There is a lot of centralization of regulations at the federal level here.
Whether it’s good or not turns on one bit of information, and I’m not sure if it’s available yet.
If the regulations say that it in no way preempts stricter state regulation, it’s good. If it preempts stricter state regulation, it’s bad.
Because going to a single preemptive regulator is an invitation to regulatory capture that will make AIG look like a lemonade stand.
To quote great Matt Taibbi, and there is no better evidence of this than his eagerness hook up with Viagra pitchman Bob Dole to kill the public option in healthcare reform, because, after all, his job is to lobby for, among other unsavory paracites, health insurance companies:
“While I feel very strongly that consumers should have the choice of a national, Medicare-like plan, my colleagues do not. . . But we were concerned that the ongoing health reform debate is beginning to show signs of fracture on the public plan issue, so in order to advance the process of developing bipartisan legislation and to move it forward, it’s time to find consensus here,” Daschle said.
So, Daschle’s solution is to have no real healthcare reform, but tho throw billions (trillions?) at his clients in the insurance industry and placing a mandate on the rest of the country.
Tom Daschle makes me happy that Harry Reid is now Senate Majority Leader….I can’t believe that I just said that.
So, we have the inflation numbers for May, and the CPI was up 0.1% over April, and down 1.3% year over year, the biggest price decline since April, 1950.
The deflation would have been worse, but for the ramp up in retail gasoline prices, which continues on its tear, with prices having risen for 50 straight days.
In the mean time, banking is getting interesting, with S&P cutting ratings on 18 major banks, including Wells Fargo, Capital One, BB&T.
Additionally, you have credit default swaps (CDS) have shown their largest 3 day in over 3 months, which indicates that there is a belief that the risks of default on corporate bonds is getting worse.
The fact that treasuries have staged a mini-rally, with prices up and yields down, is either a measure of concern about corporate bonds, or relief about the low inflation numbers, I’m not sure which.
Real estate is full of mixed signals. Mortgage applications fell to a 7 month low, largely on the relatively high interest rates, but mortgage bond yields have been falling for a week, which would point toward lower rates in the future.
The low inflation is perceived, to be a good marker for recovery, which pushed the dollar down, because of less demand for the $US safe haven.
Oil is getting just plain flaky. It finished the day up, to $71.03/bbl, though it dropped like a stone earlier in the day following news that gasoline stockpiles rose by 3.4 million bbl this week.
I’m not certain where oil is going, but the recent volatility seems to indicate that it is going somewhere in the near term, probably up.
I agree with Paul Krugman completely as to the first two rules of health care reform:
- Don’t trust the insurance industry.
- Don’t trust the insurance industry.
Makes sense to me.
So, the bank failures come later today, it’s Friday, but Calculated Risk’s Credit Crisis Indicators are generally positive, though it appears that there are a lot of bears on Treasuries, with the 10-Year note falling sharply.
Then, we have a return of the monoliner insurers, with Moody’s looking at cutting ratings on a whole passel of them.
Meanwhile, all the concern about treasuries and the USD pushed the dollar down today, which in turn pushed oil above $61/bbl.
On the brighter side, this led OPEC to decide against a production cut.
Well, out in the real world, housing starts and housing permits both fell unexpectedly, and industrial production fell ½%, which looks bad, while the Baltic Dry Index, an index of ship activity, hit a 7 month high, mostly on Chinese demand for iron ore.
Note that the fall in housing starts and building premits was almost entirely related to a drop in construction of condominiums and apartments.
In the long run, this may be good news, as it means that the supply of new housing units is finally being outstripped by demand, as anemic as it is, which is a first step to recovery.
Note also, however, that housing starts is a leading indicator, and as such this does not speak well for “green shoots” in the economy.
My guess would be that that condos are driving this, as they used to be a step up to a stand alone house, but now people realize that a condo is as hard to get rid of as a case of herpes.
In the delusional world of bankers the news is fairly good, with the LIBOR hitting a to a 4 month low, the Volatility Index (VIX) below 30 for the first time since Lehman imploded, and >Barry Ritholtz’s semi regular credit crisis watch is showing signs of thawing in a number of metrics.
So at this point, the problem may be more the real economy than it is the banks, and the fact that Norway, the outlier in so many good ways, like its lack of corruption in a petro state, has finally joined the rest of Europe in a recession.
Meanwhile, it looks like Allstate and Ameriprise will not be among insurance companies taking TARP money.
I’m not sure if it’s the potential for pay limits, or the stigma, or the fact that they think that Geithner is a turd.
Meanwhile, in currency, the good news in the credit market pushed the dollar down on reduced demand for a safe haven.
Oil broke the $60/bbl barrier in interday trading, before settling at $59.65/bbl, largely on yet another refinery fire….Is it me, or is this beginning to sound awfully convenient?
I’m wondering if they timed it so that deferred maintenance would kick in just before the start of the Summer driving season.
Because it’s beginning to feel like my geek days in high school*, when I though that I was the only virgin among the 1200+ students at Woodrow Wilson High School, because we have yet more people scrambling for TARP money.
First, we have major insurance companies getting major commitments of money:
The Treasury yesterday granted preliminary approval for some of the nation’s largest insurance companies to receive capital infusions under the government’s Troubled Assets Relief Program, Treasury spokesman Andrew Williams said.
Recipients are Hartford, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial Group, he said. The insurers notified yesterday are among hundreds of financial institutions in the pipeline “that are being reviewed and funded as appropriate on a rolling basis,” Williams said.
In addition we have YRC Worldwide, one of the largest trucking firms in the world, applying for bailout money to shore up its underfunded pension plan.
They are a big player, over 20%, in the “less-than-truckload” market, where loads amongst multiple customers are consolidated onto one truck.
How do I get my hands on some free money? I gotta start me a bank……I’ll pay myself just $500,000 a year, along with a $½ million bonus.
*I was more than just a geek. I wasn’t just a wargamer who played Dungeons and Dragons, but I founded the wargaming club at the school. I was the king of the geeks.
So, Barack Obama has gotten the medical industry to promise $2 trillion in health care savings over the next 10 years, by limiting medical inflation to “only” 4.7% a year.
I think that it’s clear that the medical industry is lying, but I have no clue as to what Obama is up to, except perhaps that this is a preemptive strike to prevent the public option from being discussed…I’m not smart enough to figure out another reason.
Me, I’d bank on the fact that almost everyone hates their insurance company, and wage Jihad against them, but that is just me.
Maybe there is some sort of Obam jujitsu going on here, and I just don’t see it.
So, the Bureau of Labor Statistics has its April employment report out, and non-farm payroll employment continued to decline in down 539,000, though this is a slower decline, and beat expectations though the unemployment rate rose to 0.4% to8.9%, a 25 year high.
Under the less restrictive, and to my mind more accurate U6, unemployment rose to 15.8%.
The picture (click for full size) shows the employment fall from peak compared with other recessions.
Meanwhile, wholesale inventories fell by 1.76%, more than the forecast of 1%, as retailers and manufacturers tried to adjust for reduced demand.
We also have some bad news in the financial industry, with Royal Bank of Scotland posting a loss after writing down risky assets, Commerzbank, Germany’s 2nd largest bank, reporting an €861 million loss, and our old friend AIG posted a loss of $4.5 billion. (AIG is the gift that keeps on giving.)
Meanwhile, all the optimism over the jobs report (Whee! !he 2nd derivative is positive!)has driven the dollar down and driven oil above $58.bbl.
Well, here’s a big surprise, credit card delinquencies are up.
Truth be told, this is a lagging indicator, seeing as how closely it is tied to unemployment.
I would note that so called “marginally attached workers,” which is workers who are still looking for work, but are no longer looking hard enough to be counted, has risen significantly, see pic.
Then again, remember the increase in construction spending I mentioned yesterday?
Private construction spending actually fell slightly in March so the increase I was stimulus spending.
Also, note that the Institute for Supply Management’s index of non- manufacturing businesses, basically a measure of activities in the services, fell in April, albeit at a slower pace than the past few months, so you can decide whether the glass is half full or half empty.
We have another retailer filing bankruptcy, this time Chapter 11 reorg,
Filene’s Basement.
Here’s one for nostalgia’s sake, another monoliner insurer has been downgraded, Fitch cuts Assured Guaranty from AAA to AA, which means that their insurance, which basically leases out their credit rating, is done.
We have more evidence of credit loosening though, with the
LIBOR falling below 1% for the first time ever for overnight interbank loans.
I’m not sure if this is confidence in banks, or confidence in government bailouts though.
In currency, the dollar gained vs the Euro, largely on the expectation of an ECB rate cut, which in turn is based on the largest drop in European producer prices in over 20 years.
And his allies in creating universal health coverage are pissed off:
More than 70 House Democrats recently warned party leaders that they will not support a broad health reform bill that does not offer consumers a government-sponsored policy, and two unions withdrew from a high-profile health coalition because it would not endorse a public plan.
“It’s way too early” to abandon what it considers a central plank in health reform, said Andy Stern, president of the Service Employees International Union. He said the organization pulled out of the bipartisan Health Reform Dialogue because it feared its friends in the coalition were sacrificing core principles too soon. “You don’t make compromises with your allies.”
So he’s looking at compromising on what should be one of the goals of the program:
Many Republicans and industry executives say that any program modeled after Medicare — with its power to set prices — would have an unfair advantage over private-sector competitors and eventually force some companies out of business.
Destroying private health insurance companies in the US should be one of the goals.
They are in large part responsible for the problem, and taking them down has the overwhelming support of everyone who has had to deal with them.
If there is not a public insurance option, I will contact my Congressman and ask him to vote against it.
We have a bumpy road ahead on the economy, with
retail sales falling 1.1% and the Producer Price Index (PPI) falling 1.2%, both of which indicating that there are still deflationary and recessionary pressures out there.
In regulation, there is finally an Obama choice to run the TARP, Fannie Mae CEO Herb Allison, replacing Bush holdover Neel “Cash and Carry” Kashkari, who along with Hank Paulson, should be in jail for the fraud perpetrated on the US taxpayers.
We also have some news from the moniliner insurers, after a long break, with Moody’s downgrading Ambac to junk status.
Dead man walking.
That being said, there are more signs that credit is thawing, with the LIBOR, the rate big banks charge each other for loans, falling at the fastest rate in 3 months.
In currency, we have news from Asia, where Singapore has devalued its currency by lowering interest rates in an attempt to stem its recession, the idea being that its export based economy would be boosted by a falling currency.
This is a fairly limited option for most nations, as many nations that need the help are debtor nations, while Singapore is a creditor nation.
Meanwhile, the US dollar is up vs. the Euro and down vs the Yen.
I guess that the lede is that the consumer confidence numbers are out, and that they remain near record lows, at 26, just one point above the all time low reported in February.
If that were not enough, we now have a survey indicating that consumer spending may fall by $1 trillion after the recession is over (by way of perspective, the US total GDP is about $14 trillion) according to the AlixPartners Long-Range Economic Outlook Survey.
That’s a 7% haircut on GDP, exclusive of the secondary effects, closed stores, warehouses, etc., once the economy recovers…..Great googly moogly!
In the meantime, I don’t think that a whole bunch of people will be tapping their home equity, as the Case-Shiller home price indices show a 19% drop in home prices, though it appears that defaults are abating, as private mortgage insurers saw defaults, and claims, fall in February, the first decrease since June, 2008.
Additionally, 2nd home sales fell in 2008, down to 30% of total home sales, from 40% in 2005, and more of these buyers are paying cash, which implies that a lot of the contraction in this market is an inability to find mortgages.
In terms of the general state of the economy, the Restaurant Peformance Index is showing the 16th straight month of contraction (h/t Calculated Risk), and the Philadelphia Fed State Coincident indices have shown a decline in all 50 states (pdf), for both the past month and the past three months (again h/t Calculated Risk).
Meanwhile, we have an indication that the Bank of England is looking at significant inflation, they have adjusted their pension investments to account for it, so I think that they expect the £ Sterling to fall, and inflation to increase in the UK.
In any case, we now have the chief economist for the OECD suggesting that the Federal Reserve would take aggressive action against a precipitous fall in the dollar, and work to maintain its position as a reserve currency.
I think that this is more an attempt to talk up the dollar than anything else, because protecting the dollar would, over the long term at least, require higher interest rates, which would have the economy collapsing like overcooked broccoli.
In any case, the dollar was down today, largely because the flight to safety yesterday following Obama’s announcement that GM and Chrysler were on notice is now over.
Oil was up too, though it’s still a bit under $50/bbl.
Hopefully, the idea of a government run option, one that can show similar efficiencies to Medicare or the VA, both of which consistently beat private insurance, will survive the conference committee.
This time, it’s International Lease Finance Corp. (IFLC), the largest aircraft leasing operation in the world, which was fabulously profitable when they bought it from Stephen Udvar-Hazy in 1990, and it looks like they are angling for a government bailout, at that’s the subtext that I read into the article.
Isn’t the idea of successes in their own financial niche moving into areas in which they have no clue such a wonderful idea?
So, we have the AIG bailout undermining the rest of the insurance industry now, because of the federal money and implicit federal guarantee.
Delightful.
I think that the Geithner plan will do the same thing to the smaller more responsible banks out there.
The federal bailout is squeezing out the good actors in these industries.
If I’m reading Michael Hirsh right, the non financial products division part of AIG, the part that was supposed to be the well run real insurance company, may very well be insolvent too:
Thomas Gober, a former Mississippi state insurance examiner who has tracked fraud in the industry for 23 years and served previously as a consultant to the FBI and the Department of Justice, says he believes AIG’s supposedly solvent insurance business may be at least as troubled as its reckless financial-products unit. Far from being “healthy,” as state insurance regulators, ratings agencies and other experts have repeatedly described the insurance side, Gober calls it “a house of cards.” Citing numerous documents he has obtained from state insurance regulators and obscure data buried in AIG’s own 300-page annual reports, Gober argues that AIG’s 71 interlocking domestic U.S. insurance subsidiaries are in hock to each other to an astonishing degree.
Seriously, we need to start sending people to jail.
Whiskey Tango Foxtrot??? The FDIC did not collect insurance premiums between 1996 and 2006.
I admit that I am not an insurance executive, but even I know enough to collect the damn premiums.
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.
So, Obama sets up a summit on health care reform, and invites everyone but advocates for single payer, and finally, when the screaming gets too loud, relents, and invites a hand full of them.
This does not bode will for his plan.
First, if he is not more ambitious in his initial proposal than his basic desires, it will be cut down to nothing in Congress, and second, the insurance companies are evil, and any plan that makes supporting their business model a central tenet is doomed to fail.