He’s actually rather optimistic, for him anyway, in this vid.
At about 5:45 is where he talks about mandatory restructuring of home principal.
Category: Economy
Economics Update
Not unexpected, but the budget deficit jumped 10% because taxes have fallen to a 14 year low.
Like I said, the solution here is inflation to wipe out bad debts, and the deficits are going to do that sooner rather than later, because we’re not going to see a this resolve itself in the US, or overseas in the near future, as evidence by the cratering confidence numbers globally.
With Chinese exports falling sharply, 25.7% year over year, and the rest of the world seeing similar numbers, they are in no position to drive a recovery either.
Consumers are vanishing worldwide, and there is no sign of a recovery in the US, particularly in real estate, where S&P is warning of downgrades of, “9,430 classes from 1,077 U.S. first-lien Alt-A RMBS transactions issued in 2005, 2006, and 2007”, and builder loans threatening to take down banks that weren’t playing with funky financial instruments.
On the brighter side, it looks like the SEC might reinstitute the ‘Uptick Rule’ on short selling.
I’d like to see aggressive prosecution of market manipulation techniques like “naked” short selling too, but I am not holding my breath.
If Wall Street were investigated by Patrick Fitzgerald, I’m pretty sure that you would see tens of thousands of prosecutions.
In energy, the week economy has driven oil down.
Also, it appears that there are more stupid people than I thought, because the dollar fell as people left its safe haven, it appears that this was largely a result of Pandit’s delusional memo saying that Citi is going to rake in the bucks this quarter.
Another Nobel Calls Geithner a C*cks*ck*r
This time, it’s Joseph Stiglitz, and to be fair, Barack Obama is where the buck stops, and he does assign blame to Bush and His Evil Minions&trade, but he make it clear that the strategy here is self-destructive.
Go read.
Economics Update
The Manpower hiring survey has fallen to its lowest level in its history, and the survey started in 1962.
Meanwhile, a survey of economists say that the U.S. economy set should start to recover in the 2nd half of the 2009:
“Consumer spending and residential investment are expected to turn positive and begin boosting GDP growth in the third quarter of this year,” the newsletter Blue Chip Economic Indicators said, summarizing its survey of private economists.
I want what the economists are smoking, because we are seeing no signs of either right now.
The fact the even previously overheated China saw deflation in January indicates to me that this will be longer and deeper than they think.
Additionally, while wholesale inventories fell in January, wholesale sales fell faster, and house prices fell 3.5% in January, according to the Integrated Asset Services index, indicating that the contraction is accelerating.
There is also the fact that the meltdown of the US megabanks has gotten worse, with us regulators looking at more bailout money for Citi, and the notification that the Federal Home Loan Bank of Seattle said it has fallen short of one of its capital requirements.
Note that the FHLBs are where the mortgages are being written right now, so this means that things are going pear shaped in the mortgage market.
With all this going on, it’s no wonder that the 3-month LIBOR spread is up, indicating a tightening credit environment.
Some good news, though it means short term pain, which is that the Securities and Exchange Commission remains committed to reality based accounting, and so it will not abandon mark-to-market.
We also have oil rising on reports of OPEC production cuts, and the dollar falling on US bank worries.
Economics Update
Calculated Risk’s semi regular review of credit conditions is showing a bit of a tightening. Nothing major, but when you start with awful, it’s worse.
That being said, it sucks to be Japan, as they just swung to their first trade deficit in a decade, and it’s a record too.
Meanwhile, the impending wave of impending loan defaults on commercial real estate appears to be starting in Cleveland and Detroit.
It is also looking like treasury bonds are falling, which means that yields are rising, implying that the markets are expecting interest rates to climb.
In energy, it appears that OPEC is looking at cutting production again, and it’s member states are not cheating on production quotas, or at least cheating on them less than is expected, so oil is up today.
In addition, the upward trend in gasoline prices over the past few months continues unabated.
In currency, we continue to see a flight to safety, which is driving the dollar up, and the Canadian dollar hit a 4½ year low against the USD.
What the Smart Economists Say
Former Federal Reserve Chairman Paul Volker is saying that we need to go back to separate investment and commercial banks, a return to something very much like Glass-Steagall, which Phil Gramm and His Evil Minions™ got repealed at the turn of the century.
In the not-fed-chair-but-a-Nobel division, we have Myron Scholes saying that “blow up or burn” over-the-counter derivative trading markets if we are serious about fixing the financial crisis:
The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said.
The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”
Alan “Bubbles” Greenspan must be turning over in his grave, or maybe he’s turning over in Ayn Rand’s grave, where he resides until the sun sets.
Paul Krugman Is Freaking Out
Specifically, he is freaking out over the “let them eat cake” policies of Mssrs. Geithner and Summers with regard to the insolvent banking giants:
….Policy is stuck in a holding pattern.
Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.
Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.
He is referring, of course to Geithner’s insistence that the big sh%$pile has an “artificially depressed value”, and Ben Bernanke’s denial of zombie financial institutions, including AIG (!).
These, quite honestly delusional preconceptions have a very real cost, as the Nobel prize winning economist notes:
But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.
(emphasis mine)
Personally, I lay even more of this at the feet of Lawrence Summers than I do either Geithner or Bernanke: He was one of the most vociferous free-market mousketeers, and his professional life has been marked by failure and misery left in his wake.
Of course, Summers will come out of this clean, as he has mastered the art of failing up even more than Dick Cheney.
Economics Update
Scary Pix Courtesy of Barron’s Econoday
So the unemployment rate jumped ½% in February, from 7.6% to 8.1%. and 651,000 jobs were lost.
Additionally, U6, the broadest measure of un and under employment is at 14.8%, and note that U6 is the statistic closest to the 20+% unemployment rates recorded in the great depression.
….
Delightful.
If that weren’t bad enough, 20% of all mortgaged properties are under water, and something around 1 in 9 mortgages are either in foreclosure or delinquent, so any turn around in residential real estate is are greatly exaggerated.
It also looks like the FDIC is asking Congress to lend it $500 billion, because its insurance fund is depleted.
We do have Baltic Dry Index, a measure of the demand for cargo shipping, one piece of good news, in that the just hit its highest level this year, which indicates more international trade.
Meanwhile, the jump in unemployment has driven the dollar down, and oil up.
Economics Update
Busy day, so let’s start with the central banks: The Bank of England cuts rates by 50 basis points (½%), and is engaging in quantitative easing (printing money) in the form of buying £75 billion ($US 106 B), and the European cut its benchmark rate by 50 basis points to 1.5%, and is also looking at “further non-standard measures” (see quantitative easing).
Considering that the ECB has no charge except to manage inflation, this is extraordinary.
Unsurprisingly, the rates cuts have driven the dollar up.
As Brad Delong Notes, “It is overwhelmingly likely that the current downturn-in-progress will then surpass the united 1979-1982 downturn as the worst downturn since the Great Depression itself.“
In employment, first time jobless claims fell to 639,000, but the less volatile 4 week moving average rose to 641,750, the “highest since October 1982,” and productivity dropped 0.4% in Q4 of 2008.
Bumpy ride, folks.
On the brighter side Bonddad’s credit indicators show a thaw in lending over the past few months, and February retail sales beat expectations, though the numbers are still pretty bad.
In autos, GM is saying that there is “substantial doubt” about whether it can survive in an SEC filing, not a surprise, and implies Chapter 11, which further implies liquidation for Chrysler.
Mortgage rates rose last week.
Oil, meanwhile fell in response to the generally anemic economic news.
Economics Update
Scary Pic of the Day: Upcoming Mortgage Resets Courtesy of Dr. Housingbubble
ADP employment services has released its monthly report, and job cuts are way up with 697,000 jobs lost in February as compared to 614,000 jobs lost in January.
Note that the initial January figure was only 522,000, the the final February figures may very look even worse.
We also have the Institute for Supply Management February non-manufacturing numbers, and they are down from January’s already anemic figures, and the Federal Reserve’s business survey reporting “weaker conditions or declines” in 10 of the 12 regions.
In China, however, the purchasing managers’ index rose in February, to 49, which still shows contraction, but only barely, as 50 is neutral.
In real estate, we have mortgage demand falling last week, largely because borrowers are waiting to see what the Obama mortgage rescue plan is.
In commercial real estate, we have a secondary indicator, with office furniture sales falling sharply.
It’s no wonder that FDIC Chair Sheila Bair is warning that its insurance fund could be insolvent by years end.
Bank failures, ignoring the biggest ones, is on a pace to close 100 banks this year, as compared to the 27 in 2008 or the 3 in 2007.
We are seeing a spike in consumer bankruptcy filings, up 29% year over year in February.
The Chinese economic news drove oil higher, and bad economic news in Japan drove the dollar up.
Update on the Santelli Story
So, Playboy pulled the posts, but it remains up at the Exiled, and Mssrs. Ames and Levine confirm pretty much every aspect of the story, though, to be fair, Rick Santelli has disavowed any involvement with any of the AstroTurf sites.
That being said, Santelli also canceled tomorrows appearance on The Daily Show, and is declining interviews, which is a polite way of saying, “That’s a fair cop, officer.”
I recommend that you read the whole article, if just for the delightful evisceration Megan McArdle’s attempted to refute a Freedomworks connection, despite the fact that she, you know, shares bodily fluids a man who was only recently running AstroTurf campaigns for Freedomworks, but finally even she is forced to admit that Freedomworks is hip deep in this:
Meanwhile, I’ve spoken with Brendan Steinhauser, the chap at FreedomWorks who has helped organize the tea parties. FreedomWorks has been, as far as I can tell, completely open about their interest in furthering the tea parties, which is not surprising because they’ve been completely open about opposing bailouts since before Obama took office. As Brendan describes it, he and FreedomWorks were calling for demonstrations against the stimulus even before it passed, but he got the teaparty idea from Michelle Malkin’s blog. FreedomWorks emailed its members and set up a website to encourage people to join in. This seems like pretty standard political organization tactics.
Ms. McArdle must thank her lucky stars every day for Amity Shlaes, because it’s only in comparison to Mrs. Lipsky that she does not come across as a complete tool.
Economics Update
Will the last entity leaving making cars in the US please turn off the lights?
Toyota’s U.S. sales are down 39.8% to 109,583 units in February – MarketWatch, Ford and GM fell 48.2% and 51.6%, and Chrysler fell 44%.
In real estate, pending home sales fell, but realtors are hawking “affordability,” because, well, otherwise they would have nothing to hawk at all.
Meanwhile, the Federal Reserve is rolling out its Term Asset-Backed Securities Loan Facility (TALF), a lending facility geared toward business, auto, and consumer loans.
It’s buying more more sh%$pile from desperate people, but they have decided that they will ignore the compensation limits, even though some of the money from the $700 billion dollar bailout fund.
Bastards.
We also have some mixed signals with recession indicators, with a record number of cargo ships idle, but over the road trucking showing a slight bump.
Oil is above $41/bbl, and the dollar is a bit weaker, largely on the fact that Australia has not dropped its rates.
Economics Update
Yeah, I know, I don’t normally do the stock market indices, but the Dow fell to below 7000 today, and closed at 6,763.29, a 12 year low, and you can be sure that this spooks both the markets, and the regulators.
More significant is the fact that personal savings in the US are way up, and as the graph from Calculated Risk shows.
It’s been over a decade since personal savings were that high, and while generally this would be a good thing™, right now the fact that people are deleveraging means that the economy is driven even further down.
It makes sense personally, but in the aggregate, it makes things worse.
Interestingly enough, even with the increase in savings, consumer spending rose in January by 0.6%, which was unexpected, as did incomes, bu 0.4%, which was also a surprise.
I think that it is a one month thing, though it might be the “Obama Effect,” making people more willing to spend now that a Bush and His Evil Minions™ are no longer running things, but in either case the effect is small, and unless we see increases for the next few months, things won’t get better.
We also saw the Institute for Supply Management’s manufacturing index rise to 35.8 from 35.6, beating expectations of a fall to 33.8, but note that this means merely that it’s contracting slightly less implosively than it would otherwise: any number below 50 is a contraction, and this makes 13 straight months of contraction.
The full link to the ISM monthly report is here, and it should be noted that their employment index is at all time (since 1947) low.
In real estate, construction dropped to a 4½ year low.
Meanwhile, the AIG bailout, and the concerns that it raises has driven oil down on concerns of more turmoil in the banking system, and has driven the dollar up in a flight to safety.
What the Shrill One Said
Go read the latest Krugman OP/ED, he is at the top of his game:
Mr. Bernanke cited “the depth and sophistication of the country’s financial markets (which, among other things, have allowed households easy access to housing wealth).” Depth, yes. But sophistication? Well, you could say that American bankers, empowered by a quarter-century of deregulatory zeal, led the world in finding sophisticated ways to enrich themselves by hiding risk and fooling investors.
And wide-open, loosely regulated financial systems characterized many of the other recipients of large capital inflows. This may explain the almost eerie correlation between conservative praise two or three years ago and economic disaster today. “Reforms have made Iceland a Nordic tiger,” declared a paper from the Cato Institute. “How Ireland Became the Celtic Tiger” was the title of one Heritage Foundation article; “The Estonian Economic Miracle” was the title of another. All three nations are in deep crisis now.
(emphasis mine)
Keynes was right when he warned on how unrestricted torrents of capital could destabilize destroy an economy.
Economics Update
Well, the revised GDP numbers are in for Q4 of 2008, and they are a horror-show, with GDP declining 6.2%, when the initial numbers had been -3.8%.
With numbers like this it’s no wonder that the FDIC is reporting that the banking industry posted an aggregate net loss for a quarter for the first time since 1990.
If we are expecting real estate to rebound any time soon and save us, I wouldn’t hold my breath with condo developers trying auctions to move properties, and And apartment buyers walking away from deposits….Six and seven figure deposits….in Manhattan.
I would also note that the consumer does not appear to be their either, with the finally tally for the Consumer Confidence Index falling to a 29 year low.
With numbers like this, it’s no surprise that S&P is considering downgrading the ratings on $140 billion of prime jumbo mortgage CDOs, and non-prime mortgage origination hit a 17-year low last year.
Real estate, and hence banking, is in a sad enough condition that the FDIC has instituted a temporary emergency rate hike in order to bolster its reserves.
More generally, we have The Institute for Supply Management’s Chicago Purchasers’ Index showing continued contraction. It rose to 34.2 from 33.3, but anything under 50 means contraction, and the 30s are significant contraction.
The fact that GE cut its dividend to 10 cents from 31 cents indicates that no one is doing well here.
The same is going on overseas, with most of eastern Europe in dire straits, getting emergency loans totaling about $31 billion, and Japanese factory output falling, and new jobs drying up.
NY Times OP/Ed Comes Out for Nationalization Pre-Privatization
I think htat it’s been clear that this is the best solution for some times, but the fact that The New York Times editorial board has endorsed this action, recognizing that there are Zombie banks, even if Ben Bernanke denies this, is significant.
The conventional wisdom is moving, and one hopes that mssrs Bernanke and Geithner will recognize this and act in a prompt manner.
Moron
Well, it looks like Benyamin Netanyahu is intends to go full Herbert Hoover on the Israeli economy.
He’s saying that tax cuts are all that Israel needs to fix the economy.
What a bloody tool.
Economics Update
So, the new unemployment numbers are out, and once again, they are brutal, with adjusted initial claims hitting 667,000, up 36,000 from last week, and the less noisy 4-week moving average hit 639,000, up 19,000, while the continuing claims are at 5,112,000.
As Calculated Risk notes, the 4-week moving average is the highest since 1982, and the continuing claims are the highest ever recorded, though both are somewhat better when normalized against total workforce size. (Graph at CR)
We also saw durable goods orders fall to a 6 year low, and new-home sales fell in January, the lowest number since records started to be kept in 1963.
We also have banks cratering with the FDIC list of problem banks up 50% in Q4 of 2008.
BTW, it’s hitting the export driven economies of Asia even harder, with Singapore’s Q4 GDP falling at a 16.4% annual rate.
We also have oil down following the announcement of production cuts by the UAE, and the dollar is down, for reasons that are not entirely clear to me.
Economics Update
More brutal numbers on home sales, with sales of existing homes falling to a 12 year low.
Note also that existing home sales are becoming a bigger part of home sales in general, as foreclosures and other distressed sales make up a bigger part of the market.
Of course this can’t compare to the financial putrescence that is AIG, which just failed on an asset sale.
It wanted to use the proceeds to pay down some of its debt to the US government, but could not because of a lack of bidders. No one wants their crap.
BTW, Ken Lewis’s gift keeps on giving to Bank of America, because Merrill-Lynch lost $15.84 billion in Q4, about $500 million more than predicted.
There was an unexpected decline in gasoline stocks that drove oil higher today, while the poor housing news and the declines in the stock market have driven the dollar up as people look for safe havens.
Economics Update
Well, the Conference Board’s consumer confidence report came out and it is starkly grim, dropping to a record low of 25, lower than had been predicted.
BTW, it’s not just us, German business confidence has fallen, and Standard & Poor’s lowered Latvia’s debt rating to junk.
This means that German businesses have no confidence in the new future, and no one has any confidence in Latvia.
Even the New York Stock Exchange is getting in the act, looking at temporarily suspending a requirement of a $1/share price in order to avoid delisting….I call it a Citi Special, though the two most prominent companies at risk of delisting right now are AIG and Ford.
The fact that the Case-Shiller numbers for the top 20 real estate markets show a price decline of 18.5% year over year, has a lot to do with that.
In currency, the dollar fell a bit, while in energy, oil rose.