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…

Lunchtime Links 12-9

Dec 9, 2009 16:36 UTC

Volcker criticizes bankers (Dealbook) “Wake up gentlemen.” Indeed.

Geithner extends TARP to next October (Treasury) He buries the lead near the bottom of his letter. It had been scheduled to expire in December. Nothing so permanent as a temporary government program….

50% bonus tax would hit 20,000 London bankers (Aldrick/Armitstead, Telegraph) What’s to stop banks from boosting salaries in response? This is a backwards way to shrink the banking sector. Recapping balance sheets (i.e. bankruptcy) is the way to go.

Greek finance minister says no risk of default (Lacqua/Petrakis, Bloomberg) Reminds me of last year when every troubled bank reassured us that liquidity and capital were solid. When they have to make that comment publicly, you know the run is already on.

MUST READ—Greek debt could be timebomb for euro (Reuter, Spiegel)

Gerry Corrigan’s case for large integrated financials (Johnson, Baseline Scenario) Corrigan is one of the more responsible folks in the banking sector, yet he’s repeating the same old tripe that we “need” large banks.

Fed keeps testing the exit (NY Fed) It’s third tri-party reverse repo test in the last week. This, again, is one of the mechanisms that the Fed says it will deploy to pull liquidity out of the system, when and if it decides to.

Hillary ex-pollster Mark Penn got $6m of stimulus funds (Bolton, The Hill)

Drug dealer takes a snowday (imgur) Clever…

Tiger, lion, bear form unusual friendship (Telegraph) see below…

tiger_1538371c

COMMENT

You still read Mark Hanson? He’s got some great stuff on HAMP up…

Posted by Andrew | Report as abusive

Lunchtime Links 12-8

Dec 8, 2009 18:29 UTC

(Reader note: still working on the bugs….please click “continue reading” to see all the links)

Banks, U.S. spar over TARP repayment (David Enrich) This is the kind of thing that gives me a better feeling about Tim Geithner and Ben Bernanke. They are hammering banks to raise equity capital to get out of TARP. They have leverage and are using it productively, forcing bank shareholders to eat losses via dilution so that balance sheets are more stable. Great! Stick to your guns guys!

Questioning the unemployment rate (Kaminska, Alphaville) Dennis Gartman doesn’t buy the good news in the jobs report.

FASB wants accounting standards “decoupled” from bank capital rules (Norris, NYT) Can you blame ‘em? Seems to me Bob Herz just wants to be left alone. If regulators want to give banks more slack, fine.

Consumer credit contracts again (Federal Reserve) Though the contraction seems to be moderating. Just the latest improvement in the second derivative. I’m a fan of this trend. As consumers get out of debt, they rebuild their savings.

NY Fed President Dudley says monetary policy can limit leverage (CalculatedRisk) CR hightlights some key sections of Bill Dudley’s most recent speech. On the one hand it’s good to see him talk about the Fed’s ability to prevent credit bubbles by limiting leverage. On the other, he repeats that rates will stay low for an extended period. So the Fed is doing what it does best, inflating the next bubble. This time ’round they say they understand why that’s a problem. Yet they seem unwilling to do anything about it.

Obama to announce new jobs program (Zeleny, NYT) Including a cash for caulkers program….

BofA CEO candidate under scrutiny (Nadgir/Comlay/Eder, Reuters) Greg Curl was one of two names discussed at Judge Rakoff’s famous hearing back in August…

Greece faces ratings downgrade over spiraling deficit (Atkins/Oakley/Hope, FT) Alphaville is all over this story.

Don’t try this at home

Missed connection (Craigslist)

Late for work…

COMMENT

is there some sort of issue with using the ‘page down’ button for the latest batch of creativity-less web designers? oh, right, how will we get clicks unless we force readers to click just to read. at least we know its about content and not so much about money.

aka, new format = thumbs down

Posted by todd | Report as abusive

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)

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

TARP may pay down debt

Nov 12, 2009 14:31 UTC

From Deborah Solomon and Jonathan Weisman at WSJ:

The administration wants to keep some of the unspent [TARP] funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.

The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.

Borrowing money over here to pay down debt over there doesn’t sound to me like real “debt reduction.” Sounds more like giving back an appropriation to avoid debt expansion.

It would better to retire the program entirely while letting outstanding loans run off.

But the administration does seem to be getting a bit more serious about making cuts:

The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.

OMB is also reviewing a host of tax changes. The President’s Economic Recovery Advisory Board will submit tax-policy options by Dec. 5, including simplifying the tax code and revamping the corporate tax code.

White House Chief of Staff Rahm Emanuel is pressing for substantial spending cuts to go with any tax increases to try to avoid the “tax and spend” label that has bedeviled Democrats, according to administration and congressional officials.

Forget the freeze Rahm. Go for the 5% cut.

COMMENT

We borrow money for all federal spending.

The right would argue that buying military programs on credit is a symbol of our strength and might. No taxes are good taxes, and we can borrow ad infinitum to pay for things, and future generations will pay for them.

The left would argue that using that credit to buy a social program is a better use of credit and we can keep creating new social programs and future generations will pay for them.

The far right, and the far left believe we can continue to make minimum monthly payments and we’ll be ok whether we buy guns or social programs.

Someone in the middle might say, isn’t real economic might and strength the ability to pay for it yourself upfront without resorting to expensive and costly credit that future generations have to pay for?

Someone in the middle might say, hmmm…I like living in a country that can protect itself and that has a strong military, and I like social programs that help others, and that increase the quality of life for all of us, we need both.

This idea that you can simply keep cutting taxes gets you in the position of not being able to pay for the things our society needs.

It’s a simple equation, keep lowering taxes, and we have less money to pay for things our society needs for the purchases of the left or the right.

If we have to rely on credit to get the things we need, somebody in the future has to pay for it.

Eventually, they are so busy paying off someone else’s debts that they don’t have the money for the things people on the left or the right of their generation need to provide a good standard of living.

Then, they have to make hard choices about what they going to buy on limited credit, one or the other. That is where we are now… Arguing about what we are going to use our credit cards for, rather than paying for everything we actually need to have a good standard of living.

America is now simply printing money to pay even the minimum payments and has limited credit to pay for the necessities of living in a great society.

Someone in the middle might think “You can’t keep lowering taxes and having all these spending programs on both sides of the isle, because then you aren’t taking in enough revenue to pay your debts without resorting to long term credit.

Could it possibly be that we should fix our tax system so we can pay for things we need now, rather than buying things we can’t afford on expensive long term credit.

Could it possibly be that the ideologies of the far left and the far right are false arguments that only empower the politicians on both sides of the isle to continue spending money we don’t have?

Someone in the middle might think: Face the problem. We aren’t taking in enough revenue at the federal level to pay our bills.

Fix the tax structure and make it fair. Remove the lobbyist’s power over politicians by removing the politicians’ ability to create tax loopholes for corporations and individuals. Set a flat tax with no loopholes high enough so that we could pay off our national debt in a few years, and then because we know what we are taking in, we know what we can afford to spend as a country on programs for the left and the right.

Then when the debt is paid off, we would have positive revenues coming into the treasury which we could then use to rebuild our military and our social programs, and create jobs, and increase our standard of living.

If America keeps buying things on long term credit and continues to pay the minimum payments by simply printing more money like we are doing now, eventually, we won’t be able to pay the minimum payments for the programs of the left or the right, and our standard of living and economic might and power will be truly gone,
unfortunately, so will our ability to do anything about it.

The America I am so proud of consists of both the left, the right, and everyone in between, and standing together, we can address the problems of our country, and we can continue to believe in things like “Freedom, with Liberty and Justice for All,” rather than just the far left, or the far right.

Posted by Michael Shircliff | Report as abusive

Geithner: Some rescue programs will end, others won’t

Sep 10, 2009 20:01 UTC

Tim Geithner testified before the Congressional Oversight Panel for TARP this afternoon. A few interesting comments with respect to Treasury’s bailout initiatives:

On PPIP (Public Private Investor Program):

The Treasury will continue … its plans to buy small-business loans and to remove toxic assets from bank balance sheets through the Public-Private Investment Program, a Treasury official told reporters earlier today on condition of anonymity. The first PPIP funds are expected to begin operating later this month or in October, the official said.

This is bad news. PPIP was a terrible idea to begin with. It provides cheap, non-recourse government financing to encourage investors to buy toxic assets from the banks. This takes banks off the hook and puts taxpayers on it.

Other, unused programs will be allowed to expire, including a program guaranteeing money-market mutual funds and the Capital Assistance Program, which was established earlier this year to provide extra money to banks that needed it and couldn’t access private markets.

“Unused” doesn’t seem a fair modifier to me. No, there weren’t any money market funds that broke the buck and required a taxpayer bailout, but the industry as a whole has benefited tremendously from the Treasury guarantee they’ve been able to market to investors.

On TARP:

Geithner refused to rule out extending the bailout program when it expires at the end of this year. The law, passed last October, allows the Treasury secretary to keep it running for another nine months if it is “necessary to assist American families and stabilize financial markets.”

The Obama administration “is going to think that through very carefully,” Geithner said, adding that some of the efforts, such as mortgage relief, are likely to continue past Dec. 31.

No doubt Geithner likes having a $700 billion cookie jar to dip into if markets hiccup.

COMMENT

Toxic assets seems like a very vague term to me. Residential mortgage loans (REOs)? Commercial real estate loans? Credit cards, auto loans, etc? That’s a broad phrase.

I’m a forensic loan auditor and, according to the Truth in Lending Act & UCC, these laws apply to all of the assigns. Translation: A portion of these loans could be able to be rescinded, setoff or would be able to recoup monies paid into a bad loan. The upshot? Someone could buy these loans and have them blow up in their faces.

That will only happen a few times before people get wise and figure out that these assets are not only toxic; they’re radioactive!

Bailout “profit” is taxpayers’ loss

Sep 1, 2009 19:31 UTC

Charging a bank for an implicit government guarantee to absorb losses? According to the Wall Street Journal, the Federal Reserve and Treasury are demanding that Bank of America pay $500 million to exit a bailout deal that was never actually signed.

That’s a nice chunk of change, but taxpayers shouldn’t be fooled into thinking this — or any other bailout — is a good deal.

A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money.

“As big banks repay bailout, U.S. sees profit” read the headline in the New York Times on Monday. The story was parroted on evening newscasts.

The trouble is the popular view that TARP was the bailout. That very unpopular $700 billion program got all the attention because it was an easy story to tell a general audience. It had a big ugly price tag; it was debated very publicly in Congress; and, most important, the list of recipients and their take was made public all at once.

So when those recipients pay back TARP — at a decent profit for taxpayers — bailouts all of a sudden don’t seem so bad.

But the bailout was much larger than TARP. There is FDIC’s debt guarantee program, which still backs over $300 billion worth of financial sector debt; there are the Federal Reserve’s emerging lending facilities, which have showered hundreds of billions of cash on banks in exchange for, well, we don’t know what. There was the AIG bailout, which gave the company tens of billions more. There were changes in fair value accounting rules, which permitted banks to hide losses, and there is stupendous support for the housing market, which has rescued banks from huge write-offs.

All of these and more make up the implicit too-big-to-fail guarantee that the biggest financials have all received. The total cost won’t be known for years, and the price tag is likely to be enormous.

Look no further than Fannie Mae and Freddie Mac. The moral of their story is that implicit guarantees alter the investment landscape in ways that are very destructive and, ultimately, very expensive.

Portfolio managers kept buying Fan and Fred backed mortgage paper even after the companies’ capital structures had deteriorated significantly. They didn’t care about fundamentals because they were buying a government guarantee.

But eventually the bill comes due. In Fannie’s and Freddie’s case, taxpayers have promised $400 billion to absorb losses.

Instead of learning from that mistake, policy-makers thought it wise to repeat it on a larger scale, backing not just the housing market, but most of the financial sector, too.

The $500 million that the Fed and Treasury could collect from Bank of America is a nice token sum. But it doesn’t begin to pay the cost of BofA’s implicit guarantee against failure.

Taxpayers should keep that in mind whenever they see misguided reports that they are making money from bailouts. The truth is that the biggest banks are still insolvent and, ultimately, their losses are likely to be absorbed by taxpayers.

COMMENT

I read that headline 2 days ago about the Feds making a $14 Billion PROFIT of the bailout. It’s a shame that Reuters even published it. Shame on you REUTERS. There is only 1 real fix to this problem. ONE, make sure every single incumbent gets voted out during the next election at EVERY LEVEL. They were asleep at the wheel when this mess was going down. Get them ALL out of office, without exception. Our elected officials are in the pockets of lobbyist and campaign contributors. They need to be scared of losing their jobs.

Talking warrants on TV

Jul 24, 2009 04:25 UTC

Recorded a segment for Reuters Insider today, the TV product in Beta here at 3 Times Square.

One big correction: I say the DIF never charged banks for the insurance it provided.  What I meant to say was that they hadn’t charged banks anything over the last ten years.  What I should have said is that, in effect, they haven’t really charged anything because the DIF is negligible relative to the deposits it insures.

Enjoy!

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