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