The biggest economic news this week isn't that the unemployment rate rose from 9.8 percent to 10.2 percent in October, or that the economy lost another 190,000 jobs, according to the Labor Department. It's that labor productivity for the third quarter rose at an eye-popping 9.5 percent annual rate, according to another report.

Of course both reports paint different parts of the same picture, but the productivity figures are remarkable for what they say about the divergence of hiring and economic output. The government previously reported that GDP rose at a healthy clip in the third quarter. The productivity figures show that was accomplished with even fewer workers than economists had expected. We're making more stuff with A LOT fewer workers, and that's contributing to the high unemployment rate and continuing job losses.

In the long run productivity growth is great. When workers can produce more per hour of labor, their incomes rise, corporate profits rise, standards of living rise etc. Productivity growth kills inflation. Technology-enabled productivity growth essentially explains why Americans are rich and cavemen were poor. A hundred cavemen working for one hour could catch a bison, if they were lucky. A hundred Americans working for an hour can produce a Toyota. (I'm simplifying here and leaving out non-labor inputs like investment and natural resources, but you get the idea.)

But in recent decades corporate profits have grabbed a huge share of the gains from greater productivity, at the expense of workers. In theory profits from productivity growth are supposed to be shared with a company's work force or redeployed in other areas of the economy to employ displaced workers. But it's not happening so far in this recession.

Brad DeLong was shocked at the 3rd quarter productivity numbers and explains why what's going is prompting a rethinking of conventional wisdom.

Continue reading "We're making more stuff with many fewer workers " »

Posted by Jay Hancock at 9:41 AM | Permalink | Comments (7)
Categories: The Great Recession
        

The New York Times gets it right on extending and expanding the homebuyer tax credits, which will probably cost the country another $15 billion.

If Congress wants to spend the taxpayers’ money to do something about the struggling housing market — and it should — it should invest the money where it is most needed, in better programs that help people avoid foreclosure and stay in their homes.

Posted by Jay Hancock at 8:09 AM | Permalink | Comments (0)
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Former real estate agent Sen. Johnny Isakson is helping out his Realtor pals by getting Congress to pass another round of homebuyer tax credits. Looks like the $8,000 credit, which was supposed to expire at the end of November, will be extended to April 30. It looks like it'll also be granted to families with higher incomes than before and offered at a lower level ($6,500) to "move-up" buyers, as long as they have lived in their present homes for five years. (The first one was for first-time buyers only.)

But this is really truly the last housing giveaway, Isakson says. And this time he means it!

"Tax credits like this only work by creating the sense of urgency to take advantage of them. This is the last extension of the home buyer tax credit, and I urge all Americans whether they're first-time buyers who've always dreamed of having a home of their own or someone who's been gridlocked in the failure of our move-up market to take advantage of this opportunity."

Where's Supernanny when you need her to intervene and stop this ineffective parenting?

Posted by Jay Hancock at 10:57 AM | Permalink | Comments (2)
Categories: The Great Recession
        

The seeming inability of many to delay gratification -- to study in school to prepare for a career, to forego sex until ready, to save up for a down payment -- is responsible for many problems. Turns out that dolphins have figured out the benefits of saving for the future -- an insight that seems to have eluded people who bought houses with nothing down and thought it would all work out fine. From the Guardian:

At the Institute for Marine Mammal Studies in Mississippi, Kelly the dolphin has built up quite a reputation. All the dolphins at the institute are trained to hold onto any litter that falls into their pools until they see a trainer, when they can trade the litter for fish. In this way, the dolphins help to keep their pools clean.

Kelly has taken this task one step further. When people drop paper into the water she hides it under a rock at the bottom of the pool. The next time a trainer passes, she goes down to the rock and tears off a piece of paper to give to the trainer. After a fish reward, she goes back down, tears off another piece of paper, gets another fish, and so on. This behaviour is interesting because it shows that Kelly has a sense of the future and delays gratification. She has realised that a big piece of paper gets the same reward as a small piece and so delivers only small pieces to keep the extra food coming. She has, in effect, trained the humans.

HT Marginal Revolution.

Posted by Jay Hancock at 2:22 PM | Permalink | Comments (1)
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Today's column:

Maryland Comptroller Peter Franchot, meet your nightmares. Yours, too, Gov. Martin O'Malley. And yours, President Barack Obama and Fed Chairman Ben Bernanke.

Their names are Matthew and Meredith Targarona. They live in Towson, and they are cutting spending, increasing savings and paying down debt.

Since the financial crisis hit last year, they've been saving more than $1,000 a month and applying it against their home-equity loan. They paid off the loan a few weeks ago - "a really great feeling," says Matthew, 28, who works for Verizon.

They don't have any credit-card debt. And instead of getting a new car, they recently repaired Meredith's 1999 Subaru.

Read the whole thing here.

Posted by Jay Hancock at 8:37 AM | Permalink | Comments (1)
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Iceland was maybe the last wealthy country to get McDonald's fast-food restaurants. Writing in the Guardian, Alda Sigmundsdóttir says they first arrived in 1993. Reykjavik has three. Now they're closing, victims of the global financial crisis, which hit Iceland especially hard. Iceland's currency, the krona, has plunged, which means the country can't afford the imports it once enjoyed. So the irresistible march of globalization and its herald, the Big Mac, suffer a setback.

As Yglesias points out, in many countries McDonald's operators reduce currency risk by buying local supplies with the local scrip as much as possible. Perhaps they could source fishburgers in Iceland, but the potatoes and beef and chicken may have been a problem.

Sigmundsdóttir blames McDonald's strict specs:

Apparently McDonald's has very stringent standards when it comes to production of its foodstuffs. For a market as small as Iceland's, it is not economically viable to invest in the equipment required to churn out, say, chicken nuggets. Hence most ingredients have had to be imported from a massive McProduction plant in Germany.

Posted by Jay Hancock at 10:03 PM | Permalink | Comments (1)
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Even as the new Case-Shiller report shows that house prices rose a little in August, James Kwak and Simon Johnson show in the Washington Post how propping up home prices via tax incentives is like ingesting crack or heroin -- you have to keep taking bigger and bigger doses to get the the same high. (HT Calculated Risk.)

What happens when you artificially prop up housing prices? Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.) Whom does this benefit? Not first-time home buyers. It benefits people who already own houses (and their real estate agents) because it's a one-time boost in housing values.

This would be just the latest chapter in a long history of government policies to boost housing prices -- the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners.

Posted by Jay Hancock at 9:22 AM | Permalink | Comments (2)
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On Thursday James R. White, director of strategic issues for the Government Accountability office, testified before Congress on tax credit for first time home buyers. Included in the paperwork he submitted is a state-by-state breakdown of people who so far have claimed the first-time homebuyer credit.

Maryland is low on the list of per-capita claims, ranking 34th in the country, with 23,831 buyers claiming the credit as of Aug. 22. Total credits claimed for Maryland came to $166.2 million, or less than $7,000 per house on average. The failure of many Maryland buyers to max out the credit to $8,000 seems to indicate they are buying inexpensive shelter, especially for Maryland. Condos, maybe. To get $8,000 in credit you only have to spend $80,000 on the dwelling.

(UPDATE: Reader David M. has a far better grasp on what's probably going on. In comments he says: "Really? I think it's far more likely that many Marylander's using the tax credit make more than 75,000/person or 150,000/couple, which also reduces the amount you can claim. Maryland has a high median income and thus, high real estate costs." Thanks, David.)

Tops for per-capita, first-time homebuyer credit claims were Nevada, Utah, Arizona and Florida, where they have lots of empty houses to get rid of. Places at the bottom of the list were West Virginia, New York, Hawaii and the District of Columbia. Naturally people buying homes for the first time tended to have lower-than-average incomes, the GAO reported. That's one reason Maryland, one of the highest-income states in the country, has seen less tax-credit action than other states.

GAO also reported discouraging news about the ability of the tax authorities to catch people cheating on the credits -- those who really aren't first-time buyers, for example. Among other problems, the IRS didn't require people claiming the credit to provide documents proving that they were qualified for it, GAO said. Here we go again. You heard of liar-loan mortgages? Welcome to the liar tax credit.

Here's what the GAO said:

IRS faces significant challenges in determining if taxpayers are complying with the numerous conditions for the credit.

Continue reading "Marylanders get relatively few homebuyer tax credits " »

Posted by Jay Hancock at 6:09 AM | Permalink | Comments (11)
Categories: The Great Recession
        

Barry Ritholtz weighs in on what a bad idea it is to extend the $8,000 home buyer tax credit that expires Nov. 30. Congress is talking about it again -- only now they're discussing raising the credit to an amazing $15,000 and offering it to all home buyers instead of just first-timers. He references a Brookings report that estimates 85 percent of the people using the first-time buyer credit would have bought houses anyway. So the cost to taxpayers per extra house sold isn't $8,000. It's $43,000.

For a $15,000 subsidy extended to everybody buying a house as their primary residence, Brookings estimates, the cost to taxpayers move each extra house would really be $253,000!

Beyond the huge expense and fiscal inefficiency, Barry says, the credit is keeping house prices from finding their true level, which is bad for the economy in the long run.

Perverse though it may be, the mass foreclosures are helping to drive prices back to normalized historic levels....

Continue reading "$8,000 tax credit REALLY costs $43,000 per house" »

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (14)
Categories: The Great Recession
        

Of course you discern the irony. Ed Hale's 1st Mariner Bank contributed in its own small way to the housing meltdown by lending millions of dollars to homeowners who subsequently defaulted on their mortgages. 1st Mariner had to foreclose on dozens of homes, mostly in Virginia but some in other states. The bad loans have brought the bank close to insolvency and seizure by the Federal Deposit Insurance Corp., although it looks like it has until next summer to raise new capital.

Bad housing loans prompted the Maryland General Assembly to pass a law slowing down foreclosures. Lenders were swooping in within a few weeks of people missing payments, and the legislature wanted to make sure the process wasn't too greased. Now Hale is claiming homeowner status himself to try to forestall foreclosure on 1st Mariner Tower, the Canton landmark owned by his real estate company and containing 1st Mariner's headquarters. It seems like a stretch. Most of the 17-story building's floors are offices.

But at the tiptop is what is probably Baltimore's most fabulous bachelor hideaway, with stunning views of the harbor to the west and Baltimore to the north. Descriptions of it seem to be scarce. But Hale's old penthouse, nearby in Anchorage Towers, contained "custom woodwork, the furniture, rugs and accessories from all corners of the globe," the Sun reported. It also had "pastoral paintings in thick, gilded frames that cover nearly every available inch of wall space" set in a "relentlessly masculine palette, the cognac leathers and dusky walls that evoke an Englishman's library." Hale was trying to sell that place for $2 million before he took it off the market. The pad in 1st Mariner tower is supposed to be an upgrade from that.

Hale argues in court that, because 1st Mariner Tower is his home, it qualifies for the extended foreclosure process required by Maryland law. He wants the court to at least delay an auction scheduled for Wednesday. So does Natixis bank's decision to seize Hale's tower indicate a new phase of the recession, a commercial real-estate deterioration similar to the one in the early 1990s? Or did Nataxis make the biggest, dumbest subprime homeowner loan ever? A judge will decide.

Posted by Jay Hancock at 3:45 AM | Permalink | Comments (1)
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From its low of 667 on March 6, the S&P 500 stock index has zoomed up 65 percent. It's fixing to close today at around 1,100. A logical question to ask is: Have stocks ever had this great a run in such a short period of time? The answer is yes. Many times. Via Barry Ritholtz, Ron Griess and the Chart Store lists the top 50 32-week periods when the S&P has gained 48 percent or more.

The large majority of them were in the Great Depression. The March 2009 to October 2009 stock advance was No. 18 on Griess's list. Only five other 32-week periods on the top-50 list weren't in the 1930s. Of course many of the 1930s advances soon reversed themselves.

The list is a little misleading because many of the 1930s periods are not mutually exclusive. For instance, the top-gaining 32-week period was from Dec. 10, 1932 to July 22, 1933, in which the S&P went up 93 percent. But the No. 2 period was Dec. 3, 1932 to July 15, 1933, which was substantially the same surge. Still, it's a little disconcerting that many of the market moves of this magnitude on Griess's list could not sustain themselves.

Posted by Jay Hancock at 3:11 PM | Permalink | Comments (0)
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Business Week's Michael Mandel produces a nice chart based on Labor Department data showing which professions have added jobs in the last two years and which ones have lost jobs. I'm not sure I get the ostensible ~2% job growth in "Business and financial operations." Presumably that includes bankers, but maybe it's just the accountants and other beancounters, who may be needed to sum ledgers whether the numbers are positive or negative.

Much of the damage in banking and on Wall Street is reflected in the ~8% drop in "Office and administrative support."

Posted by Jay Hancock at 11:48 AM | Permalink | Comments (1)
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Mortgage rates continue to benefit from the Federal Reserve's bond buying and are near all-time lows. The Federal Housing Administration is guaranteeing billions in new mortgages that it probably shouldn't.

The Realtors' Housing Affordability Index - which accounts for rates, family income and prices - is near all-time highs. After all, home prices in many markets are down 40 percent or more from their peaks a few years ago. The homebuyer tax credit - which basically amounts to 5 percent or 10 percent discount on a starter house - looks puny by comparison.

The inventory of unsold homes has plunged to a level that would take buyers 8.5 months to exhaust - down from nearly 12 months when gloom prevailed. In normal times there is a 6-month supply of homes for sale. As the supply gets smaller, prices should stabilize no matter what Congress does.

Posted by Jay Hancock at 8:36 AM | Permalink | Comments (12)
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The requirement that contractors pay "prevailing" wages to weatherization employees is holding up hundreds of millions in stimulus spending, a new government report suggests. The stimulus act provided states with $5 billion for weatherization over three years. Almost half the money has been disbursed, but more than half the states that the Government Accountability Office contacted hadn't started weatherizing houses as of the end of August.

A big reason: red tape resulting from the 1931 Davis-Bacon Act, which requires the payment of the locally prevailing wage on federal contracts. Republicans unsuccessfully opposed Davis-Bacon being folded into the stimulus. Because Davis-Bacon hadn't previously applied to weatherization work, people in the Labor Department had to figure out prevailing wages county by county in every county across the country. (They finished on Sept. 3.)

Contractors didn't want to start weatherization jobs if it meant they might have to retroactively adjust workers' pay. The prevailing-pay requirement will increase wages for people who probably need it, but it's also delaying the stimulus and possibly producing fewer jobs than would have been created otherwise. And it may be reducing energy savings that could be had if insulation, caulk, weatherstrips etc. were in place to the greatest extent possible before it gets cold.

Here's what the conservative Heritage Foundation said about David-Bacon in February:

Congress has included a little-known provision in the economic stimulus legislation that wastes tax dollars and costs jobs. All $188 billion worth of construction projects funded in the American Recovery and Reinvestment Act (H.R. 1) must pay Davis-Bacon prevailing wage rates. This requirement will inflate construction costs by $17 billion and depress the economy.

Sez the GAO:

While DOE has provided each of the states in our review with half of their total allocations, 8 of the 14 states for which we collected information had not started weatherizing homes using Recovery Act funds as of August 31, 2009. However, many of the 14 states had used Recovery Act funds for startup activities such as hiring and training staff, procuring equipment and vehicles, and performing energy audits of eligible homes. Other states told us that they would begin weatherizing homes shortly.

Specifically, state weatherization officials expressed concerns about wage rates and administrative requirements under the Recovery Act’s Davis-Bacon provision. Regarding wage rates, officials in about half of the states we reviewed decided to wait to begin weatherizing homes until Labor had determined county-by-county prevailing wage rates for their state. These officials explained that they wanted to avoid having to pay back wages to weatherization workers who started working before the prevailing wage rates were known.

Posted by Jay Hancock at 9:49 PM | Permalink | Comments (4)
Categories: The Great Recession
        

Yesterday Hanah Cho and I asked 1st Mariner boss Ed Hale (her story here, my column here) and other company officials whether the slight revival in the housing market and the first-time homebuyer tax credit were helping the bank unload its inventory of foreclosed houses. The answer is not very much.

Much of the housing bubble was in McMansions -- expensive homes sold to people who probably never should have gotten near any mortgage, let alone one for a million-dollar house. These are what 1st Mariner owns. It's safe to say that they are not the ones first-time buyers are snapping up. The bank owns 29 houses, many in Virginia but also in Chicago, Michigan and Florida. They range in price from $700,000 to $2 million -- and that's after the bank has already written them down by a ton. Six are on the runway to be sold in the next few weeks, Hale said. Others will take months and months to get rid of, and meanwhile 1st Mariner has to pay for somebody to cut the grass etc. It's a lot more work-intensive to handle foreclosed residential real estate than the hotels Hale was dealing with in the 1990s with the Bank of Baltimore.

The housing improvement -- you can't call it a turnaround -- is helping 1st Mariner in other ways. The bank is doing a land office business in mortgage refinancing -- for responsible clients this time, officials say! And the lessening in home-price declines lowers the chances that new customers will default. But there is no boom in the kind of 3,500-square-foot, brick-and-plastic veneer stuff that 1st Mariner owns, and there won't be for a long time.

Posted by Jay Hancock at 8:40 AM | Permalink | Comments (12)
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The doleful James Grant, a Baltimore Sun alumnus and careful student of financial history, believes that the severity of the crash a year ago portends a similarly energetic recovery. I'm skeptical. But here's Grant, in the Wall Street Journal.

By rallying, equities and corporate bonds not only anticipate recovery, but they also help to bring it to fruition. By opening their arms wide to such previously unfinanceable businesses as AMR Corp., parent of American Airlines, and Delta Air Lines Inc., the newly confident credit markets are implementing their own stimulus program. "Reflexivity" is the three-dollar word coined by the speculator George Soros to describe the dual effect of market oscillations. Not only does the rise and fall of the averages reflect economic reality, but it also changes it. One year ago, the Wall Street liquidation stopped world commerce in its tracks. Today's bull markets are helping to revive it.

I promised to be bullish , and I am (for once)—bullish on the prospects for unscripted strength in business activity.

Posted by Jay Hancock at 9:57 AM | Permalink | Comments (0)
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Maryland unemployment stayed at 7.2 percent for the fourth month in a row, according to a new report from the Labor Department. Another report shows that we shed 12,000 jobs from July to August, but that number is based on a limited sample and is subject to big revisions. The overall picture is that the economy didn't get any better and didn't get any worse for the month. Maryland is doing much better than most states. The national unemployment rate for August was 9.7 percent.

Here is the historical table of Maryland's unemployment rate, shown on the far right.

Here is the historical table of month-on-month job growth or loss, in thousands.

Posted by Jay Hancock at 11:16 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Ben Bernanke and lots of other folks claim the economy can check out of the emergency room. These guys are actually in a position to know.

Posted by Jay Hancock at 2:55 PM | Permalink | Comments (0)
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Great anecdote from Time's Karen Tumulty, who's at the Fortune Most Powerful Women summit, which features Warren Buffett. Turns out Buffett could have saved Lehman Brothers a year ago -- and maybe the global economy -- if only he had known how to check the messages on his cell phone.

And around 6 p.m. on that Saturday night, as Buffett was rushing out to a social engagement in Edmonton, Alberta, he got a call from Bob Diamond, the head of Barclays Capital. Diamond was trying to buy Lehman Brothers and rescue it from oblivion, but he was having trouble with British authorities. So he had come up with another plan, one in which Buffett would provide insurance that might make it all work. It was all too complicated for Buffett to take in in a quick phone call, so he asked Diamond to fax him the details. Buffett got back to his hotel room around midnight and was surprised to find ... nothing. Lehman went under, and within days, the world was in a full-blown financial crisis.

Fast forward 10 months. Buffett, who admits he never has really learned the basics of his cell phone, asked his daughter Susan about a little indicator he had noticed on the screen: "Can you figure out what's on there?" It turned out to be the message from Diamond that he had been waiting for that night. (NOTE: Which raises another question: Why didn't Diamond use the fax, like Buffett asked him to?)

Posted by Jay Hancock at 1:37 PM | Permalink | Comments (3)
Categories: The Great Recession
        

One of the many beauties of the Web. You can find folks with similar challenges and trade stories and tips. From Jamie Smith Hopkins' story today:

In this toughest job market in a generation, misery is looking for company - and it's easier than ever to find it online, where groups are springing up for out-of-work people to connect, commiserate and offer hard-earned advice.

Posted by Jay Hancock at 1:23 PM | Permalink | Comments (0)
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Kind of a weird story in the Times today on how older workers are postponing retirement. Has a couple anecdotes and mentions a Pew survey but ignores the startling Labor Department statistics proving the thesis. I wrote about this on Sunday.

The NYT piece holds out the full-boat, state-sponsored retirement schemes from Europe as an attractive alternative to the U.S. model but soft-pedals the ticking fiscal time bombs that these systems represent.

Of course, such a system comes with tradeoffs. To help pay for generous state pensions, Danish workers have one of the highest tax burdens. The population is also aging, meaning that there will be fewer working people to pay for the pensions and care of a graying society.

The Danish system is simply unsustainable. Presenting it as a potential model for the U.S. seems like a non sequiter.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (1)
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Live chat at 11:30: Why employment among older workers is RISING (hint: check their 401k balances and home values) while unemployment among younger workers is near all-time highs.

Posted by Jay Hancock at 11:03 AM | Permalink | Comments (2)
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Stop back here at 11:30. We'll be live-chatting about this and any other aspect of the recession you want to talk about. You can leave questions/comments in the comments section or ask live during the chat.

Piece from the NYT over the weekend:

Unemployment for middle-aged workers like Mr. Blattman is the highest it’s been since data was first collected 60 years ago. According to the Bureau of Labor Statistics, joblessness is worse for men over 45 (7.7 percent in July) than women the same age (6.9 percent). And while the middle-aged are still more likely to have jobs than younger workers, once people Mr. Blattman’s age are laid off, finding a new job is harder. In 2008, laid-off people over 45 were out of work 22.2 weeks, versus 16.2 weeks for younger workers.

But this is only part of the picture. Unemployment is going up among older workers because those 55 and over who had previously retired are flooding back into the job market. Unemployment is defined as those who are actively looking for work but can't find it. Thanks to the collapse in their home and 401(k) values, there are many, many more older folks looking for work these days. Many are not finding it, but many are. The number of people 55 and over who are employed today is greater than it was a year ago. Meanwhile employment for every other age group has fallen.

Meanwhile, employment among younger workers is close to all-time highs. Why? Older folks aren't getting out of the way as they once did to make room for new talent. See the whole story here in my piece from Sunday's paper.

Posted by Jay Hancock at 9:55 AM | Permalink | Comments (1)
Categories: The Great Recession
        

The White House announced its reappointment of Ben Bernanke, chairman of the Federal Reserve, the nation's central bank. He deserves it.

He was the No. 1 player in the world in avoiding another Great Depression. The financial collapse last year was the most extraordinary capitalistic event in 80 years. Bernanke was slow to recognize its severity, and the Fed under Bernanke could have done more to prevent it in the first place. He became chairman in early 2006, when there was still time for Fed regulators to stop much of the mortgage madness.

But if the Fed is to blame for the meltdown, most of the burden falls on Bernanke's predecessor, Alan Greenspan. Bernanke was the guy who steered the rescue between the Bush and Obama administrations. He took what really might have been a grievous, decade-long slough and turned it into what we have today: A severe recession, with employment pushing 10 percent, continuing massive job loss and a hugely uncertain fiscal situation for the country. We'll take it.

Part of the problem with evaluating Fed chairman is that what they sow often doesn't get reaped for years and years. People thought Greenspan was doing a wonderful job until after he left, when the damage from creating a money-bubble with lack of regulation became clear. Bernanke has created another money bubble, and his legacy will rest on how skillful he is at deflating it without terrible effects. Bernanke's expertise was in preventing a Depression. He knows far less about how to execute an exit strategy after bailing out the economy because nobody has done it successfully in history. Still, I don't see anybody else out there who seems more likely to succeed.

Barney Frank made a comment that has been widely quoted on blogs recently, on the difference between politicians and economists:

Not for the first time, as an elected official, I envy economists. Economists have available to them, in an analytical approach, the counterfactual. Economists can explain that a given decision was the best one that could be made, because they can show what would have happened in the counterfactual situation. They can contrast what happened to what would have happened. No one has ever gotten reelected where the bumper sticker said, "It would have been worse without me." You probably can get tenure with that. But you can't win office.

Posted by Jay Hancock at 9:29 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Perhaps on the theory that a little revenue to book against fixed costs is better than zero revenue, the luxury Rancho Berando hotel of San Diego has revamped its price schedule to include sharply discounted rooms with sharply degraded amenities. The more spartan the accommodations, the less you pay. The standard rate is $219 a night. Reports Reuters:

For their one-and-only family getaway this year, the Billingtons checked in to an upscale San Diego resort on Sunday with many of the usual vacation accessories -- bathing suits, board games and golf clubs. But they also brought flashlights, sleeping bags and an inflatable mattress because the pool-side room they booked for just $19 comes with a tent where the beds normally would be. They even had to pack their own toilet paper. The most basic version: a room for $19 with no bed, toilet paper, towels, air-conditioning or "honor bar," and only a single light bulb in the bathroom for safety. The next level up adds in a bed -- sans sheets -- for $39 a night. For a bed plus toiletries and toilet paper, the rate is $59.

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (0)
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The Federal Reserve's Federal Open Market Committee, which tightens or loosens the faucet on the money supply, decided today to keep the taps almost wide open, maintaining the target for a key short-term interest rate at close to zero. But it is starting to throttle down its campaign to hold down long-term interest rates. It said it will wind down a $300 billion program to buy Treasury securities by October even as it continues to buy mortgage-related debt through the end of the year.

It also said "economic activity is leveling out," a more optimistic appraisal than the Fed's June 24 report that "the pace of economic contraction is slowing."

Otherwise the committee tweaked its statement to reflect that time has passed since the last meeting in June. But it's basically the same. No sign that the Fed will increase short-term rates anytime soon, which is what Wall Street was mainly worried about.

In June financial markets had "generally improved," said the official statement. Today it said markets "have improved further in recent weeks."

June: "Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit." Today: "Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."

They added "sluggish income growth" to the list of weights on the economy.

For June and today, the language on the outlook is identical: "Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."

Here ends the exegesis of Mr. Bernanke's text. Now let's see if we can get John McIntyre of You Don't Say to see if it scans.

UPDATE: from T. Rowe Price chief economist Alan Levenson, in a note to clients:

In our view, the Committee is not going to raise rates until the unemployment rate has rolled over, which is the better part of a year away. And policy makers would rather not signal that they're even thinking about raising the funds rate ("removing accommodation") until the economy has moved broadly into expansion, including a trend of rising monthly increases in payroll employment (as opposed to the current trend of diminishing rates of decline).

Posted by Jay Hancock at 2:39 PM | Permalink | Comments (0)
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Today's column said:

The monthly jobs report may show that unemployment topped 10 percent last month for the first time since 1983. It'll probably disclose that U.S. payrolls shrank by another 300,000 jobs or so, bringing cumulative losses over the last two years to nearly 7 million jobs.

The results are out, and they weren't that bad. Unemployment fell slightly in July -- from 9.5 percent to 9.4 percent. That was the first dip in 15 months. National employment dipped by 247,000 jobs, not the expected 300K or so. That was the "best" result since August 2008, just before the financial markets fell off a cliff. And more "good" news from AP:

Also heartening: job losses in May and June turned out to be less than previously reported. Employers sliced 303,000 positions in May, versus 322,000 previously logged. And, they cut 443,000 in June, compared with an earlier estimate of 467,000.

Heartening compared with the Great Depression, that is. Anytime the economy sheds 200,000 or 300,000 jobs is not a good month. But the lack of another surprise bad report -- like the one from June, should give hope that things are at least moving in the right direction and dampen "the stimulus is a failure" talk. Says T. Rowe Price economist Alan Levenson in a note to clients:

Unemployment rate still headed to 10%. The downtick in the unemployment rate (to 9.4%) was the first since April 2008, but does not signal an end to the upward trend... Indeed, the unemployment rate will rise further in the early stages of labor market recovery, during which employment gains fall short of labor force growth.

In other words, the jobless ranks will swell further, but that doesn't mean the economy isn't improving. Unemployment is a "lagging" indicator, which means it says more about where the economy has been than where it is going. None of this, however, changes the point of the column: We're in for a long, slow, "jobless" recovery, similar to those after the previous two recessions.

Posted by Jay Hancock at 10:06 AM | Permalink | Comments (1)
Categories: The Great Recession
        

State-by-state unemployment rates, from the Labor Department. The key is hard to read, but anything green is over 10 percent. Purple is 7.0 percent to 9.9 percent. Brown is 6.0 to 6.9 percent. Red is 5.0 to 5.9 percent.

Posted by Jay Hancock at 12:18 PM | Permalink | Comments (1)
Categories: The Great Recession
        

From Michael Mandel:

A new academic paper makes a credible argument that stock option contracts for executives can cause excessively large swings in the economy. The paper, which I think is destined to become a classic, has a great title: "Some Unpleasant General Equilibrium Implications of Executive Incentive Compensation Contracts. "

The idea is that bubbles are driven by "self-fulfilling fluctuations in the manager's expectations," according to the paper by John Donaldson, Natalia Gershun and Marc Giannoni. And the pay of those managers is disproportionally driven by the growth of the firm, so they're prone to overexpand. The thinking among economists until recently was that computers had eased booms and busts. When Walmart's cash registers can instantly talk to the factories of Walmart's vendors, the thinking went, the risk of production gluts and the resulting slumps should be less. That still makes sense. But maybe heavily incentivized and self-deluded executives are now a countervailing force.

The paper's conclusion:

These results suggest that the early twenty-first century explosion in the incentive compensation among financial firms may have unforeseen consequences. We are only now beginning to see what these consequences are.

Posted by Jay Hancock at 10:48 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Let's hope Maryland new-car dealers are getting a decent amount of this cash-for-clunkers action. They need it. Not only have sales of all cars plunged in this state. The portion of new-car sales is down, too.

In 2000 four cars out of every 10 sold in the state was new. The ratio has been falling steadily since then, and this year it went through the floor, according to figures from the Motor Vehicle Administration. For the year to date through June, only 27 percent all sales were new cars. A few years ago Maryland dealers were selling 1,300 or 1,400 new cars a day in June. Last month they sold a little more than 800 a day -- a total of 24,509, the worst performance in at least a decade.

The first $1 billion of clunker cash quickly got used up. It looks like another $2 billion is on the way. If all $3 billion gets spent that'll mean about 670,000 new cars moved off the lot across the country. Maryland's share of that ought to be about 10,000 cars, based on our vehicle population. As the program intended, that could make a huge difference for dealers. And it'll improve the environment.

Posted by Jay Hancock at 8:17 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Posted by Jay Hancock at 10:28 AM | Permalink | Comments (0)
Categories: The Great Recession
        

From Reuters:

WASHINGTON, July 31 (Reuters) - The White House is working with U.S. lawmakers looking for ways to extend the "cash for clunkers" incentive program to spur U.S. auto sales, spokesman Robert Gibbs said on Friday.

"We feel confident we can find a solution" to continue the program, Gibbs told reporters, saying the incentive scheme had been a success for auto buyers and was still "up and running."

Posted by Jay Hancock at 10:15 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Like KFC's grilled-chicken giveaway, Washington's cash-for-clunkers program apparently proved so popular that the brakes got applied barely after it left the driveway. You shoulda gotten in line first thing. Expect cash for clunkers to be revived, however. After so much buildup and publicity, the howls from the customers and the dealers will prompt a second phase. The Washington Post reports:

The government's $1 billion "cash for clunkers" program, designed to boost stagnant auto sales, will be suspended at midnight Thursday because it is almost out of money just six days after it started.

Passed by Congress in late June to help the flagging U.S. auto industry, the program gives vouchers to consumers who trade in their gas-guzzling cars for more fuel-efficient models. But money set aside for the program, which started six days ago, is now close to running out or may have run out, as the program has been well publicized, the source said.

Posted by Jay Hancock at 9:46 PM | Permalink | Comments (4)
Categories: The Great Recession
        

Tim Bond, head of asset allocation at Barclays, says this in the Financial Times:

Similarly, few commentators consider the possibility that the large post-Lehman rise in US unemployment was a mistake on the part of panicky managements. Yet this is precisely what trends in labour productivity growth, not to mention common sense, tell us occurred.

In the first half of 2008, labour productivity growth averaged 3.3 per cent, while the unemployment rate rose to 5.6 per cent. At that point, there was no evidence US companies were overstaffed. Thereafter, output collapsed, yet business productivity growth remained positive, registering an average yearly pace of over 2 per cent, as companies shed labour at a faster pace than they reduced output. Businesses, like markets, panicked after Lehman went under. Employment and output were both reduced far more than it turned out to be necessary, as businesses temporarily and understandably assumed a worst case scenario.

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (0)
Categories: The Great Recession
        

A note to clients from T. Rowe Price's chief economist, Alan Levenson. (No link.) He says that recent unemployment claims trends, once adjusted for big but noncontinuing auto layoffs, suggest that July job losses will be much lower than monthly losses in June and earlier.

July 25 Jobless Claims: +25,000 to 584,000 (July 18: +25,000 to 559,000) Bottom line: Smoothing through auto industry-related volatility, trending lower. July employment estimate: -285,000

* Looking across the sharp 4-week "V" carved out by
unseasonably-timed auto industry layoffs, weekly jobless claims are 35,000 than four weeks ago; the four-week average is 57,000 lower (559,000 vs. 616,000). We believe that claims are headed lower.

* In a reflection of the month-to-month improvement in jobless
claims, we estimate that nonfarm payroll employment declined by 285,000 in July (June: -467,000).

Posted by Jay Hancock at 9:21 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Via Derek Thompson and Ryan Avent is this revealing chart, which shows job openings per capita. The No. 1 place for job openings: Washington. No 2 (Hidden behind the DC bubble): Baltimore. The stimulus is working great -- at least within an 80-mile radius from output valve of the stimulus plumbing! I can't find out where the data came from. (Help-wanted statistics are easy to publish but hard to do correctly.) But they tell an interesting story.

Posted by Jay Hancock at 9:05 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Otakon has apparently blasted the recession to smithereens, or at least fought back valiantly against bad-economy rays. On Sunday Otakon president Matt Smiechowski said of this year's pre-registration:

"I was actually expecting it to be on par with, if not lower than, last year's pre-registration total of 17,186, due to factors such as the economy. It's better than I could have hoped." He said he's expecting around 27,000 to attend this year. That would represent 2.8% growth over last year.

We'll see if that happens. Last year they had 26,000. Otakon, an "annual celebration of Japanese and East Asian popular culture" is a nice little updraft for the Baltimore hospitality industry, which could use it.

Posted by Jay Hancock at 10:30 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Bank of America, which reported second-quarter results this morning, has a nearly 12 percent delinquency rate on its credit-card loans. Says Bloomberg:

Card services swung to a $1.62 billion loss from a $582 million profit last year as more borrowers fell behind on payments. Earnings at the deposits business declined 59 percent to $505 million and the net interest margin, the difference between what it pays on deposits and the rates earned on loans and securities, narrowed to 2.64 percent from 2.7 percent in the first quarter and 2.92 percent in the year-earlier period.

The provision for credit losses, money set aside to cushion against bad debts, was $13.38 billion, unchanged from the previous quarter. Assets no longer collecting interest rose to $30.98 billion from $25.6 billion on March 31 and debts the bank doesn’t expect to be repaid jumped 25 percent to $8.7 billion.

Bank of America said it can’t collect payments on 11.73 percent of its $170 billion credit-card portfolio as of June 30, up from 8.62 percent on March 31.

Posted by Jay Hancock at 9:52 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Financial seer Jim Cramer, in a clip on the Daily Show, naming Lenny Dykstra, now proceeding through bankruptcy court, "one of the great ones" in the investment business.

Posted by Jay Hancock at 11:14 AM | Permalink | Comments (0)
Categories: The Great Recession
        

I think a memo went out to Maryland arts organizations soliciting comment on this post: Should O'Malley give taxpayer $$$ to puppet theaters? My favorite comment so far:

I'd say it's actually much more efficient to give bailout money to arty types than respectable business executives. How many artists do you know who are good at hanging on to money? They will happily fling the stuff all over the local economy, boosting small businesses, eateries, taxis, etc. Everybody wins! The artists get to spend a day being rich, and everyone else will be a little better off for much longer.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (9)
Categories: The Great Recession
        

For steering General Motors into bankruptcy, wiping out the shareholders he worked for and sticking taxpayers for billions in bailout costs, Rick Wagoner gets a $10 million golden parachute, says AP.

Wagoner, 56, who was ousted by the Obama administration on March 30, will get $1.64 million in benefits annually for each of the next five years, plus an annual pension of $74,030 for the rest of his life, according to company documents filed Tuesday with the U.S. Securities and Exchange Commission.

The former CEO, who spent 32 years with the company, can also choose to cash out his company-provided life insurance policy at $2.6 million, according to the filing.

The benefits are worth about half the $22.1 million value that the company placed on Wagoner's retirement package at the end of 2008. The severance package is also far smaller than those afforded to many other large-company CEOs in the past, before the market meltdown made compensation practices a touchstone for public and congressional outrage.

Posted by Jay Hancock at 9:53 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Investors who are too lazy to do their own research want desperately to believe that somebody out there has Wall Street figured out, has untangled the skein of emotion and economics that drives invesment and can tell investors what to do or manage their money for them. There's always somebody. Unfortunately it's a different somebody every few years.

Given the glut of financial prognostication, every time the market does something radical it's almost a necessity that SOMEONE will have called a warning or a "buy" call. That's their cue for fame and riches. It's not the cue for the public to start listening to their every word. In 1987 it was Elaine Garzarelli who "predicted" the stock market crash. In the 1990s it was Abby Joseph Cohen who "predicted" the bull market. Now it's Meredith Whitney, who made a bearish call on Citigroup in the fall of 2007. The Call was good but it wasn't omniscient, David Weidner noted in April.

Well, almost. The Call did not say Citigroup was stuffed with hundreds of billions of dollars in toxic assets. It did not say that multiple banks will fail unless the government intercedes. It didn't mention Bear Stearns (which she once expected to earn more than $11 a share in 2009), Lehman Brothers or American International Group Inc. It was a call that Citi was losing money and would have to take drastic action to raise capital.

Now Whitney is moving markets again by upgrading Goldman Sachs to a "buy" after newspapers reported over the weekend that Goldman is set for a blockbuster quarter. Goldman is up $4 to $146, and the market is up modestly. But where was Whitney last fall, when Goldman was $50? She will continue to be in the spotlight until, like Cohen and Garzarelli, she proves she is mortal and fallible. It's already happening.

Posted by Jay Hancock at 10:35 AM | Permalink | Comments (1)
Categories: The Great Recession
        

My friend Bill Glauber and photographer Melanie Stetson Freeman travel from Plymouth Rock to the Grand Canyon for the Christian Science Monitor. They find that Americans don't hate themselves, don't hate each other and are optimistic better times will come. Who knew?

Listen to America on talk radio, cable television, and the Internet, and you think that we are a people who shout, who boil over with us-versus-them anger, who think the worst of one another, instead of the best.

The truth is far different.

This is a journey in an America after the stock market crash and the housing bust, amid soaring unemployment, where people deal with hard times the best they can.

It's an America of hope.

And ultimately, we'll come to discover, it's an America largely at peace with itself.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (7)
Categories: The Great Recession
        

Ned Kelly, who sold Baltimore's Mercantile Bankshares to PNC Financial after he replaced Baldy Baldwin as CEO, was bumped from being Citigroup's chief financial officer to vice chairman after he clashed with the FDIC and tried to resign, the New York Times and Wall Street Journal are reporting. From the Times:

Tensions had already been simmering between the bank and the F.D.I.C. for months. But they reached a boil in early June after Mr. Kelly expressed growing frustration with the agency, publicly calling it a “tertiary” regulator behind the Federal Reserve and the Office of the Comptroller of the Currency.

By the end of the month, the F.D.I.C. abruptly placed the finance chief’s role high on a running list of concerns it wanted the troubled bank to address, a move that bank officials read as a signal they needed to replace Mr. Kelly, according to two people briefed on the situation. Citigroup officials also feared that the F.D.I.C. would put the bank on its list of troubled institutions if they did not act, these people said, a step that would raise its deposit insurance expenses and deter some customers from doing business with the company.

By then, Mr. Kelly had already come to believe that his remarks were turning into a flashpoint in the bank’s dealings with the agency, the people briefed on the situation said, and that he had become a “hindrance to the company.” Shortly before heading to his Virginia farmhouse for the Fourth of July holiday, he tendered his resignation to Mr. Pandit — a move that was quickly rejected.

Instead, Mr. Kelly was given a new perch as vice chairman overseeing strategy and deals, making official what had been his informal role as one of Mr. Pandit’s most trusted advisers. Just after Citigroup’s board signed off on the switch, F.D.I.C. officials were formally notified around 7 p.m. on Wednesday, according a person with knowledge of the situation.

Posted by Jay Hancock at 9:21 AM | Permalink | Comments (0)
Categories: The Great Recession
        

The star of Ned Kelly, who sold Baltimore's Mercantile Bankshares to PNC Financial, seemingly continues to rise at troubled Citi. Kelly had been head of global banking at the New York financial giant up until March, when he was named chief financial officer to replace Gary Crittenden. Now Crittenden, who became chairman of Citi Holdings, is out. And Kelly is becoming vice chairman. From AP:

Crittenden is leaving the company to spend more time with his family and pursue other business interests, Citigroup said in a statement.

Aside from his departure, Citigroup said Edward Kelly, who had been serving as CFO since Crittenden switched positions, will become vice chairman of Citigroup. Kelly will take on responsibilities for strategy and mergers and acquisitions in the new position.

John Gerspach will assume the role of CFO, becoming Citigroup's third CFO this year. Gerspach previously served as controller and chief accounting officer at Citigroup.

Hard to tell what it means. Often promotion to vice chairman is actually a demotion, a way of putting out to pasture whom you don't want to fire. The CFO slot at Citi is still one of the most prestigous positions in finance. But if Kelly really does have power to steer strategy instead of just sitting in meetings where strategy is discussed, he'll be a player.

Posted by Jay Hancock at 10:45 AM | Permalink | Comments (0)
Categories: The Great Recession
        

From Julie Bykowicz's story on the Wells Fargo case. Nice.

Two former Wells Fargo employees have claimed in depositions that the company's prime loan officers reaped rewards for steering customers who qualified for regular lending to subprime loans. Tony Pachal, a loan officer from 1997 to 2007, also said employees used racial slurs to describe minority customers and referred to subprime loans as "ghetto loans."

Posted by Jay Hancock at 9:22 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Hancock, May 29:

On Thursday, GM disclosed that the government would own 72.5 percent of the company immediately after the bankruptcy process ends. This confirms the corollary of the famous aphorism made by Charlie Wilson, GM's boss in the 1950s: What's bad for GM is now really bad for America.

Robert Reich, June 1:

Wilson’s edict, too, has been turned upside down: in many ways, what has been bad for GM has been bad for much of America.

(I'm not really accusing him of plagiarism, a charge that gets thrown around too freely. I doubt he read my piece, and in any event it's sort of an obvious thing to say.)

Posted by Jay Hancock at 8:10 AM | Permalink | Comments (1)
Categories: The Great Recession
        

I'll be on Ron Smith on WBAL, AM 1090, at 4:45 today to talk about this column on how we need to end the Age of the Deal and begin the Age of the Sustainable Relationship. Over the past 20 years we've worried too much about scoring the big transaction and not enough about what happens later.

Whether we're interacting with a banker, a CEO, a doctor, a car dealer or a politician, we need to be able to see him or her the morning after and agree it was good for both of us.

Posted by Jay Hancock at 12:02 PM | Permalink | Comments (2)
Categories: The Great Recession
        

Economist Ed Yardeni says dealing with the budget deficits can placate the bond market, bring interest rates down and keep the housing recovery going. He's probably talking about addressing deficits mainly with cost cutting. (He hates tax increases.) He does mention means testing as a way to cut spending in Medicare and Social Security. The truth is we need to cut costs and raise taxes.

The Obama Team needs to negotiate a peace treaty with the Bond Vigilantes. The Administration will agree to slash the structural federal deficit. The Vigilantes will stop pushing bond yields and mortgage rates up to levels that will abort the recovery. This would be a win-win solution in the spirit of doing what is best for the country. The President could do what Nixon did. It took an anti-communist hawk to recognize Red China. It may take a liberal community organizer to address the looming financial crisis in the social welfare state, particularly Social Security and Medicare. Now is a good time to push for means testing of these two programs.

Posted by Jay Hancock at 11:26 AM | Permalink | Comments (1)
Categories: The Great Recession
        

UPDATE: The Boston Herald says it was arson:

It appears at least one person felt a topless coffee shop in Maine was too hot. Fire officials say a blaze that destroyed the Grand View Topless Coffee Shop in Vassalboro at about 1 a.m. today was set by an arsonist.

Donald Crabtree thought a topless coffee and doughnut store was just the way for a merchant to fight the recession, so he opened the Grandview Topless Coffee Shop in Vassalboro, Maine, a few months ago. The place drew legions, but last night it burned down, according to the Boston Globe.

No word yet on suspected arson, but apparently not all the good Mainers were happy about the Grandview's dress code. Last month a state trooper was called to the Grandview after one of the waitresses went outside in her uniform, according to AP. The Vassalboro town fathers/mothers are scheduled to vote on an ordinance regulating topless restaurants on Monday.

Posted by Jay Hancock at 11:02 AM | Permalink | Comments (8)
Categories: The Great Recession
        

Cracker, playing The State Theater in Falls Church tonight, has written the theme song for The Great Recession. A little Thoreau, a little Timothy Leary, a little black helicopter paranoia.

Come on, turn on, tune in, drop out, with me

Baby you need a break so lets just run away

Well I'm tired of coding perl, and I'm tired of VBA

Maggie throw your lawbooks away

Turn on, tune in, drop out, give up, with me

Well we will find a little meadow high up in the Cascades

Baby we wont ever come down

Turn on, tune in, drop out, give up, with me

The whole thing's coming down

So lets just get out of the way

Posted by Jay Hancock at 10:35 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Cool map of Madoff victims from ResourceShelf. Decent amount in DC, relatively few in Baltimore.

Posted by Jay Hancock at 11:16 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Are liberal remedies or conservative remedies keeping the next Great Depression at arm's length? Ed Yardeni says the answer is "yes."

Unholy Alliance? We are all Keynesians and Friedmanites now! The two camps of macroeconomists were once hostile rivals. No more. They are working together to avert a depression by widening the federal deficit and pumping up the monetary base in an unprecedented fashion. Their efforts seem to be working just as K&F predicted.

J.M. Keynes advocated deficit government spending to save the economy from the worst. Friedmanite monetarists blame depressions on money-supply shrinkage and support goosing the money supply when deflation and depression threaten. The Bush/Obama response to last year's crash has been to apply both remedies. So no matter what the outcome, the argument will continue.

Posted by Jay Hancock at 10:20 AM | Permalink | Comments (0)
Categories: The Great Recession
        

The Treasury Department's "stress test" laid out an "adverse" scenario for the economy and then calculated the the future effect on banks. As Calculated Risk points out, prices so far are tracking pretty closely with the adverse scenario. However, it's early in the process -- prices could still start ending their free fall. And, as CR's graph shows, home prices according to the Case-Shiller Index are doing slightly better than the adverse scenerio.

Posted by Jay Hancock at 10:18 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Don’t necessarily bet on a corporate employer if you’re a new grad or other job seeker. Nearly all the Maryland sectors adding more jobs than they’re shedding are financed by the taxpayer, according to new government figures.

Private Maryland companies ditched 78,000 jobs during the 12 months ending in April while state, local and federal government added 6,000, says the U.S. Labor Department.

That’s the worst showing for both sectors in more than a decade, but at least government on the whole is hiring. Most growth is in federal jobs, as the Census Bureau gets ready for the 2010 head count, and in state-employed teachers.

Of the private employers that are hiring, many seek seasonal help for summer tourism. Even in that industry, helped by lower gas prices, total jobs should be lower than last year. And hospitals, clinics and social services employers are still adding positions.

Beyond that it’s a matter of finding the “least bad” sectors. Manufacturing, finance and construction are in the tank. Utilities, telecom and transportation services seem to be holding their own, but they’re vulnerable unless the economy starts improving.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
Categories: The Great Recession
        

My college classmate Edmund Andrews, who covers the Fed for the New York Times, has written a brave, honest and surprising first-person account of how one of the top economics reporters in the country got himself into the position of defaulting on his mortgage and putting himself and his wife at risk of foreclosure.

There have been many stories about mortgage customers who made bad decisions, but few as unflinching as this one. When reporters interview mortgage "victims," aspects of the story are almost always left out. Exactly how much did the borrower make in income? How much did he/she spend on vacations and other discretionary items that could have gone to the mortgage payment? How bad were the fights with the spouse? Reporters, pressed by deadlines and grateful that unwise borrowers are willing to share any of their experience, are often reluctant to ask hard questions. When asked, interviewees often clam up.

Acting as both interviewer and interviewee, Andrews has gone into the gory details. He has written a book, Busted: Life Inside the Great Mortgage Meltdown, about his still-unfolding nightmare. The book is excerpted in this Sunday's Times magazine. You can advance-order it on Amazon. It sounds like he could use the dough.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love.

Posted by Jay Hancock at 9:40 AM | Permalink | Comments (3)
Categories: The Great Recession
        

L. William Seidman, who was head of the FDIC and Resolution Trust Corp. during the S&L crisis, died Wednesday. Here is one of the last things he wrote, for Bank Director magazine (free registration required), pondering the implications of Fed Chairman Bernanke's extraordinary Wall Street bailout. As someone who presided over a successful bailout, he knew that saving and/or dispatching ailing lenders is only the beginning of the process.

But what about the possibility of a major inflationary bubble caused by all the money (credit) created to carry out these intervention policies? The chairman has repeatedly said that most of the new credit is short term and can be reduced quickly if need be to diminish the inflationary threat. He may be right, but that depends on the Fed's willingness to withdraw its support-not a popular decision. Furthermore, inflation does not depend only on the Fed. The U.S. government is running a trillion-dollar deficit, which is clearly inflationary in the long run.

While Fed action is important, the greatest threat of inflation comes from the failure of the government to get the deficit under control in the near term. It's much easier politically to push a stimulus program (a shot of dope) than it is to cut government spending. When the system needs to cut expenditures to avoid inflation (detox), the many who have been enjoying the benefit of government largess will fight very hard to slow reducing expenditures.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Barry Ritholtz asks a great question: Why does anybody still bother to quote what Greenspan says? Your eccentric uncle who builds pagodas out of used bubblegum would have as much credibility as the Maestro about the housing market and the financial crisis, but he never gets quoted. Successful economic forecasting was not a skill Greenspan possessed even before he was disgraced by the housing meltdown. Back when he was a consultant in the 1970s and early 1980s, his projections were notoriously unreliable.

“We are finally beginning to see the seeds of a bottoming [in the housing industry. The U.S. is] at the edge of a major liquidation [in the stock of unsold properties, which may help to stabilize prices]. —Alan Greenspan, May 12 2009

“I don’t know, but I think the worst of this may well be over.”
—Alan Greenspan, October 2006

Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?

That was the question on my mind as I pondered yet another declaration from Alan Greenspan that the Housing Market has bottomed. That he has consistently made similar such statements before is cause for doubting him here. That these prior bottom calls were as far back as 2006 is cause for ridicule.

Few people have been worse than Greenspan in analyzing the Housing market. In fact, the only person / group I can think of with a consistently worse track record than Greenspan’s of analyzing the housing market was the group he spun his foolishness to yesterday: The National Association of Realtors.

Posted by Jay Hancock at 12:42 PM | Permalink | Comments (4)
Categories: The Great Recession
        

Noon today: WYPR with Rodricks, (88.1-FM) talking about the Treasury Department's stress tests for top banks that got released last week. Are they as promising as they seem?

Posted by Jay Hancock at 9:52 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Another monthly plunge in wholesale inventories looks at first blush like bad news. Producers are selling less stuff, so their warehouses are emptier. Actually it's good news, and this morning's 100-point pop in the Dow probably has as much to do with the inventory report as with the terrible but not--totally-doomsday jobs report.

Inventory overhang -- too many goods for too few buyers -- is the traditional fuel for recession. When manufacturers have more stuff than they can sell they shut down and lay people off, which sends ripples across the economy. Just look at the housing market. Inventory is problem No. 1. Too big a supply is the cause of declining home prices and a depression among homebuilders. Inventory reduction in the goods market means producers will be more likely to crank up production and hire people when demand picks back up.

Posted by Jay Hancock at 12:02 PM | Permalink | Comments (0)
Categories: The Great Recession
        

I love the fiction maintained by the wire services that the bank stress tests are only for a really, really bad recession. Reuters is typical:

The banks have been negotiating with their regulators about the depth of their capital needs, should the recession prove to be deeper and longer than anticipated. Markets have been anxiously anticipating the results, which will differentiate the strongest banks from those still expected to sustain considerable credit losses.

We're already in a really bad recession. The stress tests are testing for current conditions. On the other hand, if markets were truly anxious, the S&P 500 wouldn't be over 9,000.

Posted by Jay Hancock at 10:24 AM | Permalink | Comments (0)
Categories: The Great Recession
        

I missed this last week amidst all the turmoil. The Labor Department's employment cost index showed the smallest increase on record for the private sector, adding statistical evidence to bolster a column I wrote a month ago on falling wages. Here is part of Krugman's column today on the results:

It’s true that many workers are still getting pay increases. But there are enough pay cuts out there that, according to the Bureau of Labor Statistics, the average cost of employing workers in the private sector rose only two-tenths of a percent in the first quarter of this year — the lowest increase on record. Since the job market is still getting worse, it wouldn’t be at all surprising if overall wages started falling later this year.

Here is the beginning of last month's column:

Bosses at Avatech Solutions thought they had to slash payroll after sales cratered, but when it came down to it they didn't want to lay off 35 or 40 people. So the Owings Mills company let half that many go and achieved the balance of the savings with a kind of cost-cutting not widely seen since the Great Depression: a pay cut for all remaining employees.

Many facets make this downturn unsettling and different: the collapse of Wall Street, the taxpayer dollars laid on the line, the depth of employment loss - underscored by Friday's report that in March the economy shed 663,000 more jobs.

Add another. Thousands of employees who have managed to hang onto their jobs are nevertheless seeing living standards and buying power decline with substantial, if maybe only temporary, wage decreases.

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (2)
Categories: The Great Recession
        

From AP:

CHARLOTTE, N.C. (AP) — Bank of America Corp. has delayed the release of a shareholder vote on whether Chairman and CEO Ken Lewis can keep both his jobs.

At the company's annual meeting Wednesday, bank executives said they needed more time to tally the votes for the 11 proposals that were put to a shareholder vote. That includes the election of the Bank of America board as well as a shareholder proposal to strip Lewis of his chairman's title.

The company said it was aiming to release the votes later Wednesday. Big investors including California's employee pension fund have called for shareholders to oust Lewis and his fellow directors at the meeting

Posted by Jay Hancock at 1:42 PM | Permalink | Comments (1)
Categories: The Great Recession
        

Output and inventories are getting all the attention in this morning's GDP report, but consumer spending rose during January through March, reversing a plunge in the fourth quarter. That's good news. From the CSM:

Economic activity in America plunged again in the first quarter of the year, but positive signs in one key indicator – consumer spending – could foreshadow economic stability later this year.

Overall, the nation’s output of goods and services declined at an annual rate of 6.1 percent in the period of January to March, according to preliminary numbers released Wednesday by the Commerce Department. That was almost as bad as the fourth quarter of last year, but the report showed a crucial difference.

Where consumer spending tanked in the fourth quarter, it held up in the most recent period with a 2.2 percent annualized gain.

That sign of resilience was punctuated earlier this week, as a separate survey released Tuesday showed a solid rise in consumer confidence.

Posted by Jay Hancock at 1:34 PM | Permalink | Comments (2)
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This sounds like lots of fun. From thedeal.com:

Bank of America Corp.'s (NYSE:BAC) annual meeting is turning out to be a raucous affair as Ken Lewis and the board of directors are getting an earful from shareholders who are indulging in their opportunity to rail against the directors and management.

"I don't understand how you can stand up here and say that you should keep your job," one woman told Lewis, after reading him a sarcastic poem about his $50 million in compensation.

Numerous shareholders also accused Lewis of driving the bank into insolvency.

In an answer to one question, Lewis also said that management considered executing a MAC and killing the Merrill Lynch & Co. deal, but decided that it wasn't in the best interests of the shareholders, eliciting sighs from the audience.

Another shareholder vented about Treasury Secretary Tim Geithner and the stress tests, demanding that Lewis explain what the tests were and how the bank performed on them.

"Let's all be buddies here," he said. "Come clean; this is America, not a banana republic. We want to know if the preferred are going to become common."

Another shareholder began with the reading of Psalm 82 before attacking board members for being complicit with poor lending practices and credit default swaps and demanding corporate reform. "We demand that we have truly independent boards and fair compensation."

The 82nd Psalm says:

How long will you defend the unjust and show partiality to the wicked?

Posted by Jay Hancock at 12:59 PM | Permalink | Comments (0)
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It's easier to write about downsizing and layoffs than to witness them.

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (4)
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In a story that could have been written the day the "stress tests" were announced, the WSJ says today:

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests of lenders, according to people familiar with the situation.

The capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said.

Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (0)
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Long piece on Treasury Secretary Tim Geithner's ties to Wall Street in the NYT. Reporters Jo Becker and Gretchen Morgenson obtained Geithner's daily appointment book for when he was president of the New York Fed, showing tennis games, daily limo rides from his house in Westchester County and Four Seasons meals with Wall Street bigwigs. The schedule chronicles Geithner's meetings with Citigroup's Sandy Weill in late 2007 to see if Geithner wanted to replace Chuck Prince as Citigroup's CEO.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (0)
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New York Attorney General Andrew Cuomo has confirmed this morning's Wall Street Journal story saying Bernanke and Paulson urged Bank of America not to immediately reveal to shareholders the size of losses at Merrill Lynch, the investment banking company BOA had agreed to buy. The letter also shows that BOA, alarmed at the flood of red ink, wanted to back out of the Merrill deal but relented after Treasury threatened to fire BOA boss Ken Lewis and his team.

There seems to be a stunning lack of disclosure all around the Treasury's Troubled Asset Relief Program. Let the lawyers sharpen their pencils. BOA's shares were around $14 in mid-Decmeber, the time of the events described below. Now they're less than $9.

From Cuomo's letter to Congress:

The week after the shareholder vote -and days after Merrill Lynch set its bonuses Merrill Lynch quickly and quietly booked billions of dollars of additional losses. Merrill Lynch's fourth quarter 2008 losses turned out to be $7 billion worse than it had projected prior to the merger vote and finalizing its bonuses. These additional losses, some of which had become known to Bank of America executives prior to the merger vote, were not disclosed to shareholders until mid-January 2009, two weeks after the merger had closed on January 1,2009.

Immediately after learning on December 14,2008 of what Lewis described as the "staggering amount of deterioration" at Merrill Lynch, Lewis conferred with counsel to determine if Bank of America had grounds to rescind the merger agreement by using a clause that allowed Bank of America to exit the deal if a material adverse event ("MAC") occurred. After a series of internal consultations and consultations with counsel, on December 17,2008, Lewis informed then-Treasury Secretary Henry Paulson that Bank of America was seriously considering invoking the MAC clause. Paulson asked Lewis to come to Washington that evening to discuss the matter.

At a meeting that evening Secretary Paulson, Federal Reserve Chairman Ben Bernanke, Lewis, Bank of America's CFO, and other officials discussed the issues surrounding invocation of the MAC clause by Bank of America. The Federal officials asked Bank of America not to invoke the MAC until there was further consultation. There were follow-up calls with various Treasury and Federal Reserve officials, including with Treasury Secretary Paulson and Chairman Bernanke. During those meetings, the federal government officials pressured Bank of America not to seek to rescind the merger agreement. We do not yet have a complete picture of the Federal Reserve's role in these matters because the Federal Reserve has invoked the bank examination privilege.

Bank of America's attempt to exit the merger came to a halt on December 21, 2008. That day, Lewis informed Secretary Paulson that Bank of America still wanted to exit the merger agreement. According to Lewis, Secretary Paulson then advised Lewis that, if Bank of America invoked the MAC, its management and Board would be replaced:

[W]e wanted to follow up and he said, 'I'm going to be very blunt, we're very supportive on Bank of America and we want to be of help, but' --as I recall him saying "the government," but that may or may not be the case -"does not feel it's in your best interest for you to call a MAC, and that we feel so strongly," --I can't recall ifhe said "we would remove the board and management if you called it" or ifhe said "we would do it if you intended to." I don't remember which one it was, before or after, and I said, "Hank, let's deescalate this for a while. Let me talk to our board." And the board's reaction was of" That threat, okay, do it. That would be systemic risk."

In an interview with this Office, Secretary Paulson largely corroborated Lewis's account.

On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management. Secretary Paulson told Lewis a series of concerns, including that Bank of America's invocation of the MAC would create systemic risk and that Bank of America did not have a legal basis to invoke the MAC (though Secretary Paulson's basis for the opinion was e,ntirely based on what he was told by Federal Reserve officials).

Secretary Paulson's threat swayed Lewis. According to Secretary Paulson, after he stated that the management and the Board could be removed, Lewis replied, "that makes it simple. Let's deescalate." Lewis admits that Secretary Paulson's threat changed his mind about invoking that MAC clause and terminating the deal.

Despite the fact that Bank of America had determined that Merrill Lynch's financial condition was so grave that it justified termination of the deal pursuant to the MAC clause, Bank of America did not publicly disclose Merrill Lynch's devastating losses or the impact it would have on the merger. Nor did Bank of America disclose that it had been prepared to invoke the MAC clause and would have done so but for the intervention of the Treasury Department and the Federal Reserve.

Lewis testified that the question of disclosure was not up to him and that his decision not to disclose was based on direction from Paulson and Bernanke: "I was instructed that 'We do not want a public disclosure. '"

Posted by Jay Hancock at 12:45 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Buried deep (page 8) in a letter from Federal Housing Finance Agency James Lockhart to Sen. Chris Dodd is this unsettling piece of data: The number of prime mortgages with payments 60 or more days late soared from 497,131 in December to 743,686 in January -- a 50 percent increase. HT Calculated Risk.

The Daily Record's Robbie Whelan has a related story:

For most of the recent housing crisis, subprime mortgages have been in the spotlight. The coming year will be different, according to one Federal Reserve official.

“Across the board … we’re seeing an increase in delinquencies,” said R. Andrew Bauer, regional economist with the Federal Reserve Bank of Richmond. “What we’re going to be talking about in 2009 is the prime market.”

Posted by Jay Hancock at 12:22 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Here's a good story from AP:

The government's "stress tests" of 19 large banks take a harsher view of loans than of other troubled assets, according to a Federal Reserve document obtained by the Associated Press. That approach favors a few Wall Street banks while potentially threatening major regional players. Regulators will use the tests to determine which banks are healthy, which need more capital and which might fail if the recession worsened.

The regulators' focus could spell trouble for big regional banks undergoing the tests. Their portfolios have more individual loans and fewer of the big pools of securitized loans that Wall Street giants specialize in.

Some analysts said regulators are favoring the largest banks because if even one failed that would pose a severe economic risk. Banks that deal in securities are more interconnected to other corners of the global financial system.

Posted by Jay Hancock at 6:05 PM | Permalink | Comments (0)
Categories: The Great Recession
        

The International Monetary Fund just bumped its estimate of U.S. losses on bad mortgages and other defaulted debt to an amazing $2.7 trillion, up from a $2.2 trillion estimate in January. Worldwide losses could hit $4 trillion, the fund says. These results were leaked to The Times a couple weeks ago and referenced in this Hancock column. Now it's official. The only reason Citigroup is selling for close to $3 a share is the dubious hope that Washington will bail it out again and again.

Without a thorough cleansing of banks’ balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalization, risks remain that banks’ problems will continue to exert downward pressure on economic activity. Though subject to a number of assumptions, our best estimate of writedowns on U.S.-originated assets to be suffered by all holders since the outbreak of the crisis until 2010 has increased from $2.2 trillion in the January 2009 Global Financial Stability Report (GFSR) Update to $2.7 trillion, largely as a result of the worsening base-case scenario for economic growth.

In this GFSR, estimates for writedowns have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest writedowns could reach a total of around $4 trillion, about two-thirds of which would be incurred by banks.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (1)
Categories: The Great Recession
        

The National Association of Business Economists reports that job losses, pessimism continue to grow, but at a slower rate. The whole summary is here.

“NABE’s April 2009 Industry Survey provides fresh evidence that the U.S. economy’s recession is abating,” said Sara Johnson, IHS Global Insight. “Key indicators—industry demand, employment, capital spending, and profitability—are still declining, but the breadth of decline is narrowing. Declines still outnumber gains, but fewer firms are reporting declines and more are reporting gains. This suggests that the economy is at an inflection point but has not yet reached a turning point. In January, our survey’s barometers for industry demand and capital spending hit their lowest levels in the history of the survey, dating back to 1982. The April survey showed better (less negative) results for industry demand, profit margins, employment, capital spending, and credit conditions.

Posted by Jay Hancock at 10:24 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Everybody wants a bailout. The University of Southern California says:

Why has the Obama administration given so much to the money-losing financial and auto industries, and so little to the profitable business of creating art? Elizabeth Currid of the USC School of Policy, Planning, and Development breaks down the stimulus plan’s $50 million allotment to the NEA.

USC professor Currid says:

Maybe it’s just the skeptic in me, but I don’t think anyone on Capitol Hill deserves a pat on the back for throwing artists a few free paintbrushes. The amount reserved for the arts is less than .00000000005 percent of the total package. I don’t mean to be ungrateful, especially after Robert Redford himself had to place a call to Speaker of the House Nancy Pelosi to get her to fight for the funding, but let’s consider some past contributions to and from the art world.

Another special interest trying to climb into the tub of butter that is the stimulus. This is not something that should keep you up at night. Arts and culture are great, but they are products of prosperity and economic growth; they do not create them. Let's first worry about restoring aggregate demand and function to the financial system.

UPDATE: Commenter Harry says:

Less than .00000000005 percent?

I'm not an art professor, or anything, but by my math, the number is more like .006 %.

I think she took artistic license. How creative!

Posted by Jay Hancock at 10:00 AM | Permalink | Comments (3)
Categories: The Great Recession
        

For the second time in a row, the Federal Reserve's "Beige Book" reports that employes are cutting salaries and wages, not just laying people off and reducing work hours.

Continuing layoffs, furloughs and hiring freezes kept wage pressures minimal. Contacts from a broad range of industries reported pay freezes, with some noting salary reductions. The Minneapolis District reported that unionized faculty at Minnesota's technical and community colleges had tentatively accepted a two-year pay freeze. Contacts in the Boston, Philadelphia, Richmond, Chicago, and San Francisco Districts reported cuts in certain non-wage employment benefits, including cuts in bonuses, elimination or suspension of employer contributions to employee retirement programs, and increases in copayments on employer sponsored healthcare plans.

Here is a recent column on the reports of wage and salary reductions that characterize this recession.

Posted by Jay Hancock at 8:00 AM | Permalink | Comments (0)
Categories: The Great Recession
        

From the NYT:

The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

Posted by Jay Hancock at 8:18 AM | Permalink | Comments (0)
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Who knew? I had him pegged for a Yankees fan. Fits the type. From Reuters:

NEW YORK (Reuters) - Bernard Madoff's New York Mets baseball season tickets may be sold in an online auction, a judge ruled on Tuesday, allowing the proceeds to go toward reimbursing the jailed swindler's defrauded customers.

A lawyer for the court-appointed trustee liquidating Madoff's business told the judge in U.S. Bankruptcy Court in Manhattan that the tickets needed to be sold as quickly as possible because the Mets' played their first home regular season game at the new Citi Field stadium on Monday.

In a light-hearted exchange, Judge Burton Lifland told lawyer Amy Vanderwal: "The market is at the bottom ... might it be best to speculatively hold on to see how well the Mets do?"

But Vanderwal replied, "there is also the possibility they could do worse."

Madoff's tickets were for two seats in the second row behind home plate in the Delta Club Platinum section at the new Citi Field. They had a face value of about $80,191, or $295 to $695 per single ticket.

Posted by Jay Hancock at 2:06 PM | Permalink | Comments (0)
Categories: The Great Recession
        

As Europe gradually switched from the Julian to the Gregorian calendar, days and sometimes entire weeks would suddenly get passed by. One day it would be Oct. 4. The next day it was Oct. 15.

Goldman Sachs has pulled a similar stunt, switching the end of its fiscal year from Nov. 30 to Dec. 31. U.S. corporations report profits (or the lack) in quarterly chunks. So Goldman's fourth quarter was August through November. The first quarter, under the new calendar, was January through March, for which the firm reported a very nice profit of $1.8 billion. But what about December? Lacking a quarter to call home, December "will largely be ignored," reports the NYT's Floyd Norris. But it shouldn't be: Goldman stashed $1.3 billion of pretax losses in December.

Sez Floyd:

Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.

How did it do that? One way was to hide a lot of losses in not-so-plain sight.

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
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The Dow is up 200 points on Wells Fargo's report that it "earned" $3 billion in the first quarter. Some of the profit was real. Net interest margin (gap between cost of deposits and other fund and interest charged on performing debt) was a monster 4.1 percent, thanks to ZIRP, Ben Bernanke's Zero Interest Rate Policy.

Writedowns for bad mortgages and other toxic debt plunged from $6.6 billion to $3.3 billion. How much of that improvement was due to changes in mark-to-market accounting rules? We won't know for many weeks.

Posted by Jay Hancock at 10:47 AM | Permalink | Comments (4)
Categories: The Great Recession