Econ 2009

[Fusion_power]

Unemployment? So what is Unemployment? And where do those numbers come from. Well, the official numbers are supposed to record those normally employed people who are collecting unemployment benefits. But is this a REAL picture of unemployment. Here are some thoughts.

The official unemployment figures for the U.S. today are about 9.4%. This means a tad less than 1 in 10 employable people is out of work. But lets look closer.

A lady I know would love to be employed full time. She is currently working at a service station as a cashier for a bit over minimum wage and getting about 22 hours per week. We can call her 'underemployed'. A year ago, she had a fulltime job, but that company shut down she had to hunt for work. She has had 3 jobs since then, each lasting a few months, each as part time labor. She is not even considered in the unemployment figures because she has a job.

Then there is my son. He had a job a year ago, and has searched diligently for a job in the area since. He has been out of a job for 8 months and his only income is from odd jobs like working in yards and gardens in this area. He is long past collecting unemployment benefits. So far, he cannot even find a part time job. There are a few places that could use help, but because other family members work there, they will not hire him. Lets call him unemployed with no benefits and nothing to rely on but a strong back.

Then there are the people who have just given up. This could be because of changes in family circumstances or just because they don't think there are any jobs to be found. They are sitting at home even though they would prefer to have a job. We will call them unemployed too.

When you add up all these unemployed, underemployed, no longer employed people, you get a real rate of between 25 and 30 million people wanting jobs. That is very close to 20% unemployment.

DarJones

[Uncwilly]

Originally Posted by Fusion_power

When you add up all these unemployed, underemployed, no longer employed people, you get a real rate of between 25 and 30 million people wanting jobs. That is very close to 20% unemployment.

What we may be seeing is a resetting of the economy back to a pre-WW2 style socio-economic layout.

Families (for basic sake of discussion, this will be a multi-member unit, generally consisting of a husband & wife, with or without children, or a single parent with children), had a single primary "bread winner", with others maybe having smaller roles (to supplement, or for personal fulfillment, or to build up monies prior to the birth of children, etc.). Society valued those that generated value at home, doing things like: making/repairing garments, preparing food, growing foodstuffs and other minor agricultural products, providing education/tutoring, building socio-political ties, child care, health/home care of the aged/infirmed and other 'special needs' persons, etc.. The pay structure in society allowed for these functions to be provided by a "non-working" (dare we say un/der/employed) individual, often those most well equipt (genetically and socially) to do these things.
Many of those tasks have now been industrialized and monitized, some have nearly abandoned.

Just a thought.

[ewmayer]

Job losses slow dramatically: Employers cut 345,000 jobs in May, the smallest loss since September. But the unemployment rate hit a 26-year high and experts say the market is still weak.

Job losses slowed dramatically in May, according to the latest government reading on the battered labor market, even as the unemployment rate rose to a 26-year high. But some experts cautioned that the job market remains weak.

Employers cut 345,000 jobs from their payrolls in the month, down from the revised decline of 504,000 jobs in April.

This was the fewest jobs lost in a month since last September, when the bankruptcy of Lehman Brothers caused a crisis in U.S. financial markets and choked off credit for many businesses. Economists surveyed by Briefing.com had forecast a loss of 520,000 jobs in May.

There were still widespread job losses, as most sectors of the economy, including manufacturing, construction, retail, and business and professional services posted declines in jobs.

But there were also some signs of growth, notably in education and health services, as well as the leisure and hospitality sector. Nearly one third of industries added jobs during the month, the highest level of gains since last October.

...

Kurt Karl, chief economist at Swiss Re, said he doesn't expect a monthly gain in jobs until at least the middle of 2010. With employers still cutting jobs and hours, he said consumers won't have enough money to spur an economic recovery in the near term.

"I think things are turning for the better. But it's a disappointingly slow turn," he said. "Consumers can't consume more with this kind of picture."

Karl pointed out that the loss of 345,000 jobs in a month was worse than any one-month drop in the previous three recessions. There have now been 6 million jobs lost since the start of 2008, with nearly half of them occurring in the first five months of this year.

"That 345,000, while an improvement, is still a lot of jobs," he said. "We're not out of the woods yet."

The unemployment rate was the highest since August of 1983. And the official unemployment rate only captures part of the pain being felt by job seekers.

More than a quarter of unemployed people have been out of work for six months or more, and the number of long-term unemployed reached nearly 4 million, the highest reading on records that go back to 1980.

There were also 9.1 million people who were working part-time jobs because they could not find full-time work or they had their hours cut back. This was also a record high.

When counting people who wanted full-time work who are working part-time, as well as some of the people who are not counted as unemployed because they had stopped looking for work, the so-called underemployment reading rose to a record level of 16.4%.

What's more, the average work week slipped again to a record low 33.1 hours. That pushed average weekly wages down as well during the month.

My Comment: Single-month "better than expected" blip or start of a turnaround? Time will tell, but a couple notes:

1. The BLS "birth/death-model" adjustments (which are included the above figures) were once again in Bizarro World;

2. Manufacturing (i.e. actual goods-producing) jobs continue to get hammered, which bodes ill for the eventual recovery;

3. I can`t imagine that the roughly 10,000 car dealerships which are going to be closed in the near future are going to help here, but perhaps the BLS will "magically" invent 100k new "model adjustment" virtual jobs to make up for that.

Mish`s perspective on the jobs numbers is here.

[ewmayer]

Obama: TARP Issue Above Supreme Court's Authority

The Obama Administration argued Monday that no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue, including the use of “bailout” (TARP) funds. The Indiana debt holders, U.S. Solicitor General Elena Kagan wrote, simply have no right to raise that issue, thus putting it out of the reach of the courts.

Although arguing that the courts may not rule on the validity of Treasury’s decision to shore up a new Chrysler company with funds from the Troubled Assets Relief Program, the Solicitor General did argue that those funds may go to a troubled auto company, and not just to banks or other regular financial institutions.

My Comment: Wow ... just wow. This is the kind of supremely arrogant we-are-above-the-law argument I would not have been surprised to hear from the *Bush* administration (it was precisely that kind of language in Hank Paulson`s original TARP proposal which scared the crap out of me) - appalling stuff. And please, spare me the "All the administration is arguing is that the claimant lacks the *standing* to bring such an action..." bullcrap.

I contributed $1000 to this guy`s campaign ... where do I go to ask for a refund?

Of course, telling the Supreme Court what they can and cannot do in such matters is a dangerous game of chicken - that didn't take long:

Chrysler Asset Sale to Italy's Fiat Delayed by High Court Justice Ginsburg: Justice Ruth Bader Ginsburg ordered a delay in Chrysler LLC’s planned asset sale to a group led by Italy’s Fiat SpA while the U.S. Supreme Court considers a request for a longer postponement that might scuttle the deal.

[ewmayer]

Ten banks allowed to pay back TARP: Leading lenders expected to return a total of $68 billion in bailout funds to taxpayers. JPMorgan Chase and U.S. Bancorp confirm they have been approved.

Ten leading banks won approval to repay money from the government`s controversial TARP program, regulators said Tuesday, which could represent approximately $68 billion in bailout funds returned to taxpayers.

Eight of the nine banks that were found to not need new capital following the government`s bank stress tests last month made the list. JPMorgan Chase (JPM), Goldman Sachs (GS), American Express (AXP), Bank of New York Mellon (BK), State Street (STT) as well as regional banking giants Capital One (COF), BB&T (BBT) and U.S. Bancorp (USB) all said they will pay back TARP funds. (Insurer MetLife also was not required to raise capital but it did not receive any TARP money.)

Investment bank Morgan Stanley (MS), which was the only financial firm that regulators did ask to raise money after the stress tests, confirmed it also won approval from the Treasury Department to pay back $10 billion.

...

Should the latest banks agree to redeem the company`s preferred-shares the government acquired last fall, that would represent approximately another $68 billion in TARP repayments.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

Proceeds received from those 10 banks will be applied to the Treasury Department`s general account, the agency said Tuesday, some of which be will used to promote financial stability should the economy take a turn for the worse. A portion of those funds will also be used to reduce Treasury`s borrowing and the nation`s rapidly rising level of debt.

The banks that buy back the government`s stake will also be able to repurchase the warrants, or rights to purchase shares at a future date, the government acquired when it injected capital into many of these banks late last year.

Treasury said those obligations could be purchased at a "fair market value", but that banks wishing to repurchase warrants would have to hire an independent advisor to come up with that number. Those estimates, however, would have to match those of the Treasury Department before banks get the go ahead to repurchase the warrants.
0:00 /5:11Getting tough on Treasury

Leading up to Tuesday`s announcement, there had been talk that the government may auction those warrants on the open market in order to quell criticism about their pricing. Some have charged that allowing banks to redeem warrants at too cheap of a price would be to the disadvantage of U.S. taxpayers who stand to make significant gains should bank stocks continue to move higher in the months and years ahead.

...

One key question, however, is what will happen to the troubled major financial institutions that remain under the government`s thumb, such as Citigroup (C) and Bank of America (BAC).

Industry experts have suggested that such banks could remain at a severe competitive disadvantage, burdened by the hefty dividend on the government`s preferred shares, as well as the possibility of losing business or employees to non-TARP rivals.

My Comment: Note that the "all is just peachy once again - business as usual!" assumptions which seem to underlie the rush by the banks to repay TARP monies using their newly-generated taxpayer-funded "better than expected" profits is occurring even though the TARP Congressional oversight panel says Banks Need New To Repeat Stress Tests due to the dramatic further weakening in the economy which has taken place since the original stress tests were devised.

For the banks which will for now "remain under the government`s thumb", given that they would be bankrupt many times over (at any close-to-realistic valuation of the huge troubled-loan portfolios) without massive government assistance they have and continue to receive, I`m not shedding any tears here for their poor execs who are deprived of their constitutional right to pay themselves outrageous compensation and bonuses even when their firms are doing very poorly. Boo-fricking-hoo, as they say out on Main Street.

Separate article on the potential for taxpayer-fund-squandering via repurchase by the banks of the Treasury`s warrants (very clever article title by the CNN folks, BTW):

The fog of warrants: Banks can`t repay TARP loans fast enough. But some fear Treasury may let banks underpay for warrants designed to let taxpayers take part in a recovery.

The big banks are back on their feet. How much credit should taxpayers get for their remarkable recovery?

That question looms over institutions such as Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Morgan Stanley (MS, Fortune 500) as they seek to repay their obligations under the Troubled Asset Relief Program. Regulators on Tuesday gave 10 big banks clearance to repay $68 billion in TARP loans.

The flow of funds back into Treasury coffers from Wall Street will be a welcome sight amid worries about soaring government spending. JPMorgan Chase got $25 billion in October, when TARP was first rolled out, and Goldman and Morgan Stanley each received $10 billion.

"It`s in taxpayers` interest to get these loans repaid," said Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette. He cites research that shows that selling common stock -- as the three giant firms have done over the past month -- enables banks to support more lending.

But while repaying TARP loans is a no-brainer, dealing with the stock purchase warrants that the firms issued to compensate taxpayers could be messy.

The warrants give Treasury the right to buy a bank`s shares within 10 years, and are to be liquidated by Treasury once a bank repays its TARP funding.

Treasury`s rules give banks the right to repurchase the warrants at their fair market value. The proceeds of the sales should allow taxpayers to share in the spring`s financial sector rally.

"The point of the warrants was that if things turned around and got better, that the public would share in some of that gain," Federal Reserve Chairman Ben Bernanke told the House Budget Committee last week.

But because stock prices are volatile and because the warrants last so long, pricing them is tricky. And naturally, some of the banks don`t want to pay, reasoning they never asked for the money in the first place.
0:00 /1:42More banks leave TARP behind

Jamie Dimon, JPMorgan Chase`s chief executive officer, said last week Treasury should cancel some of the warrants "out of fairness."

But fairness cuts both ways. Wilson says that in the few cases in which smaller banks have repurchased their warrants, the government has been apt to let banks underpay

My Comment:"Fairness" seems to be Dimon`s pet euphemism for "privatized profits and socialized losses".

[ewmayer]

The Economist weighs in on above-mentioned the TARP "repayments":

Paying off the first $68 billion is a healthy start, but western governments own roughly $450 billion in banks. If markets or the economy slump again, investors’ appetite for new shares will evaporate. Of the ten banks, eight had been pressed by the government to take funds in October, amid efforts to shore up the banking system. Although some individual institutions may try to claim that they took the money unwillingly, government intervention was necessary to prevent the entire system from collapsing as banks were found to own hundreds of billions of dollars of hard-to-value assets.

Even today all banks remain plugged into government life support systems. Central banks provide generous collateral rules for borrowing, in an effort to provide banks with liquidity. Some banks have managed to issue debt without government guarantees, but the system needs to refinance some $25.6 trillion of wholesale funding by 2011: without an implicit state back stop this would be impossible. And the value of banks’ assets is being sheltered by central banks’ asset purchasing programmes and in some cases flattered by more generous accounting rules. The truth is that the West has a thinly capitalised banking system that is being allowed to earn its way back to health. Save for defence and space exploration it is hard to think of a privately-run industry more dependent on the state.

My Comment: If the real economy (as opposed to the government-backed financial sector) continues to deteriorate, some of these banks will be back in trouble again before too long. I'd love to see what happens if the Treasury goes back to congress and asks for TARP 2: Revenge of Tarpenson.

Barry Ritholtz has a rather simple and devious theory for the rationale behind TARP namely that forcing money upon *all* the big banks was a giant Hank-Paulson-engineered ruse to cover up the insolvency of just one bank, which just happened to be the Big Kahuna:

Most people still look at TARP the wrong way. When trying to discern what the true basis of it was, we eliminated what made no sense whatsoever, and what was left were a few strange ideas. When you eliminate the impossible, what’s left, no matter how improbable, becomes the best explanation.

What was that explanation? In Bailout Nation, we discuss the possibility that The TARP was all a giant ruse, a Hank Paulson engineered scam to cover up the simple fact that CitiGroup (C) was teetering on the brink of implosion. A loan just to Citi alone would have been problematic, went this line of brilliant reasoning, so instead, we gave money to all the big banks.

House Committee Subpoenas Fed for Records on Bank of America Merrill Deal: The Federal Reserve was subpoenaed by the House Oversight Committee for e-mails and documents related to Bank of America Corp.’s purchase of Merrill Lynch & Co. after the panel was unable to obtain them through a request last week.

The move is part of increased congressional scrutiny of the central bank, which helped craft a government aid package enabling Bank of America to absorb Merrill Lynch in January. Lewis told New York state investigators in February that he was pressured in December by Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill acquisition amid mounting losses at the brokerage firm.

“It does sound like the parties aren’t getting along,” said Oliver Ireland, a former Fed counsel who is now a partner at Morrison & Foerster in Washington. It’s “unusual” for Congress to subpoena information on bank supervision from the Fed, he said.

The committee served the subpoena today, Jenny Rosenberg, a spokeswoman for the panel, said in a telephone interview. The central bank received the subpoena, the Fed official said.

Committee Chairman Edolphus Towns, a New York Democrat, and Ohio Representative Dennis Kucinich, chairman of the domestic policy subcommittee, sent Bernanke a letter this month requesting 43 items, including e-mails from Bernanke and other officials, meeting notes and the Fed’s analysis of the companies’ merger.

Withheld Documents

The Fed “refused” to provide the documents, resulting in the subpoena, California Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement today.

In an April letter to Kucinich, Bernanke said the Fed “acted with the highest integrity” during its discussions with Bank of America on Merrill Lynch and didn’t seek to withhold any information from the public on Merrill Lynch’s losses.

My Comment: "Acted with the highest integrity"... yeah, it was Paulson and the *Treasury* which acted illegally and made Uncle Bennie withhold all that damning information.

[garo]

Great article in the NYT on how trillion dollar deficits were created. With commentary by Barry Ritholz:
http://www.ritholtz.com/blog/2009/06...-were-created/

[ewmayer]

Originally Posted by garo

Great article in the NYT on how trillion dollar deficits were created. With commentary by Barry Ritholz:
http://www.ritholtz.com/blog/2009/06...-were-created/

Nice - A couple of the user replies were especially rich:

cvienne Says:

I love it how the “universal healthcare-ists” can’t wait to get out their pens and spreadsheets and talk about the theoretical & economic benefits of such programs…

I lived in Italy for 12 years under a universal healthcare system…

Trust me, it’s not ANYTHING NEAR (in practice) what people in this country are imagining…

And to think, Italy is not a country loaded up with obese monsters who stuff their face with cheetos and soft drinks all day long…

I’ve got a healthcare package for you if you want to do a “social engineering” project, require every American to spend two hours a day on the treadmill (or equivalent MET burn) to qualify for benefits!

My Comment: I have actually seen a decently-run national HCS in operation (Austria - spent a week in hospital there back in 2001 after breaking a leg while on holiday), but the huge issue here in the U.S. (besides the size of our average Fatizen, erm, I mean citizen) is that we spend MORE THAN DOUBLE per-capita on health care than any other developed country on earth. Based on the average lifespan or our citizenry, that colossal extra expenditure buys us little or nothing. Unless team Obama comes up with a credible way to slash the waste inherent in the U.S. system - and I have so far seen only nice-sounding-words-backed-by-nothing-of-substance in that regard, e.g. in the Kennedy proposal - then universal healthcare will either prove to be a non-starter or an unaffordable boondoggle which will leave us even worse off than today. The incredible power of the health-insurance and pharma lobbies in the U.S. is going to make that kind of cost-cutting virtually impossible.

The Curmudgeon Says:

Here’s an elegant solution to the fat-asses that the environmentalists ought love: Tax fat. No, not the fat in the foods that are eaten, but the fat residing around the gut and hips of junk food nation. Give everyone a universal health card such that health care is free, but to receive it, make them all submit to a simple height and weight examination to determine how much fat they have that should be taxed. As everyone knows, the metabolic processes of humans emit carbon dioxide as a by-product. Less fatty/smaller humans would mean less carbon dioxide. Global warming is solved!

Call it an “ad valorem” tax on flesh. Re-evaluate once a year.

My Comment: "Ad flaborem"?

[R.D. Silverman]

Originally Posted by ewmayer

THAN DOUBLE per-capita on health care than any other developed country on earth. Based on the average lifespan or our citizenry, that colossal extra expenditure buys us little or nothing. Unless team Obama comes up with a credible way to slash the waste inherent in the U.S. system - .....

Let us do away with medical malpractice suits altogether....

Doctors will no longer have to pay for insurance which (in theory)
should lower fees. They will no longer have to order marginal tests
for fear of such suits; i.e. 'defensive medical practices' should stop.

To replace malpractice suits, let us provide malpractice insurance
to PATIENTS. Just as we buy insurance for our cars & homes, we
can buy malpractice insurance. The cost per individual should not be high
because the risk to any specific individual would be quite low.
And just as we buy extra 'flight insurance' when we travel, we could buy
extra insurance before (say) surgery.

Just a thought......

[__HRB__]

Originally Posted by R.D. Silverman

Let us do away with medical malpractice suits altogether....

Doctors will no longer have to pay for insurance which (in theory)
should lower fees. They will no longer have to order marginal tests
for fear of such suits; i.e. 'defensive medical practices' should stop.

To replace malpractice suits, let us provide malpractice insurance
to PATIENTS. Just as we buy insurance for our cars & homes, we
can buy malpractice insurance. The cost per individual should not be high
because the risk to any specific individual would be quite low.
And just as we buy extra 'flight insurance' when we travel, we could buy
extra insurance before (say) surgery.

Just a thought......

Unfortunately it is against the collectivist concept of social justice to give individuals the possibility to choose and gain an advantage by making better choices.

All standard medical procedures could be done on an assembly line for $50, and 99.99% of all pharmaceuticals could cost as much as aspirin, if it weren't for silly regulations.

[AES]

Originally Posted by __HRB__

All standard medical procedures could be done on an assembly line for $50, and 99.99% of all pharmaceuticals could cost as much as aspirin, if it weren't for silly regulations.

I like aspirin very much for a hangover or allergy headache, but I'm willing to pay more for the research and development of new drugs that actually counteract other ailments.