Category: Finance

Better That They Piss on Each Other…

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Because when the ratings agencies are pissing on each other, they are not pissing on the rest of us:

In a report that could equally have been written about its own prospects, S&P credit analyst Emile Courtney laid out a grim picture for rival ratings agency Moody’s saying it costs would likely rise, margins fall and litigation risks multiply.

Moody’s short-term debt has been placed by S&P on its CreditWatch list with a ‘negative watch’ outlook, meaning there is a more than 50pc chance its bonds could be downgraded.

Seriously, we need to obliterate fix the ratings agencies, sooner rather than later.

Yes, the Shrill One Is Shrill

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Paul Krugman compares the justification behind European austerity programs to the infamous French strategy in World War I.

He’s right, of course.

The statements by ECB President Jean-Claude Trichet that austerity in the face of a depression will win through the creation of confidence is much like the infamous Plan XVII envisioned by the French to win the war through the confidence and fighting spirit of the French citizen (élan), as described by Baraba Tuchman in her book The Guns of August:

Entirely offensive in nature, Plan XVII made extensive use of the belief in the mystical élan vital assumed to be instilled within every Frenchman – a fighting spirit capable of turning back any enemy by its sheer power.

Needless to say, Plan XVII was as meaningful an idea as the statement by a British General during the same period of something to the effect of, “A machine gun bullet cannot stop a horse.”

So, Are We Going to Repeat 1937?

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Why this picture does not scare the powers that be defies understanding
H/t Calculated Risk

Well, a quick rundown of this week’s data seems to indicate that if we listen to the austerity fetishists, we are.

In employment, the Thursday unemployment claims data indicates a continued weakening of the employment picture, with initial claims rising 13K to 472K, at least 100K more than what we need to see for meaningful job growth, and both the 4-week moving average and the continuing claims numbers went in the wrong direction too.

Additionally, the official job numbers for June came out, and the non-Farm payroll fell by 125,000, though the drop was because of the US Census winding down its temporary positions.

Private employment rose by an anemic 83,000, and the unemployment rate fell from 9.7% to 9.5%, though the latter was largely from people leaving the rolls because they had given up looking, and the hourly workweek fell.

Additionally, the Institute for Supply Management’s Manufacturing Index fell from 59.7 to 56.2, a 6-month low, though any number over 50 still shows expansion, and the Chicago Purchasing Managers’ index fell slightly as well.

Also, in yet another indication that the economy is running out of steam because the stimulus is running out, small business lending from the SBA has cratered following the expiration of its bonus program to lending banks.

Of course, the inflation hysterics hawks are saying that the bond markets are mad as hell, and that they are not going to take it any more, but if this were true, mortgage rates would not have fallen to their lowest rates in 50 years.

I would note that we are seeing the same thing in real estate, with 31% of all home sales being foreclosure or short sales, up from 1% at the height of the bubble, and these foreclosures are selling for a 27% discount relative to regular sales, which indicates that a recovery, either in price or in volume is still far away.

A Marxist Analysis of the Financial Meltdown

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It’s kind of like watching a dinosaur walking down main street

There is some things here that are right, and some that are wrong, and the hard part is determining which is which, but the white-board cartoons make it entertaining. (11:10)

To be true, I’m not sure just how “Marxist” the lecturer, David Harvey is.

I really don’t know him, and this lecture really sounds a bit more Fabian Socialist than full blown Marxist, but in any case it is a new way to look at what happened, and heterodoxy is what is needed here.

H/t Felix Salmon.

Congressional Dems Opt for No Guts And No Glory

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Congressional Democrats have just caved to Republicans on a tax to make banks pay for their next bailout:

Democrats on Tuesday planned to strip out a controversial tax from their landmark financial reform bill in order to win the swing votes needed to pass it through Congress.

With crucial Republican moderates threatening to withdraw their support, Democrats were weighing alternative ways to fund the most sweeping rewrite of the Wall Street rulebook since the 1930s.

Though a supposedly final version of the bill had been hammered out last week, Democrats in charge of the process called a fresh negotiating session, which got under way shortly after 5 p.m. EDT Tuesday.

Democratic lawmakers and aides said they planned to remove a $17.9 billion tax on large financial institutions. Instead, they would cover most of the bill’s costs by shutting down a $700 billion bank-bailout program.

Except, of course, that the next time that a big bank needs a bailout, they would get one.

Why Dems aren’t using ‘Phants coziness with the banks as a club with which to hit them is beyond me, except, of course, for the fact that President Hopey-Changey wants to have something on his desk soon, even if it sucks wet farts from dead pigeons.

Once again, keep Obama away from toilet paper, because he will sign anything.

Weak Tea

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My assesment of the financial reform bill that recently was released by the conference committee.

It’s better than I had hoped when the Senate first got its hands on it, but it is dangerously weak.

And here’s a surprise, it doesn’t have Blanche Lincoln’s derivatives restrictions, which is not surprising, that entire proposal was part of the incumbent protection in the US Congress, and with Lincoln having won the primary, it gets deep sixed.

Brian Buetler looks at and calls it a draw between liberals and the corruption caucus, but that’s only if you ignore the fact that the liberals had already ceded meaningful reform to the corruption caucus (and the WH, but I am repeating myself) early in this process.

Economics Update

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Housing Recovery My Ass!
H/t naked capitalism

The lede has to be the the Federal Open Market Committee’s (FOMC) statement.

While the rates remained the same, no surprise, you cannot drop rates below 0%, and rates won’t go up until the Fed sends a few months of signals, what is surprising is that the statement is more pessimistic than May’s statement:

The Federal Reserve acknowledged a faltering pace of U.S. economic recovery on Wednesday as it renewed its vow to hold benchmark interest rates exceptionally low for an extended period.

In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in light of Europe’s debt woes.

Of course, it’s more than just unemployment and consumer spending, real estate appears poised to had back down the drain, with the AIA’s Architecture Billings Index declining last month, and mortgage purchase applications fell again this week.

But the real news in real estate is the continuing collapse in home sales, and we now know that new home sales have fallen to the lowest recorded number ever, a 300,000 annual rate, and records on this have been kept since 1963. (!)

The two bright sides here are that the numbers are seasonally adjusted, and that the monthly number is volatile, and was likely impacted by the expiration of the home buyer tax credit, but it is still grim.

It’s Bank Failure Friday!!!! (a day late)

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A day late, because my Daughter had her bat mitzvah, (my reflections on that later) but here they are, ordered, and numbered for the year so far.

  1. Washington First International Bank, Seattle, WA

Full FDIC list

And here are the credit union closings:

  1. Orange County Employees Credit Union, Orange, TX

Full NCUA list

So FDIC bank failures seem to be moderating a bit, but credit union failures appear to be picking up a smidgeon.

In any case, here is the graph pr0n with trendline (FDIC only):

Uh-Oh.

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I don’t know what exazctly is going on, but the issuing of corproate bonds has basically fallen off a cliff in the past few days:

The corporate bond market is in the middle of a slump as the appetite for riskier assets has once again dwindled.

No companies issued corporate debt on Friday — the day before Memorial Day weekend — and only five sold bonds the day after the long weekend, according to Dealogic, a financial analytics firm. The last time that happened on a trading day was Sept. 4, 2009 — the Friday before Labor Day weekend.

While this could be partially attributed to the Memorial Day holiday, the slump in corporate bond sales, coupled with rising prices to insure those bonds against default, could be signs that credit markets are tightening again.

I’m a cynic, so my guess is that the insiders know something, but I am not sure what.

It’s Bank Failure Friday!!!!

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

  1. Bank of Florida – Southeast, Fort Lauderdale, FL
  2. Bank of Florida – Southwest, Naples, FL
  3. Bank of Florida – Tampa, Tampa, FL
  4. Granite Community Bank, NA, Granite, CA
  5. Sun West Bank, Las Vegas, NV

Full FDIC list

I would assume that these banks of Florida are all affiliated, but it’s still another 4 a 5 bank week.

(Sun West came in late, so I have updated)

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