July 2010
70 posts
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Bank Failure Friday
It’s another busy Friday for the FDIC closure teams. Five banks have been added to the FDIC Failed Bank List:
NorthWest Bank & Trust, Acworth, GA - $159.4 million in total deposits and an estimated hit to the Deposit Insurance Fund (DIF) of $39.8 million. This deal required a loss-share agreement between the FDIC and State Bank and Trust Company on $107.6 million of NorthWest Bank and...
“There are legions of economists out there who claim that it is normal to see the...”
– David Rosenberg, Gluskin Sheff Chief Economist and Strategist, on today’s GDP release
This provides some interesting perspective, though I caution against thinking in terms of an “average” recession. A while ago, I graphed the changes in employment for the post-WWII recessions....
Keynes and GDP
Keynesianism is obsessed with the direct manipulation of the following equation:
GDP = Consumption + Investment + Government + Net Exports
This makes some sense. GDP is a measure of economic health and prosperity.
Modern Keynesianism is predicated on a few false assumptions. One of those assumptions is that, in a recession, Investment can be stimulated by lower interest rates until the zero...
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GDP Up 2.4% Annualized
The BEA has released the Second Quarter GDP Report. The annualized growth came in at 2.4%, which was at the middle of the Bloomberg consensus range of 1.0% to 3.4% (though the consensus number was 2.5%). We’ve moved from the inventory correction to a small pickup in consumption to … domestic investment (emphasis mine):
Real gross domestic product — the output of goods and...
Anonymous asked: In what concentration/area is your dissertation?
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Unemployment: New Claims Slightly Down
This week’s Unemployment Insurance Weekly Claims Report could have been much worse. Some analysts were expecting an increase in new claims up to 500k, terrible news this late in a “recovery.” Fortunately, new claims fell to 457k. Unfortunately, last week’s number was revised up by 4k. Discounting the revision, this is extremely slow progress. The new claims number fell near...
Frozen Thin Mints and dissertation writing go together like tumblr and procrastinating on said dissertation writing.
HAMP Report Revised After Analysts Question New... →
This is depressing. Turns out the brightest part of the HAMP report, the low re-default rate, was subject to a miscalculation.
“In an effort to review and better explain the methodology, we learned from our program administrator, Fannie Mae, that not all cancelled [sic] loans were included in the underlying information provided to Treasury,” Paustenbach continued. “The error...
“When one considers the information available to a central clearing facility,...”
– Jesse’s Café Américain: Goldman’s Derivatives Clearing Service: The Better To Cheat You With My Dear
Local Governments To Cut 500,000 People In 2010... →
I am linking to this so that you can read the study from the National League of Cities (their press release is here, download pdf report here). Note that this is significantly larger than the state budget problem I referenced last night (also different time frame and scope). From the report:
Local budget crises lead to job losses in both the public and private sectors. The business of local...
Bank stocks gain after compromise on capital rules →
Summary of Basel III:
European banking stocks posted strong gains Tuesday after global regulators agreed to soften some of their new capital and liquidity rules and to phase in the reforms over several years.
Most of the banks passed the stress tests. But sane accounting practices might cause the whole fraud to be exposed for what it is.
This isn’t simply an example of captured...
State budget gaps total $84 billion: study →
That bleak assessment contains one ray of good news: The total is slightly less than the estimate in March for an $89 billion gap.
Progress!
Fitch says its head will essplode →
For some reason, this post read like poetry to me. Many things are absurd about everything related to the AmeriCredit purchase. It’s a short post, clicky.
Seven Bank Failures
Updated. I knew I didn’t wait long enough.
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Bank Failure Friday
The second half bank failures are in full swing (I missed last week due to vacation. Six banks failed). Today, seven banks were added to the FDIC Failed Bank List:
Sterling Bank, Lantana, FL - $372.4 million in total deposits and an estimated hit to the Deposit Insurance Fund (DIF) of $45.5 million. This deal required a loss-share agreement between the FDIC and IBERIABANK entered on $244.3...
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China's Banks Said to See Risks in Loans →
This is probably more significant banking news than the European stress tests:
Chinese banks may struggle to recoup
about 23 percent of the 7.7 trillion yuan ($1.1 trillion)
they’ve lent to finance local government infrastructure projects,
according to a person with knowledge of data collected by the
nation’s regulator.
About half of all loans need to be serviced by secondary
...
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The CEBS (the people responsible for reporting the stress tests) website is really slow right now. I guess people are actually interested in the details.
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Seven EU Banks Fail Stress Test, Face $4.5 Billion... →
I’ve been watching the various reactions to the stress tests. I even got online to ask a buddy in Europe for a man-on-the-street perspective (he decided to go to a pub and start a brawl). The general consensus seems to be “Glad we got that farce over with, now we can move on.” But I’d like to offer a different perspective:
Everything is great again:
Seven European...
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FDIC Cash
True Life: I am a boring person asked:
2) $500B through the end of 2010, which is either slightly over half over, or slightly over 3/4 over, depending on whether the bill is referring to the federal fiscal year or not. Have they actually drawn down on this LOC, if it did pass?
unsolicitedanalysis responded:
2.) Not to my understanding. Remember that “special assessment” on...
Footnote or Afterthought
I apparently wrote this on December 5, 2009, but it finally seems appropriate to post now.
When a Libertarian longs for the days of William Black, you know things are broken. No, this is only half true. Many Libertarians believe the proper role of government is to prosecute fraud, and WB was willing to commit career suicide to play that role. And the word “career” is probably...
Bankrupt GM uses $3.5 billion of taxpayers’ money... →
I’m glad someone wrote something decent on this.
What about GMAC, you ask? Good question. GM sold a majority interest in GMAC, but still owns 6.7% direct and another 9.9% via a trust (and the US Treasury owns 56.3%). GMAC’s business is making loans on GM (and Chrysler) cars. It is worth noting that GMAC was not, and is not, a subprime auto lender.
You can almost hear the...
jeffmiller asked: Thoughts on this?
http://www.theatlantic.com/business/archive/2010/07/considering-elizabeth-warren-the-scholar/60211/
http://www.theatlantic.com/business/archive/2010/07/considering-elizabeth-warren-the-scholar/60211/
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Unemployment: New Claims Up
This week’s Unemployment Insurance Weekly Claims Report did not give us the three-in-a-row we were looking for. New claims grew to 464k. Last week’s number was actually revised down 2k, which may be the best news in the report. The new claims number fell into the middle of the Bloomberg consensus range of 430k to 490k. From the report:
In the week ending July 17, the advance figure...
-1 Boat
The process of donating my boat was completed today. Slip fees were $300 a month, so this is a considerable amount of beer equivalents.
Retroactive Deposit Insurance Increase to Cover...
The second FDIC press release in my inbox was perhaps more interesting. Retroactive deposit insurance:
The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Barack Obama today permanently raised the maximum deposit insurance amount to $250,000. In addition, the Act made this increase retroactive to January 1, 2008.
The provision making the law...
Basic FDIC Insurance Coverage Permanently...
This is from the FDIC press release:
On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, in part, permanently raises the current standard maximum deposit insurance amount to $250,000. The standard maximum insurance amount of $100,000 had been temporarily raised to $250,000 until December 31, 2013. The FDIC insurance coverage...
Illinois Town Wants To Outlaw Eye-Rolling →
southpol:
“At what point does eye-rolling and such behavior cross the line and become something that could be considered disorderly conduct?”
“Go to hell” is when.
Hey, that kind of response alarms or disturbs me, provoking me to breach the peace. Watch your tone.
FinReg Shuts Down Ratings Agencies? →
I also saw this on ZeroHedge and thought it was a bit alarmist. I’m assuming this will get fixed, but I find the whole thing hilarious. Here’s the breakdown:
FinReg says that if an expert says an instrument filed with the SEC is a good investment, then the expert is liable if it isn’t.
There was language exempting the ratings agencies, but it seems to have gone missing in the...
Elizabeth Warren Could Head CFPB Without Senate... →
This would bring the grand total number of competent regulators to 1.
Making Home Affordable Program Update
Today I read through the latest HAMP performance report (pdf warning). CalculatedRisk probably has the most even-handed coverage.
The cancellation rate is way up, largely because servicers are now working off some of the never-ending “aged trials.” These never had a chance, and skew current statistics negatively. One point stood out. I think this is inexcusably misleading:
...
China Becomes World's Biggest Energy Consumer →
Found this via Mish. Interesting bits:
China has passed the U.S. to become the world’s biggest energy consumer, according to new data from the International Energy Agency, a milestone that reflects both China’s decades-long burst of economic growth and its rapidly expanding clout as an industrial giant.
…
Voracious energy demand also helps explain why China—which...
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European Snapshot
Europe will be in the crosshairs until Friday, when the EU bank stress tests results are announced. Let’s get a quick checkup on the area.
Ireland was downgraded by Moody’s. This wasn’t a big surprise, but the timing couldn’t be much worse for Ireland. They will attempt to auction a decent amount of debt tomorrow.
Hungary and the IMF ended talks unsuccessfully. Hungary...
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68 to 113
That numeric range might normally qualify as the “fun zone” of freeway speeds. Today it was the temperature range of my trip from Santa Barbara to Big Bear Lake. I hate you, Tarzana, California. Due to a promise I made to my mother after my first motorcycle accident, I always wear full leathers when I ride. I’m currently a bit ripe.
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Unemployment: Two in a Row
This week’s Unemployment Insurance Weekly Claims Report is similar to last week’s. New claims fell fast on an adjusted basis, but grew fast on an unadjusted basis. There is one critical difference: the adjusted number of new claims has hit a new low since the peak. That’s right, actual progress for the first time in months. The new claims number dropped to 429k while last...
Excuse Me Again But Britain's Public Debt Doubled... →
I am now convinced that the entire world would benefit from taking Accounting 101.
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Fed Optimism Wanes
The Minutes of the Federal Open Market Committee were released today. As expected, interest rates will stay “exceptionally low … for an extended period.” Hoenig dissented, as expected.
The interesting bit starts with this language (emphasis mine):
While the recent data on production and spending were broadly in line with the staff’s expectations, the pace of the...
States Dodge Defaults as California May Cut Worker... →
States are still in trouble:
Illinois let $5 billion of bills go unpaid. Washington closed state offices. California may cut 200,000 workers’ pay to the minimum wage. Minnesota is delaying tax refunds for a second year.
…
To make ends meet, half the states, including Indiana, Massachusetts and Nevada, have fired workers in the past budget year and 22 put staff on temporary...
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Did I Miss the EU Stress Tests?
The results of the EU bank stress tests are still a couple weeks away. Remember that the purpose of the US bank stress tests was to restore confidence in the banks. This was crucial because the main purpose of our banks is to engage in confidence games. The tests were bogus, but they actually had the intended effect. This was partially due to the fact that a large number of people are gullible...
Revised data show deeper U.K. recession →
First, the news: GDP sank in the second quarter by 0.2%. GDP grew by 0.3% first quarter. The UK does not annualize these figures, so you’ll need roughly a factor of four to compare to the US figures.
Now, the revision:
[R]evised historical data showed that the recession that hit the economy in 2008 knocked down GDP by 6.4%, compared to an earlier estimate of 6.2%. The data also showed...
Doomsday: How BP Gulf disaster may have triggered... →
I’ll admit this isn’t the most optimistic thing I’ve read today.
251 million years ago a mammoth undersea methane bubble caused massive explosions, poisoned the atmosphere and destroyed more than 96 percent of all life on Earth. Experts agree that what is known as the Permian extinction event was the greatest mass extinction event in the history of the world.
55 million...
RPI or R.I.P. British Pensioners? →
I just said that obligations like Social Security are real, not nominal, obligations. Therefore it is difficult to inflate them away. Jakke added to default discussion by pointing out that methods of dealing with such problems are likely to be hybrid approaches. That reminded me of this post on Pension Pulse.
There are different ways to account for increases in the cost of living. A defined...
China's Trade Surplus Widens, Adding Pressure on... →
The latest news from the non-currency manipulator:
The [trade surplus] gap increased 140 percent to $20.02 billion from a year earlier, the nation’s customs bureau said yesterday. That compares with the $15.6 billion median estimate of 24 economists Bloomberg News surveyed. Exports surged 44 percent and import growth moderated for the third month, rising 34 percent.
How Often Have Sovereign Countries Defaulted in... →
This is the second, and probably most interesting, post in a series at Calculated Risk. I’ll skip to the important part (emphasis mine):
The underlying causes of default (such as rises in interest rates, wars, commodity price collapses, and simply borrowing too much money) have been diagnosed for many episodes. Proximate to the default, any of the following six financial changes might...
Bank of America Says $10.7 Billion of Trades... →
Bank of America said the inaccuracies aren’t material and “don’t stem from any intentional misstatement of the Corporation’s financial statements and was not related to any fraud or deliberate error,” according to a May 13 letter released yesterday from the U.S. Securities and Exchange Commission.
Translation: Oopsie!
“A $10.7 billion accounting error would be a material event for about...
CRE Extend and Pretend →
Banks are trying to delay their reckoning by pretending that “nonperforming” (obviously not classified as such) loans will suddenly start paying again. There was a time when banks had credit standards. During that mythical time, a business that couldn’t pay its debts wouldn’t get magically refinanced as a way of kicking the can down the road. Early losses were the best...
$1.65 trillion Euro zone bank debt coming due in... →
CalculatedRisk gets the award for most important headline fix of the week. The original WSJ headline neglected to mention that this was bank debt coming due. Suddenly, I’m listening.
People looking for roll risk should be looking here (though not exclusively, there’s plenty of roll risk to go around).