EBITDA of $160 million in 2010, as some analysts forecast. Put that on a multiple of 10, the same as its closest peers, and you get an optimistic enterprise value of $1.6 billion.

Forget the cash on MSG’s books — it will be chewed up in an estimated $800 million renovation of the Garden. All in that equates to $21 a share.

That price overlooks fresh competition and potential corporate governance costs. The Barclays Center in Brooklyn, where the New Jersey Nets are expected to play, is to open in 2012. And the Dolan family, which controls Cablevision, still controls MSG via super-voting shares. Conflicts are already apparent: The Dolans won’t let Cablevision rivals AT&T and Verizon carry the MSG network’s high-definition feed.

And then there’s the LeBron factor. His presence will benefit fans more than investors. More wins for the Knicks probably will not be enough to offset the cost of his contract. So by all means buy a courtside seat at the Garden — but sell MSG shares.

Evening Links 2-14

Feb 15, 2010 12:50 UTC

Wall St. helped Greece to mask debt, fueling Europe’s crisis (Story/Thomas Jr./Schwartz) When an addict is hooked on a drugs, whose fault is it? The guy selling him the junk? Or his own for getting hooked in the first place? It’s convenient (and not entirely wrong) to blame bankers, mortgage brokers, real estate agents and others who sell us debt to finance more lavish lifestyles than we can afford. They do so to generate income via transaction fees. But at the end of the day, the Greek government knew what it was doing. As do most folks piling on leverage…

For some firms, a case of “Quadrophobia” (Thrum, WSJ) Public companies fear the digit “4.” Earnings per share, when calculated down to tenths of a cent, suggest companies use accounting gimmickry to make sure they can round UP to the nearest cent.

Pirate boss to make web pay (BBC) I’m skeptical. A micropayments product that relies on the generosity of users will be about as successful as a PBS funding drive. But I’ll support anyone who wants to help users pay directly for good content creation. Personally, I think the future of micropayments could be via cellphone. Carriers already have a billing relationship with everyone, all that’s needed is someone to facilitate the flow of payments from buyers to sellers via your phone. (Full disclosure: I previously worked for a company, Fotolog, whose parent company was also in this business)

Edwards: Collapse of euro “inevitable” (Fleming/Shipman, Mail) SocGen’s Albert Edwards as bearish as ever.

Magic Johnson in talks to buy publisher of Ebony/Jet (Pulley, Bloomberg)

How Christian were the Founders? (Shorto, NYT) Long, but worth reading to the end.

Dubai CDS spreads jump (Connaghan/Brown, WSJ) The cost of insuring Dubai debt against default is back near levels from December, before Abu Dhabi offered assistance.

Harrisburg moves a step closer to default (Hurdle, Reuters) Pennsylvania’s capital city excludes debt payments in its 2010 budget. It has a scheduled interest payment of $2.1 million on March 1.

“4-foot-nothing mother goose” … epic voice mail.

VIDEO: “Hurt Locker” in Cambodia (YouTube) Guy clears land mines in Cambodia with stick and pocket knife. FF to 0:50 mark.

Bing Maps are cool….(but it appears that there’s no support for Firefox…)

No bank failures this Friday

Feb 13, 2010 04:50 UTC

With the problem bank list 552 names long, and the unofficial list even longer, one might expect FDIC to pick up the pace of bank closures. Yet here we are, six Fridays into the new year, and only 16 banks have been put into receivership, with none this week and only one last week. At that rate, we’ll see 136 closures in 2010, short of the 140 that were closed last year.

That leaves lots of zombie institutions hobbling along, sucking up deposits and capital to service busted loan portfolios.

A key lesson from the S&L debacle is that delays in closing insolvent banks increases the resolution costs for FDIC and, ultimately, taxpayers. That’s why the Prompt Corrective Action law was passed, to mandate that regulators close banks sooner rather than later, and while there’s still some capital left in them to absorb losses.

With that in mind, it’s hard to see why FDIC is moving so slowly. FDIC’s not short of cash right now. It just got $45 billion of fresh cash from banks on January 1st.

Nor should the President’s Day holiday be slowing them down. FDIC used July 4th weekend last year as an opportunity to close seven banks.

Bad weather in DC? Probably not. FDIC is a large operation and it’s unlikely folks in the field can’t do their job because the Washington office is taking a few snow days.

President Obama says he wants to jump start lending. Closing zombie institutions more quickly would be a much more effective way to achieve that than, for instance, throwing $30 billion  of TARP money at community banks…

COMMENT

The FDIC has been stepping in when losses are ~ 30%, and sometimes up to 40%. Shows the degree of regulatory forbearance that is operative, in violation of statute.

Posted by tjfxh | Report as abusive

Lunchtime Links 2-12

Feb 12, 2010 18:34 UTC

China tightens rules on bank lending to curb inflation (Bradsher, NYT) Banks in China are chock full o’ excess reserves. Because their economy is growing, loan demand is healthy, so excess reserves are being lent out….multiplying the money supply and causing inflation. U.S. stocks are taking it on the chin because China is the world’s main economic driver at the moment…moves to cool it down, while totally prudent, are bad for stocks.

Georgia gives lenders more rope (Fitzpatrick, WSJ) Not such a good idea for the state topping the charts on bank failures…

BofA forecloses on home for which couple had paid cash (Marrero, St. Pete Times)

NJ Governor declares fiscal emergency, freezes spending (Sloan, CBS2) Wow, a Republican is  actually cutting spending instead of talking about cutting spending.

Me writing about the First Energy/Allegheny deal in the Times (Winkler, NYT) Scroll down the page to “Electric Synergy.”

Volcker rule gives Goldman stark choice (FT) This interview with Paul Volcker puts the lie to press arguments that Goldman will be the firm most impacted by his new “Volcker Rules” because it has the largest prop trading operation. All Goldman has to do is give up its bank charter, which it got in November ’08. The bank doesn’t have much in the way of deposits funding its business. The bank charter was just a gimmick to get access to cheap funding via the FDIC and to get access to the Fed as lender of last resort. And if the crisis comes roaring back, Goldman needn’t worry about failing. They’re still so big and interconnected, regulators wouldn’t let them go down…

Subpenny trading (CFA Institute letter) The latest abuse of the equity market?

Small banks hit snag as they try to raise cash (Sidel, WSJ) Trust preferreds remain a problem…

COMMENT

Good article on sov debt Rolfe.

Sentiment these days almost reminds me of summer 2008, when we knew some bad stuff was in the pipeline, but nobody acknowledged the extent of it all.

Stock prices didn’t reflect the risk then, and definitely don’t reflect much, if any risk now. They assume uber growth for 5+ years.

Congrats on the NYT byline, btw. That’s pretty cool.

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