Evening Links 12-7

Dec 7, 2009 21:24 UTC

Update from this morning: Neel Kashkari joins PIMCO (Ishmael, Alphaville)

TARP cost estimate falls $200 billion (Somerville, Reuters) Even after this latest reduction, the administration still estimates TARP will cost $141 billion. We may be getting more back than we though, but we’re not making money. Remember, the Fed still has north of $1.0 trillion or mortgage-backed securities on its balance sheet, the value of which is not clear.

Moody’s links option ARM performance with subprime (Golobay, HousingWire) Option ARMs were generally considered “prime” loans based on the credit scores of borrowers. We learned last year, however, that credit scores are less indicative of default rates than negative equity. Negatively amortizing option ARMs, which allow borrowers to make a minimum payment that doesn’t even cover interest, have seen their loan balances explode. With prices down, they’re so far underwater it makes little sense to pay their mortgage…

Euros become currency of choice for drug cartels (Syal/Townsend, Guardian) Not an indication of the euro’s strength versus the dollar, however.  €500 notes are smaller than $100 bills and therefore easier to smuggle.

Does Dubai really owe $150 billion? (Arabianbusiness.com) The consensus estimate is that Dubai owes closer to $85 billion…

Global banking economist warned of coming crisis (Spiegel) Keep your eye on the Bank for International Settlements. They’ve been predicting that low interest rates encourage investors to chase risk imprudently…

Colton Harris-Moore, the barefoot bandit, outfoxes sheriffs (Times UK) “Police say 18-year-old Colton Harris-Moore, whose escapades are turning him into a folk legend, is a one-man crime wave, responsible for 50 burglaries as well as stealing light aircraft, which he taught himself to fly from video games, and several speedboats. He lives in the woods, shuns shoes and catches his own food. His only technological aid is a pair of thermal-imaging goggles to hunt at night and his weakness is pizzas, which he asks to be delivered at the edge of the woods.”

Audited for not making enough money (Westneat, Seattle Times) Doesn’t the IRS have bigger fish to fry?

How China won and Russia lost (Gregory/Zhou, Hoover) Bottom-up reforms worked in China; top-down reforms failed in Russia.

Atheist cat (imgur)

Speed of light from earth to moon (Wikipedia) Clever animation.

Driving a Humvee in Iraq…(considering the threat of roadside IEDs, I understand why these guys want to keep moving)

Economic calcification, Japanese edition

Dec 7, 2009 20:12 UTC

Japan’s labor market is desperately troubled. For years, the number of temporary workers has been on the rise as Japanese employers find it harder to afford full-timers. Like the rest of the Japanese economy, the labor market needs the flexibility to deflate. But the government won’t allow that to happen. The latest example is a proposal to ban manufacturers from hiring temporary workers (Otsuma/Hagiwara, Bloomberg):

The government is preparing legislation “that will stop manufacturing firms from employing temps and encourage them to hire full-timers,” [Health and Labor Minister Akira] Nagatsuma said yesterday on a business program….

Japanese companies have cut jobs to remain profitable in an economy struggling with deflation and as a strengthening currency erodes export earnings. Unemployment [recently at 5.1%] rose to a postwar high 5.7 percent in July…

Effectively, the Japanese government is trying to put a price floor underneath the labor market. But banning “temporary” work won’t help full-time employment; it will just mean less employment overall.

Japan’s plan is not unlike measures being employed to prop up the U.S. housing market. The problem with price floors is that in preventing markets from clearing, they prevent transactions from happening. Fewer transactions means less economic activity. It means fewer jobs.

price floor

The numbers in the chart are for illustration purposes only, but the numbers from the Japanese labor market demonstrate suggest precisely this kind of economic calcification:

The proportion of [Japanese] college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last month, the steepest drop since the survey started in 1996.

Younger folks supporting Obama’s various stimulus measures don’t appreciate the negative long-term consequences for their employment prospects.

Stimulus and/or regulations that direct capital to zombie employers/employees are just as destructive as bailouts to zombie banks. Both deny capital to those that COULD put it to more efficient use.

———

In other Japan news: Japan to give JAL $7.7 billion loan guarantee (Kajimoto, Reuters)

Japan’s government plans to guarantee about 700 billion yen ($7.7 billion) in loans and other funds provided by financial institutions to keep Japan Airlines Corp. afloat, the Nikkei business daily reported….

The plan is aimed at keeping JAL from having to suspend scheduled flights due to a shortage of operating funds, Nikkei said.

MBA: CMBS deterioration continues

Dec 7, 2009 17:06 UTC

From the Mortgage Bankers Association:

Delinquency rates continued to increase in the third quarter for most commercial/multifamily mortgage investor groups, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.

Here’s the not-pretty chart from MBA’s report:

CMBS

COMMENT

How should I reconcile data on low freddie delinquencies in the chart above with information about freddie delinquencies here (>3%):

http://www.calculatedriskblog.com/2009/1 0/freddie-mac-delinquency-rate-rises-to. html

Posted by b | Report as abusive

Video: The unemployment game show

Dec 7, 2009 15:42 UTC

A clever way to explain the difference between U-3 and U-6. From Mint.com.

Neel Kashkari, off the grid

Dec 7, 2009 00:48 UTC

This is a fun story: The $700 billion man (Laura Blumenfeld, WaPo)

It all began as it ended, abruptly. [Neel] Kashkari was a 35-year-old business school graduate from a suburb of Akron, Ohio, who had gone to Washington in 2006 to learn how government worked. Then came the recession, and through a freakish set of circumstances, mixing pluck, cataclysm and luck, he was appointed by Treasury Secretary Hank Paulson as the federal bailout chief.

Suddenly, he was in charge of $700 billion.

Congress savaged him. Wall Street Journal editorials doubted him. His home-town buddies urged him to use the money to buy the Cleveland Browns and fire the coaches. His wife spoke to him so rarely, she described them as “dead to each other.” He lost sleep, gained weight and saw a close adviser, Don Hammond, suffer a heart attack at his Treasury desk. On May 1, after serving seven months under Presidents Bush and Obama, he resigned.

Within a week, Kashkari and his wife put their belongings into “indefinite storage.” They moved to a cabin near the Truckee River in Northern California. “Off the map,” he told his friends. He threw away his business cards, and made a list of the things he wanted to do:

1. build shed

2. chop wood

3. lose 20 pounds

4. help with Hank’s book

He called his four-step program “Washington detox.”

Here’s the photo slideshow of Kashkari’s life in the California woods.

UPDATE: Tom Duffy of Outside the Cardboard Box offers this contrasting take on Kashkari.

COMMENT

Having been a former Washingtonian as well as a public servant, I can sympathize with Mr. Kashkari’s plight – I’m glad to see he went off the grid! He should take this opportunity to not only learn and practice the off the grid lifestyle, but he should start preaching it to everyone else. We will not be successful at reducing energy dependence until we each take the bull by the horns and get off the grid ourselves. Then we will be able to impact our dire energy situation in a positive way! Keep spreading the word. . .

Brian
NetSolarAndWind.com

Posted by Brian J. Walsh | Report as abusive

Evening Links 12-6

Dec 6, 2009 21:08 UTC

(Reader note: One bug we’re still trying to work out is that links in the top line of a post aren’t “hot” in the front-page view of the blog. If you click “continue reading” the link is available)

The FBI agent inside the Galleon case (Goldstein, Reuters) More great work from Matt.

MIT team wins DARPA red balloon challenge (darpa.mil) But how did they do it?

Requiem for the dollar (James Grant, WSJ) A fun (and frustrating) piece to read. Grant is a good writer, but he throws provocative comments around without explaining them. He says we need to collateralize the dollar, presumably with gold, but acknowledges early in the article that the gold standard was far from perfect: “The lifespan of no monetary system since 1880 has been more than 30 or 40 years, including that of my beloved classical gold standard…” No doubt he has ideas to improve his “beloved” standard, and that would be useful to read. Too bad he doesn’t go into it.

Bair weighs loan principal cuts to fight foreclosure (Vekshin, Bloomberg) Writing off principal is the opposite of extend and pretend. But if Bair wants to pay for it using the Deposit Insurance Fund, she’ll have to stay aggressive with assessing insurance premiums on banks.

Amazon in secret plan to open high street shops (Davey, Times UK) Some brick and mortar for Amazon? Update: Amazon says “no plans” for physical stores. A non-denial denial…

The gambler who blew $127 million (Berzon, WSJ) “During a year-long gambling binge at the Caesars Palace and Rio casinos in 2007, Terrance Watanabe managed to lose nearly $127 million. The run is believed to be one of the biggest losing streaks by an individual in Las Vegas history.”

Schadenfreude Alert: Harvard in trouble (The Awl) This piece quotes another good article in this month’s Vanity Fair (have to buy the mag to read it).

The ultimate vanity plate (Taibbi, True/Slant) On the Porsche Cayenne owned by Morgan Stanley’s Rob Kindler: “2BG2FAIL” From Sorkin’s book.

Girl dumps tennis star over his 7-hr-per-day video game addiction (Telegraph)

NOT Obama’s job strategy…

COMMENT

The only tax some people will ever pay is the inflation tax.

Posted by Dan | Report as abusive

Geithner: “none…would have survived”

Dec 6, 2009 16:36 UTC

Secretary Geithner acknowledges what most doomsdayers were saying last fall, that without the government’s extraordinary rescue measures, the entire financial system was on the verge of collapse. (Miller/Harper, Bloomberg)

“None of [the big Wall Street insitutions] would have survived” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.”

Some have said this recent financial crisis wasn’t as bad as the 1930s’. I disagree, and have posted the following chart to make the point.

Slide1

If you add JP Morgan and Wells Fargo to the chart, it looks much worse. Goldman and Morgan Stanley don’t have deposits, but did have $2 trillion in liabilities between them as of August 31, ’08.

Geithner made his point when asked about Blankfein and Gary Cohn’s comments to Bethany McLean that Goldman would have survived without government help. They need to tell themselves that to justify the stupendous compensation accruals they’ve put aside. It’s helpful that Geithner calls bull.

But the right way to fix this isn’t to erect some clumsy compensation apparatus to control pay on Wall Street (which won’t affect Goldman anyway because they don’t qualify as having received extraordinary assistance). The right way is to let them fail, as messy as that would be.

Additional resolution authority as envisioned in House/Senate legislation is helpful, but won’t do much good unless the size/complexity of these banks can be reduced dramatically before they’re on the verge of collapse…

COMMENT

Let it be worse.

The whole point of capital, of money, is that people who can invest it wisely, I.E. in ways that consumers and the population in general benefit from, keep and even expand on their money.

People who give it to corporate criminals because they supposedly get a return on their investment when it sits in a bank account, and then is backstopped by every other taxpayer in the nation (at government gunpoint) when the criminals who run the banks loses it all during a weekend at Vegas – well, they really aren’t very responsible with money, and as a result, really shouldn’t have any.

Stop giving your money to criminals because you expect a return on your investment, dummies.

Because of you dummies, and the corrupt government, trillions of dollars are allocated in non useful, wasteful sectors in the economy – like in Goldman Sachs, which really doesn’t produce anything, other than “a profit”. They make NOTHING.

I really hate people that don’t understand economics, and I hate people who think theft is the same thing as economics. Goldman Sachs only has a profit because they are stealing money from everybody, and using the Federal government to cover their butts, and you as a taxpayer, pay for it – and they produce nothing.

Posted by Richard Wicks | Report as abusive

Bank failure Friday

Dec 4, 2009 22:59 UTC

More Georgia! Update: And AmTrust!  That’s a $2.0 billion hit to the DIF…

#125

  • Failed bank: Buckhead Community Bank, Atlanta GA
  • Acquiring bank: State Bank and Trust, Macon GA
  • Vitals: at 11/6, assets of $878m, deposits of $838m
  • DIF damage: $241.1m

#126

  • Failed bank: First Security National Bank, Norcross GA
  • Acquiring bank: State Bank and Trust, Macon GA
  • Vitals: at 9/30, assets of $128m, deposits of $123m
  • DIF damage: $30.1m

State Bank and Trust also took down $2.4 billion of assets from the estate of failed Security Bank last summer. Before that the bank had just $36m of assets according to American Banker. Talk about rapid expansion!

Update:

#127

  • Failed bank: Tatnall Bank, Reidsville GA
  • Acquiring bank: Heritage Bank of the South, Albany GA
  • Vitals: at 9/30, assets of $49.6m, deposits of $47.3m
  • DIF damage: $13.9m

#128

  • Failed bank: AmTrust Bank, Cleveland OH
  • Acquiring bank: New York Community Bank, Westbury NY
  • Vitals: at 10/27, assets of $12.0 billion, deposits of $8.0 billion
  • DIF damage: $2.0 billion

#129

  • Failed bank: Benchmark Bank, Aurora IL
  • Acquiring bank: MB Financial, Chicago IL
  • Vitals: at 11/16, assets of $170m, deposits of $181m
  • DIF damage: $64m

#130

  • Failed bank: Greater Atlantic Bank, Reston VA
  • Acquiring bank: Sonabank, McLean VA
  • Vitals: at 10/20, assets of $203m, deposits of $179m
  • DIF damage: $35m

Gold gets hammered on jobs data

Dec 4, 2009 17:19 UTC

Is Bernanke still trapped if the unemployment rate has suddenly started to fall?

The gold market, the bond market and Fed funds futures are all reassessing what Bernanke will do. Maybe he will be able to raise rates sooner than expected.

The gold trade in particular is, at root, an Armageddon trade. Central banks have made clear that full employment, not price stability, is top of mind. In the long run, that means central banks could end up monetizing the huge levels of debt weighing on developed economies. If that happens, you could see a crisis of confidence in fiat currencies.

Gold’s recent spike wasn’t saying that outcome will happen. Just that there’s a risk it could. Seems to me the gold market is thin enough that if enough portfolio managers decide they need a 5% allocation, just for insurance, that the price has nowhere to go but up.

With the unemployment rate now falling, the market thinks the Fed will switch its focus to price stability sooner rather than later.

In the long-run, though, gold could still be a winner.

That’s because the Fed is still trapped by the massive level of debt confronting the private and public sector. If it tries to raise rates, debt deflation will come roaring back, at which point it’s a safe bet the Fed will again abandon the dollar in favor of fighting unemployment.

In other words, the pain of dealing with debt — paying it down or writing it off — is potentially so devastating that the Fed will do its best to prevent it.

So until debt is dealt with decisively, gold looks like a good long-term bet. But as I argued last month, investors are likely to get opportunities back below $1,000. So wait until more of the hot money has left the market.

Then consider buying your own currency crisis insurance policy.

———-

Update: a reader offers the following comment…

I saw Paul Tudor Jones speak recently and he threw out a stat that put some context (for me, at least) around just how “thin” the market for gold really is:

He says the world has $120 trillion in financial assets.  Of that total, “investable gold” (i.e., gold not held by central banks) is about $1.5 trillion.

The math is pretty easy.  If the world were to quickly and suddenly lose faith in major fiat currencies then even a small portion of the non-gold assets shifting into gold would drive a massive price spike.

COMMENT

I am not talking about devaluation of Dollar.
I am expecting a hyperinflation in US.
If you look at the latest Monthly treasury statement for October 2009 total deficit is 1.4 trillion dollars.
Receipts (2.1T) – Outlays (3.5T ) = 1.4T
The 1.4T/3.5T= 40%. We borrow 40% of the money we spend.

The deficit in 2007 was around 240 billion
In 2008 it was around 450 billion
Now in 2009 October it is 1.4 Trillion
If we correlate, end of the year will be 1.5T.
They estimate next year to be more than 1.5Trillion, who knows may be it will be 2Trillion Dollars.
They do nothing to stop this but instead they bailout and increase spending more and more every month.
I am not even talking about 12 trillion debt plus 40 trillion ( medicare+medicaid+ social security )long term liabilities.
Before the financial crisis this long term debt was unsustainable, now first we had housing crisis ( Fannie mae+ freddie Mac =5Trillion liabilities) then financial crisis ( 1 trillion ).
This is Unsustainable. Finally at some pint foreign governments will stop buying our treasuries, this will be the beginning of Armageddon.

Welcome to the new Reuters!

Dec 4, 2009 15:46 UTC

Hi readers.

As you can see, we’ve launched a cool new site. I’m a big fan of the new layout.

There are a few small bugs to work out, but our tech team is working on them diligently.

The biggest issues are formatting on the front page of the blog. For now, I just recommend clicking “continue reading.” The formatting is correct in that window.

Cheers,

Rolfe

COMMENT

sorry Rolfe, not a good change. for starters, i have to click just to see all the little “evening link” snippets. what if they suck? then i clicked for nothing. your blog went from streamlined to clunker.

Bunning grills Bernanke

Dec 4, 2009 15:36 UTC

This was a good clip from yesterday’s confirmation hearing…

COMMENT

Bernanke is not evil, or dumb. But he has a belief system that is akin to religion. Every economic problem is a lack of liquidity. He’s like a fireman – squirt everything with a firehose. Man falls into the river and is drowning – soak him!!!

The problem isn’t liquidity – its insolvency.

Posted by fresno dan | Report as abusive

North Korea devalues currency

Dec 3, 2009 20:31 UTC

From Richard Lloyd Parry, writing for the Times of London: North Koreans in misery as cash is culled

There were reports of public outrage and confusion after the announcement of the measure, which requires North Koreans to swap existing won notes for new ones at an exchange rate of one to 100 — effectively knocking two zeroes off their value. Because of a cap of 100,000 won per family (£475 at the official exchange rate), anyone with significant holdings of cash will have their savings wiped out.

“Loud sounds of weeping in every house have not ceased since the news was released,” a South Korean website quoted an inhabitant of Sinuiju, a city on the border with China, as saying. “Weeping and fighting between couples has not stopped anywhere. The atmosphere of the city is terrible now.”

….

In the capital, Pyongyang, yesterday only the few shops and restaurants permitted to trade in foreign currencies — patronised by the privileged elite and the city’s small foreign population — were open for business. All other enterprises and services based on cash, including markets, long-distance bus services, barbers’ shops, saunas and bath houses, were suspended until the revaluation of the won is completed next week.

According to the article, this is the first time North Korea has revalued its currency since 1959.

COMMENT

I think this could be the beginning of the end for the North Korean regime or at least Mr Kim. It would be hard to believe that whatever comes wouldn’t be better than what they have now, we shall see.

Posted by Dave | Report as abusive

Luchtime Links 12-3

Dec 3, 2009 17:10 UTC

A cloud still hangs over Bhopal (Mehta, NYT)

Japanese companies cut capital spending at record rate (Ujikane, Bloomberg)

Black caucus seeks to ease radio’s woes (Lipton, NYT) This is certainly interesting. Remember the CBC skipped the vote on the financial reform package. They want the administration to pressure Goldman and GE to renegotiate loans to a prominent black radio station in NYC.

Treasury delays release of U.S. government’s GAAP financials (fms.treas.gov) Normally this report is released in December, but the 2009 report has been pushed back two months apparently. Could be a good reason. Waiting for a call from these folks…

Bank of America to repay TARP (Rauch, Reuters) Good news here. As part of the deal to repay the full $45 billion, BofA will raise $18.8 billion of common equity, boosting their TCE ratio significantly. That will reduce potential return on equity for shareholders, but it will strengthen the bank’s capital position so that it can absorb writedowns, which are likely to continue for some time. Geithner gets points for this, though I’m still not a big fan.

Goldman Sachs presentation: Why our people get paid so much (GoldmanSachs) This is the pdf that Goldman is giving to investors in order to justify setting aside $16.7 billion so far this year for compensation expense. It’s a decent argument…for shareholders. Of course all of these profits come courtesy of taxpayers, without whom Goldman would have failed.

Next steps for FHA (CalculatedRisk) HUD secretary Shaun Dononvan says, among other things, that FHA will hold lenders accountable for origination quality. Does that mean they could put more mortgages back to originators? If they do this in a big way, then it’s probably not appropriate for banks like Wells Fargo to pretend that off-balance sheet conforming mortgages pose no risk for shareholders….

Bernie Sanders puts hold on Bernanke (McGraine/Javers, Politico) If Bernie doesn’t lift his hold, it will take 60 votes to get Bernanke through the Senate. It’s interesting, the array of folks opposed to Bernanke. The one thing uniting them is the Fed’s rescue of the banking sector. The noise will only grow louder when Goldman pays its bonuses…

Trichet says ECB to scale back loans (Pitchford, Reuters) The ECB is pulling back faster than the Fed or the Bank of England.

Groom changes Facebook relationship status at the altar (Van Grove, Mashable) Really? Social networking bubble anyone? Hat tip DLH.

Uruguayan Director gets $30 million to make this YouTube vid, which cost him $500, into a movie…(looks like he got lots of free help)

COMMENT

not one d*mn mention of taxpayer generosity on GS’s powerpoint.GS should stand for general schedule, which is how all Government Sachs employees should be paid. bunch of welfare queens.

Evening Links 12-2

Dec 2, 2009 22:26 UTC

CBC sits out vote… (Brush, The Hill) The Congressional Black Caucus didn’t show up for a vote this morning on Barney Frank’s financial reform package. It passed the Financial Services Committee, but the administration may have to buy the CBC’s support to get the legislation through the full House.

Audit the Fed (Mayer, IRA) Martin Mayer argues that Fed has no business claiming independence from the Legislative branch, which has the constitutional power to coin money. Bernanke would be smart to submit to an audit, IMHO. What would be worse is, after the next crash, if people have lost so much confidence in the Fed that Ron Paul succeeds in ending it. He’d prefer a gold standard, but what would probably happen is that fiat money would continue and Congress would take charge of the printing press. Just imagine if Maxine Waters (see above) has the power to print money…

What’s good for Goldman is good for America–pdf (Brenner, UCLA) A long, interesting paper on the origins of the crisis. (HT AKS)

The Manhattan income barbell (Felix)

Andrew Sullivan leaves the Right (Sullivan, Atlantic) A good manifesto.

Alec Baldwin not happy with his career (UKPA)

Lunchtime Links

Dec 2, 2009 17:52 UTC

Fears grow about overheated U.S. debt market (Sender, FT) Dividend recaps (see yesterday’s post) aren’t the only controversial debt deals coming back to marketm, so are PIK toggles and Covenant Lite loans. Like option ARM and liar loan mortgages these would qualigy as Ponzi units of finance under Minksy’s framework.

$1217

Nov consumer bankruptcy filings drop 18% versus October (ABI) They were up 12% compared to last year, but a month over month decline is still good news…

Questions for Bernanke (Cunningrealist, ht Scott F)

The real elephant in the room (Welsh, Big Picture)

Rome seeks to wipe out taxi scams (Jones, Reuters)

Quote of the day….John Williams at Shadow Stats published his Hyperinflation Special Report today. It’s a subscribers only piece, but here’s the overview:

A Great Collapse. The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar. The results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.

Woof. I know of no one more pessimistic. He says “government and Fed actions have narrowed hyperinflationary Great Depression timing to next five years.”

COMMENT

Question #7′s a nice shot at the welfare queens of Wall Street (who should be paid on the general schedule)…7. Via the FDIC, the American public now explicitly guarantees the bonds of Wall Street firms where bonuses are surging and individual employees can be paid millions of dollars a year. What is your opinion on the morality of this guarantee?

  •