Political Economy category archive

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.

January reports coming in this week, and those folks who got seasonal (Christmas) jobs in retail, package delivery, and things like that there don’t have them any more:

The axe fell on an expected half million jobs last month, economists say, and the only reason the job losses weren’t larger is that weak hiring for temporary jobs in November and December meant fewer people were laid off in January.

The Labor Department will report on the January employment report on Friday, the cap of another busy week for economic data, most of which are expected to be gloomy, if not doomy.

The data calendar includes January purchasing-managers surveys from the Institute for Supply Management; January auto sales; December data on consumer spending, consumer credit, factory orders and construction spending; and the latest weekly figures on jobless claims. The Federal Reserve is also likely to report on its quarterly survey of lending conditions at banks.

The news is expected to be universally grim. The jobs report is the big one, however.

Foreclosed.

Rexrode is living in his house without gas because he cannot pay the bill. He has no hot water and can’t use his stove. He cooks his meals in a microwave. His estranged wife, Rita, pays his electric bill, which gives him lights and allows him to use a portable heater. He suffers from congestive heart failure and was recently hospitalized with breathing trouble.

On that day in December, however, Dawson told Rexrode that he had come to the end of the road. He should have taken exception in April, before the foreclosure sale took place, Dawson advises. The bank had every right to ask for Rexrode’s keys immediately, Dawson acknowledges later.

Instead, Dawson allows Rexrode to stay until Jan. 31. It is the best he could do, he said.

This week, the bank agreed to an extension with Rexrode because of his health problems, Rogers said. Rexrode must be out by Feb. 28.

Remember, the customers did not approve themselves for mortgages.

“Run the government like a business” has been the theme of those who fail to realize that government is not a business.

Well, for the last eight years, that bunch has been in charge.

And they have, indeed, run the government the same way they run their own businesses.

Into the ground.

The glories of Republicanism.

Federal regulators closed three banks in a single day Friday, as the ongoing credit crisis showed no signs of abating.

Utah’s MagnetBank became the fourth bank failure of the year, and the Federal Deposit Insurance Corp. was forced to directly refund depositors after being unable to find another institution willing to take over its operations.

That marked the first time the FDIC has been unable to find an acquirer for a failed bank in nearly five years, according to FDIC spokesman David Barr.

(snip)

The FDIC later said it has also closed Maryland-based Suburban Federal Savings Bank, and Florida’s Ocala National Bank.

Masters of the Universe at Duncan’s:

Am I the only (one) to whom it’s occurred that monetary policy through the banking channel (as opposed to, say, actually dropping money from helicopters) is only likely to be effective if banks are pretty good at allocating capital efficiently, and recent history tells us that the existing set of clowns in charge completely suck . . . at this.

Bet they’ll keep sending me those sweepstakes notices, though.

That’s good. They go right into recycling. I like recycling.

Reader’s Digest Association Inc. said Wednesday it will cut about 280 jobs, or 8 percent of its global work force, and implement other cost-cutting measures.

The job cuts will leave RDA with about 3,220 full-time employees.

Speaks for itself.

The Labor Department reported that the number of Americans continuing to claim unemployment insurance for the week ending Jan. 17 was a seasonally adjusted 4.78 million, the highest on record dating back to 1967. That’s an increase of 159,000 from the previous week and worse than economists’ expectations of 4.65 million.

As a proportion of the work force, the tally of unemployment benefit recipients is the highest since August 1983, a department analyst said.

A local business association is running a seminar about how to be a better CEO.

Got any suggestions as to who should attend?

But rich.

Our monied classes. Read the whole thing. It will give you a break from the want ads:

That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.

While the payouts paled next to the riches of recent years, Wall Street workers still took home about as much as they did in 2004, when the Dow Jones industrial average was flying above 10,000, on its way to a record high.

Some bankers took home millions last year even as their employers lost billions.

The comptroller’s estimate, a closely watched guidepost of the annual December-January bonus season, is based largely on personal income tax collections. It excludes stock option awards that could push the figures even higher.

The fruits of Republicanism:

“Anybody who is looking for a job now is feeling an economic tsunami,” said 48-year-old Wilson, who says he has exhausted his family’s savings and now spends most days searching for jobs at an area employment-assistance center. “It feels like all of a sudden, it has just fallen apart.”

’nuff said:

Officials at the Food and Drug Administration and the Centers for Disease Control and Prevention, which have been investigating the outbreak of salmonella illness, said yesterday that Peanut Corporation of America found salmonella in internal tests a dozen times in 2007 and 2008 but sold the products anyway, sometimes after getting a negative finding from a different laboratory.

Republican economic theory at work:

But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: mini-Madoffs.

The Republican theory that there is something intrinsically moral about combining greed, riches, and lack of accountability, . . . oh, well.

Republicanism is bankrupt.

Thanks to it, so are the rest of us.

Aside: Delaware Liberal has a quotation from Adam Smith that Republicans don’t want you to see.