As the wire reports say, November's unemployment drop from 9.0 percent to 8.6 percent puts the jobless rate at its lowest point in more than two years. But there are still more than 13 million unemployed folks -- Americans who want to work, have looked for a job in recent weeks and haven't been hired. And that doesn't count the folks who have given up. If you want to work but you're not actively looking for a job, you're not counted as unemployed.

Hundreds of thousands seem to have given up looking last month, which is what partly explains the drop in unemployment. That doesn't seem like huge progress. And, as Bloomberg notes:

The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 43 percent from 42.4 percent.

The separate sample of payrolls showed a seasonally adjusted gain of 120,000 jobs, which is about what economists expected. But that's not nearly enough to provide work for everybody who wants it. The population and the labor force keep growing. The job base needs to grow faster than the labor force to put the country back on the right track.

Posted by Jay Hancock at 8:45 AM | Permalink | Comments (6)
Categories: The Great Recession
        

The latest in groundbreaking work from Bloomberg News, which sued to get access to secret bailout data held by the Federal Reserve:

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

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

Question: How did Europe and Asia and Canada all have a simultaneous housing boom as big if not bigger than that of the US? Were the Australians compelled to follow the CRA? Did Barney Frank influence the Belgians?

Were the US GSEs effecting policy in the UK? Or might some other factors — like ultra-low rates, excess leverage, demand for junk AAA-rated paper, misaligned incentives, and/or derivatives have been at play?

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (6)
Categories: The Great Recession
        

I discuss the October jobs report with WBAL's Bill Vanko.

Posted by Jay Hancock at 12:11 PM | Permalink | Comments (1)
Categories: The Great Recession
        

Few people expected Europe's sovereign debt crisis to be permanently solved by last week's summit. But few people expected that this is what the next problem might look like. Greek Prime Minister Papandreou has called a referendum on the bailout for January. If it fails, we're back to the starting gate. Actually, we'll be way behind the starting gate -- a lot worse off than if the crisis were addressed and solved a year ago.

Tyler Cowen doesn't think that it'll even get held -- that the deal will fall apart beforehand. Even if it passes there will be lots of uncertainty and guessing between now and then. And that uncertainty will lead to more pressure on Italy and Spain. A selection of reactions this morning:


Peter Boockvar:

The decision by Greek PM Papandreou to hold a referendum on the European plan to Save Greece is basically a call to the Greeks of whether they want in or out of the euro more than a vote on the latest bailout plan. The Greeks don’t want more austerity but they want to stay in the euro and that’s why the referendum will likely get a yes vote but we unfortunately have to wait until January for this. A no vote will lead to a collapse of the bailout, a hard default and a complete mess for everyone else. French bank stocks in particular are down 10-15% in response.

Krugman:

Things are falling apart in Europe; the center is not holding. Papandreou is going to hold a referendum; the vote will be no. Italian 10-years at 6.29 at pixel time; that’s a level at which the cost of rolling over the existing debt will force a default, even though Italy has a primary surplus. And with everyone simultaneously pushing for fiscal austerity, a recession seems almost certain, aggravating all of the continent’s problems.

Tyler Cowen:

Make no mistake about it, the decision to hold a “referendum” is a decision to turn down the deal altogether. The referendum will never be held. It is scheduled for January and the current deal, which is not even a worked out deal, won’t be on the table by then. It’s already not on the table. The opposition leader is already opposed to the referendum, there are months more of market volatility to come, the other EU powers will get skittish about the deal, how is the conscientious Slovakia supposed to feel, and how many other factors do I need to cite? And how can the Greeks decide how the referendum will be worded?

This is a way to back out of everything, under the guise of “democracy” and ex post blame the speculators and the rest of Europe.

Posted by Jay Hancock at 10:06 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Recessions, as the name indicates, are when economic output shrinks. So to technically indicate a recession, a country's GDP has to be going backward. Economists declare the recession over whenever the slide stops and the economy starts creeping up again -- no matter how deep the hole it fell into. If you topple down a well a mile deep, the experts basically say the crisis is over once you've climbed back a few inches.

Maybe this is a better definition of the end of a recession: when you get back to the top of the well. We reached that point according to last quarter's GDP figures, says Bloomberg:

The value of goods and services produced in the U.S. surpassed its pre-recession level after 15 quarters, taking three times longer than the average for 10 previous recoveries since World War II.

“The American economy finally has accomplished the recovery and has now entered the expansion,” said Neal Soss, chief economist with Credit Suisse in New York, who was an aide to former Federal Reserve Chairman Paul Volcker. “But the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.”

Today's economy is adding the marginal GDP that economists once expected to come years ago.

Posted by Jay Hancock at 8:59 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Michael Mandel in the Atlantic on the path forward:

It all comes down to this: We have to match growth to debt. If we can't create miracles from growth, we have to consider inflation to reduce the value of our debt. We have only two ways out of our current global economic mess: innovation and inflation. And as the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation).

Growth equals productivity (innovation) increases plus population (labor force) increases. So over the long term there is a third alternative: Having lots of kids or inviting in lots of productive immigrants. Each is problematic, including the pressure these would put on scarce resources and the time they would take to have macro effects.

But without one of these ways out, we may end of taking the fourth alternative: turning Japanese.

Posted by Jay Hancock at 8:45 AM | Permalink | Comments (1)
Categories: The Great Recession
        

To make you feel better after reading all the terrible economic news. From the WSJ (subscription required):

Analysts have been raising their estimates of U.S. economic growth, an about-face from just a month ago, when they were lowering those forecasts and fretting that the country was on the cusp of recession.

In mid-September, a weekly poll of forecasters by consulting firm Macroeconomic Advisers showed economists expected gross domestic product to grow at an annual rate of just 1.7% in the third quarter. Now, the economists expect Thursday's GDP report from the Commerce Department to show a 2.7% gain, and some are looking for more than a 3% pace.

Posted by Jay Hancock at 9:27 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Felix Salmon is not impressed by HARP II, Obama's new refinancing program:

Sounds impressive, eh? It is, until you read the official FHFA press release. At which point you learn that

* If you’re a homeowner whose mortgage isn’t owned or guaranteed by Frannie, you’re out of luck.
* If your mortgage was sold to Frannie after May 31, 2009, you’re out of luck.
* If you want to get out of negative-equity hell by doing a principal reduction, you’re out of luck.
* If your bank doesn’t feel like participating, for whatever reason, you’re out of luck.

However, check out this Bloomberg story:

Oct. 25 (Bloomberg) -- The mortgage-bond market is showing investors are bracing for a larger-than-anticipated wave of refinancings following President Barack Obama's push to stoke the economy by helping more homeowners reduce loan payments.

Posted by Jay Hancock at 9:21 AM | Permalink | Comments (1)
Categories: The Great Recession
        

From Reuters:

Adamovich said a model portfolio designed to protect people's wealth in the face of global catastrophe has attracted more interest as financial turmoil spread in recent months.

The "catastrophe portfolio" allocates one third of money to gold, one third to defensive and internationally diversified blue chip company shares and a third to the debt of ultra safe developed countries.

Adamovich said interest in the portfolio is still limited to the most "paranoid" clients but interest is rising, particularly among people who have seen previous episodes of societal breakdown and financial collapse in Europe.

Posted by Jay Hancock at 9:14 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Maryland's job growth continues to slightly outperform that of Virginia during this slow, miserable recovery. Neither state is spinning prosperity. But according to the numbers for September, released this morning, Maryland has added 55,000 jobs -- 2.2 percent -- to its job base since employment hit bottom in February 2010. Virginia touched bottom in the same month, but since then it has added only 40,000 jobs -- 1.6 percent.

Maryland's recession was worse, however. The state lost 5.6 percent of its jobs from its peak employment of Feb. 2008 to its trough of Feb. 2010. In Virginia, whose peaks and troughs were in the same months, the job loss was 4.8 percent. Maryland's unemployment rate for September, however, was 7.4 percent -- worse than Virginia's. Virginia's September unemployment was 6.5 percent. Thanks largely to federal spending, both states are doing substantially better than the country as a whole.

Posted by Jay Hancock at 11:49 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Here is a small piece of good news, at least for the San Diego real estate market. This may or may not be representative of what's going on in San Diego generally and probably isn't representative of what's going on on an aggregate basis nationally. Still, it's good to have any good news about residential real estate anywhere these days. And if what he's talking about has any kind of momentum or volume, it suggests Ben Bernanke's "Operation Twist" is working.

Jim the Realtor, made famous by Calculated Risk, says record-low mortgage rates have brought buyers out of the woodwork in San Diego. “The market is abuzz currently," he says. "the action is incredible. Offers flying everywhere, I think the buyers are scrambling knowing that these rates are incredible righrt now. I think it’s going to be a very healthy fourth quarter, looking back at the results. The listings I have, both the ugly REO and the nicer homes, all of them are getting lots of action."

Jim the Realtor is not a kneejerk, "it's a great time to buy a house" agent. He was quite down on the market for a long time. Watch the whole video here:

Posted by Jay Hancock at 10:44 AM | Permalink | Comments (0)
Categories: The Great Recession
        

The good news, such as it is: The economy added 107,000 103,000 jobs in September, according to the Labor Department. That's slightly better than people predicted. Businesses are adding jobs at a slow pace to compensate somewhat for continued shrinkage in government employment. The Post Office shed jobs last month. But the construction industry, of all places, added a few jobs. (Not in housing, however, so don't get hopes up about that.) Job-growth numbers for July and August were revised upward.

For August, when the initial report said zero jobs were added, the new number is growth of 57,000 jobs. For July the job increase was revised from 85,000 to 127,000. Today's report should give the stock market some comfort that we're not plunging into a new recession.

The bad news: Unemployment didn't budge. It's still 9.1 percent. 14 million people are unemployed. Unemployment for blacks is 16 percent. There are 9 million people working part-time who want full-time work. More than 2 million people want a job but have given up looking. And September's job-growth numbers were boosted by the return of 45,000 striking Verizon workers. So what looks like the addition of 103,000 jobs was really 58,000 jobs.

Posted by Jay Hancock at 8:49 AM | Permalink | Comments (8)
Categories: The Great Recession
        

So says Der Spiegel. I wouldn't exactly call zero interest rates part of the Keynesian prescription, but the column is interesting:

American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes's clever idea that government spending is the best way to counteract a serious economic downturn -- and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling stock prices should prompt central banks to lower interest rates and governments to come to the rescue with economic stimulus programs. US economists call this "kick-starting" the economy.

Now the bubble has burst. This has not, however, prompted the US government to conclude that its prescriptions could have been wrong. On the contrary, now it wants to increase the dose. Obama plans to follow the largely unsuccessful 2008 economic stimulus program with a new program this year. Meanwhile, Federal Reserve Chairman Ben Bernanke says that he intends to flood the economy with cheap liquidity -- for years, if necessary.

Posted by Jay Hancock at 8:56 AM | Permalink | Comments (4)
Categories: The Great Recession
        

If you're tired of reading about Greece and Italy, Jeff Thredgold tries to look on the bright side. Today he offers several dozen happy headlines concerning the United States and its economy. A sampling:

•Total U.S. retirement assets rose to $17.5 trillion in 2010, the most since the end of 2007 •During the early 1960s, the five-year survival rate from cancer for Americans was one in three. Today it is two in three…continuing to climb…and the highest in the world •The U.S. accounted for 34% of the funds spent globally on research & development (R&D) during 2010 •The country’s net petroleum imports peaked at 60.3% in 2005 and dropped to 49.3% in 2010. Within a year, North Dakota is expected to supply more oil for domestic use than the 1.1 million barrels a day that Saudi Arabia now exports to theU.S. •The number of violent crimes fell by a surprisingly large 12% last year versus the prior year •Roughly 80% of companies that suspended or reduced their 401(k) matches during the past 2-3 years reinstated them in 2010 or 2011

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Michael Mandel calculates and contemplates the declining compensation being made by fairly young college graduates. Real earnings (2010 dollars) for male holders of bachelor degrees have fallen from $73,000 in 2000 to $59,000 in 2010. (See Mandel's graph below.) For women it's worse, with real earnings falling from $56,000 to below $48,000.

This actually doesn't give the full, bleak picture facing young college grads -- those figures are for people who are actually employed full time. And they include employees as old as 34 -- folks who have been employed for a while. Many, many grads can't find a full-time job. Mandel asks:

no one has given me a good explanation yet of why young American college grads should have been hit so hard. Is there increased competition with young college grads around the world? Are new college grads lower quality than their predecessors? Has information technology reduced the need for young grads? I really would like to know.

"People over the age of 55 are not dropping off the payrolls to retire early as they had been doing for years," says David Rosenberg, chief economist at Gluskin Sheff in Toronto and one of the first to identify the developing employment gap. "And then there are those who did drop out of the labor force who are coming back to secure work."

Meanwhile, he says, "we're creating massive pools of unemployment among 20-somethings."

Posted by Jay Hancock at 8:43 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Of the Austrian economic school, that is. Here he is giving a lecture posted on the Mises site:

The triumph of crony capitalism occurred on October 3rd, 2008. The event was the enactment of TARP — the single greatest economic-policy abomination since the 1930s, or perhaps ever.

Posted by Jay Hancock at 9:21 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Sen. Ben Cardin is going to a roofing manufacturer in Frederick this morning to promote a bill to accelerate depreciation for energy-efficient commercial roofing, WBAL reports.

Cardin says it would create 40,000 jobs by reducing the depreciation schedule from 39 years to 20 years. That's effectively a tax cut because it increases a business' deductions. This is the kind of targeted tax cut the country needs more of. (To fix the deficit we also need to commit to future tax increases elsewhere! And also cut spending!) Produces jobs. Conserves energy. Heck, Senator, why not just let businesses expense their new, green roofs? (That would make the biggest deduction of all.)

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (1)
Categories: The Great Recession
        

As the markets imply a virtual certainty that Greece will default, possibly triggering a new round of contagion and banking crises, Jeff Kleintop, on thestreet.com, says it might not be that big a deal:

If Greece defaults, and there are a number of reasons why that may not happen, the impact may be more akin to Argentina than Lehman Brothers. In December 2001, the government of Argentina initiated the largest government debt default on record, suspending interest payments and principal repayments on bond issues with a face value of more than $81 billion. Many large global financial institutions that held Argentinean debt were still undercapitalized following the 2001 recession and took substantial losses, yet a global financial crisis did not take place and the global recovery continued.

Here is the famous Der Spiegel article on Germany preparing for the possibility that Greece could leave the Euro zone.

Posted by Jay Hancock at 9:25 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Don't buy stock in Target, says Citi, in the WSJ via Tyler Cowen. Buy stock in companies that cater to the rich and the lower-middle. The middle is shrinking.

Citigroup calls the phenomenon the “Consumer Hourglass Theory” and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom.

Posted by Jay Hancock at 9:01 AM | Permalink | Comments (0)
Categories: The Great Recession
        

President Obama's jobs proposal would help stabilize confidence and keep the U.S. from sliding back into recession.

 The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.

 The plan would cost about $450 billion, about $250 billion in tax cuts and $200 billion in spending increases.

 Many of the president's proposals are unlikely to pass Congress, but the most important have a chance of winning bipartisan support.

President Obama’s much-anticipated jobs plan is a laudable effort to support the struggling economy. The plan would go a long way toward stabilizing confidence, forestalling another recession, and jump-starting a self-sustaining economic expansion.

Posted by Jay Hancock at 10:45 AM | Permalink | Comments (3)
Categories: The Great Recession
        

From the Progressive Policy Institute via Michael Mandel, we learn about the proud, the few, the occupations that have been adding jobs in the terrible economy. Computers and health care are no surprise. Mandel thinks the increase in agriculture jobs is related to high crop prices. He's a little puzzled about the lawyers.

The 50-cent analysis on the growth in "protective services" might be that folks are stocking up on security systems and guards in a time of uncertainty. I assume much of the growth is coming in private-sector jobs.

Posted by Jay Hancock at 9:19 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Pay little attention to those who say the August jobs report isn't as bad as it looks because of the Verizon strike. 45,000 Verizon workers were on strike during the week that the Labor Department surveyed employers. So the optimistic reading is that rather than stay level last month the economy added 45,000 jobs. Doesn't matter much. Addition of 45,000 jobs or additional of zero jobs -- that's far less than is needed to lower the unemployment rate.

This -- in combo with the latest consumer-confidence reading and other weak indicators -- will add to worries about a double-dip recession. And it will put added pressure on Obama when he gives his jobs speech. It also raises odds that the Fed will launch new monetary stimulus in the form of buying longer-term debt. (Normally the Fed adds money to the economy by buying short-term Treasuries, effectively lowering short-term rates. But short-term rates are already basically zero.)

Also discouraging are the revisions to previous monthly jobs reports. Remember the relief rally last month after BLS reported that the economy added 117,000 jobs in July? That got downgraded to 85,000 jobs in today's report. June got demoted from a gain of 46,000 to a gain of 20,000.

The economy really is at stall speed. But does that mean it will start diving? The Economist magazine said this week that the U.S. economy is already so prostrate it's hard to imagine where new economic decline and layoffs could come from. The housing market is at rock bottom. Manufacturing is mean and lean. Well, how about state and local government? And Wall Street?

Posted by Jay Hancock at 8:44 AM | Permalink | Comments (11)
Categories: The Great Recession
        

So says Dr. Doom on Bloomberg TV:

“We’ve reached a stall speed in the economy, not just in the U.S., but in the euro zone and the UK. We see probably a 60% probability of recession next year and unfortunately we’re running out of policy tools. Every country is doing fiscal austerity and there will be a fiscal drag. The ability to backstop the banks is now impossible because of political constraints and sovereigns cannot bail out their own distressed banks because they are distressed themselves.”

Posted by Jay Hancock at 8:14 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Alan Greenspan, September 26, 2005:

“In summary, it is encouraging to find that, despite the rapid growth of mortgage debt, only a small fraction of households across the country have loan-to-value ratios greater than 90 percent. Thus, the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices.”

Phil Gramm, July 9, 2008:

“You’ve heard of mental depression; this is a mental recession. We may have a recession; we haven’t had one yet. We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline…”

Here is one of my own:

Jay Hancock, Jan. 28, 2004:

In June 2002 this column predicted "home-price inflation in the next five years like we haven't seen since the 1980s, with multiyear, double-digit percentage pops."

It came true. Area homes appreciated 14 percent in 2002 and will probably show an even greater gain in 2003 after all the results are in. The median price of a Baltimore-area home likely hit $208,000 last year - according to projections by the National Association of Realtors - nearly double prices of the mid-1990s and requiring household income of at least $60,000 to support.

Perhaps this is the top. Are Maryland homes poised to mimic the stock market in 2001? The Chicago Bulls in 1999? Napoleon in 1812?

Not by a mile. Pessimists worry about a U.S. housing bubble - the same one they worried about two years ago - and for some regions they're probably right. But not in Maryland, and not in Baltimore. Perhaps more than any other part of the country, this region enjoys the kind of sunny economic outlook and relative under-pricing of shelter that promises continued gains for home values.

Jay Hancock, May 2005:

OK, now we have a housing bubble. How do we know? Real estate professionals, who aren't even allowed to think that homes might be, uh, overpriced, are publicly worried.

Speculators snapping up homes they won't live in and may not be able to rent have given the market a new tier of foam and raised chances it will all end badly, pros say.

Speculators can destabilize any market by bidding prices to unsustainable levels. Fed Chairman Alan Greenspan has said a housing bubble is less likely than the 1990s stock bubble because homes are harder to buy and sell than, say, Amazon.com stock, and most people acquire houses to live in, not make quick money.

But if the housing day-traders truly have arrived, look out. With big mortgages, scarce tenants and an eye on net worth, they'll be even more eager to sell on the way down than they were to buy on the way up.

Jay Hancock, June 12, 2005:

With 24 percent of Maryland mortgages starting as interest-only, says LoanPerformance spokesman John Lewis, this state has emerged as an overachiever in a category that many believe signals a too-hot housing market and trouble down the road.

Interest-only mortgages don't build equity. They don't force homeowners to save. And when they're the only way you can qualify for a loan, sometimes they signal that you can't afford the house you're trying to buy. It's no accident that no-principal loans are concentrated in areas where home prices have soared, that they're closely associated with what many are calling a bubble.

Interest-only loans are an effect of high home prices, as buyers stretch to swallow large pieces of debt. But they're also a potent cause, luring marginal purchasers into inflated markets to bid prices even higher, so that loans for tomorrow's buyers will be even bigger and riskier.

Posted by Jay Hancock at 9:50 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Given the terrible news about the economy, you could be excused for believing that home building has come to a halt. Far from it. Calculated Risk has the latest stats on housing starts, which show builders are still putting up residences at an annual rate of about 600,000. The collapse from 2 million homes being built annually a few years ago is traumatic, but I'm kind of amazed builders are able to find even this much demand.

Posted by Jay Hancock at 8:59 AM | Permalink | Comments (0)
Categories: The Great Recession
        

From Felix Salmon:

An S&P ratings seeks to measure only the probability of default. Nothing else matters — not the time that the issuer is likely to remain in default, not the expected way in which the default will be resolved. Most importantly, S&P simply doesn’t care what the recovery value is — the amount of money that investors end up with after the issuer has defaulted.

Moody’s, by contrast, is interested not in default probability per se, but rather expected losses. Default probability is part of the total expected loss — but then you have to also take into account what’s likely to happen if and when a default occurs.

Posted by Jay Hancock at 9:43 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Consumerist and NY Observer are reporting that someone had a plane fly past S&P's headquarters in New York with a banner that said: "Thanks For The Downgrade. You Should All Be Fired."

Both sites have pictures, but it's hard to read the banner. No word yet on who's responsible.

Posted by Jay Hancock at 1:28 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Central bankers, who can create money from airy nothing and have been doing so by boatloads in recent years, are expanding their portfolios again. Central-bank custom is to manipulate the market by buying only short-term government obligations. Traditionally the Fed sets short-term interest rates by messing about with Treasury bills and assumes that the rest of the economy will fall in line.

But now short-term interest rates are basically zero. When that happens, and the economy is still for junk, what's a central banker to do with his magic money spinner? Buy long-term government obligations, of course. So the Fed starting "quantitative easing," buying long-term Treasury debt as well as mortgage-backed debt and Fannie Mae and Freddie Mac debt in an attempt to bring down long-term interest rates. This held down long-term rates, perhaps. In any event long-term rates stayed low.

The European Central Bank, influenced by sober and inflation-paranoid Germans, has been more reluctant to push the instant money buttons. But lately it has been doing so, buying Italian and Spanish bonds on Monday to try to keep investors from putting those dubious securities completely in the tank.

But the economy still stinks. America got downgraded and stocks plunged.

Today the Fed's rate-setting committee meets. Stocks are up in anticipation of the Fed's saying something that will put investors at ease. Perhaps Mr. Bernanke should admit that buying government debt hasn't worked and announce that from now on the Fed will create even more money and spend it in every sector of the economy until perfect happiness is achieved. The Fed will buy U.S. stocks and the Dow really will go to 36,000. The Fed will buy big-screen TVs for every living room and bathroom. The Fed will put a Ford or Chevy in every driveway, an iPhone in every purse, a roast in every Bosch oven. If anybody is still unemployed after that, Bernanke will add them to the Fed's already ample payroll.

Posted by Jay Hancock at 8:42 AM | Permalink | Comments (4)
Categories: The Great Recession
        

If you're expecting to be punched by Mike Lewis Tyson (thanks NT. Crowdsource editing scores again.) and get slapped by Danny DeVito instead, I suppose it's good news. But it's nothing to brag about. The economy's addition of 117,000 jobs in July is being showered with adulation because many economists were fearing a lot worse.

"Solid Job Gains," said the New York Times headline. (At least as I write this. Maybe they'll get embarrassed and change it.) But 117,000 jobs is not solid. That kind of job growth on a sustained basis is not enough to bring down the unemployment rate. 117,000 jobs is enough to give employment to fewer than one in 10 of this years 1.7 million college grads.

The economy needs 300,000 and 400,000 jobs a month for many months at a time. OK, during a month when Congress went crazy and there was doubt about America honoring its debts, the fact that employers hired anybody is a relief. But other indicators show that the economy has been running on fumes this year. Today's report won't end worries about a double-dip recession. UPDATE: WBAL's Bill Vanko and I yack about the jobs report here.

UPDATE: NYT had second thoughts. Now the headline is "Stronger Job Gains."

Posted by Jay Hancock at 8:50 AM | Permalink | Comments (13)
Categories: The Great Recession
        

I wasn't surprised early this month when the NYT's David Brooks expressed horror and amazement at the direction Republicans were heading. ("...the Republican party may no longer be a normal party.") He's often thoughtful and reasonable, although like many influential pundits he was terribly wrong on invading Iraq. This week's events seem to have summoned more conservatives to Brooks' side on the subject of the debt ceiling. Here's Jennifer Rubin, a conservative blogger for the Washington Post, last night:

A House aide just e-mailed me: “Buckets of crazy.” That’s as good an explanation as any as to why Speaker of the House John Boehner (R-Ohio) won’t be able to hold a vote tonight on his debt-ceiling bill. The burn-the-building-down set is weakening, but the speaker is still short on votes.

Outside of Congress, some of the most aggressive conservatives were urging Congress to make a deal. Even extreme rightwing bloggers will have a hard time casting conservative lightning rod Ann Coulter as a “squish.”(She told Fox News host Sean Hannity that it was time to get this done.)

Posted by Jay Hancock at 11:23 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Costco had a monster same-store sales gain for the month of June: 14 percent, according to Reuters. Dick Bergeron suggests that Costco is the paradigm for the new economy: Cash on the barrel. No plastic please! (Except for Costco's private label American Express.)

UPDATE: A reliable source says that Costco takes all American Express cards. Also, a reader suggests that much of the gain came from gasoline, which makes sense.  

Which brings us to Costco. I like its business model. It’s not the place to go if you want to keep a tab running like the Feds do. At the checkout, you are expected to put cash on the barrelhead (debit card’s the same thing), or you may use Costco’s own American Express vanity card. That’s it. And that’s the way it should be. No VISA, no MasterCard – please! None of those other cards either. Would you just pay up front? Thank you. Please come back again.

I like that. Reminds me of a more substantial time. As when, for example, if a person wanted to buy a house, he or she actually had to have a salary, and the banker actually had to make sure that a person could afford that home. Because Mr. Banker (they were mostly guys then) could not get off the hook by selling off a bad loan to a financial aggregator who would magically turn that loan into paper and sell it off to a sucker down the line.

Posted by Jay Hancock at 8:31 AM | Permalink | Comments (11)
Categories: The Great Recession
        

Online Labor Demand Rises 148,800 in May, The Conference Board Reports

Labor demand rises in May to pre-recession monthly high of 4.5 million advertised vacancies Labor demand up an average of 66,000/month over the last 4 months (Chart 1) May marks an all-time high for 6 of 22 major occupation groups since the HWOL series began in May 2005 (see Table B1, page 5 and Table 7)

The red line is unemployment. The blue line is help-wanted ads. They're starting to converge. That is, in the technical, econometric term, "good."  

 

 

 

 

 

 

 

 

 

 

 

METRO AREA HIGHLIGHTS Washington, D.C., Oklahoma City, Honolulu, and Boston have the lowest Supply/Demand rates

In May, all of the 52 metropolitan areas for which data are reported separately posted over-the-year increases in the number of online advertised vacancies. Among the three metro areas with the largest numbers of advertised vacancies, the New York metro area was 11.5 percent above its May 2010 level, the Los Angeles metro area was 15.5 percent above last year’s level, and the Washington, D.C. metro area was 7 percent above its May 2010 level (Table C & Table 5).

The number of unemployed exceeded the number of advertised vacancies in all of the 52 metro areas for which information is reported separately. Washington, DC continues to have the most favorable Supply/Demand rate (1.17) with about one advertised vacancy for every unemployed worker. Oklahoma City, Honolulu, Boston, Baltimore, Minneapolis-St. Paul, and San Jose were metropolitan locations where there were just less than two unemployed looking for work for every advertised vacancy (Table C).

Posted by Jay Hancock at 10:55 AM | Permalink | Comments (1)
Categories: The Great Recession
        

ProPublica's Marian Wang has helpfully compiled a catalog of investigations, civil and criminal, state and federal, relating to all phases of the housing collapse, including foreclosure irregularities. Bottom line: Some regulators and prosecutors are bestirring themselves. But some probes have come to nothing, and the level of activity is nowhere near the magnitude of the financial crash that the shenanigans helped cause. Wang:

As we and many others have noted, no top banking executives [1] have been successfully prosecuted [2] in connection with the financial crisis: Not for making the bad loans [3] that fed the mortgage machine, not for lying about the quality of the mortgages [4], and not for foreclosing improperly [5] when homeowners struggled to make loan payments.

But there have been many investigations. Some are still pending, others seem to have fallen by the wayside. Here’s our overview of what the banks have been accused of doing at each stage of the mortgage machine.

Posted by Jay Hancock at 4:20 PM | Permalink | Comments (2)
Categories: The Great Recession
        

Washington's Blog lays out the evidence. The whole thing is worth a read, but here are some highlights.

The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing. Twenty-nine percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is "slowing down," Gallup said.

How bad are things for the little guy?

Well, as I noted in January, the housing slump is worse than during the Great Depression.

As CNN Money points out today:

Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

"We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."

States and cities are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven't been this bad for state and local governments since the 30s.

In May, analyst Mike Mayo predicted that the bank loan loss rate would be higher than during the Great Depression.

Posted by Jay Hancock at 8:50 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Another decent but not fabulous jobs report. Economy added 244,000 jobs, which is the best result since May 2010. This makes more than 1 million jobs that the economy has added on net since September. And -- hurray! -- it's private-sector corporations that are doing the hiring. They're taking the cash hoards they've been sitting on and making them available to the human resources department.

The seers had expected fewer than 200,000 jobs, based partly on a disappointing private-sector jobs survey that came out earlier this week and based partly on a spike in unemployment claims. Initial claims for jobless benefits have spiked in recent weeks to an eight-month high. But some analysts believe that has more to do with weirdness in the Oregon and New York claims systems and with temporary auto-plant shutdowns resulting from the Japanese tsunami than with overall economic torpor. Economy has now added 768,000 jobs this year.

Unemployment went from 8.8 percent to 9.0 percent, suggesting people who had previously been discouraged have begun looking for jobs again. To make a real dent in unemployment, the economy needs to start adding 400,000 jobs a month for an extended period.

Posted by Jay Hancock at 8:45 AM | Permalink | Comments (6)
Categories: The Great Recession
        

In the green shoots category, from the Las Vegas Sun. Perhaps no other place in the country got hit harder by the housing boom/bust than Vegas:

Employment in the Las Vegas area increased by more than 10,000 jobs in March -- the first increase in 38 months.

The additional jobs helped to bring down the unemployment rate down to 13.3 percent, the lowest mark since August 2010.

The state Department of Employment, Training and Rehabilitation reported today the Nevada jobless rate fell to 13.2 percent, down from 13.6 percent in February. There were 1,114,400 Nevadans with jobs, an increase of more than 10,000 from a month earlier.

”Nevada's labor markets showed signs of life in March, hinting what may be the beginnings of an economic recovery,” says Bill Anderson, chief economist of the department. Employment increased on a over-the year basis for the first time since January 2008.

Posted by Jay Hancock at 9:13 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Great coverage by Barry Ritholtz on what looks like a great speech (can't find it on the KC Fed's Web site) Kansas City Fed President Thomas Hoenig's speech. The basic idea: What did Fannie and Freddie have that City and BOA don't? Huge intermingling of public and private funds? Implicit taxpayer backing of debt? Enormous systemic risk amplified by leverage? Taxpayer subsidies of enormous executive compensation?

The answer is that you basically can't tell the difference. So the conservatives who are all for breaking up Fannie Mae ought to be for the same treatment for BOA and Citi. Hoenig to the big banks: “You’re public utilities for goodness sakes.”

Posted by Jay Hancock at 11:43 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Last week the Feds pulled the plug on Nevada Commerce Bank of Las Vegas, Nevada. As well they might have. Hammered by the housing meltdown, which was possibly worse in Vegas than anywhere else, Nevada Commerce's Tier 1, risk-based capital cushion had evaporated to 3.21 percent of its assets. Total risk-based capital was down to 4.49 percent, according to the Dec. 31 call sheet.

That's a heck of a lot worse than Baltimore's 1st Mariner Bank, which is also under pressure from the Feds to raise capital. As of Dec. 31 the ratio of 1st Mariner's Tier 1 capital to risk-adjusted assets was 6.79 percent -- twice as high as Nevada Commerce's. FMAR's total risk-based capital ratio was 8.05 percent compared with Nevada Commerce's 4.49 percent.

I pulled the last four bank seizure reports from the FDIC, and the former institutions all had much lower capital levels than 1st Mariner Bank, which was still considered "adequately" capitalized at the end of the year but not "well" capitalized. Poor Legacy Bank of Milwaukee had Tier 1 risk-based capital of 0.051 percent and total risk-based capital of 1.02 percent.

Given that there are more than 900 banks on Calculated Risk's Unofficial Problem Bank List, perhaps the FDIC has work to do other than in Baltimore. On the other hand, 1st Mariner's capital at its holding-company level is lower than at the bank level. Don't know how much the FDIC cares about that. And 1st Mariner's asset quality still isn't great. At the end of 2010 its ratio of nonperforming assets (delinquent loans etc.) to total assets was 5.48 percent, even higher than a year or two years earlier.

The usual reassurances apply: 1st Mariner deposits are insured up to the FDIC limit, which is pretty high.

Posted by Jay Hancock at 5:13 AM | Permalink | Comments (0)
Categories: The Great Recession
        

The perils of labor throwing in its lot with capital are nicely illustrated by a cartoon from the 1950s that a colleague gave me a few years ago. Two steelworkers are sitting outside the locked gates of the plant. One says to the other: "You should have told me we were going to strike when I bought the stock."

But joining the capitalists is perhaps labor's best hope, says Tyler Cowen, responding to Krugman's Monday column on the hollowing out of the middle class. Saving the middle class requires rebuilding unions, Krugman says.

We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages.

But Cowen, who is getting tons of attention for his pessimistic take on the U.S. economy, The Great Stagnation, doesn't see that making much difference.

Trade unions, even if they could become strong again (which is hard to see), would likely accelerate this process of substituting capital for labor, rather than counteracting it. A one-time union wage premium, even if it does not come at the expense of other workers, will put only a small dent in the long-term trend.

If the cost of workers goes up via union bargaining, Cowen is saying, companies will have even more incentive to buy robots and computers to replace them. Instead, he suggests, workers should be encouraged to participate in growing corporate profits by buying stock and other assets. If you can't get hired by 'em at a decent wage, become a shareholder. Cowen:

I have never seen it suggested that this "hollowing out" process will lead to lower output, quite the contrary. Those gains go somewhere. This is a reason to encourage the ownership of capital and on a quite broad basis.

Jay here. This is basically Bush's "ownership society" revisited. The U.S. economy will keep growing, Cowen says, but much of the gain will continue to be reaped by capital, not labor. Of course, for families offered a vision of the American dream that may be no longer attainable, finding the wherewithal to buy stocks is a tad problematic.

Posted by Jay Hancock at 6:08 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Same-store sales at Walmart fell for the 7th straight consecutive quarter. Says the FT:

Walmart has attributed its US sales problems to slack demand from its largely low income shoppers and to a misjudged attempt to improve store productivity by reducing the variety of brands and inventory that its stores carry. It had predicted that efforts to undo some of the changes, and a renewed focus on “every day low prices” rather than promotional price cutting, would restore same store sales growth in the US during the quarter.

That's one interpretation of Walmart's poor results. 9 percent unemployment means many folks are trading down from Walmart to places such as Aldi and Family Dollar. Or does a slowly recovering economy mean people are trading up to Target, Macy's etc.?

Posted by Jay Hancock at 10:55 AM | Permalink | Comments (1)
Categories: The Great Recession
        

The January jobs report was a mixed bag. Unemployment plunged for the second month in a row, but the increase in payroll employment of 36,000 jobs was far less than the expected ~150,000. Nevertheless it's an encouraging report, especially in the context of other recently released economic indicators.

Two straight months of unemployment declines of 0.4 percent is big news and looks a lot like the Reagan economic recovery of 1983 -- read the NYT's Floyd Norris's column on this from yesterday. Normally people discount the unemployment report because it's based on an uncertain telephone survey, can jump around and depends on the technical definition of unemployment, which means actively looking for a job.

But perhaps the unemployment survey is telling us more about the recovery than the payroll survey. The payroll survey has a habit of missing new jobs in a recovery. The Labor Department can't survey employers that it doesn't know exist, and in recoveries new companies are formed. They hire people totally off the Labor Department' radar screen, at least initially.

In past recoveries the revised numbers have shown much stronger job growth than was initially reported. Already the Labor Department has been pretty consistently revising payroll employment upward in the months after the initial report comes out. It happened again in this morning's report for December and November. My bet is that the January payroll numbers will be revised upward later.

There is other good news out there. Consumer spending was decent in the fourth quarter. Industry surveys are showing positive results. Consumer confidence is up. The most recent unemployment claims were down sharply. Those data suggest that a 0.8 percent decline in unemployment over two months shows the start of a jobs recovery.

UPDATE: Here is my conversation with WBAL's Bill Vanko about this after the results came out at 8:30.

Posted by Jay Hancock at 9:08 AM | Permalink | Comments (7)
Categories: The Great Recession
        

It's disturbing that the FDIC is wasting taxpayer dollars defending against Kwaku Atta Poku's lawsuit to regain what for all the world looks like what's his, when at the same time the agency says it's trying to keep people who defaulted on their mortgages in their homes. Atta Poku is the guy who didn't default. He never missed a payment, according to Larry Carson's story. But because somebody -- not Atta Poku -- messed up during a refinancing, the old mortgage never got paid off and Atta Poku eventually lost his house.

The FDIC is the defendant because it's the receiver for failed lenders. Details of the case can be gleaned from Judge Bates's November dismissal of Atta Poku's complaint.

The FDIC doesn't want to give a man what seems to be his, but it says it's all about stopping foreclosures on people who stopped paying their mortgages:

The FDIC -- along with fellow regulators and the banking industry -- is working vigorously to help consumers and the banking industry avoid unnecessary foreclosures and stop foreclosure "rescue" scams that promise false hope to consumers at risk of losing their homes. Banks that originate and service mortgage loans are encouraged to make prudent attempts to find solutions for homeowners having trouble making their mortgage payments.

The FDIC is also working vigorously to uphold injustice for a guy who looks like he really got screwed.

Posted by Jay Hancock at 9:58 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Here's T. Rowe Price economist Alan Levenson on the December consumer price index report. Is this the signal for inflation to come roaring back? Don't count on it. Levenson:

December Consumer Price Index: all items +0.5%, excluding food & energy 0.5% (November: +0.1% and +0.1%, respectively) Bottom line: Core disinflation easing

A 4.6% rise in energy prices drove the headline gain.

The second consecutive 0.1% advance in the core CPI, after three unchanged readings, has stabilized the year-to-year inflation trend at 0.6% over the last three months. Core services have led the way, with recovering housing costs bolstering steady trends in other categories. A turn in core goods -- which we expect to emerge in response to rising utilization rates and firming import price trends --

Posted by Jay Hancock at 11:09 AM | Permalink | Comments (0)
Categories: The Great Recession
        

I can't reproduce the Zillow graph, apparently because it's a flash chart. But it says my house is worth $491,000, which is about $5,000 more than we paid for it in late 2003. I know Zillow values aren't gospel, but they're a rough and interesting indicator of where house values have been and are going. We paid $485,000 for the Howard County house in November 2003. According to Zillow it was worth $670,000 by 2006, and as recently as last summer it was worth $540,000, according to the Web site.

Jamie Smith Hopkins quotes Metrostudy as saying that the tax credit hangover is over for home sales -- that the slump in activity that occurred after the tax credit expired has ended. Perhaps, but it doesn't seem to be having much effect on values in my neighborhood, at least according to Zillow. Nor is all the hiring at nearby Fort Meade. The expiration of the homebuyer tax credit pretty much marked a new leg down in the house's Zillow value. Not complaining. Just saying what's going on in my neighborhood may cast light on the big picture.

Posted by Jay Hancock at 9:05 AM | Permalink | Comments (6)
Categories: The Great Recession
        

Paper Economy reprises a Wall Street Journal story on Charles Kindleberger, the author of Manias, Panics & Crashes; A History of Financial Crises, who died a few years ago. The WSJ piece seems to have been published in 2002.

The object of his greatest fascination today is the real-estate market. For weeks, Mr. Kindleberger has been cutting out newspaper clippings that hint at a bubble in the housing market, most notably on the West Coast. Nationwide, median home prices are up about 7% from a year ago, even though the stock market has tanked and the economy has floundered. Over the long term, economists agree, housing prices can't continue to outpace growth in household incomes. Mr. Kindleberger says he isn't certain there is a housing bubble yet, "but I suspect it is."

Housing probably wasn't a bubble in 2002, but Kindleberger knew the signs. Here is an appreciation of him that I wrote in July 2003, after he died.

CHARLES P. Kindleberger was born in 1910, during a mild recession, and died at 92 on July 7, during a period history will probably label a feeble recovery.

He witnessed 18 recessions, one Depression, five investment bubbles and five major financial crises - and that was just in the United States. He watched the 1990s stock psychosis with a mixture of glee and foreboding and with all his money in a Neuberger Berman short-term bond fund, one of the most conservative investments possible outside a mattress.Last summer Federal Reserve Chairman Alan Greenspan, in excusing the Fed's lack of action during the 1990s stock mania, declared that "it was very difficult to definitively identify a bubble until after the fact - that is, when its bursting confirmed its existence."

He should have called Kindleberger.

The author of Manias, Panics and Crashes: A History of Financial Crises, Kindleberger was the foremost U.S. authority on the zigzag nature of asset markets and the attendant extremes of psychology and economics.

Continue reading "Dr. Kindleberger's last bubble" »

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

This morning's jobs report is another in a string of disappointing monthly dispatches. Markets had hoped for a report of 200,000 or more payroll jobs added in December. Instead, the Labor Department said, non-farm employment rose only 103,000. The good news is that the Labor Department has pretty consistently underestimated job growth in its initial reports in recent months. In later revisions, that department has revised the monthly reports to show a substantially healthier economy than it initially indicated. If the pattern holds, December job growth was better than today's report says.

Here are the initial national employment reports from six months prior to December, followed by the latest revision from the Bureau of Labor Statistics.

June initial: minus 125,000. June actual: minus 175,000
July initial: minus 131,000. July actual: minus 66,000.
August initial: minus 54,000. August actual: minus 1,000.
September initial: minus 95,000. September actual: minus 24,000.
October initial: gain of 151,000. October actual: gain of 210,000.
November initial: gain of 39,000. November latest: gain of 71,000.
December initial: gain of 103,000. December actual: ?????

Employers have created more than a million jobs since December 2009. Now they have to pick up the pace.

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

This is the lowest level for the 4-week moving average since the first week in August 2008. The level is still high, but the decline in the 4-week average is good news.

Posted by Jay Hancock at 8:53 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Unemployment rose and employers added fewer jobs than expected last month, the Labor Department announced this morning. Employers added only 39,000 jobs last month. Analysts had expected a bump of about 150,000. In prior months this year you could blame poor employment results on the Census. The program was laying off tens of thousands of temporary workers, which depressed the overall job-growth results. The the Census has pretty much downsized by now, so the shrinkage in government jobs last month is about something else -- perhaps states laying off employees now that federal stimulus money is running out.

But there are some slightly bright spots. Private employers added another 50,000 jobs last month, indicating that at least some businesses see growth perking up. The increase in unemployment from 9.6 percent to 9.8 percent may actually be (sort of) a silver lining if it indicates people are returning to the job market because they see prospects picking up. (The Labor Department counts you as unemployed only if you're actively looking for a job.) Of course the impending termination of unemployment benefits for many Americans may be a more likely reason for more people seeking jobs.

Other reasons to not be completely dejected: New applications for unemployment benefits have been falling substantially recently. And the Labor Department has shown a pattern this year of underestimating payroll job growth, a pattern that was repeated in recent months. October job growth was 172,000, revised upward from 151,000. And September's job loss was revised from 41,000 to 24,000. Still, we're trying to put makeup on a warthog, here. The economy needs to be adding at least 200,000 jobs a month to reduce unemployment, and it's clear that's not happening.

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Tyler Cowen is skeptical but interestedly hopeful that Bernanke's second round of quantitative easing -- buying longer-term paper thus trying to bring down longer-term interest rates -- will do some good. In any case he doesn't think it's the end of the world and the beginning of Weimar-style inflation. And, he claims, as policy responses go, it beats the alternatives of doing nothing, trade war with China, a new WPA etc.

I do take seriously some of the more speculative criticisms, namely that QEII may set off bubbles in some emerging markets, or that it may break the euro (and that the euro would not otherwise break of its own accord). Still, those hypotheses are far from established and it is difficult to believe that say three percent U.S. price inflation should bring international doom. These factors also need to be weighed against the international and political economy costs of continued American economic stagnation.

Posted by Jay Hancock at 8:22 AM | Permalink | Comments (1)
Categories: The Great Recession
        

So I drove down Wisconsin Avenue this morning to pick up an entry visa for China (more on this later) in D.C On the right was a grandiose pile of a building, a ghastly cross between Colonial Williamsburg and Louis XIV's Versailles. My first reaction was: To what colossal ego was this thing erected? My second thought: Why is there nobody here? The place looks empty.

As I drove farther, both questions were answered by a huge sign: FANNIE MAE. Was that a statue of Frank Raines toppled on the (still immaculately groomed) front lawn? (Fannie bought the building in the 1970s, long before Raines arrived, but the architecture matched the hubris that characterized the Raines era and afterward.)

And on the pedestal these words appear:

`My name is Ozymandias, King of Kings:

 Look on my works, ye mighty, and despair!'

Nothing beside remains. Round the decay

Of that colossal wreck, boundless and bare,

 The lone and level sands stretch far away.

Posted by Jay Hancock at 1:14 PM | Permalink | Comments (1)
Categories: The Great Recession
        

This just in from the Federal Deposit Insurance Corp. Another one bites the dust:

K Bank, Randallstown, Maryland, was closed today by the Maryland Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Manufacturers and Traders Trust Company (M&T Bank), Buffalo, New York, to assume all of the deposits of K Bank, except certain brokered deposits. Brokered deposit customers should contact their brokers directly about the status of their accounts.

The seven branches of K Bank will reopen on Saturday as branches of M&T Bank. Depositors of K Bank will automatically become depositors of M&T Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of K Bank should continue to use their existing

Continue reading "M&T takes over K Bank under FDIC aegis" »

Posted by Jay Hancock at 6:32 PM | Permalink | Comments (2)
Categories: The Great Recession
        

The jobs report exceeds expectations for a change. The Labor Department reports that employers added 151,000 jobs in October. Economists had predicted about 60,000. Unemployment remains at 9.6 percent, probably reflecting folks renewing their job searches as the economy shows slight signs of life.

Don't expect this to take the edge off of the momentum to extend the Bush tax cuts, however. It's a decent report compared with what we've been seeing -- job losses every month since June. But it hardly marks a sustained recovery. Employers need to be adding at least 200,000 jobs each and every month to reach escape velocity from this terrible slump. One month's favorable report won't make any difference in the Federal Reserve's decision this week to buy $600 billion in longer-term bonds. And it won't stop the campaign to extend all the Bush tax cuts on the grounds that the economy is still too weak to support any tax increases.

Posted by Jay Hancock at 8:45 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Federal Reserve Chairman Ben Bernanke has a piece in today's Washington Post. He explains what they're doing with QE2. He defends the Fed against charges that quantitative easing will stoke hyperinflation. And he says that Congress and the White House are part of the solution, but he doesn't state what their roles might be.

Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation.

Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable.

The Federal Reserve cannot solve all the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.

Posted by Jay Hancock at 9:15 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Here's is T. Rowe Price Chief Economist Alan Levenson's take on the Fed announcement:

Bottom line: No change in assessment of current environment, dimensions of QE2 slightly light of expectations; with additional easing course in place, policy bias returns to balance. Economic assessment remains that "the pace of recovery in output an employment continues to be slow." Inflation assessment remains that underlying inflation is "somewhat low" relative to levels judged to be consistent, over the longer run, with the Fed's price stability objective. QE2 a bit light of consensus expectations. Today's action calls for purchases of $600 billion of Treasury securities by the end of 2011 Q2 -- roughly $75 billion/month. Including reinvestment of principal from mortgage-related securities, the Fed is likely to buy $850b-$950b through 2011 Q2. Outlook for further action now balanced. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. [In the September 21 statement, the italicized portion read, "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate." -- underlining added for emphasis]

UPDATE. And more from Swiss Re:

Fed rate action commentary from Swiss Re chief US economist

New York, 3 November 2010 – After today’s decision by the Federal Reserve to maintain the target fed funds rate at zero to 25 basis points, Swiss Re’s chief US Economist, Kurt Karl, commented, “Growth is moderate and inflation is very low, so the Fed is now expected to be on hold through all of next year. The quantitative easing program signals a strong commitment to the Fed’s

Continue reading "Levenson: Fed's QE2 'slightly light' of expectation" »

Posted by Jay Hancock at 2:45 PM | Permalink | Comments (2)
Categories: The Great Recession
        

David Broder of the WP seems to be inciting more preemptive war as the solution for the economy and the Democrats' political problems:

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

Lots of problems, only one of which is that fact that any war with Iran won't be even close to the scale of World War II in terms of fiscal stimulus. Maybe Broder thinks that's a bad thing.

Washington's Blog doesn't think the economics work, either:

Broder is also plain wrong on the economics.

In a blog entry entitled "Has David Broder Lost His Mind?," Foreign Policy managing editor Blake Hounshell writes that Broder's proposal is "crazy for a number of reasons."

One is that markets don't like tensions, and certainly not the kind that jack up oil prices. Second, World War II brought the United States out of the Great Depression because it was a massive economic stimulus program that mobilized entire sectors of society. Today's American military has all the tools it needs to fight Iran, and there isn't going to be any sort of buildup. Hasn't Broder been reading his own newspaper? The Pentagon is looking to find billions in cuts as it confronts the coming world of budget austerity.

And as I have repeatedly pointed out, "military Keynesianism" - that is, launching wars to stimulate the economy, doesn't work.

Posted by Jay Hancock at 8:50 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Mortgage-foreclosure operations are getting hammered for filing court papers that often aren't all they're supposed to be. But David Segal in the NYT says people who buy credit-card debt, auto loans and other kinds of consumer debt have been robo-signing affidavits and otherwise cutting corners for a long time.

But lawyers who defend consumers in debt-collection cases say the banks did not invent the headless, assembly-line approach to financial paperwork. Debt buyers, they say, have been doing it for years.

“The difference is that in the case of debt buyers, the abuses are much worse,” says Richard Rubin, a consumer lawyer in Santa Fe, N.M.

“At least when it comes to mortgages, the banks have the right address, everyone agrees about the interest rate. But with debt buyers, the debt has been passed through so many hands, often over so many years, that a lot of time, these companies are pursuing the wrong person, or the charges have no lawful basis.”

Posted by Jay Hancock at 8:26 AM | Permalink | Comments (0)
Categories: The Great Recession
        

The Treasury sells inflation-linked bonds in addition to the ones with fixed interest rates and no principal adjustment. What the TIPS bond pays to investors has two parts: 1) The fixed coupon, or interest rate. 2) Principal repayment that is linked to the consumer price index.

The New York Times reports that expectations for inflation are so high, thanks to the Federal Reserve's promise to crank up the printing press, that TIPS yields went negative in Monday's auction for the first time ever. That is to say, the return to the investor in category 1), above, is negative. Investors are assuming the returns they make from category 2), after inflation awakens from the dead, will compensate them for the losses they suffer in category 1).

Looks like a big protection racket to me. Washington threatens you with the monetary equivalent of broken shop windows and maybe a firebomb. So you are happy to pay Washington to insure against this eventuality.

Posted by Jay Hancock at 9:30 AM | Permalink | Comments (1)
Categories: The Great Recession
        

From the WP. Secret clearances are really important in Maryland and the whole D.C. region. HT Big Picture.

The sudden moratorium on many foreclosures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty clouding their finances, according to lawyers who handle these cases.

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (1)
Categories: The Great Recession
        

From the Contra Costa Times. These letters don't seem to have been part of a mistaken effort to foreclose on homes whose mortgages were current. Rather, they look to be part of a mortgage-rescue scheme that went somewhat awry.

An East Bay law firm says it mistakenly sent out thousands of letters to San Francisco homeowners earlier this month warning them that their houses were in default -- even though the loans weren't delinquent.

The letters were sent out by Provident & Associates, a Pleasanton-based law firm that is attempting to help people with loan modifications.

"I screwed up," said Corey Hill, a marketing executive with Provident & Associates. "I made a mistake that scared the wits out of some people."

Provident sent out what it estimated to be 2,000 letters to people telling them that they faced foreclosure on their mortgage. The letters went primarily to homeowners in San Francisco.

Posted by Jay Hancock at 8:53 AM | Permalink | Comments (1)
Categories: The Great Recession
        

A post last week remarked upon the parallels between the rise and collapse of the mortgage bubble -- extremely poor paperwork in both the mortgage issuance process and the mortgage foreclosure process. The Washington Post had a terrific story over the weekend about a corollary parallel -- indeed, the common factor that is at the root of problems on both ends of the mortgage process: rich rewards that paid people to cut corners.

Up to 2007 mortgage originators and brokers were making ridiculous amounts of money issuing loans to people who shouldn't have qualified. The more loans they made, the more money they made. Turns out it's the same deal with foreclosures. The more house seizures the foreclosure mills can implement, the more money they make, too. One law firm in Florida got $1,300 for each case processed without a challenge from the homeowner. It's another indictment of the culture of manufactured financial incentives that has infected the American economy, starting at corporate executive pay and moving on down. From the Post:

The financial incentives show that the problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved - loan servicers, law firms, document processing companies and others - made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.

Posted by Jay Hancock at 9:04 AM | Permalink | Comments (0)
Categories: The Great Recession
        

There's more than a little symmetry to the mortgage disaster. The steep upward slope of housing prices up to 2007 is now matched by a mirror, downhill line. And the irregular paperwork that characterized the issuance of subprime mortgages seems to be matched by new problems as homes are foreclosed upon.

Few want to admit it, but the housing bubble was inflated to a substantial degree by mortgage-applicant fraud. People lied about their incomes to get loans they couldn't afford. True, they often seem to have done this with the knowledge and perhaps encouragement of the mortgage originators. But I haven't heard of any home buyers who took out "liar loans" who have been prosecuted. The accepted idea seems to be that they were "victims" who shouldn't be held responsible for their misbehavior. There is also the issue of criminal-justice resources: Prosecuting all those people would overwhelm the system.

Just as selling all those houses took some corner-cutting, now repossessing them seems to be associated with irregularities, too. Bank of America has halted all foreclosures because of paperwork problems. The phenomenon of "robo-signing," in which people sign foreclosure documents without verifying their contents, seems to be widespread. The Washington Post reports that today attorneys general from several states including Maryland will announce an investigation into foreclosures.

Hard to tell what the effect of a foreclosure holdup will be on the national economy. The process was already taking years. A home in my neighborhood has been vacant since 2008 -- waiting, I assume, for the bank to repossess or for the bank's overwhelmed staff to put it on the market. Perhaps foreclosure problems will make banks like Bank of America more willing to grant relief to home owners -- cut their principal and set up a payment plan instead of kicking them out of the house.

Posted by Jay Hancock at 9:09 AM | Permalink | Comments (8)
Categories: The Great Recession
        

Mutual fund manger John Hussman thinks Martin O'Malley has been a good governor and sent me an employment chart to demonstrate it. The highly rated Hussman Funds are based in Ellicott City. Hussman says he has met O'Malley at a fundraiser but has no official connection to the campaign.

His chart shows Maryland's job performance relative to that of the nation. Specifically, it shows Maryland's share of U.S. employment during the Ehrlich and O'Malley administrations. As you can see, Maryland's job share rose significantly in 2009 and 2010. Of course this is all about this state's relative insulation from the U.S. recession and prolonged slump. But I'm far less ready than Hussman to credit O'Malley -- or any governor -- with short-term economic performance.

There are too many variables outside of gubernatorial control. I believe Maryland's relatively superior performance has much to do with its large share of government and health-care jobs, which have been insulated from the worst economic pain, and about its proximity to Washington. It's hard for O'Malley to claim credit for those factors.  

Here's Hussman:

Any assessment of the relative economic records of Bob Ehrlich and Martin O’Malley should begin by taking those records in context of the national economy. A rising tide tends to lift all boats, and a falling tide tends to lower them. As a result, the effect of leadership is properly measured by examining how Maryland has fared relative to the rest of the United States under each governor.

Clearly, the recent downturn in the U.S. economy was caused by factors that had little to do with anything specific to Maryland - weak lending standards, mismanaged financial companies, and the collapse of a national housing bubble. There was no way for Maryland to sidestep what happened to the rest of the nation.

However, while the U.S. economy has clearly suffered a significant downturn in recent years, the Maryland economy has been much more resilient. The performance of Maryland's economy, compared with the rest of the nation, can be seen by looking at the number of jobs in Maryland as a percentage of total U.S. jobs (non-farm payroll employment). Under Bob Ehrlich, Maryland's job share fell persistently relative to the rest of the nation. In contrast, Maryland's share of the nation's jobs has increased significantly during Martin O’Malley’s term. 

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (6)
Categories: The Great Recession
        

Barry Ritholtz gives the best explanation of foreclosure fraud I have seen, not to mention trenchant criticism of what's going on. Below are the steps of the foreclosure process that have been contaminated by fraud, according to Ritholtz. His whole post is worth reading.

4) Affadavit by the bank’s representative are signed attesting to: Ownership of the note, who the borrower is, the property in question, the date of last mortgage payment, amount of delinquency, tax escrow owed, other payments (such as homeowners insurance);

5) Notarized documents: A Notary Public affirms that the affidavit was actually signed by the signatory, and this allows it to be entered into the court as documentary evidence;

6A) Notice of Pendency (Lis Pendens) is filed with the County Clerk putting the world on notice as to the foreclosure action;

6B) Summons and Complaint are prepared by bank attorneys, who further verify the specific information attested to by the bank executives. The attorneys then file the Complaint, commencing the Foreclosure Action;.

7) Service of Process is filed, either hand delivered to the home owner, or nailed to the door of the home;

Posted by Jay Hancock at 8:18 AM | Permalink | Comments (2)
Categories: The Great Recession
        

What a miserable piece of news. The economy lost 95,000 jobs in September, based on payroll surveys by the Bureau of Labor Statistics. Economists were expecting a gain of around 25,000. There are nearly 15 million unemployed people (9.6 percent). Nearly 10 million others are working part time but want to work full time. The only sort-of, tarnished silver lining is that the private sector gained 64,000 jobs. But the stimulus money is running out and local governments are starting to lay people off.

There are now more than 400,000 fewer jobs in the country than when the recession officially "ended" in June 2009 and the "recovery" began. Some recovery. This is the last monthly employment report before the November election. Looks bad for the Democrats. Whether or not they deserve the blame, they'll get it. This also makes it more likely that the Federal Reserve will engage in some sort of "QE II" -- another substantial round of quantitative easing, in which the central bank tries to bring down long-term interest rates. Short-term rates are already as low as they can get. Look for 30-year mortgage rates to flirt with 4 percent.

UPDATE: Here are WBAL's Bill Vanko and me talking about it on the radio.

Posted by Jay Hancock at 8:54 AM | Permalink | Comments (7)
Categories: The Great Recession
        

Daniel Gross, formerly of Newsweek, is already breaking stories for his new employer, Yahoo.

Given that Congress authorized up to $700 billion to be spent on the Troubled Asset Relief Program to bail out Wall Street, many assumed the final cost would approach that amount. In fact, it's turning out to be much less. As Gross notes, TARP was a huge success, given the circumstances, even if that's not understood by many voters. Some voters also blame Obama for TARP, even though it was a Bush scheme. Gross:

The price to taxpayers of the bailouts and financial rescue of 2008 and 2009 continues to fall sharply. In figures to be released later today, the Treasury Department will report that the final net cost of the TARP is expected to be about $50 billion,Yahoo! Finance has learned. Add in expected returns from Treasury's interest in insurance company AIG, and the final net cost will be closer to $30 billion.

The news of the shrunken cost, which comes on the two-year anniversary of the legislation that created TARP, represents a dramatic improvement. It highlights the resilience of the markets, as well as the folly of short-term financial projections. In August 2009, the TARP cost was projected to be $341 billion. In its mid-session review, released in August of this year, the Office of Management and Budget projected the total cost would come to $91 billion.

Posted by Jay Hancock at 1:54 PM | Permalink | Comments (2)
Categories: The Great Recession
        

A disturbing dynamic is going on in which countries are competing to devalue their currencies in order to make their exports more competitive. China, of course, is the main culprit, using its trade surplus to buy huge amounts of dollars each day, thus driving up the value of the dollar and keeping the renminbi artificially low.

The U.S. dollar is naturally weak because of the enormous budget deficits in Washington, low interest rates and the miserable economy. The Fed's policy of "quantitative easing," an unnecessarily obscure term that signifies the central bank's purchases of longer-dated and sometimes non-government debt, to lower long-term interest rates, exacerbates the dollar's weakness. (Even so, China's policy keeps the renminbi undervalued even against the dollar.) Many are waiting for another bout of QE from the Fed, dubbed "QE II," to juice the economy before the election.

Now Japan is escalating the currency war, cutting short-term interest rates to nearly zero, like those in the U.S., and throwing in a little quantitative easing to boot, the WSJ reports. During the Depression governments tried to protect domestic industries with barriers to imports. Such tariffs and quotas got a bad name for prolonging the slump and are now more or less taboo. The preferred state policy to protect domestic industry during this crisis seems to be debasing one's currency, a tactic which may not be as harmful as the 1930 Smoot-Hawley Tariff but which is not without risks, either. Small wonder gold is hitting record prices of more than $1,300 an ounce.

Posted by Jay Hancock at 9:34 AM | Permalink | Comments (3)
Categories: The Great Recession
        

The 30-year fixed mortgage rate is 4.32 percent, a record low. The 15-year is at 3.75 percent, also a record. Calculated Risk has the story.

Posted by Jay Hancock at 9:10 AM | Permalink | Comments (1)
Categories: The Great Recession
        

From Barry Ritholtz, with ways to finance them, too. My favorite:

One Year Payroll Tax Holiday: Want to increase job creation and reduce unemployment? Tax it less. A 12 month employer FICA holiday will encourage job creation. How to pay for it: Raising both the retirement age and the cap on FICA contributions.

You could get a bipartisan group to support this and fixing Social Security all in the same bill. The whole list is here.

UPDATE: Typing fingers outpace brain. By "could" in the above sentence I mean, "might possibly be able, in a mythical perfect world, in which Democrats weren't worried about voter perceptions of whacking Social Security and Republicans were inclined to do anything on a bipartisan basis."

Posted by Jay Hancock at 10:31 AM | Permalink | Comments (1)
Categories: The Great Recession
        

This is a post about banking capital requirements, but don't turn to the Video Music Awards article just yet. This is interesting. The No. 1 cause of the mortgage disaster was inadequate equity capital requirements. Equity capital is the "down payment" on a house, the shareholder's equity in a business, the proffered cash in a securities transaction. All across the spectrum during the housing bubble economic agents were allowed to do deals with practically nonexistent capital. Houses bought with no money down. Firms like Lehman operating on 30 parts borrowed money for every one part of equity. Etc. When you have little or no equity to start with, even small reversals in the prices of the assets you're buying causes bankruptcy. That, in a nutshell, is the story of the housing blowup.

One of the terrible aspects of the Dodd-Frank financial reform legislation was its failure to do anything to beef up requirements for equity capital. Such a move would have made the system much more stable, simply and cleanly. It also would hurt Wall Street's profits. So it's great to see the international Basel III requirements doing what Washington couldn't bring itself to do. Matt Yglesias has the story.

Posted by Jay Hancock at 8:40 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Great Vanity Fair piece by Michael Lewis on how Greece responded uniquely and disastrously to the global flood of cheap money that dried up in 2007.

Americans wanted to own homes far larger than they could afford, and to allow the strong to exploit the weak. Icelanders wanted to stop fishing and become investment bankers, and to allow their alpha males to reveal a theretofore suppressed megalomania. The Germans wanted to be even more German; the Irish wanted to stop being Irish. All these different societies were touched by the same event, but each responded to it in its own peculiar way. No response was as peculiar as the Greeks’.

Posted by Jay Hancock at 8:28 AM | Permalink | Comments (1)
Categories: The Great Recession
        

This is an old theme, but it bears repeating when new information is presented. The right keeps blaring that liberals caused the housing bubble by showering money upon poor people through Fannie Mae and Freddie Mac. (And through other channels via CRA requirements, as commenters have noted. Thanks Josh.) So it must be repeatedly countered. I have no love for Fannie/Fred. Almost nobody other than the Wall Street Journal's editorial page was more critical of them than me in the years leading up to the disaster. They were ghastly government/private mutants, with taxpayers taking on all the risk and shareholders reaping incredible profits until the end.

But the fact is that they played a relatively minor role in the subprime bubble. They got into subprime only after they started losing market share to Wall Street, which was leading the subprime and Alt-A parade. They never had more than 13 20 percent of their originations in subprime. The table below shows the action. It's from a new "autopsy" of Fannie and Fred, of which the NYT's Economix blog has a good summary.

The vast majority of loan defaults have not been made by the poor. And Fannie & Fred weren't lending much to low-income folks anyway.

UPDATE: For the complete demolition of the "Fan/Fred caused the bubble" argument see the blog Big Picture by Barry Ritholtz, who's hardly an apologist for soft-headed liberals. See Ritholtz posts here and here and especially here. Then read his book, Bailout Nation

Posted by Jay Hancock at 8:17 AM | Permalink | Comments (19)
Categories: The Great Recession
        

I have heard nobody impugning the monthly data on home sales from the National Association of Realtors. And the July stats announced yesterday were miserable enough to vouch for the research's integrity. If ever the realtors were tempted to fudge the numbers, it might have been now. As usual, however, the commentary from realtor officials continues to be wildly optimistic.

NAR chief economist Lawrence Yun says "a soft sales pace likely will continue for a few additional months," according to the press release. (Try "years," Dr. Yun.) Then he goes on to say existing-home sales from last month don't look so bad when you compare them with historical averages -- including from 20 and 30 years ago, when the population was far smaller!

I'm surprised home sales last month were as strong as they turned out to be. The tax credits are gone, unemployment is near 10 percent, and yet 389,000 homes still changed hands. (That's the raw number, not the decline in the seasonally adjusted annual rate that you get from most news stories. The actual number of homes sold should be included in the stories, IMHO.)

UPDATE: Barry Ritholtz, as is often the case, is a bit more caustic:

Everyone knew that Existing Home Sales were going to stink the joint up today — but I just had to laugh when I read the NAR commentary; The headline along was priceless: July Existing-Home Sales Fall as Expected but Prices Rise. Too bad they don’t cover other events: “Lincoln attends theater opening; leaves early with headache.”

Posted by Jay Hancock at 9:07 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Barry Ritholtz says they still could happen:

It turns out that this was more than mere incompetence, this was a malicious fraud, a full on intent to deceive the investing public in order to grab huge bonuses, economic consequences tot he nation be damned.

But the noose is slowly tightening. The FCIC has undercovered documented illegal behavior, while a newly revitalized SEC opens more cases.

In the post Sarbanes-Oxeley era, where CEOs signed off on their accounting statements and quarter earnings release, that calls for investigation, prosecution, confiscation — and jail time. As much as the public has been frustrated, they may very well see some justice soon . . .

Posted by Jay Hancock at 1:09 PM | Permalink | Comments (0)
Categories: The Great Recession
        

The drop in second-quarter productivity reported by the Labor Department this morning is bad news. It is another way in which the U.S. economy is becoming similar to Japan's economy in the 1990s, the "lost decade" which is now turning into two lost decades.

Even as output and demand dropped and deflation loomed in the U.S., just as they did in Japan in the 1990s, at least we still had this: U.S. companies were still boosting productivity at impressive rates. In Japan productivity fizzled in the 1990s, which contributed mightily to its problems. But the Labor Department just said U.S. productivity dropped in the second quarter.

The United States still has a growing population and entrepreneurial culture, which Japan lacks. But the productivity news is not good at all.

Posted by Jay Hancock at 12:09 PM | Permalink | Comments (5)
Categories: The Great Recession
        

Over and over again you read about the silver lining of the recession and credit crisis: At least big American companies have good balance sheets. They're swimming in cash and stand in encouraging contrast to the U.S. consumer and the U.S. government. Not so, says Brett Arends of MarketWatch:

There's just one problem: It's a crock.

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

Posted by Jay Hancock at 8:49 AM | Permalink | Comments (1)
Categories: The Great Recession
        

The New York Times advances pay czar Kenneth Feinberg's report on the enormous "bonuses" that Wall Street extracted from their companies even as they were being bailed out and kept afloat by taxpayers in late 2008. Of course Citi, which would be in bankruptcy today and its bonus recipients unemployed, barring the federal bailout, is at the top of the list.

Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses, the people with knowledge of his findings said, and he has singled out Citigroup as the biggest offender.

Not much he can do about it, however, the Times says. Most of the banks have repaid the bailout funds.

Posted by Jay Hancock at 8:12 AM | Permalink | Comments (1)
Categories: The Great Recession
        

This morning's 2nd-quarter results from Caterpillar show that there is decent hope that business investment can contribute substantially to the recovery, even if consumers are still hesitant. CAT sales rose 31 percent and profits rose 91 percent, beating analysts' estimates.

The company sells heavy equipment to road builders, construction companies.miners and so forth. “Mining will continue to be the biggest driver of absolute earnings,” analyst Brian Rayle told Bloomberg. Mining companies are preparing to increase extraction in expectation that commodity prices will rise with the recovery. “We continue to be very positive about the longer-term prospects for many of the industries we serve—like mining, energy, infrastructure, electric power and rail," was the canned quote from CAT's CEO.

A lot of this is inventory building, for sure. But that means dealers are optimistic that the recovery will continue. And they seem to be optimistic worldwide. Last quarter CAT machinery sales were up 43 percent in North America, 116 percent in Latin America, 36 percent in Europe and 62 percent in Asia.

Posted by Jay Hancock at 8:49 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Many bogus claims are being made for the financial reform bill, but this is the biggest. Never is a long time.

"Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes," Obama said at a signing ceremony for the legislation approved by Congress last week.

Posted by Jay Hancock at 8:07 AM | Permalink | Comments (0)
Categories: The Great Recession
        

It's turning into another hugely profitable but jobless recovery for corporations. From the NYT:

“It has been one of the strongest profits recoveries ever,” said David S. Bianco, chief United States equity strategist for Bank of America Merrill Lynch. “You have got to go back to the Depression to find a profits recovery that outpaces this one.”

Tyler Cowen is baffled.

Posted by Jay Hancock at 8:40 AM | Permalink | Comments (11)
Categories: The Great Recession
        

Ross Douthat has a good pep talk in today's NYT, arguing that the country is overdoing the gloom just as it overdid the exuberance during the mortgage bubble:

Maybe this time is different. The recession is deeper. Our debts are piled higher. The gloom is more pervasive.

But even now, there isn’t a major power in the world that wouldn’t happily change places with the United States. Our weaknesses are real, but so is our potential for resilience. While our rivals (in Asia as well as the West) face a slow demographic decline, our population is steadily increasing. The European Union’s recent follies make our creaking 200-year-old institutions look flexible by comparison. And China can throw up all the high-speed rails and solar panels it wants, but it won’t change the fact that most of the country is still sunk in rural poverty.

As if to prove his point, his optimistic piece is not one of the most-read NYT stories online. It's not in the top 10 hits for views, emails or blogging. Instead, people are reading a three-day-old NYT piece on the delusional Robert Prechter, who says the Dow Jones Industrial Average will go down to 1,000 in a few years.

UPDATE: Wait, I take it back sort of. Douthat has made it into the top 10 articles viewed. (No. 10.) Maybe there's hope.

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Steve Hanke, professor of applied economics at the Johns Hopkins University, writing in the Wall Street Journal Europe, has some advice for Greece that he admits Greece will probably not take:

But it also should have implemented a supply-side fiscal consolidation. That means cutting government expenditures, but also changing the tax regime.

Right now, Greece has very onerous payroll taxes that are paid by employers and, ultimately, labor. As part of a Big Bang, Greece should eliminate the employer contribution to payroll taxes, which is currently 28% of wages (employees pay a further 16% rate directly).

At the same time, Greece should make its VAT rates uniform. Right now, there are three VAT rates in Greece. This is typical in Europe. You have the regular VAT, a VAT that is reduced by 50% for other categories, and, finally, a super-reduced VAT. I would eliminate the reduced and super-reduced rates, and just have one, uniform rate for the VAT—one set below the current top VAT rate of 23%.

If Greece did those two things, it would end up generating more revenue than it is generating right now. Even when based on a static, simple-minded analysis, that would put Greece ahead of the revenue game.

Posted by Jay Hancock at 5:48 PM | Permalink | Comments (2)
Categories: The Great Recession
        

Fannie Mae, which climbed on board but did not start the subprime mortgage bandwagon that crippled the world economy, has decided, after much deliberation, that buyers should be able to afford the houses they move into.

It’s important to make sure you can keep your home over the long-term. Fannie Mae offers five steps to help those thinking about buying a home select the right house for them and understand the affordable financing options that can help make homeownership a long-term success.

In other news, Lucy has begun counseling Charlie Brown on how to kick a football.

Posted by Jay Hancock at 10:52 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Yves Smith of Naked Capitalism says:

It is not a sign of intelligence to repeat a course of action and expect different results. Yet our officialdom is doing pretty much just that on the economic front. Treasury and the Fed in particular seem quite pleased with their success in patching up the financial system with duct tape and baling wire and prodding it into a semblance of operation via massive support, most notably via super low interest rates.

Even so, the mortgage market is on life support, with government guaranteed mortgages accounting for over 95% of the market in first quarter 2010, versus roughly 40% pre-crisis. Banks are still not lending much, and have reined in particularly hard with small businesses who are the engine of hiring. Financial firms seem to be deriving their real cash earnings primarily from yield curve arbitrage (borrowing at near zero and parking the proceeds in longer-dated Treasuries or other low risk assets) and trading. While these may rebuild their balance sheets, the banks have yet to write down and restructure bad debts sufficiently (while the banks do appear to have taken some hits on impaired assets, a fair bit of anecdotal evidence suggests the markdowns are not deep enough).

There is much more here.

Posted by Jay Hancock at 10:39 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Margaret Thatcher also made a dash for confidence and growth via a fiscal squeeze. To restart the economy in 1981, Thatcher instituted a fierce attack on the British deficit, coupled with an expansionary monetary policy. Her moves were immediately condemned by 364 distinguished economists. In a letter to the Times of London, they wrote a knee-jerk Keynesian (Prof. Krugman-type) response: “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”

Thatcher was quickly vindicated. No sooner had the 364 affixed their signatures than the economy boomed. People had confidence in Britain again, and Thatcher was able to introduce a long series of deep free-market reforms. While Prof. Krugman’s authority is weighty, his arguments and evidence are slender.

Hanke follows up, mentioning a similar New Zealand example here.  More discussion on Marginal Revolution here.

Posted by Jay Hancock at 4:55 PM | Permalink | Comments (2)
Categories: The Great Recession
        

Check out Gus Sentementes's story on the mental health toll of the economic downturn and slow recovery. Employee-assistance providers told Gus that requests for help rose about 10 percent and that reports of employee anxiety rose by a similar amount.

But here's the thing: EAPs are provided by employers, which means that for the most part the people using them are employed. The 15 million unemployed Americans generally don't have access to these programs and wouldn't be captured in the EAP data. If you think employed people are anxious, how do you think the unemployed feel? The unemployed who don't have private health insurance, let alone mental-health services? As Gus reports, the number of Marylanders using mental health services through Medicaid, the program for low-income folks, has popped 13 percent.

Here's a 2003 Hancock column on unemployment and depression:

ON A RECENT visit to an inpatient psych unit, it becomes clear that several convalescents have more in common than spiritual anguish and labels culled from the Diagnostic and Statistical Manual of Mental Disorders.

They are unemployed.

"I'd be a lot better if I had a job," says one highly intelligent, credential-laden man, his crisis triggered by a paycheck deficiency.

Another patient lost a blue-collar slot as part of the great diaspora of U.S. factory jobs to Mexico, China and beyond.

Because Prozac and Zoloft were not conversation staples in his circle, despair crept up without announcing itself. The pronouncement of "severe depression" after too many leaden days came as a revelation.

But involuntary unemployment and depression, the medicos tell us, often go together like graveyards and darkness.

Continue reading "Great Recession means mental depression " »

Posted by Jay Hancock at 8:15 AM | Permalink | Comments (2)
Categories: The Great Recession
        

It's Joanna Smith-Ramani and me talking about financial reform on Maryland Morning with Sheilah Kast.

Posted by Jay Hancock at 3:27 PM | Permalink | Comments (0)
Categories: The Great Recession
        

The March employment report shows the best results in three years: 162,000 jobs added to the economy. It was close to what analysts expected. True, the results were probably bolstered by the February snows, which bumped hiring into March, and census hiring. But it sure beats the months of 2009, when losses of half a million jobs per month were common.

Even so, it's barely a beginning of replacing all the jobs wiped out by the Great Recession. The economy has lost 8 million jobs since the downturn began. In March it reinstalled 2 percent of them. Nonetheless, if we get many months of this, pressure will grow on the Federal Reserve to raise short-term interest rates.  

Here's a great snapshot of the labor market from Mint, via Big Picture. There are 16 million unemployed Americans, 8 million more than when the recession began. 

Posted by Jay Hancock at 8:52 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Juju.com is out with its latest job-search difficulty rankings, based on a measure of online help-wanted ads held up against local unemployment. Washington D.C. and San Jose are tied for the easiest place in the country to find a job, according to this list, with one job opening for every 1.7 unemployed people. Baltimore is No. 3, with a job for every 2.4 unemployed people.

Other cities ranking near the top are New York, Hartford and Salt Lake City. Detroit, St. Louis and Miami are at the bottom of the 50-city list, each with more than 10 unemployed persons per online advertised job opening. Of course these kinds of rankings are imperfect. Even though the folks who compile these claim to eliminate duplicate help-wanted ads, I suspect some double counting is going on. And highly-wired towns like Baltimore and San Jose are going to have a higher portion of help-wanted ads online, anyway. Still, you'd rather be looking for a job in Baltimore than in Las Vegas, also with more than 10 unemployed people per job in the list.

Posted by Jay Hancock at 8:42 AM | Permalink | Comments (1)
Categories: The Great Recession
        

From MPT with Jeff Salkin.

Posted by Jay Hancock at 4:56 PM | Permalink | Comments (0)
Categories: The Great Recession
        

Today at 1 on WYPR (FM 88.1) My colleage Dan Rodricks will be talking about the job market. Listen, call and tell employers who might be listening why you've got the stuff.

1:00-2:00 pm today on Midday Midday invites you to take part in another Radio Resume hour. We'd like to hear about your experiences trying to find a job, what type of work you're looking for, and your qualifications. A prospective employer might be listening. Joining us in the studio to offer his advice to job seekers will be Patrick Madsen, director of programs and education at the Johns Hopkins Carey Business School, Office of Career Services.

Posted by Jay Hancock at 12:27 PM | Permalink | Comments (3)
Categories: The Great Recession
        

The Great Recession seems to be prompting a surge in entrepreneurship, if you believe anecdotal evidence. Lacking a formal job, folks are starting their own businesses and trying to make their own way. If you're thinking about starting a business, here's a great, free resource to get you launched from Baltimore County lawyer and part-time author Eliot M. Wagonheim.

"Business Owner's Pocket Guide" is a concise handbook that gives the crucial basics of starting a company. What legal structure to choose? How to deal with employees? How to get a bank loan? What are bankers looking for?

Wagonheim's wise, Top 10 Business Guidelines alone are worth the trouble of downloading his book. Rule No. 1, which applies to all areas of life, not just business is: "Make It Easy for People to do What You Want Them to Do." Here's another good one: "Companies don't have to be Busy; They have to be Profitable."

To download a copy or request a hard copy, go to Wagonheim's Web site.

Posted by Jay Hancock at 9:07 AM | Permalink | Comments (3)
Categories: The Great Recession
        

This is cool. The folks at LinkedIn tracked employment changes in their database to produce a flow chart of where employees from doomed Wall Street investment houses went after the collapse. Unfortunately nobody puts "unemployed" on their LinkedIn card. Would have been interesting and sad to see how many folks have that as their destination.

Posted by Jay Hancock at 5:10 PM | Permalink | Comments (8)
Categories: The Great Recession
        

Markets are responding to yesterday's surprise move by the Federal Reserve to raise the "discount rate." The dollar is gaining strength; stocks are down overseas; journalists are saying this is the beginning of the end of the cheap money that the Fed has been mainlining since late 2008.

I would put a contrarian spin on it. Hardly anybody uses the Fed's discount window, which is intended to provide emergency capital to member banks. The decision to raise the discount borrowing rate to 0.75 percent means absolutely nothing in the mechanics of finance. The Fed's main instrument is the overnight rate, which banks charge each other for overnight lending. Banks who need extra capital almost always get it from each other, not the discount window. And the Fed shows few signs of raising the overnight rate.

My take is this: The Fed is always under pressure to show it is vigilant against inflation. These days it is also under pressure to show it is vigilant against asset bubbles. So, as the recovery slowly proceeds, it feels like it must demonstrate that the watchdog is awake. On the other hand, the Fed's Bernanke knows that the economy is still in terrible shape and that tightening credit prematurely helped prolong the Great Depression.

To thread this needle, a Fed policymaker would do exactly what Bernanke just did: Make a purely symbolic move with the discount window to show that he's paying attention. But leave the policies that matter alone. Rather than signaling imminent tightening, I bet Bernanke is using the discount-rate increase to buy time to leave other monetary policy alone. Markets should calm down.

Posted by Jay Hancock at 9:01 AM | Permalink | Comments (3)
Categories: The Great Recession
        

Obama will propose a federal tax credit today in Baltimore for businesses that hire employees this year, following up on his focus on jobs in this week's state-of-the-union speech, according to The Sun's Paul West. Companies that hire people this year could get credits of up to $5,000 per job. That's a credit -- $5,000 subtracted directly from what a company owes in payroll tax. Since it's a payroll-tax credit even companies that don't have taxable income would benefit.

Add in Maryland's incentives to hire and you could get a pretty good inducement to add employees this year. Gov. Martin O'Malley is proposing a $3,000 tax credit for hiring businesses. That's on top of Maryland's existing job-creation tax credit of up to $1,500. Companies are not going to hire without assurance that the added employees will help them make money. If they're on the fence the incentives could make a difference. But we need a general pickup in consumer spending and consumer confidence to combine with the hiring incentives to really make a difference in the jobs picture.

Posted by Jay Hancock at 8:50 AM | Permalink | Comments (5)
Categories: The Great Recession
        

Michael Mandel has launched a Statistic of the Decade contest. Nominations: Home prices. Growth of Chinese economy. Growth and decline of international trade as a portion of the world economy. And U.S. household borrowing.

This last one gets my vote. As Mandel notes, for some reason the Fed figures underlying the graph below include domestic hedge funds, which are certainly not households. Nevertheless it's an impressive pair of slopes.

Posted by Jay Hancock at 12:14 PM | Permalink | Comments (1)
Categories: The Great Recession
        

As Paul Krugman writes in today's NYT, upcoming economic reports figure to be the best we've seen in more than two years. The economy may well have added jobs in December for the first time since 2007. The report on fourth-quarter gross domestic product should show growth, as the third-quarter report did.

But, Krugman warns, the good news could be temporary, and it's hard to argue with him. None of the potential economic engines looks ready to kick in. Consumers are still indebted and tapped out. There is still a big hangover of unsold houses. A cheap dollar could spur exports, but China and other nations are holding the value of their currencies down, taking away the silver lining of the dollar's decline. The best bet for a kick-start might come from business, which hasn't had an investment boom in almost a decade. But thanks to the recession, corporations have far more office and warehouse space and factory capacity than they need.

To compensate, Krugman wants more monetary and fiscal stimulus. He wants Ben Bernanke and the Federal Reserve to hold down short-term interest rates for a lot longer. And he wants another big spending package from Congress. But he makes no mention of the risks these moves would include.

Continue reading "Next economic news to be positive but temporary?" »

Posted by Jay Hancock at 9:06 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Since late 2007, every month, the Baltimore branch of the Federal Reserve Bank of Richmond has been surveying Maryland companies about the economy, revenue, costs and investment. This month, companies' economic expectations for six months down the road hit their most optimistic levels since the survey was launched. That bodes well for hiring, profits and tax revenues.

 Business folks were asked: "What is your assessment of the level of general business activity six months from now?" for their company, for Maryland and for the nation. Readings for companies hit a survey high, and the reading for Maryland came close.

Granted, the survey is less than three years old. But the results, published Monday, are an encouraging sign of improvement. Says the survey: "Expectations for activity six months from now strengthened considerably. Survey respondents anticipate increases in business activity over the next six months with significantly higher sales, labor demand, prices and investment."

It's a decent survey. R. Andrew Bauer, economist for the Baltimore Fed office, sends out 152 queries each month and usually gets responses from between 75 and 100 companies, he says. Above are results for business people's outlooks for their companies six months out. It's a diffusion index. The percentage of companies that expect business activity to be lower six months from now is subtracted from the percentage that expect higher activity. Companies that expect no change have no effect. The higher the index, the more optimistic.

Posted by Jay Hancock at 6:24 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Today's column reprises a piece I wrote a year ago, right after the authorities officially proclaimed a recession, about how Maryland's economy is doing and where it's going. I called back the folks I talked to in December 2008. It's slow, but at least they're seeing signs that we're at or near the bottom.

Even so, Maryland merchants expect their first holiday-sales increase this year since 2006. Some companies are thinking about hiring. Stimulus money and other federal spending have kept Maryland better off than most states.

"We think the worst is over," said Tom Saquella, president of the Maryland Retailers Association. "It's got a long way to go. Last year, our members saw the holiday season as half-empty. This year they see it as half-full."

Here's WBAL's Bill Vanko and me yacking about the column on the radio.

Posted by Jay Hancock at 12:14 PM | Permalink | Comments (1)
Categories: The Great Recession
        

State policymakers tell Laura Smitherman in today's Sun that, despite new tax-collection disappointments, the Maryland economy is showing signs of bottoming out. Comptroller Peter Franchot's initial reaction to the latest revenue estimates "is one of relief." House Speaker Mike Bush Busch is "cautiously optimistic."

I'm hearing this from the Maryland business community, too. I'm working on a column for Friday's paper on the economic outlook for 2010, and so far I'm also hearing cautious optimism. Last night I talked to Tom Saquella, head of the Maryland Retail Merchants Retailers Association, who said he expects the first increase in Maryland holiday sales this year since 2006. Granted, it would be an increase from depressed levels and wouldn't get sales back to levels from a few years ago.

Even so, the 1.5 percent increase or so he's predicting would be better than the plunge of 2008. Since it increased its sales tax to 6 percent, Maryland's treasury is even more dependent on retail activity than it was before. Stabilization in retail helps explain the stabilization in tax collections the revenue authorities think they're seeing. Let us know in the comment section about how the economy looks from your viewpoint.

Posted by Jay Hancock at 8:39 AM | Permalink | Comments (3)
Categories: The Great Recession
        

This is either good news: People are buying RVs because the economy is picking up. Or it's bad news: People are buying RVs because they're living in them.

Airstream, a leading recreational vehicle manufacturer in North America, announced today that it has increased its production by 25% since October in order to meet growing market demand. Furthermore, the company is scheduled to expand production by another 25% in January.

In addition to doubling its net output in five months, Airstream’s production backlog has also more than tripled since last year. As a result, Airstream will expand its production workforce by 35% to support the boost in production and demand.

Posted by Jay Hancock at 1:45 PM | Permalink | Comments (1)
Categories: The Great Recession
        

The Great Recession may be technically over for the economists -- GDP is rising again, which means the decline in economic output that defines recessions has stopped, at least temporarily. But it won't feel like it's over to Americans until the country starts adding jobs again. That hasn't happened yet, but today's jobs report from the Labor Department shows the next best thing: We've stopped losing jobs, at least for one month.

Analysts had projected the November jobs report to show that the economy had shed employment by more than 100,000 jobs for the 22nd month in a row. They were wrong. Today's report shows that the economy lost only 11,000 jobs last month, which is statistically nothing. And previously announced job losses for October and September were substantially revised, for the better. October job loss was not 190,000, as announced a month ago, but 111,000. The economy lost 139,000 jobs in September, not 219,000 a previously announced.

The unemployment rate even dipped a little bit, from 10.2 percent in October to 10 percent.

Make no mistake: The economy is still terrible and will be bad for many months. We're not adding jobs yet. But today's report is the single best piece of economic news we've had for a long time. And it suggests that the policy responses by the Bush administration and the Obama administration -- big-bank rescues, unprecedented monetary stimulus, almost $800 billion in fiscal stimulus -- are working.

Posted by Jay Hancock at 9:03 AM | Permalink | Comments (4)
Categories: The Great Recession
        

Now that the economy has technically begun growing again, you're going to hear lots of talk about sinking back into a recession. We could be in the middle of "double dip" recessions, according to the jargon, or a "W-shaped" recovery (named for the shape of economic growth traced on a graph).

For one thing, there's a decent chance that another recession might happen. The load of debt on consumers may be enough to keep them from fueling a sustained recovery any time soon. And business investment won't drive a recovery until corporations are sure that the consumer is back for good. According to estimates by the Congressional Budget Office, the economy would have still been in recession in the third quarter if it hadn't been for the economic stimulus, notes Calculated Risk. Stimulus effects will fade next year. Krugman issued a "double-dip warning" on Monday.

The other reason you're going to hear about a possible double dip is that Democrats will probably want another stimulus package next year. The better the economy is in November, the less bad Democrats will do in midterm elections. The political business cycle modeled by Yale's William Nordhaus 30 years ago says that the party in power will layer on a stimulus just before an election. Public worrying about a double-dip, no matter what's actually going on in the economy, will help Democrats create an atmosphere favorable to another stimulus. The new one won't be as big as this year's $787 billion monster, however.

Posted by Jay Hancock at 6:02 AM | Permalink | Comments (0)
Categories: The Great Recession
        

As Jamie Smith Hopkins reports, mortgage delinquencies keep rising and are now occurring in a huge way among borrowers who had been rated good credit risks. Just about every category of mortgages gone bad hit a new record in the third quarter, according to the Mortgage Bankers Association. Rising unemployment is a primary cause. "Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP," chief economist Jay Brinkmann said in the MBA's press release.

One piece of data lacking in the survey is the vintage of the mortgages going bad -- ie., how long ago were they issued? It's relevant because even today, after all we've been through, there are reasons to question the lending standards on newly issued mortgages. Especially loans guaranteed by the FHA. As many have pointed out and as today's column notes, we're trying to solve a debt crisis by issuing more debt.

Federal Housing Administration-backed loans have soared in the last year, but the foreclosure rate on FHA loans has risen even higher! Says Brinkmann:

The foreclosure rate on FHA loans also increased, despite having a large increase in the number

Continue reading "How many delinquencies are on new mortgages? " »

Posted by Jay Hancock at 8:05 AM | Permalink | Comments (7)
Categories: The Great Recession
        

Stopped at T. Rowe Price's annual investment symposium at the Waterfront Marriott this morning. I only caught an hour, but the plenary panel on the global investment environment was, on the whole, quite positive. The panelists were relieved that the world has stepped away from the economic abyss, surprised at how quickly financial markets have snapped back since March and cautiously optimistic that there's still some upside.

The panelists were Christopher Alderson, CEO of T. Rowe Price International, John Linehan, co-director of U.S. equities and Mary Miller, director of fixed income. Here are some snippets:

The panelists see plenty of investors still waiting to dive in to the markets. "There's still a huge amount of cash on the sidelines," said Linehan. Said Miller: "I'm familiar with one institution that just borrowed $400 million because they could and then called up and said, 'What should we do with it?'"

Miller: "We have had a remarkable recovery this year in the credit markets." The economy is "out of the ICU" and "out of the emergency room" and on "outpatient status." But economic performance is lagging behind the markets, she said, and commercial real estate credit is "still struggling."

Investors are still "hesitant," she said, with lots of money going into conservative short-term bond funds instead of stocks. "There's enormous relief, and that's all to the good. But I think the psychology is still pretty fragile."

Alderson sees short-term interest rates staying low as global central bankers continue extraordinary economic stimulus. But, he said, "it's starting to create problems in other part of the world" as cheap dollar-denominated loans are cranking up asset prices. Recently in Hong Kong, he said, a 1,000-square-foot apartment sold for $12 million -- evidence of a bubble.

Continue reading "T. Rowe Price panelists bullish on stocks, economy" »

Posted by Jay Hancock at 10:58 AM | Permalink | Comments (0)
Categories: The Great Recession
        

Jamie Smith Hopkins writes in today's Sun about downsizing moves by home owners -- and not just retirees and empty nesters. Home builders are joining the small-house trend, too. They've figured out that Americans can afford less house and often want smaller even if they can afford bigger. At the same time, builders need a product to compete with all the foreclosed houses that still flood the market and keep falling in price.

Compact starter homes are a way to do that. KB Home introduced its Open Series of homes this year, which it says have been selling nicely. Open Series designs range from 1,239 to 2,300 square feet, according to Builder online, and are priced less than $120,000 in Las Vegas and less than $300,000 in California. To save space without making people feel cramped they combine the kitchen, dining and living spaces in one, wall-less area. (Here's a video.) Two months ago KB said it was relaunching operations in Maryland, and it looks like it'll push the Open Series hard here. D.R. Horton and other builders are also offering smaller homes, says Seeking Alpha.

All in all, a good trend. Smaller houses, smaller energy bills, smaller mortgages. It will, however, mean much lower profits for builders. (Full disclosure: Your blogger & Mrs. Hancock, new empty nesters, live in a house of 2,300 square feet, according to the State Department of Assessments & Taxation. Seems too big.)

Posted by Jay Hancock at 7:00 AM | Permalink | Comments (5)
Categories: The Great Recession
        

The Great Recession has given currency to the ancient legal term "cease and desist," as bank after bank gets smacked with an order from government regulators to shape up or else. Baltimore's 1st Mariner Bank got a "cease" letter a couple months ago, basically giving it until June to get more capital or risk being seized.

Now, reports American Banker and relayed by Calculated Risk, the Federal Deposit Insurance Corp. is trashing "cease and desist" and replacing it with "consent order," a term AB says is used by other regulators.

We're getting a little Orwellian here. Most cease and desist orders were already "consent" orders in the sense that banks had to stipulate (not contest) the facts as found by the FDIC or challenge them at a hearing. In both cases the bank is consenting only because government heavies are giving it the fifth degree.

But consent sounds so much nicer than the categorical C&D, don't you think? Cease and desist is the FDIC in crouch position, service revolver drawn. "Back away from the subprime mortgages!" Consent makes it sound like the FDIC and the banks are friends!

Posted by Jay Hancock at 9:03 AM | Permalink | Comments (0)
Categories: The Great Recession
        

First-time claims for unemployment benefits fell to their lowest level since January. T. Rowe Price ecnonomist Alan Levenson looks at the data. New claims fell by 12,000 to 502,000 last week. Continuing claims fell by 312,000 to 5.8 million. (That's for two weeks ago.)

Says Levenson:

Bottom line: Labor market healing trend continues into November, and the unemployment rate should reverse some of October's outsized gain. Nonetheless, the unemployment will tend to rise until monthly job growth is sufficient to absorb the flow of labor force entrance (roughly +110,000 per month); we don't expect a peak until mid-2010.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (2)
Categories: The Great Recession
        

Maybe the toughest job in today's real estate market is selling monster luxury homes, many of which were built only because of the financing bubble and people scoring mortgages they didn't deserve to buy houses they couldn't afford. Many million-dollar homes are in bankers' inventories, having been foreclosed upon. They're big white elephants -- expensive to keep up and in saleable condition, but difficult to sell.

But the latest metro-Baltimore sales numbers show that million-dollar homes are participating in the jump in activity that the rest of the market is seeing. Sixteen metro-Baltimore homes priced $1 million or more sold in October, according to MRIS. Seven sold in September, 22 in August and 13 in July. There were 695 million-dollar-plus houses for sale in metro Baltimore last month. That's down from 786 in May and the lowest level since January, when fewer people are trying to sell houses, anyway.

Few if any people buying these things qualify for the first-time home buyer tax credit. (Only people with relatively modest incomes qualify.) But my colleague Jamie Smith Hopkins says there could be a tax-credit knock-on effect boosting the luxury market. The credit probably helped some trade-up buyers sell their modest ranchers or Colonials so they could move into their dream mansions.

Posted by Jay Hancock at 11:31 AM | Permalink | Comments (0)
Categories: The Great Recession
        

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 (1)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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 (2)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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 (2)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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 (14)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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 (1)
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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

It's easier to write about downsizing and layoffs than to witness them.

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (4)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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)
Categories: The Great Recession
        

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, tha