Category: Finance

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. Sterling Bank, Lantana, FL
  2. Crescent Bank and Trust Company, Jasper, GA
  3. Williamsburg First National Bank, Kingstree, SC
  4. Thunder Bank, Sylvan Grove, KS
  5. Community Security Bank, New Prague, MN
  6. SouthwestUSA Bank, Las Vegas, NV
  7. Home Valley Bank, Cave Junction, OR

Full FDIC list

Another 6 A 7 bank closing week, and we’ve broken 100 banks, and it is not yet August. we are certainly going to beat the tally of 140 for 2009. (Yes, I posted to soon, and needed to update)

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Credit Ratings Freak Out

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One of the tidbits in the financial reform bill was a provision making the ratings agencies liable for the quality of their reports, which is a good thing, since they are nominally experts, and expert opinions of this sort are generally subject to lawsuits for fraud and incompetence.

Their protection from lawsuits had a direct correlation with the crap that Moody’s Fitch’s, and S&P pumped out their door over the past few years.

The thing is, however, that the ratings agencies are completely freaking out over this, and are now demanding that their ratings not be included in bond sales prospectuses:

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law. The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

What they are saying here is that they are unwilling to actually rate bond issues if there is the slightest chance that their own incompetence or corruption might get them successfully sued.

Well, for most of the rest of us, if we screw up a home repair, leave a cell phone in a patient during an operation, or leave an oil plug off of a car, we are liable, and the world works.

The ratings agencies have no special right to be unaccountable.

Hungary Passes The Bank Tax

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Hungarian parliament has passed a law assessing a ½% levy on banks assets.

Needless to say, the banks are having a conniption over this:

Domestic and foreign banks doing business in Hungary have complained about the tax as well. Erste and Raiffeisen, two banks based in Vienna that have branches in Hungary, estimate they would have to pay €40 million and €35 million, or $52 million and $45 million, respectively.

“This tax is a quick-win measure, and only that,” said Juraj Kotian from Erste Group Bank in Vienna. “It does not provide any sustainable support for budget consolidation.”

The European Banking Federation called for a “profound modification” of the tax, saying it was a discriminative levy that would cause losses at some lenders and hamper economic growth.

This tax, which includes a levy on insurance companies as well is raising hackles for the same reason that Malaysia’s imposition of capital controls was vociferously attacked during the 1997 Asian financial crisis, because the market participants are terrified at the thought that this might work.

After all, Hungary is a very small fish in the overall EU economy, so if this tax fails, the impact is minimal, but if it is successful, then you can see an explosion in such taxes, just as you saw nations ignoring the IMF and imposing their own capital controls following Malaysia’s relatively mild recession and quick recovery.

If this becomes a more general practice, then it starts eating into 7 figure banker bonuses, which is not what the bankers want.

My prediction is that this will shrink the finance industry significantly in Hungary, and with the generally bloated and parasitic industry cut down to size, the Magyar republic will outperform its neighbors.

My earlier post on the attempts by the EU and IMF to browbeat the Hungarians into being the bank’s bitches is here, and my advice to them remains the same: back away from joining the Euro and set about leaving the European Exchange Rate Mechanism.

Cry Me a F%$#ing River

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The presidents of 2 of the big banks, Goldman Sachs’s Lloyd Blankfein, and Jamie Dimon at JP Morgan Chase were not invited to the signing of the financial reform bill, even though other bankers,chiefs of, “Citigroup, Bank of America, Barclays, and Morgan Stanley.”

They are reportedly fuming over this.

Considering what you folks have gotten from the taxpayers, and your vociferous opposition to any substantive reform, Mssrs. Blankfein and Diamon should count themselves lucky.

If I were President, I would have taken my inspiration from Vlad Tepes in dealing with these ingrates.

Worst Defense of Timothy “Eddie Haskell” Geithner Ever!

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I’m with The Bloodhound Gang, on Banks,
Burn Motherf%$#er, Burn!

John Talbot is suggesting that Geithner’s scheme to save the banks is dependent on their ability to screw retail consumers and small business consumers:

And this is where defeat of the nomination of Elizabeth Warren becomes critical for Geithner. For Geithner’s strategy to work, the banks have to find increasing sources of profitability in their business segments to balance out their annual loan loss recognition from their existing bad loans in an environment in which they continue to recognize new losses in prime residential mortgages, commercial real estate lending, sovereign debt investments, bridge loans to private equity groups, leverage buyout lending and credit card defaults.

The banks have made no secret as to where they will find this increase in cash flow. They intend to soak their small retail customers, their consumer and small business borrowers, their credit card holders and their small depositors with increased costs and fees and are continuing many of the bad mortgage practices that led to the crisis (ARM’s, option pay deals, zero down payments, second mortgages, teaser rates, etc). American and Banking Market News reports this week that the rule changes in the financial reform bill may lead banks to start implementing fees that had essentially disappeared from the industry early in the new millennium, such as fees for not meeting minimum balance requirements on a checking account, or reinstituting fees for certain online banking transactions that are currently free or charging to receive a paper statement or to talk to a live teller as Bank of America’s CEO has recently proposed.

Let me be clear here. Mr. Talbot does not endorse this strategy, and he supports Ms. Warren as head of the CFPB, he is explaining what he believes the calculus of the Geithner/Summers axis.

So, he is saying that in addition to actual taxpayer funded bailout, he is saying that Geithner and Summers see a back door taxpayer bailout as the only way to save the banks.

The thing is that the costs here, if Mr. Talbot is right, are enormous.

Excessive bank charges, won’t just generate excess profits, they will also reduce economic growth and tax receipts, since consumer spending and small business is where growth comes from, and this is where they will be extracting their money.

I do hope that he is wrong, because for this to be their strategy means that we do have a bunch of Republicans in all ways that matter, running the White House economic policy.

My guess is rather less tinfoil hat.

I think that Geithner has never in his life thought outside of the “what is good for Wall Street” box, and that this, juxtaposed with what appears to be an antipathy towards women in the field,* has led to yet another one of his petty and self destructive vendettas.

At least that is what I hope.

If John Talbot is correct, then these Cossacks Republicans work for the Czar, who knows what they are.

*I do not think that Geithner, who has spent his entire professional career getting ahead by kissing up, has only come out strongly against two people that I know of, Elizabeth Warren and Sheila Bair, both of whom lack a Y chromosome.

Not Gonna Happen……

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Now that financial reform is due to become law, the word is that gadfly for the common folk Elizabeth Warren is the most likely candidate to head up the Consumer Financial Protection Bureau (CPFB, it was originally going to be a full agency called the CPFB).

This is not going to happen.

The Obama administration, particularly Timothy “The Bankers’ Bitch” Geithner, hate her.

She has embarrassed then by publicly reporting on how the TARP has been too easy on big banks, she has embarrassed them by advocating for real reform, and she has embarrassed them by lobbying aggressively for the CPFAB, which the Obama administration does not really want as a meaningful entity, because they actually believe the talking points from the finance industry about the need for “innovation”.

I should note that Something Awful is reporting that Ben Nelson asked for, and got, a veto on the head of the CPFB in exchange for his vote on financial reform, and that Nelson has flatly stated that Warren is not acceptable.

Honestly, I can see members of the protesting Nelson’s as vehemently as Br’er Rabbit asked not to be thrown into the briar patch.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. Woodlands Bank , Bluffton, SC
  2. First National Bank of the South, Spartanburg, SC
  3. Metro Bank of Dade County,Miami, FL
  4. Turnberry Bank, Aventura, FL
  5. Olde Cypress Community Bank, Clewiston, FL
  6. Mainstreet Savings Bank, FSB, Hastings, MI

Full FDIC list

Great Googly Mooogly, back up to 6 banks.

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Economics Update

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Well, it’s jobless Thursday, and the initial unemployment claims number have fallen to a 2 year low, 429,000, though it should be noted that these are seasonally adjusted, and so this number takes into account, for example, GM’s summer shutdown, which did not happen this year, though, as the author notes, the fact that GM is seeing that much business is a good sign in and of itself.

Unsurprisingly, the 4 week moving average fell as well, though continuing claims rose.

On the other side of the coin, we are seeing a number of non-employment metrics weakening, with falling producer prices, foreshadowing incipient deflation, while both the New York Fed and the Philadelphia Fed numbers have softened.

In real estate, home foreclosures rose 38% year over year in the 2ndquarter.

Is Ben Bernanke Trying to Rehabilitate the Reputation of Alan “Bubbles” Greenspan?

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Paul Krugman finally comes out strongly about Bernanke’s inaction regarding the threat of deflation, which could threaten decades of recession.

It isn’t just the the fact that Bernanke who has sterling academic and economic credentials, unlike Greenspan who got his PhD from the back of a cereal box, but he continues to ignore the threat of deflation.

The problem is that Bernanke literally wrote the book on the dangers of deflation, and he is consciously eschewing the policy prescriptions that he called for nearly 20 years ago for Japan.

Greenspan was what Lenin called a “Useful Idiot.”

Bernanke knows better, which is why Krugman is calling him “feckless”.

South Korean Central Bank Raises Benchmark Rate

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It was only by 25 basis points (.25%) to 2.25%, but it was still a bit of a shocker.

My guess is that they are, like too many “very serious people” around the world, concerned about the invisible bond vigilante fairies, and they figure that the US dollar, the currency of their chief customer for their export driven economy, will be strengthening because of the Euro/PIIGS kerfuffle, so they could.

I’m not sure if it makes sense for them, if it does not drive their currency too high, it probably does, if just because it gives their central bank some maneuvering room if the recession goes double dip before hitting the zero bound once again.

Economics Update

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It’s jobless Thurdsay, and initial claims fell by 21,00 to 454000, which is still at least 100,000 too high for anything approaching a realistic recovery.

The less volatile 4-week moving average fell by 1250, and continuing claims fell by 224,000 to 4.41 million, though I am not sure if the latter might have been caused by the Senate delaying extended benefits.

Additionally, it looks like what Paul Krugman calls the “Invisible Bond Vigilantes,” still appear not to exist, because the 30-year fixed mortgage rate has fallen to 4.57%, the lowest mortgage rate since Freddie Mac started keeping track of the data in 1971.

Note that even with the banks giving away money, people are still not buying houses now that the tax credit is basically done.

Hoocoocanode?

In other less than surprising news, the Bank of England has kept its benchmark rate at ½%, basically zero, so apparently they don’t believe in the bond vigilante fairy either.

OK, the Federal Reserve is Freaking Out

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And no, I’m not talking about the non-existent inflation threat, I mean that they are great depression type deflationary spiral:

Federal Reserve officials, increasingly concerned over signs the economic recovery is faltering, are considering new steps to bolster growth.

With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.

Top Fed officials still say that the economic recovery is likely to continue into next year and that the policy moves being discussed are not imminent. But weak economic reports, the debt crisis in Europe and faltering financial markets have led them to conclude that the risks of the recovery losing steam have increased. After months of focusing on how to exit from extreme efforts to support the economy, they are looking at tools that might strengthen growth.

Let’s be clear about this: The Federal Reserve fetishizes two things, inflation fighting, and opacity.

The fact that they are leaking to the press about possibly engaging in additional quantitative easing (printing money) because the ‘Phants are playing “Dr. No,” is an indication that:

  • They really don’t want to do quantitative easing.
  • They are trying to kick Congress in the pants so that they engage in fiscal stimulus.
  • That they feel that more needs to be done.

They are seeing things, and I don’t mean the “audit the Fed” bill, that are scaring the hell out of them.

Economics Update

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Click for full size


Temp hiring surges

It looks like temporary hiring is very strong, up 19.6% year over year, which, in addition to contributing to my finding employment, should be a leading indicator for direct employment, though private “permanent” employment is still down 0.7% YoY, which runs counter to earlier data. (see chart pr0n)

We are also seeing falling rates of credit card delinquencies, which are down to an 8 year low, which could be seen as either a glass half full, that people are getting a handle on their finances, or glass half empty, with people continuing to deleverage, and flying into the “paradox of thrift.”

Finally, in an update from yesterday, when I discussed office vacancies, today, we see that vacancy rates in shopping centers increased in the 2nd quarter.

You Know, This Might Explain Why We Aren’t Seeing a Real Recovery

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US businesses have accumulated $1.84 trillion in cash and cash like assets, and they have essentially stuffed their mattresses with them.

So instead of investing in new plants and equipment, or in product or process improvement, they are holding onto cash, because they are concerned that the banks, the ones that we the taxpayers bailed out to the tune of trillions, will cut off their credit.

Normally, I Do Not Give Investing Advice…

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“I’m beginning to think these are regular storms,” he added, “and we have a sh%$#y boat.”

But this proposed strategy actually sounds good:

It has been a profitable first half for Contrarian Partners. Our core investment strategy remains unchanged: to mine the research produced by investment banks every six months to establish consensus trading strategies. Then trade against them.

…………

In general, though, the advice was reassuringly poor. The markets continue to reward us for listening to the experts – then doing the opposite.

Needless to say, the proposal is tongue in cheek, but the the truth is in there.

The degree to which the “Masters of the Universe” have missed every warning out there, largely because their excessive salaries and bonuses depend on missing warnings, is stunning.

If we were to take the top 100,000 bankers in the world, and send them to North Korean reeducation camps, and pay the DPRK a million dollars to house each one, both the DPRK and the rest of the world would be far better off.

H/t Barry Ritholtz.