I find him rather to excessively optimistic, glib, shallow, and thoroughly conventional in his journalism.
That being said, his review of Federal Reserve Chairman Ben Bernanke’s speech at the American Economic Association meeting in Atlanta, nails it in the title, “Surprise! The Fed says don’t blame the Fed.”
That pretty much captures the substance of what Bernanke said in a nutshell.
BofA CEO disagrees with bank break-up calls.
Sorry, but that is not even news. It’s kind of like announcing that children like candy.
Investors are suing Bank of America, charging that the bank (and I use the term loosely) deceived investors over the terms of bonuses to Merrill Lynch executives prior to the vote to acquire the brokerage.
Well, it appears that much BoA’s defense appears to be that if its investors ignored what they said, and read the financial press, they would have known anyway, but the judge just shot down that argument:
Bank of America Corp. suffered a setback in its defense to civil claims that it misled investors after a judge ruled that it may not introduce at a trial testimony about media reports predicting it would pay bonuses.
The U.S. Securities and Exchange Commission sued the lender on Aug. 3 claiming it misled investors about bonus payments while buying Merrill Lynch & Co. Bank of America said in a November 2008 proxy statement that Merrill agreed not to pay year-end bonuses when the bank had already agreed to Merrill’s paying as much as $5.8 billion, the SEC claims. A trial is scheduled for March in New York.
As part of its defense, Bank of America has argued that shareholders already knew, as a result of media reports, that Merrill would likely pay billions of dollars in bonuses. U.S. District Judge Jed Rakoff in Manhattan today barred the bank from offering testimony about such reports because the proxy statement itself told shareholders to ignore them.
“In effect, the bank is arguing that, even though it expressly warned its shareholders to disregard the media, it can now defend itself by asserting that a reasonable shareholder would have disregarded these warnings and, by consulting the media, perceived that the bank’s alleged lies were immaterial,” Rakoff wrote in a six-page opinion. “Even a zealous advocate might perceive that such an argument hints at hypocrisy.”
(emphasis mine)
So your argument is that you were telling a baldfaced lie, and everyone knew that you were lying?
Well, good luck with that.
When your defense against fraud charges is that the newspapers had shown that they were lying sacks of s%$#, I think that you are missing this whole “how to win the case” thing.
The Institute for Supply Management’s national factory index just rose to 55.9, the highest reading on factory activity since April 2006.
It’s good news, but but as Krugman notes, it may just be an inventory bounce:
Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.
That being said, we are seeing increased demands for capital from small businesses, with a 37% year over year increase in the Small Business Administration’s 7(a) lending program, a total of $3.8 billion.
On the down side, construction spending fell for the 7th, falling 0.6%, and it has been reported that US bankruptcies are up 32% in 2008.
On the other side of the pond, new orders to factories slowed in the Euro zone.
In energy, low temperatures and a Russia-Belarus price dispute drove Oil above $80/bbl.
In currency, the US dollar fells on the good ISM factory report, as risk appetite improved.
The single most important criteria determining whether or not a bank was bailed out by was the personal and political closeness to the Fed or to the Congress of its senior management:
A new study by Ross professors Ran Duchin and Denis Sosyura found that banks with connections to members of congressional finance committees and banks whose executives served on Federal Reserve boards were more likely to receive funds from the Troubled Asset Relief Program, the federal government’s program to purchase assets and equity from financial institutions to strengthen its financial sector.
Further, their research shows that TARP investment amounts were positively related to banks’ political contributions and lobbying expenditures, and that, overall, the effect of political influence was strongest for poorly performing banks.
Hoocoodanode?
The process of bailing out the banks was an artifact of corruption and self-dealing.
H/t zero hedge
Nearly flat for 2 years
One of the things that I have occasionally remarked on is how data for M3, one of the broader measures of money supply is no longer collected by the Fed.
The claim is that it’s a conspiracy to conceal the reckless and inflationary expansion of the money supply, but as Tim Iacono shows, it hasn’t really happened.
Basically, the Fed may be printing money, but banks are not lending, so the money supply, at least the money supply as described by the M3, is basically flat, so we are not in an inflationary situation.
To my mind, this is a bad thing, since, as I have stated many times before, increasing inflation will have the effect of moving the price many assets above the amount of money owed on them.
A description of the various measures of money, cut-and-pasted from the Wiki, is below the fold:
The New Economics Foundation has done a study on the economic impact of bankers, and claims to have shown that bankers actually destroy economic value:
Bankers should count themselves lucky they are being hit by a mere 50 per cent additional tax on bonuses, a new report argues today, because their benefit to society is negative.
The New Economics Foundation, a left-leaning think-tank, says that by contrast hospital cleaners and many other low-paid workers contribute far more to society and this should be reflected in their pay.
Although the NEF is far from an orthodox economic think-tank, its A Bit Rich report stems from standard public economics theory that the government should step in if people’s value to society is remarkably different from their private value to an employer. The government already steps in, taxing everyone to ensure many jobs with high social value happen where those services would not be provided otherwise.
………………
The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions. Applying a guess about the cost of the recession on the rest of society, they estimate top City bankers destroy £7 of value for every £1 they are paid privately.
If the figures are accurate, a rational government should shut the City. Naturally, the City disagrees and so does the Treasury, which sees benefits in properly regulated activity in the Square Mile.
This is something that ordinary people get, which is why the AIG bonuses and their ilk so outraged them: The point is not that these people are uniquely skilled, the Alex Rodriguez’s of their craft, but rather that they are the “Marvelous” Marv Throneberry‘s of the world.
These people do not need to be retained, they need to be excised from the financial system.
The head of the UN Office on Drugs and Crime is now saying that it was money from the drug cartels that kept the banks nominally solvent during the financial crisis:
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.
There is no question: If a banker can launder drug money, and make money themselves from doing so, they will launder drug money.
Cue Captain Renault (see pic), and I do not expect any substantive law enforcement resulting from this revelation.
Yes, it does appear that the seasonal adjustment for the week after Christmas is whack
The lede for the week is obviously that first time unemployment claims fell to the lowest level in 17 months, down 22K to 432K, though, as Brad Delong notes, this is likely because of problems with the seasonal adjustment for this week. (See graph pr0n).
Continuing claims, as well as the 4 week average fell too, but emergency claims, for people (like me shortly) who exhausted their regular benefits (i.e. out of work more than 6 months), rose sharply, by 199 thousand to 4.82 million, a 4.1% jump in one week. (!)
Earlier this week, the Institute for Supply Management released its Chicago index, aka the Purchasing Managers’ Index (PMI), and it unexpectedly jumped to 60 in December from 56.1 in November………Only they just revised it, and oops, it the PMI was only 58.7, largely on a downward revision on employment…………Happy, happy, joy, joy.
That’s not to say that the numbers aren’t better, they are better, much like the ATA Truck Tonnage Index November numbers, and the ShopperTrak year over year retail sales for last week, though the latter saw a drop in traffic.
In real estate, the 30-year fixed mortgage rate rose to a 4 month high, 5.14%, which is still at a level which is historically low, and the recent uptick in housing prices seems to have petered out, with the Case-Shiller index showing flat prices in October, following 4 straight months of price increases.
This is unsurprising, as home price subsidy new home buyer tax credit was supposed to end in November, and homes needed to close by November 30, which meant that there were a lot of sellers who knew that they had to move their houses quickly, or not at all.
Houses are still well above trend, both in terms of rent to own price to income ratio, though you still have claims that housing affordability is better than the historical numbers, because the mortgage rates are still incredibly (see above) low.
If rates return to their historical levels, about 9% for the 30-year fixed, we have a downward pressure on house prices of roughly 1/3, because people buy houses on monthly payment, not price.
We do have some good international news, with South Korean exports rising rapidly, and Chinese manufacturing growing at a 20-month high, though I wonder how much of the latter is the result of provincial bureaucrats goosing the numbers, or encouraging local industries to over produce, in order to score brownie points with Beijing.
Past 3 Months
From March, when the Rally Started
For the past few months, the market runup has almost entirely happened after hours, when the markets are closed.
In fact, as he (or they, Tyler Durden is a nom de plume) note, “All the upside since September 14th has come exclusively from after hours action.” (emphasis original)
The money quote is:
The observant among you will immediately realize what this implies: not only is there no volume breadth to the recent move in the markets, but the actual push higher likely occurs on at most tens of thousands of futures contracts on a daily/weekly basis. The fact that literally several blocks of AH trades, used persistently, can move the market higher by 6% over the past 3 months, even as regular trading accounts for absolutely no part of this move, and that the SEC finds nothing troubling about this phenomenon, should be sufficiently telling about how “efficient” US markets have become.
If someone wanted to manipulate huge markets, they would do it at 3 in the morning, when the markets are small, and no one is watching for the last few months.
He thinks that it’s the, “HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools,” better known as, “That great vampire squid wrapped around the face of humanity,* Goldman Sachs.”
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
Remember earlier this year, when, after news of massive bonuses to the executives who bankrupted AIG, they promised to return $45 million in bonuses.
Well, once again, we got punk’d by Wall Street:
When word spread earlier this year that American International Group had paid more than $165 million in retention bonuses at the division that had precipitated the company’s downfall, outrage erupted, with employees getting death threats and President Obama urging that every legal avenue be pursued to block the payments.
New York Attorney General Andrew M. Cuomo threatened to publicize the recipients’ names, prompting executives at AIG Financial Products to hastily agree to return about $45 million in bonuses by the end of the year.
But as the final days of 2009 tick away, a majority of that money remains unpaid. Only about $19 million has been given back, according to a report by the special inspector general for the government’s bailout program.
Promises, I guess, are for peasants.
Barry Ritholtz nails it: They are arsonists who then get paid to fight the fire that they set.
Yes, all those bankers who are trying to move to Geneva to avoid the UK Bonus tax have discovered that Switzerland has a 44% tax rate, and that the posh private schools for their kids are already full:
Geneva, touted as a haven for London bankers facing heavier U.K. taxes, may lure fewer than predicted thanks to a housing shortage, crowded schools and a 44 percent income-tax rate.
Barclays Plc President Robert Diamond this month joined a chorus of financial leaders in arguing that the U.K.’s 50 percent tax on bonuses would drive bankers away from London. The Swiss Private Bankers Association said the “arbitrary” tax will boost the allure of Geneva, whose bankers oversee about 10 percent of the world’s foreign-held private wealth.
“It’s a joke, it’s lobbying,” said Tim Dawson, an analyst at Geneva-based brokerage Helvea AG. “People are dreaming if they think the London investment banking world is going to move. There is more office space in Canary Wharf than in the whole of Switzerland,” he said, referring to London’s second financial district.
I also think that the bankers “misunderestimate” the degree to which people actually want them there, making city centers prohibitively expensive for ordinary people while they make demands for subsidies from lawmakers.
If there is a lesson from the Minaret fiasco in Switzerland, it’s that they don’t like foreigners there, whether they are hard working immigrants from the Middle East, or parasites from London.
H/t Barry Ritholtz
New home sales, effect of tax credit h/t Barry Ritholtz basic graph h/t Calculated Risk
H/t Calculated Risk
So, we have another revision of the GDP numbers for the 3rd quarter, and the GDP number falls again, down from an initial estimate of 3.5% to the first official figures of 2.8%, and now it has been revealed that the GDP grew at just 2.2%. (top pic)
The more accurate data that comes in, the worse the news.
As an aside, the US Bureau of Economic Analysis always does this, that is to say that the numbers get worse when better data comes in, which implies a systemic problem that needs to be fixed.
On the other hand, the UK initial numbers were revised in the opposite direction, with a contraction of -0.2%, up from the initial estimate of -0.3%.
The news from down under is not grand either, with the New Zealand economy’s GDP missing forecasts.
Still, the Philadelphia Bank of the Federal Reserve’s State Coincident Index looks better (bottom pic), with at least marginal levels of growth in 1/3 of the states.
On the other hand, we had some good news in real estate, where the National Association of Realtors has reported existing home sales rose 7.4%, to the highest level since February 2007:, though even the NAR admits that this is largely due to people rushing to buy houses before the home buyer tax credit expires.
As both CR and Barry Ritholtz note (2nd pic), this a function of changes and/or perceived changes in tax policy, so December will give a real picture of where the housing market is.
It should be noted that a remarkably unpleasant milestone was passed though with, the number of mortgages in national banks, which report to the OCC, reporting that for the first time ever, over one million mortgages were in foreclosure in the 3rd quarter.
Additionally, we are seeing signs of problems among small banks and businesses, with more small bank TARP recipients not paying dividends [on edit: a clarification, they are not paying dividents on their RARP money, so they are technically in default], and small business bankruptcies are up 81% YoY in California.
In energy, OPEC kept oil production levels flat, but has promised to more rigorously enforce the current limits, which is a de facto (but rather small) cut in production, which drove oil higher, even though the dollar rose on the surprisingly strong home sale report.
The Kaplan Test Prep Company Washington Post actually does some reasonably good news gathering now and again, even if their OP/EDs are complete crap.
Case in point is this history of the Federal Reserve’s mis-steps in dealing with the housing bubble and the related sub-prime debacle.
Their lede is a speech that Bernenke gave in 2007, where he, “Assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans,” because, most banks were not involved at all with sub-prime lending, which was false, and transparently so:
He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.
Just as the Fed had failed to protect borrowers from the consequences of subprime lending, so too had it failed to protect banks.
(emphasis mine)
So, it’s clear that the Fed, and Ben Bernanke were clueless, but it gets worse:
A warning ignored
In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.
The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.
“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.
“I would have to say California,” said the economist, Richard Dekaser.
“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.
This time the warnings were correct, and the collapse of the California real estate market would bring down the nation’s fourth-largest bank, the largest casualty of the financial crisis.
(emphasis original)
This is egregious enough that one of Bernanke’s most stalwart supporters, Paul Krugman calls him out, with charts:
The point is that there was indeed a huge CA bubble in the 80s, which burst painfully. Nor was this an obscure bit of knowledge: in fact, people like Calculated Risk and yours truly were quite explicitly using the great California bubble of the 80s as a model for what was going to happen nationally.
This whole episode makes me think considerably worse of my former department head.
(emphasis mine)
Bernanke was saying that there had never been a housing bubble and crash in California, despite the fact that there had been one that popped and bottomed out just 10 years before.
This man should not be in charge of a pastry shop, much less the Federal Reserve Bank of the United States of America. I’m not sure how he even became the head of the econ department at Princeton….He seems far to feckless for that.
Well, isn’t that special?
Kenneth Feinberg, AKA the “pay czar”, has folded like wet broccoli on AIG salaries:
Feinberg said the insurance company also will be allowed to pay the employee incentive payments worth about $4.3 million, made up of an annual long-term restricted stock grant worth about $1 million and a stock grant valued at about $3.3 million on the grant date.
That’s just marvelous.
Maybe we should return to the days of Dwight Eisenhower, and raise the maximum marginal tax rate to 91%, it would help deal with the pillaging parasites.
The stock prices for health insurance, for profit hospital chains, and pharmaceuticals rose sharply on the news that the Senate succeeded in cloture.
They see the bill as a win for us, which makes it a lose for the rest of us.
More bad news in real estate, with commercial real estate prices falling to a 7-year low, and the latest figures on home prices showing a year over year decline of 7.8%.
More generally, the Chicago Bank of the Federal Reserve’s economic index rose slightly in November, from -1.02 in October (indicating growth below the historical trend) to -0.32 (indicating growth below, but closer to the historical trend).
We also had good news in Japan, where exports rose sharply.
In treasurys, bond prices fell, as investors moved into US equities.
To move into those equities, foreign investors bought dollars, which drove the dollar, and the rising dollar drove oil down.
In particular First Premier Bank Credit Cards, which is charging 79.9% interest:
Here’s something you don’t see every day: A credit card with a $75 dollar annual fee, a $300 limit, a $29 penalty for being late or over limit… and an interest rate of 79.9 percent? Welcome to First Premier Bank, a sub-prime credit card issuer.
First Premier is just following the new regulations found in the Credit Card Reform Bill passed by Congress and signed by our President this past year. Apparently, Congress set out to curb the abuse that has become all-too-common in the credit card industry… you know, like exorbitant fees and interest rates from 20-40%… so they asked the banking lobby to come up with something acceptable and this is the result. So, there should be no one surprised when other credit card issuers follow suit as expected.
You know, it’s this kind of crap makes cynicism rule in politics.
Yes, once again we have Goldman Sachs that great vampire squid wrapped around the face of humanity,* using naked Credit Default Swaps, (CDS) which are basically insurance policies, with the crucial differenc being that you can insure your neighbor’s home, and collect when you burn it down, something forbidden in other insurance products since 1746.
International Brotherhood of Teamsters President James Hoffa said Goldman Sachs Group Inc. is creating derivatives trades that would profit from the bankruptcy of YRC Worldwide Inc., the trucking company trying to avert failure with a debt exchange.
The most profitable securities firm in Wall Street history “is actively soliciting bond trades for clients and underwriting credit-default swaps to benefit from a failed exchange and resulting bankruptcy,” Hoffa, the union leader, wrote in a letter dated yesterday to Goldman Sachs Chief Executive Officer Lloyd Blankfein.
YRC, the biggest U.S. trucker by sales, is extending the exchange offer deadline to Dec. 23, after investors holding 75 percent of its debt initially agreed to the exchange, below the 95 percent required by bank lenders. As of 5 p.m. in New York yesterday, participation fell to 57 percent, the Overland Park, Kansas-based company said in a statement. The company said it believes some bondholders have withdrawn because they want to tender their notes only on the expiration date.
The company has faced opposition to its plan to exchange $536.8 million of notes for equity from bondholders who also own derivatives that pay out in a default, according to people familiar with the matter. The Teamsters’ pressure comes as Goldman Sachs is under fire from other labor groups over its role in the subprime mortgage crisis.
This is precisely why the Marine Insurance Act of 1746 was passed, and why the writing of new naked CDS instruments should be banned, and existing naked CDS contracts should be rendered unenforceable.
There is a difference between making money off of someone else’s misfortune, and making money by causing someone else’s misfortune.
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.