Political Economy category archive

FDIC still on its average of three a week (in one form or another–merger, liquidation, seizure). Repubican Economic Theory continues to bear fruit.

Loup City, Neb.-based Sherman County Bank, Cape Coral, Fla.-based Riverside Bank of the Gulf Coast and Pittsfield, Ill.-based Corn Belt Bank and Trust Company were closed by regulators Friday, bringing the number of U.S. bank failures for 2009 to 12 and 37 total since the start of the credit crisis, the Federal Deposit Insurance Corp. said.

Loup City, Neb.-based Sherman County Bank, Cape Coral, Fla.-based Riverside Bank of the Gulf Coast, Pittsfield, Ill.-based Corn Belt Bank and Trust Company, and Beaverton, Ore.-based Pinnacle Bank were closed by regulators Friday, bringing the number of U.S. bank failures for 2009 to 13 and 38 total since the start of the credit crisis, the Federal Deposit Insurance Corp. said.

Nebraska has not seen a bank failure since 1990, according to the FDIC. However, Riverside Bank follows Fla.-based Ocala National Bank, which failed on Jan. 30. Prior to Corn Belt Bank, the last Illinois bank to fail was National Bank of Commerce on Jan. 16.

Margaret Carlson on Bloomberg dot com asks a question (emphasis added):

I learned that 696 individuals at Merrill Lynch & Co. got bonuses last summer. You remember Merrill Lynch, the once-proud institution that on the eve of its implosion was bought by Bank of America Corp., a company that later got billions of dollars in government bailout money.

I would very much like to locate Employee 697. If 696 people who helped destroy the company still got at least $1 million each for their effort, imagine what No. 697 must have done NOT to get it.

Note that almost half of these sales were “distressed“:

Prices of existing U.S. single-family homes dropped a record 12.4 percent in the fourth quarter from a year earlier to the lowest level since 2003, the National Association of Realtors said on Thursday.

The NAR said distressed sales, which includes foreclosures, accounted for 45 percent of transactions in that quarter, dragging down the national median price of existing single-family homes to $180,100.

I suspect the sellers were also distressed, worrying whether their vehicles are big enough for their families to live in.

Prices may be close to bottoming out; the early 2000s was apparently when the just-busted bubble started to inflate (see graph here).

Criswell predicts that prices are going to stay flat for a long time. Persons fearing pay cuts and unemployment do not buy houses. Or cars. Or washing machines. Or anything they don’t have to have.

Addendum, Later That Same Day:

Atrios thinks that housing prices will slide significantly further.

He’s got a Ph. D. in economics and has taught in some of the finest universities in the world.

I don’t have a Ph. D. and have taught persons how to carry trays in dining cars.

We will see if my “it’s not rocket science” contention holds up.

If it doesn’t I will forget about this update.

No wonder “first-time claims” dipped a bit. The pool of employed persons subject to being fired keeps getting smaller.

First-time claims for state unemployment benefits dipped down in the latest weekly data, while continuing claims reached a record high, the Labor Department reported Thursday.

The number of initial claims in the week ending Feb. 7 fell 8,000 to 623,000, a level that is 84% higher than the same period in the prior year. The four-week average of initial claims rose 24,000 to 607,500 — the highest level since November 1982 and up 76% from the prior year. The four-week average for claims draws the attention of economists and investors because it smoothes out distortions caused by bad weather, strikes or the timing of holidays.

Shorter Adam Posner: Let grown-ups run the banks. Time to consider

. . . nationalizing or come close to nationalizing part of the banking sector . . .

Via TPM.

Discussion of TARP (you know TARP, the big green blanket that get$ thrown over a pile of tra$h to hide the stink).

About 40 minutes into the interview:

Guest*: No investor . . . should invest in an organization in which they are not happy with the management.

Diane Rehm: But that can’t tell whether they’re happy with the management until they go down . . . .

The guest went on to say that that “depends on how skilled an investor you are.”

Nothing about the truthfulness or integrity of the organization.

Classic blame the victim.

Follow the link above or click here (Real) to listen.

________________

*I couldn’t figure out which guest and I was too lazy to listen all the way through a second time, but I think it was Robert Hartheimer.

Bonddad summarizes what it is and how it works, in understandable terms.

I am bemused by all the leftie hand-wringing over the Geithner bailout plan. Not because I’m a fan of the plan, but because persons are acting like it’s somehow immutable.

I think that we will find that it’s very mutable.

This administration is not hampered by ideology that prevents it from recognizing when something’s not working.

In contrast, consider the Republican loyalty to tax cuts as the only way to do anything.

Even though that loyalty is based on the demonstrably false Laughable Curve (and, if you don’t want to research the economic theory, just read the stock market pages and the weekly jobs reports), it has become a central tenet of their ideology: They are incapable of considering any economic strategies other than tax cuts for the rich. Making the rich richer is their Eleventh Commandment.

They, like the Blues Brothers, believe they are on a mission from God. (The Blues Brothers had a better script.)

Supplementary Material:

Very interesting interview about executive compensation on Radio Times yesterday. Go here and search for February 9, 2009, and select Hour 1 or listen here (mp3).

Video via TPM.

Andrew Sullivan:

The reason the Republicans are feeling better about themselves is that they managed to turn this debate into one about ideology in a vacuum. That’s how they governed for many years; it’s what they know; and since they have no shame, they feel no need to square their newfound fiscal conservatism in a depression with their record of massive spending and borrowing in a boom.

And he looks at the numbers. The Congressional numbers are particularly interesting:

If the image doesn’t work, just follow the link to Mr. Sullivan’s place.

As BarbinMD says,

It’s not about the saving the economy from collapse, or to stop (sic) skyrocketing unemployment numbers, it’s about making sure it continues long enough for the Republicans to get back into power.

Nissan cutting 20,000 jobs (more than 8% of its workforce):

“In every planning scenario we built, our worst assumptions on the state of the global economy have been met or exceeded, with the continuing grip on credit and declining consumer confidence being the most damaging factors,” President and Chief Executive Carlos Ghosn said in a statement.

Must be that pesky UAW again. Oh, wait.

Addendum:

The Booman has a detailed analysis.

No more Tavern on the Green (PDF):

The world’s largest hamburger chain (Gues who?–ed.) said January same-store sales rose 5.4 percent in the United States, 7.1 percent in Europe and 10.2 percent in the company’s Asia/Pacific, Middle East and Africa segment.

What it means in the world of “toxic assets” (emphasis added):

The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.

The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S&P estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.

(snip)

The bond is backed by 9,000 second mortgages used by borrowers who put down little or no money to buy homes. Nearly a quarter of the loans are delinquent, and losses on defaulted mortgages are averaging 40 percent. The security once had a top rating, triple-A.

What was happening is simple. Financial institutions were issuing funky mortgages to everybody they could rope in, without doing credit checks due diligence, so they could turn around and sell these bonds.

They didn’t want the mortgages. They wanted to sell the bonds.

And the ratings agencies, which were paid by the issuers of the insecurities, gave this junk the highest ratings. As long as everything was going up, everything kept going up. “Intrinsic value” had nothing to do with it.

The whole scam makes Bernie Madoff look like a piker.

No, I am not alleging conspiracy. I am alleging criminal greed, negligence, and immorality, all hidden in three-piece suits and Bentleys.

Just as “negligent homicide” is a real criminal charge, so too should be “negligent marketing.”

But the bozos who did this will not be going to jail. After all, they have three-piece suits and Bentleys.

The family that lost its house and its possessions and gets caught shoplifting a loaf of bread–it’s gonna be the Big House for them.

(Aside: If you believe in “market capitalism” in any form, non-regulated, deregulated, or regulated, that bond is worth 37 cents, because that’s what someone was willing to pay for it. Where S&P gets 87 cents I cannot imagine.)

IHT story via Harry Shearer.

Artwork at Delaware Liberal.

(Read the comments.)

Click and learn. A nugget:

Meanwhile, Nebraska’s other senator, Ben Nelson (D), was heading up a centrist group that was determined to cut $100 billion from the stimulus bill. Among his targets: $1.1 billion for health-care research into what is cost-effective and what is not. An aide explained that, in the senator’s opinion, there is “some spending that was more stimulative than other kinds of spending.”

Oh really? I’m sure they’d love to have a presentation on that at the next meeting of the American Economic Association. Maybe the senator could use that opportunity to explain why a dollar spent by the government, or government contractor, to hire doctors, statisticians and software programmers is less stimulative than a dollar spent on hiring civil engineers and bulldozer operators and guys waving orange flags to build highways, which is what the senator says he prefers.

Via Susie.

Their cookie is goosed:

As tractor-trailers full of Girl Scout cookies roll in to Delaware distribution points this week, their sugary contents weigh a little less than they did this time last year, a victim of cost-cutting measures.

Popular cookie varietiessuch as Thin Mints, Do-si-Dos and Trefoils now contain from two to four fewer cookies per box. And the Lemon Chalet Cremes, which last year were rectangular, now are round and slightly smaller.

And they were already, ounce for ounce, the most expensive cookies normal folks buy with any regularity.

The fundamentals of the economy are sound(ing hollow). Follow the link and S-E-C for yourself (emphasis added):

McDonough, Ga.-based FirstBank Financial Services was closed by regulators Friday, marking the seventh bank failure of the year and the 32nd of the recession, according to the Federal Deposit Insurance Corp.

Birmingham, Ala.-based Regions Bank has agreed to assume all of FirstBank’s deposits and purchase roughly $17 million of the failed bank’s assets, the FDIC said.

Federal regulators shut down a bank in Southern California and another in the Atlanta area on Friday, bringing the number of U.S. failures this year to eight, while marking the 33rd collapse since the recession began.

McDonough, Ga.-based FirstBank Financial Services and Culver City, Calif.-based Alliance Bank were seized, according to the Federal Deposit Insurance Corp.

Birmingham, Ala.-based Regions Bank has agreed to
assume all of FirstBank’s deposits and purchase roughly $17 million of the failed bank’s assets, the FDIC said.

In other news, the green line is Bush 43’s:

Addendum:

The little indie pizza place across from the restaurant where I ate supper has given up the ghost.

The little sewing store just up the road has ditto.

One of the little businesses in the office building at the foot of the street ditto.

All within the past few weeks.

Republican Economic Theory works. It does, indeed, make the poor poorer.

Toyota Motor Corp. said Friday losses for the business year ending next month will be larger than it had earlier forecast as sales weaken in Japan and overseas markets, and an appreciating yen trims the value of repatriated foreign earnings.

Toyota said its operating loss will likely widen to 450 billion yen ($4.95 billion) for the fiscal year ending March 31. In December, the Nagoya-based automaker forecast a 150 billion yen operating loss.

The operating loss is Toyota’s first since the end of World War II.

Oh.

Wait.

Atrios (emphasis added):

Paying people to dig holes and then fill them up again would be stupid spending, but it would still be very effective stimulus.

Allocating money to build SUPERTRAINS would be smart spending, IMHO, though potentially (depending) not a super-effective stimulus.

So ideally you have projects which are both smart spending and good stimulus, but spending is the stimulus.

Up! Up! and Away!

The number of U.S. workers filing new claims for jobless benefits hit a 26-year high last week and factory orders plummeted in December, data showed on Thursday, illustrating an economy mired deep in recession.

In addition, the number of people staying on the jobless benefit rolls hit a record high late last month.

Duncan on how we got here:

For over a year the one point that I and others have been trying make is that the polite fiction that masters of the universe of Wall Street and their defenders in the media and Congress have been trying maintain, that this is liquidity crisis not an insolvency crisis, is utter horseshit. They made bad leveraged bets and lost immense amounts of money, and now they, and their buddies Geithner and Summers, want taxpayers to bail them out so they can go on living their opulent life styles while some of my neighbors wonder if their next food stamp card is going to show up.

Substitute “US” for “UK.” Prem Sikka in The Guardian:

Is there any limit to the amount of money the UK government will spend to bail out financial institutions? To date, no bank has published accounts showing UK-specific assets, liabilities, losses or toxic debts. If regulators know, they have not informed the public. Therefore, it is hard to know what the UK taxpayer is bailing out. Seemingly, we are writing a blank cheque without knowing the full story.