Mystery Economic Theater 2010

[Fusion_power]

I'm somewhat skeptical of your jolly good humor aka caustic cynicism Ewmayer. In fact, you might just be a misanthrope.

The skids are greased, the economy is poised, is everyone ready?

There were modest signs of stabilization in the housing market a few months ago. Prices were no longer going down, they weren't really going up, but they were not sliding at double digit percentages. No longer true today. Some premium properties is affluent areas are still on the high side of normal, but most everything else is sliding.

All it would take at this point is one serious down day in the stock market.

DarJones

[ewmayer]

Originally Posted by Fusion_power

I'm somewhat skeptical of your jolly good humor aka caustic cynicism Ewmayer. In fact, you might just be a misanthrope.

If you're referring to the anthropoids who conspired to hollow out, offshore and Ponzi-financialize our once-thriving economy over the past 30 years in order to effect the greatest wealth transfer in history from the Many to the well-connected Few, then indeed, I am extremely "mis" that lot.

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Fed Zeppelin Sighting #2:

For fans of the recently-popular field of Hindenburg-Omenology, we had Sighting #2 yesterday. Denninger - in one of his occasional non-rantish, non-xenophobic posts [I find him quite readable when it comes to market technicals and "inside trading tech"] - describes.

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401(k) Withdrawals Spike:

401(k) withdrawals hit 10-year high, says Fidelity. Withdrawals from 401(k) retirement saving plans saw their biggest spike in over ten years, Fidelity Investments said on Friday, in the latest sign of a dismal economy.

Fidelity reported that 62,000 Fidelity participants made hardship withdrawals from their 401(k) workplace plans during the second quarter. That's up from 45,000 participants during the prior quarter, a 37% increase. That means that 2.2% of Fidelity customers took a hardship withdrawal in the second quarter, compared to 2% in the same period last year.

Boston-based Fidelity has $844 billion in retirement assets under management.

Fidelity also said that 11% of participants took out loans from their 401(k) over the past 12 months, an increase of two percentage points from the prior year. The average loan amount was $8,650 at the end of the second quarter.

The top reasons people took loans and made withdrawals were to prevent foreclosure or eviction, pay for college, or purchase a home, according to the firm.

"The current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement," said James MacDonald, president of workplace investing for Fidelity Investments.

He added that for some investors "taking a loan or a hardship withdrawal from their 401(k) may be their only option because it's their only form of savings. However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement."

Fidelity said that withdrawals made by people younger than 59-and-a-half years old are taxed and are subject to a 10% penalty. The age of people making withdrawals ranged from 35 to 55.

David Wray, president of the Profit Sharing/401(k) Council of America, said that people making hardship withdrawals could pay a penalty of up to 40%, once state and federal taxes are added to the 10% penalty.

"People take a very significant hit when they take a hardship withdrawal," he said.

My Comment: In most cases, tapping one`s 401(k) - and incurring the hefty accompanying penalties - in order to continue to service one`s mortgage is a horrible financial trade-off. Much better to try to renegotiate the mortgage loan and if that fails, simply stop paying and prepare to move to a rental property (or more-affordable home) while waiting for the bank to foreclose - many folks have been doing this for over a year and are still waiting for the bank to foreclose.

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The 10 Most Dangerous Jobs in America:

CNN/Money has click-bait-formatted summary of the 10 Most Dangerous Jobs in America: Here is the Job / Fatality rate (deaths per year per 100,000) and Median-wage summary, go to the original piece for more details about each job. Think about this Top-10 list the next time your local Police or Firefighters` Union agitates for better pay/benefits because "We put our lives on the line every day" ... well, so do a whole lot of "regular" unheralded folks who get paid a hell of a lot less for doing so:

Job               Fatality rate    Median wage   Notes
-------------     -------------    -----------   -----------------
Fisherman           200             $ 23,600      Mainly cold-water fishing (Alaska)
Logger               62             $ 34,440
Bush Pilot           57             $106,240      Mainly Alaska
Farmers, Ranchers    36             $ 32,350
Roofers              35             $ 33,970      Better safety training is steadily reducing the rate
Ironworkers          30             $ 44,500
Sanitation worker    25             $ 32,070      Meth-lab chemicals a new recent danger
Industrial machinist 19             $ 39.600
Truckers/Deliverers  18             $ 37,730      Highest total deaths of Top 10 due to large numbers
Construction laborer 18             $ 29,150

[ewmayer]

Barry Ritholtz Interview With Felix Zulauf:

And lastly for today, Barry Ritholtz has a great long interview with famed Swiss-born investor Felix Zulauf ... here is my favorite excerpt from that:

...now, we are at the point where over the last decade, the regulators for the banking industry allowed the banks to reduce their equity capitals step by step, which really was another element creating the boom and the bubble in real estate and other sectors. And now we are here suffering from the fallouts of that bubble bursting…In Europe, it is even worse than in the US. And the problem then comes that the banks have to be bailed out. And bailing out the banks in the system pushed government debts to much higher levels. The question is, what will we do next time when the governments need to be bailed out.

Because the problem is that we are living in a fiction that we can enjoy a relatively high level of prosperity for our average citizens in industrialized countries by going more and more into debt. And Greece, in a way, was a stopping point. The markets said, “There is a limit, we are not financing it any longer.” And then the European Union was changed to a transfer union all of a sudden. Now, the next thing to drop is Spain, where we have a real estate problem that is bigger than in the US. There are more homes for sale in Spain than in all of the USA. And prices have so far only gone down 10 percent because there are no transactions. But once transactions are forced by the banks, because the banks are forced by the government to clean up the situation — then prices will come down 30 to 40 percent and probably end at 50 percent down and then the banking system is bust. And the insurance system is bust. And then the government has to bail them out and the government is bust. And then what?

So I see this problem of over-indedtedness moving from the periphery of our global credit system to the center. The center is the US. And believe me, the US has its own problems. Half of the US states are running deficits that are bigger than Greece.

I think this whole process will run another few years until it reaches the center. And the point is that at some point in time, the Central Banks [will] have to bail out the governments. And maybe on the way to that point, there will be some countries that will default, and then restructure — which would be the right thing to do, actually. But at the present time, Greece should have restructured. They should have claimed default and then the debt should have been restructured. But the problem was that the banks could not take that hit. So bailing out Greece was bailing out the banks.

I do not know what the final outcome will be. I think that historically, when you look at governments that are highly indebted, you have either defaults or you have printing money. I would assume that most of the European countries [aren't party to the latter] because they have the Euro and it is harder to run the printing press than if you had one country and one government that has sovereignty over its own currency. They [the European countries] will probably go towards restructuring. And within the group of sovereign countries (I would include the UK, Japan, and the US probably) — they will probably try to run the printing presses up and go into massive debasement of the currency. This will, of course, create a payoff later on in the currency markets and currency controls.

My Comment: Zulauf also has some incisive commentary about last year`s huge cheap-government-money-fueled bear market rally and where he thinks we are now:

We came out of a time when monetary policy worked extremely well for quite some time. It worked well for the economy because when the Fed banks cut interest rates and stimulated the system, you had good growth following through later on with a time lag. You had chemical markets rallying and equity markets and credit markets and commodities and et cetera.

This time is different, because we have such a high level of debt that monetary policy has become very inefficient. And in ‘09, monetary policy alone would not have worked if the Fed and other central banks did not go out and buy, for trillions of dollars and Euros, financial assets in the market directly. Because monetary policy alone did not work. We have basically zero interest around the world in the major industrialized economies and that alone is not working. In a situation where you have too much debt and the private sector begins de-leveraging, monetary policy doesn’t work. It’s similar to the situation in Japan, although the problems there were even more severe. What works is fiscal policy, and fiscal policy gave us this kick in ‘09 and carrying through the economy up to this day. But these fiscal stimulus programs will have run their course very soon. And then we are back to final demand.

So we have three factors moving the market. One was the stimulus demand, the other was the re-stocking of inventory throughout the manufacturing sectors of the world, and the third was financial banks manipulating financial markets up to the point where they got the prices where they wanted them. And I think quantitative easing to that degree is not possible in the current environment without first having a crisis again because you run into political problems. And the same is true for government spending of the size we have seen last year. Because the political framework is such that some people are very concerned with the debt that we are piling up virtually everywhere. And therefore, the markets are now forcing the hand and you see that markets are beginning to break down. The deflationary forces are gaining the upper hand and the western world is really hoping that China will bail us out by buying all the goods that we want to sell.

I just came back from a three-week trip to China and my view is very different. I think China is in the early stage of a decline with economy weakening that will turn into a hard landing.

[ewmayer]

ZeroHedge reports that today (like yesterday) we again had a Zeppelin sighting, making for a total of 3 in the past week. It`s not clear to me to what extent rapid repeat events carry statistical importance ... I would for now simply sum things up "signs of unusual stresses in the markets persist".

A reader - who I hope does not mind having his (I use the literary "his" denoting the singular person, but not literally specifying gender) private message excerpted - frets as to what to do. My advice to him generalizes to all folks in a similar situation - that is, not super-sophisticated about investing, not wanting to watch stock charts constantly, but wanting to keep their money safe:

I cannot understand economics, and the more I read your postings, the more I understand that I will never be able to understand. People are panicky and at the same time gullible animals who will trample everything when the time will come. I cannot begin to pretend that I can understand them or model them. But you can! :-)

Now with two HOs, even I am getting nervous.

Could you give me a simple advice where all of one's 401k should have been moved already yesterday - but if not yesterday, what about today?

My Reply: "The HO is at best a warning of watch-your-wallet in the stock markets ... even when it does successfully foreshadow a major downmove, the timing has ranged from a few days to 4 months out.

But given all the other bad macro news, I think the chances of a major plunge (10-30% down) between now and end of the year are quite high (at least 50/50) and the chances of missing a major rally in the same timeframe seem very slim.

For most 401k-type investors my advice is to move to cash (or a money-market cash-like fund, if your 401k has no pure-cash option). Then wait patiently ... one benefit of deflation (as opposed to the usual government-caused inflation) is that cash carries little or no lost-interest opportunity cost versus the alternatives.

Cheers, and remember not to smoke around those Hydrogen tanks. ;)"

[cheesehead]

Another bearish factor I don't recall having seen mentioned here lately:

"Another Threat to Economy: Boomers Cutting Back"

http://finance.yahoo.com/focus-retir...uilding_wealth

America's baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.

[ewmayer]

Those of you who may have been following the investigations into the May 6 "Flash Crash" may be familiar with Nanex, the small private market-quote-software firm which has been doing most of the really insightful research into the causes of the crash and its links with high-frequency trading and the two-tier ("for-pay premium quote access" and "everybody else") market-quote balkanization "pioneered" by for-profit-exchanges trying to do what for-profit companies do, namely: maximize profits. (Bizarrely, there is a widespread misconception - as illustrated by Senator Kaufman`s quote in the NYT article below - that the equity markets are still in some way "public marketplaces" despite this for-profit 2-tiering of access to the same "public" markets).

Well, Nanex has completed its analysis, and found a smoking gun in the form of "do it yourself latency arbitrage via quote stuffing" by the HFTs. ZeroHedge has been following Nanex's ongoing analysis since Nanex started publishing their findings, and the New York Times finally deemed it worthy to chime in yesterday. Note the party-line "experts dismiss all this as tinfoil-hat conspiracy theory" closing to the NYT piece. They may be wishing they had waited one more day - read on to see why:

Stock Swing Still Baffles, With an Ominous Tone: It sounds like “Wall Street” meets “The X-Files.”

The stock market mysteriously plunges 600 points — and then, more mysteriously, recovers within minutes. Over the next few weeks, analysts at Nanex, an obscure data company in the suburbs of Chicago, examine trading charts from the day and are stunned to find some oddly compelling shapes and patterns in the data.

To the Nanex analysts, these are crop circles of the financial kind, containing clues to the mystery of what happened in the markets on May 6 and what might have caused the still-unexplained flash crash.

The charts — which are visual representations of bid prices, ask prices, order sizes and other trading activity — are inspiring many theories on Wall Street, some of them based on hard-nosed financial analysis and others of the black-helicopter variety.

To some people, like Eric Scott Hunsader, the founder of Nanex, they suggest that the specialized computers responsible for so much of today’s stock trading simply overloaded the exchanges.

He and others are tempted to go further, hypothesizing that the bizarre patterns might have been the result of a Wall Street version of cyberwarfare. They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.

Jeffrey Donovan, a Nanex developer, first noticed the apparent anomalies. “Something is not right,” he said as he reviewed the charts.

Mr. Donovan, a man with a runaway chuckle who works alone out of the company’s office in Santa Barbara, Calif., poses a theory that a small group of high-frequency traders was trying to introduce delays into the nation’s fractured stock-market trading system to profit at the expense of others. Clogging exchanges or otherwise disrupting markets to gain an advantage may be illegal....

“There is a credible allegation that there is seriously abusive practices going on,” said James J. Angel, a financial market analyst specialist at Georgetown University, “to the extent that somebody is firing in a very high frequency of orders for no good economic reason, basically because they are trying to slow everybody else down.”

At a Washington hearing on the flash crash last week, Kevin Cronin, director of global equity trading at Invesco, a big fund manager, warned about “improper or manipulative activity” in the stock market.

Traders at BMO Capital Markets in Toronto said they had also identified a “data deluge” a few minutes before the crash. They said people in the markets were poring over Nanex’s colorful charts.

“Whether they are intentional or not, the regulators should be looking into it closely,” said Doug Clark, managing director of BMO Capital Markets.

In an Aug. 5 letter to the Securities and Exchange Commission, Senator Edward E. Kaufman, Democrat of Delaware, warned about a “micro-arms race that is being waged in our public marketplace by high-frequency traders and others.” He said that the traders were moving so fast that regulators could not keep up.

The idea that shadowy computer masterminds were trying to disrupt the nation’s stock trading struck many people as ridiculous. Wall Street experts generally characterize it as a conspiracy theory with little basis in fact.

My Comment: Those wouldn`t be the same "experts" working for the firms who are making huge amounts of "free money" from the scam, would they? Because in the latest developments - this straight from the Nanex "breaking news" page today - it appears that one or more HFT players have in fact found a kind of holy grail of HFT-scammery by way of "do-it-yourself latency arbitrage". There is apparently a well-defined (but previously knowable only to folks whose hardware/software is capable of generating sufficient bogus-bid volumes to "sniff it out") bid volume at which the quote system begins to overload and above which latency balloons enough to be easily exploitable by the same quote-stuffing algos:

May 6'th 2010 Flash Crash Analysis: Continuing Developments

Latency On Demand?
Publication Date: August 23, 2010

We wanted to see the extent of the delay between NYSE quotes from CQS and OpenBook on a more recent trading day. So we synchronized quotes from CQS and OpenBook for GE between 1pm and 4pm Eastern time and plotted 30 minutes worth of timestamp differences along with the quote price which are shown in Chart 1 below. We were surprised to see the frequency and magnitude of the delay. We thought high quote activity in a stock would cause a delay in that stock's quote, but could not find any correlation between the quote activity in GE and the delay.

Then we decided to focus on the one minute that had the highest delay, which is highlighted with a yellow circle in Chart 1. This one minute sample of the delay is plotted in Chart 2.

Instead of looking at the quote rate for just GE, we decided to plot the quote rate for all stocks that NYSE sends to CQS. In other words, we plotted the sum total number of quotes where the listed exchange and reporting exchange are NYSE. This is plotted in Chart 3, which has the same time interval as Chart 2.

You can see that there is a very strong correlation between the quote rate in Chart 3, and the delay in Chart 2. Whenever the quote rate in Chart 3 exceeds 20,000/second, a corresponding delay is seen in Chart 2. The higher or longer the quote rate exceeds 20,000/second, the greater the delay.

We then looked at all 3 hours and noticed the same relationship between total NYSE to CQS quote rate and a delay in GE.

Then something very disturbing dawned on us. If the average or base quote rate is around 10,000/second, then it only takes an additional 10,000 quotes/second to reach the magic 20,000 quotes/seconds where a corresponding delay is seen in NYSE quote from CQS. This 10,000 quotes/second can be in any stock or combination of stocks that NYSE sends quotes to CQS for.

The high occurrence of strange crop circles we have noted elsewhere, are suddenly beginning to make sense.

[Fusion_power]

Economic stressors are showing up with distressing regularity. Recent news articles have pointed out that average single family house prices have slipped a few thousand dollars and that the volume of house sales is the lowest seen in several years. Today an article trumpets that oil has slid below the $72 price level. Yet the cost of necessities such as food is either flat or rising slightly. These are all signs of a market malaise called Deflation. While it is possible to fight inflation with interest rate adjustments, there are no effective tools to ward off deflation.

The real worry that comes with deflation is the relationship it has with unemployment. Severe periods of deflation go hand in had with fewer people having jobs. Perhaps more worrying about this economic cycle is the present indication that people who are working are getting paid less in real dollars (Adjusted for inflation, etc.) than they were getting 10 years ago.

DarJones

[ewmayer]

Brief recap of breaking econNews: Ireland debt downgraded yet again due to ballooning banking-sector bailout costs ... Illinois Teachers` Retirement System pension fund enters death-spiral financing mode ... Another day, another Hindenburg sighting (4th event in the series which began August 12th) ...


In Striking Shift, Small Investors Flee Stock Market. Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market.

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.

Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

So is the timing. After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

It may take many years before it is clear whether this becomes a long-term shift in psychology. After technology and dot-com shares crashed in the early 2000s, for example, investors were quick to re-enter the stock market. Yet bigger economic calamities like the Great Depression affected people’s attitudes toward money for decades.

...For a few months at the start of this year, things were looking up for stock market investing. Optimistic about growth, investors were again putting their money into stocks. In March and April, when the stock market rose 8 percent, $8.1 billion flowed into domestic stock mutual funds.

But then came a grim reassessment of America’s economic prospects as unemployment remained stubbornly high and private sector job growth refused to take off.

Investors’ nerves were also frayed by the “flash crash” on May 6, when the Dow Jones industrial index fell 600 points in a matter of minutes. The authorities still do not know why.

Investors pulled $19.1 billion from domestic equity funds in May, the largest outflow since the height of the financial crisis in October 2008.

Over all, investors pulled $151.4 billion out of stock market mutual funds in 2008. But at that time the market was tanking in shocking fashion. The surprise this time around is that Americans are withdrawing money even when share prices are rallying.

My Comment: Uh, no ... "Are rallying" describes the delirious-hope-and-liquidity-pump rally which started in March of last year and lasted roughly a full year ... until enough people began to question whether the Recovery Emperor really had any clothes. I think a lot of individual investors, having been thoroughly burned in 2008, have decided to use the Great 2009 Rally About Nothing to cut their losses and get out of the Ponzi Casino ... hopefully once and for all.


Government-Supplied Housing Cocaine All Snorted, Home Sales Back To Face-Down Under a Table

Sales of U.S. Existing Homes Drop More Than Forecast. Sales of U.S. previously owned homes plunged 27 percent in July, twice as much as forecast, evidence foreclosures and limited job growth are depressing the market.

Purchases plummeted to a 3.83 million annual pace, the lowest in a decade on record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed today in Washington. Demand for single-family houses dropped to a 15- year low and the number of homes on the market swelled.

My Comment: One wonders what it might take to dent the rampant perma-optimism of "most economists". I`m guessing it would require something truly horrifying, like "loss of one`s Fed-sponsored professional economic-shill job, followed by actually trying to convince real-world employers that one`s skills extend beyond giving rose-colored Powerpoint presentations to uncritical audiences of one`s similarly-government-teat-suckling peers."

And speaking of paid shills, the folks at the NAR even managed to find a way to try to spin the above dismal data in a hopeful way, with a "lunatic counterfactual spin" quotient which would make their spiritual mentor proud:

"July Existing-Home Sales Fall as Expected but Prices Rise."

Yep, just ignore the "twice as much as expected" part - we'll help you do that by omitting to mention it - and focus on the HUGELY POSITIVE news, Check out the MASSIVE PRICE RISE and ignore those pesky "error bars":

"The national median existing-home price2 for all housing types was $182,600 in July, up 0.7 percent from a year ago."


Fed Loses Latest Round In Fight To Keep Bailout Secrets

Fed Loses Bid for Review of Bailout Disclosure Ruling. An appeals court refused to reconsider a decision compelling the Federal Reserve Board to release documents identifying banks that might have failed without the U.S. government bailout.

At issue are 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names, the amounts borrowed and the collateral posted in return, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.

The amount the Fed and the U.S. government lent, spent and guaranteed to stem the recession and rescue the banking system peaked in March 2009 at $12.8 trillion, most of it following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

My Comment: On to the Supreme Court ... While the information at issue may no longer be hot news once that eventual decision is rendered - And I would not be at all surprised to see the FedHeads try to pull some bogus "voluntary disclosure (of reams of all except the really important stuff)" stunt - The SCOTUS ruling should settle beyond doubt whether our government is entirely bank-owned, or whether there may be some tiny glimmer of hope for us yet.

[Fusion_power]

Your post highlights one of the most misused and abused tools today, Ewmayer.

Where do you measure from? It makes a tremendous difference in a fluctuating economy. Take for example, do you measure average house sale price from 2006 when the market was still near the bubblicious peak? or do you measure it from 2008 when the market was reeling from the bubble collapse? This is precisely the spin that you mention. If you measure from the market high, you get to see the huge drop in average single family house price. Which one is right?

"July Existing-Home Sales Fall as Expected but Prices Rise."

Yep, just ignore the "twice as much as expected" part - we'll help you do that by omitting to mention it - and focus on the HUGELY POSITIVE news, Check out the MASSIVE PRICE RISE and ignore those pesky "error bars":

"The national median existing-home price2 for all housing types was $182,600 in July, up 0.7 percent from a year ago."

Where is that bugler from F-troop when you need him? He was pretty darn good at playing a dirge.

DarJones

[Fusion_power]

The Hindenburg indicator hit the news front page in Yahoo today. It is surprising how much attention it is getting now. Does it highlight market volatility and instability? Yep, sure does.

Mortgage news is big news again today. By one current estimate, up to 10% of all U.S. home mortgages may face foreclosure. I suspect there are conditions where this could be significantly too low. This is also on top of the hundreds of thousands of foreclosures already completed over the last 2 years. What kind of market event would it take to double foreclosures over the next 3 years? That would require a significant rise in unemployment. We would have to see unemployment at least double from today. To borrow a term, that would represent a significant Black Swan event. Is it likely? Current models do not look like it will happen, just don't be totally surprised if the current models fail. We are dealing with seriously uncharted territory.

DarJones

[ewmayer]

Blind and Blinder

Former Fed Vice Chairman Alan Blinder had an op-ed in the WSJ yesterday saying in effect that "the economic recovery seems to be stalling" and contemplating option for the Fed to once again step in and "fix things":

Fed Is Running Low on Ammo

You may have noticed that the complexion of the U.S. economy has turned a bit sallow of late. The Federal Reserve definitely has. At its Aug. 10 meeting, the Federal Open Market Committee (FOMC) shifted attention away from its former concern—how to tighten a bit—and toward a new concern: how to loosen a bit. By central bank standards, this turnabout came at warp speed.

Chairman Ben Bernanke has told the world that the Fed is not out of ammunition. It still has easing options, should it need to deploy them. The good news is that he's right. The bad news is that the Fed has already spent its most powerful ammunition; only the weak stuff is left.

My Comment: Wait a minute ... Could this be the same Alan Blinder, who only last month in a joint article with Moody`s Chief Economist Mark Zandi was telling us everything was hunky-dory, and that he and his fellow money-printing disciples of free-lunch borrow-and-spend-your-way-out-of-debt Keynesianology has saved the world? why, yes, it is:

How the Great Recession Was Brought to an End


No One Left to Sell CDOs To? Sell to Yourself!

No One Left to Sell CDOs To? Sell to Yourself!

ProPublica has a devastating take down of some of the self-inflicted wounds the big bailed out banks caused, all in the pursuit of bigger bonuses. Merrill lynch, CitiGroup, UBS, Goldman Sachs all come in for scathing criticism for their circular CDO sales to themselves:

“Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses: They created fake demand.

A ProPublica analysis shows for the first time the extent to which banks — primarily Merrill Lynch, but also Citigroup, UBS and others — bought their own products and cranked up an assembly line that otherwise should have flagged. The products they were buying and selling were at the heart of the 2008 meltdown — collections of mortgage bonds known as collateralized debt obligations, or CDOs. “

My Comment: I expect a followup in the not-too-distant future, titled "No One Left to Sell Sovereign Debt To? Sell to Yourself!"


Leftovers from early this week:

Failure Of Bank With Close Ties To Obama Costs Taxpayers $368 Million: And even better, the failed bank was sold right back to a newly-constituted holding company led by the same folks who ran the bank into the ground[/u] and backed - with the help of a generous taxpayer "donation" - by a "consortium of several large U.S. financial firms":

In a revival of multi-bank "Bank Failure Fridays", Eight failed banks were seized by the FDIC last Friday ... As The WSJ reports, the largest not only one has some interesting ties to the Obama administration, but was allowed to be "reconstituted" under much of the old management and at a hefty price to taxpayers - My link is to a piece by Mish on the failure which also links to ZeroHedge`s commentary on the hinkiness of the whole affair:

Regulators Seize ShoreBank; Management Takes Over. Regulators seized ShoreBank Corp. on Friday and agreed to sell assets to a team led by the community lender's executives and backed by several large U.S. financial firms.

The bank closure, among the 118 failures in the U.S. this year, caps months of uncertainty for a $2.16 billion Chicago bank that had ties to the Obama administration and deep roots on Chicago's South Side. The new institution will be known as Urban Partnership Bank and led by William Farrow, a former First Chicago Corp. executive who was ShoreBank's president and chief operating officer at the time of its failure.

The decision to sell to management is a rare move by the Federal Deposit Insurance Corp., which generally bars investors who own more than 10% of the failed bank from bidding on its assets. The FDIC also typically wants to know if bidders have "ever been an officer or director of a failed institution" and "participated in a material way in one or more transactions that caused a substantial loss to any such failed institution," according to an FDIC document.

The structure of the deal "is unusual," said Atlanta banking attorney Chip MacDonald.

The holding company will remain intact, according to a person familiar with the deal. Urban Partnership is backed by a consortium of large U.S. financial institutions, including Bank of AmericaCorp., Goldman Sachs Group Inc. and Morgan Stanley.

My Comment: "Unusual" is a polite way of saying "Stinks to high heaven". As Mish notes, "It is crystal clear there were irregularities in attempting to keep this turkey of a bank alive, irregularities in who was allowed to bid, irregularities in selling the assets to failed management, and a suspicious single bid by a consortium of large U.S. financial institutions." But look at the bright side - at least the taxpayer-bailed-out serial crooks kind folks running the new Urban Partnership holding company aren`t trying to do anything really dastardly, like, say, build a "terrorism victory mosque" at the site of the former ShoreBank.


Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse

Former Fed Governor Mishkin Paid $124,000 to Write Glowing Report on Iceland before its Collapse; Mishkin Never Disclosed he was Paid

Former Fed Governor Frederic Mishkin was paid $124,000 in 2006 to write a glowing report on Iceland. He never bothered to disclosed that fact.

Moreover, the title of his report has since been change from "Financial Stability in Iceland" to "Financial Instability in Iceland". What's up with that?

My Comment: Fast Freddy "Iceman" Mishkin is the man ZeroHedge fondly refers to as "The Man Who Singlehandedly Destroyed Iceland`s Economy". One wonders how much more Mishkin got paid for that "Crucial 2-letter insertion edit" work on his original report.


Friday Humor: The Gathering of Government Labor Statistics