Evening Links 12-23

Dec 23, 2009 21:36 UTC

(Reader note 1: posting will be light through the weekend….taking a few days off)

(Reader note 2: Just saw Avatar, the IMAX 3D version. I highly recommend it.)

Food stamps altering how retailers do business (Maestri/Baertlein, Reuters) “At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That’s when food stamp credits are loaded on their electronic benefits transfer cards.”

The Protocol Society (Brooks, NYT) “When the economy was about stuff, economics resembled physics. When it’s about ideas, economics comes to resemble psychology.”

Treasury to seek easing of bailout fund rules (Somerville, Reuters)

One cheer for Barney Frank (WSJ editorial) WSJ editorials tend not to be very useful, but I thought the last line of this one was notable: “Perhaps the House and Senate should simply … start over with a new mission for [financial] regulatory reform: break up the too big to fail racket.More evidence that all sides of the political spectrum agree on this. I wonder how they would propose we do it.

New home sales decrease sharply in November (Calculated Risk) Yesterday’s existing home sales report had everyone exited, but new home sales are far more important for economic growth, and those are still terrible. Bill has dubbed this “the distressing gap.”

Gross’s Total Return Fund now biggest in history (Bhaktavatsalam, Bloomberg) The main reason Gross screamed for government to “support asset prices!” during the crisis….because he and his investors have a ton of paper wealth at stake.

Everyone’s defaulting, why don’t you? (Gross, Slate) I have a short column running later this week in the biz section of NYT on this topic. I’m sympathetic to McArdle’s view that folks who strategically default are gaming the system and leaving the rest of us to pick up the pieces. Yet savers themselves were part of the arrangement. Our savings were intermediated by the banking sector into more home loans. When guys like me say banks messed up and have to eat losses, we mean the shareholders and creditors of banks. That includes depositors. I’m speaking very generally of course, but de-levering the economy means writing down debts on one side of the ledger and paper wealth on the other side.

“Youth Depression” hard on retailers (Stoddard/Sage, Reuters) The authors are referring to the inordinate impact of the economy on youth employment, not youth mental health.

Malcolm Gladwell’s stickiness problem (Wise, Psychology Today) “[Malcolm] Gladwell [is] masterful at brewing up memes so potent that they travel far beyond the realm of where the mere modest truth would go. They spread. And they stick. And having stuck, they proceed to affect the decisions that people make, the policies they implement, the laws that they pass. A normal person, when he is wrong, adds a little drop of erroneousness in the great sea of human conversation. Gladwell, when he is wrong, creates a tsunami of wrong.

View of space shuttle launch from a commercial flight (better muted)

Lunchtime Links 12-22

Dec 22, 2009 17:05 UTC

Furlough alert 1Yahoo imposes week long shut down (Vascellaro, WSJ)

Furlough alert 2City of Chicago to shut down Xmas Eve to save cash (CBS2)

TARP deadbeat list grows to 55 (Applebaum, WaPo) Up from 33 banks + AIG last quarter.

Mega-savant Kim Peek dies (Collins, Deseret News) Peek was the inspiration for “Rain Man.” What a fascinating brain: “Scientists [recently] learned that Kim could hold a book within eight inches of his face and read the left page with his left eye, the right with his right eye at the same time. He devoured books that way.” Much more in the article.

GDP revision suprisingly large (Evans, Real Time Econ) Q3 GDP growth was originally reported at 3.5%. The first revision put it at 2.8%. The second, released today, says it was really 2.2%.

Serious delinquencies rise for prime mortgages (Dixon, Reuters) The delinquency rate is far lower than for subprime and Alt A, but prime mortgages are much larger and there are many more of them. So total dollar volume of prime delinquencies is much larger than for subprime/Alt A.

More on existing home sales (CalculatedRisk) CR offers a number of contrarian thoughts regarding today’s surprising existing home sales report.

Her glass if half empty (Boston.com) Read the photo caption.

Relative prices of different liquids (imgur) This feels about right to me…

How a bone disease grew to fit a prescription (NPR) Inventing a “disease” so a drug can be sold to correct it…

Tolerant cat…

Rich Dad fears Dec 2010

Dec 22, 2009 14:28 UTC

The tax code has a particularly odd quirk next year. The estate tax, which has decreased steadily from 50% to 45 % over the past few years, will drop to zero in 2010. To get the repeal passed, however, Bush 43 agreed to a sunset provision that brings the tax right back in 2011.

Heirs face 45% tax on estates over $3.5 million today. On January 1, the amount goes to 0%. But on January 1, 2011, the tax ratchets back to 55% on amounts over $1 million.

If Congress does nothing, I suspect we could see a spike in millionaire patricides this time next year.

Estates won’t be free of all tax next year. They’ll face much bigger capital gains taxes than they do today.

Under current law there’s something called “step-up.” You may have to pay 45% on the amount you inherit over $3.5 million, but the cost basis is “stepped up” to today’s prices. Step-up will go away for the very largest estates.

This will cause lots of headaches.

If Grandpa bought a bunch of shares of IBM back in 1955 and held them all these years, the cost basis is probably close to $0. If he sold the stock, he’d face a cap gain liability against pretty much the whole amount. But when inherited, the cost basis gets “stepped up” to the current price, wiping out any embedded cap gains liability.

Heirs may not face estate tax next year, but they will inherit shares and property at their original cost basis. So when they sell, they’ll have a large cap gains liability. Therein lies another big problem…

Imagine how difficult it is to determine, for example, the cost basis on shares of AT&T that were acquired decades ago?  Besides factoring in dividend payments, what about divestitures and acquisitions that have happened since then? Today’s AT&T is really SBC, which was once AT&T. And what about all the spin-offs the bells did over time? Verizon punted its yellow-pages business as Idearc, for instance. Lucent and Avaya were also spun off from the original Ma Bell. How are those factored in?

It won’t be easy to figure the capital gains liability on estates next year. Accountants and tax lawyers will be running up the billable hours.

Meanwhile, Rich Dad better watch his back…

COMMENT

You lose 100% stepped-up basis only if decedent dies in 2010. Even if decedent dies in 2010, the surviving spouse can step-up basis in $3M of assets, and the basis in up to $1.3M of other assets to anyone can be stepped-up. That is potential $4.3M step-up of assets.

Lunchtime Links 12-21

Dec 21, 2009 17:00 UTC

Hedgie Tepper on pace to make $2.5 billion this year (WSJ) The moral hazard trade has a new face. Tepper bet big that government would rescue bank shareholders and creditors. He was right. Can we blame him? He didn’t make the rules; he just played the game better than the rest once they were made.

Why can’t Americans make things? Two words: Business school (Scheiber, New Republic) For 30 years we’ve been focused on teaching finance, not manufacturing…

At top subprime lender, policies were invitation to fraud (Heath, HuffPo)

Fannie/Freddie suspend foreclosures for holidays (AP) Citi, JP Morgan and BofA have followed suit.

Goldman threatens to move some London staff to Spain (Evans, Independent)

Citadel files for bankruptcy (Spector/McBride, WSJ) The syndicator of Don Imus’ morning show is the latest radio company to struggle with debt. See also Clear Channel, Emmis and Regent….

GE uses UK libel law to gag doctor (Gerth, ProPublica) Ironic: GE wants to shut up a doctor for saying GE suppressed information. (ht, NG)

Trader Joe’s does something awesome (Reddit) Reminds me of all the guys out on bicycles Saturday night delivering food in NYC. I’m from Chicago so am not intimidated by windy Winter weather. Still, Saturday night’s storm was impressive. Wind so bad in the building canyons that you couldn’t walk more than a block or two. So everyone ordered in. No one was on the street besides food delivery guys. I wish Lou Dobbs could have seen it….

Anonymous dry cleaner also in holiday spirit (imgur)

Snoop Dogg invests in inner-city football (AP) Snoop Dogg, 38, launched the [youth] league in 2005 with $1 million of his own money after noticing that much of urban Los Angeles had no football for boys ages 5 to 13. He’s since invested about $300,000…The league now has 2,500 kids enrolled.

For anyone else who’s ever sung Handel’s Messiah….(ht CSQT)

COMMENT

“Tepper bet big that government would rescue bank shareholders and creditors. He was right. Can we blame him? He didn’t make the rules; he just played the game better than the rest once they were made.”

did Tepper LOBBY for the bailouts? did Gross?

BlogArt: Dubai’s Tower of Babel

Dec 21, 2009 03:09 UTC

(ht Reddit)

dubai

Plus it was built with slave laborers

Update: Here’s a view from a helicopter…

Burj Dubai

Deposit Insurance Fund, UNoffcially

Dec 18, 2009 23:38 UTC

I was heading out for Thanksgiving vacation when FDIC released the quarterly banking profile, so I wasn’t able to update an important chart: Total Insured Deposits, Unofficially…..

FDIC Culp

(ht Stephen Culp)

When the world was falling apart, FDIC increased deposit insurance limits….to $250,000 for individual non-retirement accounts and unlimited for business transaction accounts. But those increases were treated as “temporary” and so left out of FDIC’s total.

Since the $250,000 limit was extended to 2013 — decidedly not “temporary” — FDIC started collecting that data from its member banks. The data was published for the first time in Q3.

So in Q3, the official figure — which includes $250k limits — jumped from $4.8 trillion to $5.3 trillion. Throw in the $761 billion insured by the transaction account guarantee program and you’ve got a total of $6.1 trillion of insured deposits. Compare to Q3 ’08. Back then, before all the emergency measures, the total was $4.5 trillion. So the increases added $1.6 trillion, or 34%, to the total.*

I’ve juxtaposed that with the reserve balance on the Deposit Insurance Fund. It’s now negative, though that doesn’t mean FDIC is out of cash. And they’ve got another $45 billion coming this quarter, but for accounting reasons the reserve will still be listed as negative.**

But even with that cash coming in, the FDIC’s resources are under a lot of pressure. With 552 banks and $346 billion in assets on the “problem” list, FDIC will struggle to pay its bills.

Sheila will have to increase assessments on banks at some point, or start drawing on FDIC’s credit line at Treasury…

————

*The transaction account guarantee program is scheduled to expire in June of next year.

**The $45 billion to be collected isn’t a “special” assessment, it’s front-loading three years of “regular” assessments. The distinction is crucial. Since these assessments are regular, banks can treat them as a prepaid expense on their balance sheet, i.e. as an asset to be drawn down quarterly. That means they only have to draw down capital quarterly. The flip side is that FDIC can’t count the $45 billion as revenue. It has to treat it as “deferred revenue.” Deferred revenue is a liability on the balance sheet. Normally an assessment counts as revenue, which is added to the DIF’s equity balance.

Don’t you just love accounting?

COMMENT

[...] Deposit Insurance Fund, [...]

Tonight’s bank failures: $14.5 billion combined assets

Dec 18, 2009 23:16 UTC

Wow….huge night….$14.5 billion in combined assets from tonight’s failures. The biggest fish is First Fed, with $6.1 billion of assets. First Fed was the last of the big option ARM lenders. Seems like FDIC wants to get a lot off its plate before the holidays…

#134

  • Failed bank: Rockbridge Commercial Bank, Atlanta GA
  • Acquiring bank: None
  • Vitals: at 9/30 assets of $294m, deposits of $291.7m
  • DIF damage estimate: $124m

A rare payout transaction. Actually the sixth so far this year. I spoke to FDIC’s Greg Hernandez who gave me some interesting particulars on this bank regarding why it couldn’t find a buyer.

First, it had no retail locations at all, just office space. Moreover, 80% of its deposit accounts were CDs, most of which were brokered from outside the bank’s immediate area. Not the most attractive deposit accounts that stronger banks are looking to acquire.

#135

  • Failed bank: People’s First Community, Panama City  FL
  • Acquiring bank: Hancock Bank, Gulfport MS
  • Vitals: as of 9/30, assets of $1.8 billion, deposits of $1.7 billion
  • DIF damage estimate: $557 million

#136

  • Failed bank: Citizens State Bank, New Baltimore MI
  • Acquiring bank: FDIC creates a “Deposit Insurance National Bank”
  • Vitals: at 9/30, assets of $169m, deposits of $157m
  • DIF damage estimate: $77m

#137

  • Failed bank: New South Federal Savings Bank, Irondale AL
  • Acquiring bank: Beal Bank, Plano TX
  • Vitals: as of 9/30 assets of  $1.5 billion, deposits of $1.2 billion
  • DIF damage estimate: $212 million

#138

  • Failed bank: Independent Bankers’ Bank, Springfield IL
  • Acquiring bank: FDIC creates bridge bank
  • Vitals: as of 9/30 assets of $586m, deposits of $512m
  • DIF damage estimate: $68.4 million

Independent Bankers’ Bank did not take deposits directly from the general public nor did it make loans to consumers. It was a commercial bank that provided correspondent banking services to its client banks.

Independent Bankers’ Bank had approximately 450 client banks in four states, and operated one regional office.

#139

  • Failed bank: Imperial Capital Bank, La Jolla CA
  • Acquiring bank: City National Bank, LA CA
  • Vitals: as of 9/30 assets of $4.0 billion, deposits of $2.8 billion
  • DIF damage estimate: $619 million

#140

  • Failed bank: First Federal Bank, Santa Monica CA
  • Acquiring bank: One West Bank FSB, Pasadena CA
  • Vitals: as of 9/30 assets of $6.1 billion, deposits of $4.5 billion
  • DIF damage estimate: $146 million
COMMENT

I’ve become addicted to these bank failure posts. Every Friday I wait for them, and hope that it is not a very bad number. Actually I am waiting for a day, when you will report that none failed, but I wonder if that will happen even in 2010.

Lunchtime Links 12-18

Dec 18, 2009 16:25 UTC

(Reader note: still working on

MUST READStrict framework leaves room for maneuver (Masters/Jenkins, FT) While this subject may seem a little dry, it’s the Basel Committee in Switzerland that will lead the way when it comes to how banks measure capital and how much they need to have. I’ll offer more detailed thoughts on this later today.

Saab to be shuttered (Reuters wire) More creative destruction in the auto industry. In the end, the best Saab could do was sell the intellectual property for the 9-5 and 9-3 sedans…

China central banker says harder to buy Treasuries (Xin/Subler, Reuters) How ironic. The current account deficit is shrinking as the import/export imbalance with China is shrinking. So we’re not stuffing as many dollars down China’s throat which it is forced to recycle into Treasuries. Watch out for calls to buy Chinese so that the Treasury can finance its deficits! ;)

China asset bubbles will burst on inflation (Chen, Bloomberg)

Greenspan backs deficit reduction commission (Ferraro/Sullivan, Reuters)

Harvard swaps are so toxic, even Summers won’t explain (McDonald/Lauerman/Wee, Bloomberg)

Has dark matter finally been detected? (Sample, Guardian)

Another VERY cool zoom out/in CG animation of the known universe (YouTube)

Probably not good on the eyes (imgur)

You’re on the naughty list Jack…

McCain wants to resurrect Glass-Steagall

Dec 17, 2009 21:22 UTC

Did we elect the wrong guy? While Obama follows the Bernanke/Geithner/Summers line that banks be backstopped lest their failure cause economic Armageddon, John McCain has seized the moment with a proposal to resurrect Glass-Steagall.

To be sure, this proposal isn’t going anywhere. Certainly not now. Neither the House nor the Senate reform bill proposes the sort of separation of commercial banking, investment banking and insurance that McCain is looking for.

But how interesting to see the vanquished (Republican!) presidential candidate take a more aggressive line than Obama on the too-big/complex/interconnected-to-fail issue.

While Obama hectors “fat-cats,” his reform proposals mostly serve their interests. On derivatives? End-user exemptions that offer a major loophole to protect OTC dealers. On consumer protection? A CFPA that can’t prevent the marketing of misleading financial products. On resolving big banks? A DIF-like fund to bankroll resolutions that, in practice, will merely signal that big banks are backstopped.

How did Obama miss the boat? Left, Right and Center, Americans are united in their disgust of how economic policy now serves financial innovators first and society second.

Obama had a remarkable opportunity to act this past March. Bank stocks had sunk to new lows while calls rose up for a “Swedish solution” — effectively to nationalize/recapitalize insolvent big banks. That’s not socialism, it’s what FDIC does roughly 3 times each week. Obama cogently articulated why that was preferable to the “Japanese” alternative of propping up zombies.*

Yet the Japanese non-solution is the policy he’s chosen.

Critics say it would be difficult to resurrect Glass-Steagall. No doubt that’s true. McCain’s proposal would have JP Morgan divest itself of Bear Stearns while separating from Chase; Bank of America would have to dump Merrill; Citi would certainly be broken apart; Goldman Sachs and Morgan Stanley would lose bank holding company status that gives them access to the Federal Reserve as their lender of last resort.

Hard, yes, but certainly preferable to being held hostage by these firms. They’ve not the strength to stand on their own, not without Fed and Treasury crutches. We can count on government to ride to their rescue again the next time they blow up.

Critics would also say that resurrecting Glass-Steagall isn’t a panacea. And they’re right. Bear Stearns didn’t have a commercial bank of course. Though not sufficient — see again exchange trading for OTC derivatives — separating the payment system from high-risk trading is certainly necessary. Just ask Paul Volcker.

If taxpayers are insuring the liabilities of commercial banks via FDIC and of bank holding companies via the Fed’s discount window, we’ve a responsibility to control their assets, none of which should be at risk with trading.

It’s certainly easy for McCain The Maverick to propose a popular measure he knows isn’t going anywhere. Yet some of us thought Obama was precisely the kind of candidate who would push for, and deliver, a similarly far-reaching brand of reform. To date we’ve been proven wrong.

—–

*From FT, 2/17/09, Bank nationalization gaining ground:

Mr Obama last weekend made clear he was leaning more towards the Swedish model than to the piecemeal approach taken in Japan, which many would argue is the direction US public policy appears to be heading.

“They [the Japanese] sort of papered things over,” Mr Obama said. “They never really bit the bullet . . . and so you never got credit flowing the way it should have, and the bad assets in their system just corroded the economy for a long period of time.”

COMMENT

What elected officials say Rolph and what they do are two different things. The power of the big banks is almost impossible to break. Not only because of the cloke of secrecy that surrounds them but because of the absolute control they have over a nation’s money supply.
They hold sway over the President and the congress and will lobby extensively to block any interuptions to their agenda.I was quite excited that America elected its First black President but after much consideration it looked too easy. I suspect if the banks felt threatened by him he never would have even gotten the nomination. I admire the President and appreciate much of what he claims to stand for but I believe when elected officials have to ask the Central bank for the money supply they need they are not soverign but in effect puppets to the Federal reserve. More and more people are becoming aware of this and since every nation has a central bank they are in effect no longer sovereign.
Monetizing debt is legalized counterfitting; if you or I did it we would go to jail. Ben Bernanke does it and he gets his picture on the cover of a major magazine and is named man of the year.

Posted by James | Report as abusive

Evening Links 12-16

Dec 16, 2009 22:20 UTC

Fed repeats “exceptionally low” for “an extended period” (Fed statement) The Fed maintains that it isn’t raising rates for the foreseeable future, but repeated that it plans to end MBS asset purchases by April next year. Too bad we can’t get a surprise rate hike in order to chase risk back out of credit markets…

Wells’ CLO deal called “landmark” (Paulden, Bloomberg) The return of CLOs would be the latest sign that Wall Street is dancing again.

Big decision looms on Fannie and Freddie (Timiraos/Hagerty, WSJ) Suggests Obama could expand his commitment to Fannie and Freddie beyond $400 billion while he’s still able to unilaterally. If he waits till next year, Congress would have to approve.

Man of the Year: Ben Bernanke (Time) Ha! Ben should have said thanks but no thanks. Ten years ago Time christened Rubin/Greenspan/Summers as The Committee to Save the World. In the fullness of time, all have been proven failures. Time’s endorsement is final confirmation that Bernanke too is a failure.

Norway raises rates (Kremer, Bloomberg) More fodder for yesterday’s Norway thesis. Higher rates make for a more attractive currency…

Some debt-laden graduates wonder why they bothered with college (ABC News) Full of choice quotes: “You’re led down this path of needing to go to college,” [says one indebted grad]. “The college diploma is the new high school diploma.”

Spend more. Get less. The worst fun city in America (Wachs/Eskenazi SFWeekly)

The year in photos, part 1, part 2 and part 3 (The Big Picture) More from the best photo blog on the web.

Canadian ice-fishing…

COMMENT

Agree with Andrew! A state school will be fine for most people.

Too many doors are closed if you have no degree. It’s a screening tool used by most employers. You *probably will not* get a white collar job with any fortune 500 company without a college degree or a job in any state or federal bureaucracy. Without a college degree, you had better go into business for yourself, learn a trade like plumbing or data networking, work on a rig or as a miner, etc. if you want to make good money.

Posted by Dan Hess | Report as abusive

Sandy capital update (with chart)

Dec 16, 2009 17:10 UTC

A ruling by the IRS will allow Citi to dodge a direct hit to tangible common equity while saving money on taxes.

A WaPo story today notes that the government’s promise to sell its stake in Citigroup’s common shares would have qualified as an “ownership change,” forcing the bank to reduce the value of its deferred tax assets.* But the IRS said not to worry about it…

I wrote about the issue last month, mentioning the potential problem of an “ownership change.”

This news is a good opportunity to update deferred tax asset figures, which Reuters’ Stephen Culp has arranged into the following nifty chart:

sandy capital

The chart is updated to include all the common equity that banks have estimated will be raised to repay TARP. It does NOT include ADDITIONAL DTAs that will be created as part of that TARP repayment.**

The problem with including deferred tax assets in capital is that DTAs are only useful when you make money, but the point of capital is to be there when you don’t.

Imagine declaring bankruptcy and asking the judge to let you pay off your credit card bills with tax loss carryforwards.

Luckily, bank regulators take account of this, sort of. The measures of capital that they look at (anything with “tier 1″ in the name) exclude most DTAs. So that’s good news.

————

*For the really adventurous, here’s a slideshow explaining section 382 limitations for deferred tax assets that result from ownership changes.

**My understanding is that some banks are buying back TARP preferred at a premium to book value. This creates a loss for tax purposes, boosting DTAs. Citi also generates a DTA, I believe, by ending its loss-sharing agreement with the government.

COMMENT

While we’re searching around adding up the cost of the hidden bailouts, don’t forget that this same thing happened when PNC acquired Nat City.

Much less money involved, but a billion here and a billion there and pretty soon you’re talking real money.

Posted by Andrew | Report as abusive

The Norway trade

Dec 15, 2009 20:48 UTC

The most recent “Weekly Charts” report from Variant Perception (no link) included the following summary of budget balances as a percentage of GDP for the world’s leading economies. Norway is notable as you can see in the chart….

norway budget

It reminded me of an e-mail Nick Gogerty sent me earlier this year, arguing that an investment in Norwegian Krone was a good “oblique position” and could be a winner. By “oblique position” he means one that “benefits from a macro event, but is a derivative or indirect recipient of that event.” For instance, the gold trade is perhaps a too-popular way to short the dollar. Going long Norwegian Krone is much less obvious.

Thought I’d follow up with him and it turns out he did go into the trade and, yes, it’s a winner thus far.

From Nick:

Oblique Norwegian Krone. Huh?

My favorite response to an investment idea is, “huh?”.  Most investors are all deeply focused on something. I prefer more oblique ideas. i.e. ones that are derivative beneficiaries of a particular macro event. The best ideas are rarely in the spotlight until after the fact.  If everyone has an $0.02 opinion on something, it is probably less interesting to hear about, kind of like CNBC….

After the great fear based dollar rally in 2008, the dollar seemed too heavy with a debt to GDP ratio set to climb thanks to Keynesian-inspired stimulus. After all that stimulus, Americans will have some rather burned out bureaucrats sitting next to an even more burned out printing press and a rather soggy currency.

But how to express this dollar short thesis?

The gold bugs have been having a field day since 2000 and the volatility associated gold is high. Other commodities are interesting but it is tough to determine a good mix of risk and return. Having previously built indices, I believe most of the major commodity indices are a bit too energy heavy and too volatile for a full portfolio overlay.

So to short the dollar you can short the long end of the U.S. debt curve or buy another currency.

I choose to short the dollar obliquely with a slightly over-weighted Norwegian Krone currency overlay.

A currency overlay involves looking at a $1 million portfolio, for instance, and buying $1m or more of the target currency, effectively swapping out your dollar returns for something else.

Why Norwegian Krone?

First, do no portfolio harm. Norway has a $300 billion sovereign wealth fund and is running a 9.9% budget surplus. Also Norway has the lowest priced sovereign CDS spreads around (for a helpful chart see here). The country is politically stable and its people won the geographic lottery thanks to proximity to rich oil deposits… Norwegian debt is paying more than US debt across the curve, with a positive carry of 150-200 bps. Norway is lower risk, higher return and very capital efficient given the modest levels needed to be placed on deposit in a forex account.

In this instance, I went long Krone at 6.52 to the dollar and today it’s at 5.8 to the dollar (the dollar has lost value because it buys fewer Krone).

What can go wrong:

A sovereign default or geo-political event could cause a temporary flight back to the dollar.

Oil could collapse hurting revenue for Norway. But if it happens that would most likely be driven by global GDP destruction. On a relative basis, Norway with its $300b Sovereign wealth fund will be stronger than other OECD countries.

Currency volatility is always an issue.

This is not an investment recommendation from Nick or from me. I just thought the episode offered a good opportunity for a teachable moment from one of the blogosphere’s brighter thinkers…

Big banks get reprieve from FDIC

Dec 15, 2009 18:41 UTC

Due to new accounting rules — FAS 166 and 167 — banks have to bring certain off balance sheet assets back onto their balance sheets starting next year. More assets, same capital = lower capital ratios. (More in this column about the individual impact on the large banks).

Anyway, the FDIC has agreed to give big banks a 6 month reprieve on raising new capital to buffer the new assets. From Ian Katz at Bloomberg:

The Federal Deposit Insurance Corp. gave banks including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. a reprieve of at least six months from raising capital to support billions of dollars of securities the firms will be adding to their balance sheets.Bank regulators including the FDIC and Federal Reserve want to permit a phase-in of capital requirements that rise starting next month under a change approved by the Financial Accounting Standards Board. The rule, passed in May, eliminates some off- balance-sheet trusts, forcing banks to put billions of dollars of assets and liabilities on their books.

“We’re still recovering from the damage these structures caused,” FDIC Chairman Sheila Bair said, explaining that the entities contributed to the financial crisis. The phase-in recognizes the “very fragile stage in our economic recovery,” she said at a board meeting Washington.

While Citi and Wells were raising capital this week to repay TARP, FDIC should have had them go for a few billion more to offset the impact of FAS 166/7.

Evening links 12-14

Dec 14, 2009 23:02 UTC

Substantial bank losses needed to fix housing (Bloomberg) To avoid foreclosures, principal has to be written down. That implies hefty losses, especially for banks that hold lots of home equity loans on their balance sheet. Such loans get wiped out before first mortgages lose a penny. Complicating matters, many big banks service both the first and the second mortgage, which means they are highly conflicted. They don’t want to eat a loss on the second mortgage, even if writing it down would make the first perform much better…

Greece defies Europe as crisis grows deadly serious (Evans Pritchard, Telegraph) Provocative idea: To relieve its debt burden, Ambrose says Greece should devalue its currency. That’s not easy since they use the Euro. He recommends Greece ditch the Euro, “restore its currency, devalue, pass a law switching internal euro debt into drachmas, and “restructure” foreign contracts. This is the ‘kitchen-sink’ option. Such action would allow Greece to break out of its death loop.” Call it the nuclear option… (ht Implode-o-Meter)

Whole Foods Republicans (Petrilli, WSJ) The Republican party is missing an opportunity to reach independent college-educated voters…

Cuts come to New York: Two subway lines may get eliminated, along with subsidized fares for students. In the meantime, Gov. Paterson announced that he will withhold payments to schools and local governments.

Monsanto seed biz role revealed (Leonard, AP) Abusing quasi-monopoly power.

For America’s Santas, it’s hard to be jolly (Woo, WSJ)

The other Lamborghini (Wikipedia)

VIDEO: “I was hot as a pistol” (Google) Oldie but a goodie….autistic high school basketballer scores 20 points in 4 minutes.

View atop the Tower of Babel Burj Dubai…

COMMENT

Germany may side with a new and devalued drachma. The uncertainity alone should be good for at least a 10% drop in Euro/U$D

Posted by Mark G. | Report as abusive

America’s debt burden starts to shrink*

Dec 14, 2009 19:01 UTC

Last week, when I published data showing that U.S. households were beginning to reduce their debt burden, I commented that the government is more than offsetting this with increased federal and state borrowing. I was wrong.

The Flow of Funds report often revises historical data. The latest revisions show a slightly improving picture.*

Here’s the chart:

US_DEBT1209

Economist Steve Keen, who helped me process the data, characterizes it as…

…a dramatic increase in government debt–just as in the Great Depression–but even so the deleveraging by the finance sector in particular, and the private sector in general, more than outweighs the increase in public debt to compensate.

*But this data comes with a BIG asterisk. Government debt as counted in the flow of funds report only counts “publicly-held” Treasury debt, which currently stands at $7.7 trillion.

The figure does NOT include money the government owes itself (i.e. the social security “trust fund”), nor does it include unfunded obligations for Medicare. Our total unfunded obligations equal a whopping $63 trillion as of 2009, up another $5 trillion since just last year.

The bottom line is that we still have a massive — and growing — debt problem. But at least consumers are starting to make a dent in it.

COMMENT

Is anyone still believing we’re in a inflationary environment ?

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