Econ 2009

[xilman]

Originally Posted by ewmayer

My Comment: Gee, do you get the impression that the folks at the Fed really, really, really don`t want to open up their books and show us where they`ve been spending the trillions of taxpayer dollars they`ve thrown at the financial crisis over the past couple of years?

Nah, you're just an old cynic making a [mountain out of a molehill / storm in a tea cup]* and should [get a life / don't worry, be happy]*. They know far more about what's really happening than do hoi polloi like us.

Paul

* Delete cliche as appropriate.

[garo]

Originally Posted by ewmayer

Interesting that every single one of the "nays" was a democrat, so much for the Dems being "the party of the common man" and similar nonsense.

I wouldn't read anything party political about it. If the same bill had come out last year and Paulson was mobilized against it like Timmy was this time, you would have had the worms from the other side voting nay.

[__HRB__]

It appears that any consequences of the GW-Hack haven't hit the public newsrooms yet, so every investor might want to consider under-weighting or even shorting stocks which are profiting from GW-alarmism.

Full Disclosure: I'm not invested in any of these stocks, but I'm short in NASDAQ futures and long in other sectors.

[ewmayer]

U.S. Mortgage Delinquencies Reach a Record High: The economy and the stock market may be recovering from their swoon, but more homeowners than ever are having trouble making their monthly mortgage payments, according to figures released Thursday.

The combined percentage of those in foreclosure as well as delinquent homeowners is 14.41 percent, or about one in seven mortgage holders. Mortgages with problems are concentrated in four states: California, Florida, Arizona and Nevada. One in four people with mortgages in Florida is behind in payments.

My Comment: I would remind readers that a scant 2 years ago, most MSM pundits were arguing that all was well because over 90% of mortgages are current. In that short time span, the delinquency rate - in a near-perfect harmony with the nationwide unemployment rate - has roughly doubled to well over 10%

(Note that the above-cited George Will`s latest op-ed assures us that the world is awash in fossil fuels, while completely ignoring that e.g. Alberta tar-sands oil is both expensive and extremely environmentally toxic to extract ... so since supply is so high, it would be all that "robust demand" due to the rampaging economic recovery from the recession-which-never-really-happened as a result of the financial crisis caused by the completely-overblown toxic-mortgage-loan-o-rama that would responsible for the more-than-doubling of oil prices in the past year, then, would it? Apparently "getting it right more often than not" is not one of the required qualifications for mainstream-media-punditry fame ... you can in fact be egregiously wrong most of the time, as long as you make your incredibly-misguided arguments in a manner that is convincing to the credulous reader.

[ewmayer]

...and it ain't "Bureau" and "Statistics":

NYT | Floyd Norris: Jobs Vanish: The recession took a much larger toll on employment than was previously reported, the government said today.

The Labor Department said that it planned to revise the job figures by subtracting more than 800,000 jobs that it had wrongly estimated were filled by workers.

The planned revision indicates that this has been by far the worst recession since World War II, causing a 5.8 percent reduction in the number of jobs in this country since employment peaked at the end of 2007.

The decline in private sector employment was even greater, at 7 percent.

The so-called “benchmark revision” that was announced today will not formally be incorporated into the job figures until February, and could be revised. But the figures indicate that last March the government overestimated the total number of jobs by 824,000, or 0.6 percent. Its overestimate of private-sector employment was even greater — 855,000 jobs, or 0.8 percent.

It is the largest benchmark revision in at least the past dozen years. In 2006, when the economy was booming, it underestimated the total number of jobs by 752,000 jobs, or 0.6 percent. The private sector accounted for nearly all of that, causing an 0.7 percent upward revision.

In each of the three years since then, the benchmark revisions have indicated the government overestimated the number of jobs in the economy. But the 2007 and 2008 revisions were relatively small.

The culprit is probably the much maligned birth-death model, although Victoria Battista, an economist at the Bureau of Labor Statistics, said the bureau was looking into other possible issues, such as changing response rates to the questionnaire sent out by the bureau to employers each month.

My Comment: Notice the pathetic attempt at diversion in the last paragraph ... I wonder: do "employers who went out of business" contribute to those "changing response rates"? One also wonders: If their core statistical modeling of vital economic data is this poor, how reliable are the much-needed benchmark revisions going to be? Are their grossly over-or-underestimating their ongoing overestimation?


Bank 'problem' list climbs to 552: Number at risk of failing soars in latest quarter. Deposit insurance fund slips into the red for first time since 1992.

NEW YORK (CNNMoney.com) -- Despite the frenetic pace of bank failures this year, 552 banks are still at risk of going under, according to a government report published Tuesday.

The Federal Deposit Insurance Corp. said that the number of lenders on its so-called problem list climbed to its highest level since the end of 1993. At that time, the agency red-flagged 575 banks.

Mounting bank failures have proven costly for the FDIC, an agency created to cover the deposits of consumers and businesses in the event that a bank is shut down.

On Tuesday, the agency revealed its deposit insurance fund slipped into the red for the first time since 1991.

At the end of the quarter on Sept. 30, the value of the fund was $8.2 billion in the hole. But that number accounts for $21.7 billion the agency has set aside in anticipation of future bank failures.

My Comment: Note that the wave of failures in the early 1990s was in the wake of the Savings and Loan crisis - more on that in my "flashback" below. The "552 banks are still at risk" phrasing in the opening sentence is disingenuous - it implies something to the effect of "552 banks remain at risk", but in fact the number is likely to continue to soar, especially as the commercial real estate market (whose ongoing implosion has lagged residential RE by 1-2 years) crashes. Unlike the residential-RE-and-securitization Ponzi bubble blowup which hit major banks and Wall Street firms who had leveraged up massively on RRE-based securities, CRE will hit small-to-midsize local and regional lenders particularly hard.

Time to flash back to July of last year, at which point there had been a modest 5 bank failures year-to-date and most "experts" believed Bernanke and Paulson's lies about the subprime mortgage crisis being "contained":

FDIC: Don't worry about bank failures

"There will be more bank failures, but nothing compared with previous cycles, such as the savings-and-loans days," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said in an interview.

[cheesehead]

Ernst,

You've been calling it well for over two years (since Oct. 26 '07) now! While I've disagreed on some details, I'm impressed by your perspication.

http://www.roberttwigger.com/journal...spication.html

Perspicacious people are observant. They look at things. They aim to be aware rather than in a doze. Perspicacity means the ability to zoom in and out- seeing the detail and then the whole picture. They then see solutions that others don’t. They don’t need lots of trials and lots of errors.

Fits you at least as well as your last fortune cookie fortune. :)

[ewmayer]

Originally Posted by cheesehead

Ernst,

You've been calling it well for over two years (since Oct. 26 '07) now! While I've disagreed on some details, I'm impressed by your perspication.

You are too kind ... Perhaps I should pick up some antiperspicant roll-on during my next trip to the drugstore?

A Comment on National Priorities:

Barry Ritholtz returns from a visit to Berlin, and comments:

My pet theory is that all of the anger about Health Care Reform is misdirected rage at the corrupt Bailouts. I don’t want to get too Continental on you, but the conversation in Europe I encountered repeatedly was the sheer perplexity at why people are protesting health care coverage for all. One fund manager said to me in Berlin, “You give trillions to rogue bankers, yet you have 40 million uninsured American. Why is that?”

Fannie "Serious Deliquencies" Triple; and Fed Gobbles 'em Up

Fannie "Serious Deliquencies" Triple; and Fed Gobbles 'em Up

[url=http://www.reuters.com/article/GCA-Housing/idUSTRE5AN5EE20091124]NEW YORK (Reuters)[.url] - Fannie Mae shrunk its gross mortgage portfolio by an annual rate of about 28 percent in October and delinquencies on loans it guarantees rose sharply in September, the largest U.S. home funding company said on Tuesday.

The key in the story is that the single-family "serious" delinquency rate (that is, 90+ days behind - in the "forget it, they're hosed" bucket) is now 4.72% of the entire portfolio, where a year ago it was 1.72%.

That's 275% of the previous rate.
Where's the MBS portfolio going? Fannie isn't running it down, you know.
Oh no - those MBS are going right onto The Federal Reserve's balance sheet through "outright purchases" - that is, monetization.
Unlike a loan, which is recourse and can be "put back", these can't. They're owned by The Federal Reserve, which printed up new money (debasing the currency) to purchase an "asset" of questionable (or worse) quality.

The perversity of The Fed's "purchase" program is that it has dramatically boosted the price of these "securities", even as their quality has gone into the toilet.
The outcome of this should not have been in question, of course - you can always drive up the "price" of something by intentionally overpaying for some of that thing. The wise owner of said "asset" will immediately sell it to you, of course, detecting that you are willing to overpay on purpose.

The perversity of such a "program", however, is that it destroys the market. The claim is that such "quantitative easing" is in some way "supportive" of the market for these securities. Nothing could be further from the truth - what has instead happened is that private demand has disappeared as The Fed has been paying more for them than the market price - and as a consequence anyone who might have been a buyer has immediately turned into a seller instead. Worse, the cost of funding new securities has become unattractive for Fannie and Freddie.
Net-on-net the risk of default is being transferred to you as The Fed, if they have taken in so-called "good securities" by intentionally overpaying for toilet paper their actions amount to nothing more than raw printing of money.

The dollar is reacting to this, along with the fact that the so-called "independent" Central Bank has effectively correlated its actions with Treasury, which instantly issued more than $1 trillion in new debt right into its "low interest rate" environment and "Quantitative Easing" program.
Reality is this:

The housing market's performance is not improving - it continues to deteriorate, with loan performance deteriorating, not stabilizing.

Virtually all of the Fannie/Freddie paper that is "Seriously Delinquent" will foreclose. Nobody 90+ delinquent (statistically) cures - those are "hard" defaults that are either in foreclosure or will be in foreclosure.

The Fed will, by the end of the first quarter of 2010, own 20% or more of this paper - and it intentionally overpaid. The losses will be real, they will be in the tens if not hundreds of billions of dollars, and you will eat it via devaluation of the currency and deterioration of your living standard - even if you were prudent.
There is no exit from this policy. Should The Fed dump the MBS paper on the market the price would collapse. Should they not and run it off the value will collapse. Either way the losses are real and will be absorbed - by you.

"Independent" Central Bank eh? Contemplate the wisdom of a so-called "independent" central bank having the right to levy a tax on all Americans - because that's what they're doing, in point of fact, to the tune of hundreds of billions of dollars.
Oh, and to Darrell Issa, who made the comment to a constituent when challenged that HR.3221 of 2008 provided a "full faith and credit" guarantee to Fannie and Freddie, thus making their MBS purchase-eligible by The Fed: That was a lie sir.

HR.3221 did no such thing. It in fact authorized but did not require the purchase of MBS and Debt Instruments by Treasury, to wit (Sec 1117, P30)

‘‘(A) General Authority - In addition to the authority under subsection (c) of this section, the Secretary of the Treasury is authorized to purchase any obligations and other securities issued by the corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine. Nothing in this subsection requires the corporation to issue obligations or securities to the Secretary without mutual agreement between the Secretary and the corporation.

That's crystal clear. TREASURY is authorized to buy an unlimited amount of Fannie and Freddie paper - either MBS or outright debt issue. But nowhere in this act is Treasury required to do so in satisfaction of debt - that is, nowhere is the implied Fannie and Freddie guarantee modified to an explicit full faith and credit guarantee issued by The Federal Government.

Further, Fannie filed a 10Q effective as of September 30th of this year in which it stated ON THE FIRST PAGE:

Although we are a corporation chartered by the U.S. Congress, and although our conservator is a U.S. government agency and Treasury owns our senior preferred stock and a warrant to purchase our common stock, the U.S. government does not guarantee, directly or indirectly, our securities or other obligations.

End of discussion Mr. Issa. Fannie issued that 10Q as a document filed with the SEC by a firm that has publicly-traded capital stock. Not only does the general rubric of fraud apply should they make a knowingly-false claim, SarBox provides that such documents are specifically attested to as true and correct by the officers of the corporation responsible for said filing.

The reason that Treasury isn't buying these securities, and The Fed is doing so (and in my opinion illegally doing so) is quite simple: If Treasury were to buy these securities it would have to issue Treasury Debt to fund the purchases. This would lay bare on the table the fact that The Federal Government is not running a $1 trillion annual deficit it is in fact running a $2 trillion annual deficit, and the consequence of that recognition by the market would likely be the instantaneous collapse of Treasury Bond prices with a commensurate rocket shot in demanded coupon.

This would force fiscal discipline on The United States Government - a reality you and the rest of Congress, along with Treasury, refuse to face.

My Comment: "Fiscal Discipline" ... is that some kind of kinky S&M thing?

[ewmayer]

Anybody remember the Jackie Chiles, attorney-at-law character on Seinfeld? You know, the one who was homage-to/parody-of the late defense attorney Johnny Cochran, of O.J.-Simpson-trial "If it does not fit, you must acquit" fame? It would appear that Mr. Chiles lives on in Suffolk County (NY) judge Jeffrey A. Spinner:

Judge cancels Long Island family's mortgage, berates lender: A Suffolk judge awarded a Long Island family their East Patchogue house, wiping the slate clean on their mortgage debt and ruling that the bank holding their home loan had acted in a manner "so completely devoid of good faith that equity cannot be permitted to intervene on its behalf."

In a terse, no-holds-barred decision rendered Nov. 19, Suffolk County Supreme Court Justice Jeffrey A. Spinner blasted the actions of IndyMac Mortgage Services, a division of OneWest Bank F.S.B., and its representatives - and awarded the home to Diana J. Yano-Horoski and husband Greg Horoski.

"We never asked for this," Greg Horoski said Wednesday from the modest single-story home on Oakland Street. "I was shocked, honestly."

"It's not like we said, 'Judge, please throw the loan away.' We just wanted them [the bank] to be reasonable."

The decision came after a series of state-mandated, pre-foreclosure settlement conferences between the lenders and borrowers of subprime loans.

My Comment: While I applaud the judge`s decision, I wouldn't exactly describe the wording in his ruling as "terse":

Spinner wrote in his decision: "It was celeritously made clear to the Court that Plaintiff had no good faith intention whatsoever of resolving this matter in any manner other than a complete and forcible devolution of title from Defendant."
...
The judge noted Yano-Horoski and her husband both had health issues and that IndyMac denied an offer by Yano-Horoski's daughter to purchase the home at fair-market value - a move that would have created "a win-win situation" for all the parties involved. He also noted that Dickinson "insisted" that Yano-Horoski had been offered a so-called "Forbearance Agreement" but had "quickly defaulted" on it, which then led to the foreclosure action.

However, Spinner said that "it was only after substantial prodding by the Court that [IndyMac representative] Ms. Dickinson conceded, with great reluctance, that it [the Forbearance Agreement] had not been sent to [the] Defendant until after its stated first payment due date."

Which meant, Spinner wrote, that Yano-Horoski could not have consummated the agreement - and that, through what he called the "Plaintiff's duplicity," found herself "in the unique and uncomfortable position of being placed in default of the 'agreement' even before she had received it."

Judge Spinner is just getting warmed up in terms of judicial loquacity and verdictual prolixity: It gets even better:

The judge referred to IndyMac’s conduct as being “inequitable, unconscionable, vexatious and opprobrious”
...
“Plaintiff’s conduct is wholly unsupportable at law or in equity, greatly egregious and so completely devoid of good faith that equity cannot be permitted to intervene on its behalf. Indeed, Plaintiff’s actions toward Defendant in this matter have been harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against Defendant.”
...
The judge described Ms. Dickinson as having an “opprobrious demeanor and condescending attitude”
...
He also said that, taking into consideration the conduct of IndyMac in its entirety, compelled him to invoke an “ancient and venerable principle” known as “Falsus in uno, falsus in omni,” which is Latin for “false in one, false in all” ... “Regrettably, the Court has been unable to find even so much as a scintilla of good faith on the part of Plaintiff. Plaintiff comes before this Court with unclean hands yet has the insufferable temerity to demand equitable relief against Defendant.”
...
“Equitable relief will not lie in favor of one who acts in a manner which is shocking to the conscience, neither will equity be available to one who acts in a manner that is oppressive or unjust or whose conduct is sufficiently egregious so as to prohibit the party from asserting its legal rights against a defaulting adversary. The compass by which the questioned conduct must be measured is a moral one and the acts complained of need not be criminal nor actionable at law but must merely be willful and unconscionable or be of such a nature that honest and fair minded folk would roundly denounce such actions as being morally and ethically wrong. Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be.”

My Comment: "Your honor, I assert, avow and aver that Plaintiff`s behavior was outrageous, egregious, malicious and injudicious ... the effect on my client was inflammatory, defamatory, vexatious, mendacious, injurious, with intent to be penurious. We hereby request indemnification, restitution, absolution and dissolution of all contractual obligations, said separations to be accompanied by reparations."

Oh, and by the way ... "They`re real, and they`re spectacular!".

Happy Thanksgiving to our U.S. readers!

[Fusion_power]

The biggest news of the last 2 days is the request to put debt repayment on hold for Dubai. This can be shown as a case of gross mismanagement of finances by a country that is trying hard to develop its potential. They grew too big too fast on someone else's money. The result is an overall debt in the $80 Billion range. In their favor is the huge infrastructure they have developed with shopping centers, hotels, and financial expertise. Standing against them is a huge and overwhelming debt.

Why is this important? It will have rock-on impact to financial markets around the world. We can expect serious volatility over the next week. Any further financial blows can be expected to have an amplified effect on the market.

We've had the earthquake. This is an aftershock, and a BIG one.

DarJones

[ewmayer]

Originally Posted by Fusion_power

The biggest news of the last 2 days is the request to put debt repayment on hold for Dubai.

Yep - here are some related links detailing various aspects of the extent and likely fallout of the potential Dubai debt default:

Dubai Debt Delay Rattles Confidence in Gulf Borrowers: Dubai shook investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.


RBS Led Dubai World Lenders, HSBC Has Most at Stake in UAE, JPMorgan Says: Royal Bank of Scotland Group Plc was the biggest underwriter of loans to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings Plc has the most at risk in the United Arab Emirates, according to JPMorgan Chase & Co.


British Banks Have $49.5 Billion Loans to U.A.E., Most in Europe, RBS Says:British banks are Europe’s biggest lenders to the United Arab Emirates, constituting $49.5 billion of the continent’s $87.3 billion loans outstanding to the Gulf state, Royal Bank of Scotland Group Plc said.

[ewmayer]

China Losses Inevitable as Dollar Weakens, Ex-PBOC Adviser Says: China’s foreign-exchange reserves face a “triple whammy” as inflation, oversupply and the “inevitable” decline of the dollar threaten to erode the value of its holdings of U.S. Treasuries, said Yu Yongding, a former adviser to the Chinese central bank.

China needs to divert its trade and investment surpluses away from U.S. debt if it is unable to reduce them, Yu, a member of the central bank’s monetary policy committee from 2004 to 2006, said in a speech in Melbourne last night. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the U.S.’s biggest creditor, holding $798.9 billion of Treasuries as of September.

“Capital losses -- let alone obtaining decent returns -- seem inevitable,” said Yu, a member of the Chinese Academy of Social Sciences. “There is no question whatsoever that the U.S. dollar will go south, which started in April 2002 and, after a short interval, restarted in March 2009.”

The dollar traded near a 14-year low against the yen as the Federal Reserve signaled it will tolerate a weaker greenback and Russia’s central bank announced plans to add Canadian dollars to its reserves to reduce its reliance on the U.S. currency. Russia, holder of the world’s third-largest foreign currency reserves, and China this year suggested the world economy would perform better with an alternative reserve currency to the greenback.

A 10 percent slide in the greenback would cut the value of China’s dollar-denominated assets by about 1.5 trillion yuan ($220 billion), exceeding Chinese central government spending under the nation’s $586 billion stimulus plan, Yu said Oct. 28 at a forum in Beijing.

The U.S. dollar has declined against all 16 of the most- traded currencies this year. It traded at $1.5125 per euro as of 9:22 a.m. in Tokyo and has weakened 8.3 percent against the currency this year.

My comment: The single-ply toilet paper known as the U.S. dollar hit a 14-year low against the Japanese Yen - the Yen! (Can you say "Japan has 200% debt-to-GDP"?) - today. Do you think this intentional ongoing devaluation of the dollar by our "committed to a strong currency" buffoons at the U.S. Treasury and Federal Reserve will make China eager to continue purchasing our debt?