The Housing Bubble

NEW YORK (AP) — Penny-pinching Americans are getting cold feet at the checkout — thinking twice about spending and ditching items before they’re rung up.

They’re leaving sweaters in the dress department, dumping cookies near the grocery cashier and waiting until the last minute to judge needs versus wants. Online, shoppers are consumers are abandoning their virtual carts as they search for better deals.

People “want to be in the act of shopping, but they don’t want to be in the act of buying,” said Joel Bines, a director at AlixPartners, a turnaround consultant.

It means more lost sales for stores at a time when there are already fewer customers because of the recession. For bricks-and-mortar shops already working with fewer staff, it also means higher labor costs because orphaned items have to be restocked.

Hard numbers are difficult to come by, but Burt P. Flickinger III, a retail consultant, estimates that in 25 percent of shoppers’ trips to the store, they’re ditching at least one item. In the recession of the early 1990s, it was 15 to 20 percent. In good times, it’s more like 10 percent.

Ashley Nichols Guttuso of Midlothian, Va., dumped a red cardigan last week at the counter at the local Limited store after she found out she couldn’t use a $15 store coupon on the $15 sweater.

Guttoso says she could have afforded it, but she has focused on necessities since losing her job as a copywriter for Circuit City in January, as the chain was preparing to go out of business.

“I went in there thinking I could get something for free,” said the 27-year-old. “I couldn’t rationalize it — even spending $15 to $20. I am watching everything now.”

Customers are asking cashiers to provide a total while they’re still scanning items to see where they stand, or to have necessities like health care basics scanned first, said Dan Fishback, chief executive of DemandTec Inc., a retail technology company. When they hit their limit, they forgo what’s left in the basket.

Lower credit limits are also contributing to the abandonment. Shoppers say credit card transactions are being denied if they go over their limit just a bit, said Ben Woosley, director of marketing and consumer research at CreditCards.com. In the past, issuers would often approve purchases up to 10 percent over the limit.

Bricks-and-mortar stores can’t do much but clarify prices on products to prevent sticker shock in the checkout aisle. Web stores are taking bolder actions, including sending e-mails to remind customers about abandoned items, simplifying the online checkout process and offering extra discounts to lasso would-be quitters.

Souring Prime Loans Compound Mortgage Woes.
Programs Designed to Prevent Foreclosures Face Pressure.
WSJ 8-21-09

A survey found that one in eight U.S. households with mortgages was in foreclosure or behind on its mortgage payments during the second quarter, putting added pressure on programs aimed at preventing foreclosures.

While foreclosure starts have slowed on the subprime loans that ignited the mortgage and banking crisis, loans extended to borrowers with good credit are deteriorating at a faster clip as falling home prices and mounting job losses weigh on more households.

The Mortgage Bankers Association said its latest survey, released Thursday, showed that 13.2% of mortgages on homes with one to four units were at least a month overdue or in the foreclosure process in the April-to-June period, up from 12.1% in the first quarter and 9% a year earlier.

As home sales have picked up in recent months, some were expecting foreclosures and delinquencies to ease. But Jay Brinkmann, chief economist at the MBA, said foreclosures weren’t expected to peak until later in 2010 when the economy improves.

“Just because we see prices level off doesn’t necessarily mean we’ll see a big reduction in foreclosures,” said Mr. Brinkmann, in part because many homeowners would still owe more than their homes were worth.

Deteriorating prime loans are increasingly behind the steady rise in delinquencies and foreclosures. Among prime loans, 9% were past due or in foreclosure at the end of June, up from 5.35% one year ago. For subprime loans, those for borrowers with weak credit records or high debts relative to income, the rate was 39.5%, compared with 30% last year.

Prime loans, however, accounted for 58% of foreclosure starts, up from 44% last year. Meanwhile, subprime mortgages accounted for 33% of foreclosure starts, down from 49%. Prime fixed-rate mortgages, usually considered among the safest of all loan types, accounted for one in three foreclosure starts, up from one in five.

F.D.I.C. Seeks to Attract More Buyers of Banks. August 20, 2009

Faced with a growing wave of bank failures, the Federal Deposit Insurance Corporation is taking extraordinary steps to attract buyers for troubled institutions to keep the fund that makes depositors whole from being drained.

Federal regulators are planning next week to make it easier for private equity firms to buy insolvent lenders, according to people briefed on the situation, a move that would reduce the number of failed banks that the fund would have to support. It is also trying to entice buyers by agreeing to share some of the potential losses from failed banks. And it is retooling one of its main financing programs to make it cheaper for bidders to buy the toxic assets of closed lenders.

“At this point, they are looking hard at as many solutions as possible,” said Frederick Cannon, the chief equity analyst at Keefe, Bruyette & Woods. “When you have this many bad loans at these banks, there are no easy fixes.”

For the F.D.I.C., led by Sheila C. Bair, it is critically important to keep the insurance fund full because confidence in the banking system depends in part on depositors knowing they will get their money back. But the fund, which is also used to cover losses at insolvent banks, has fallen to just $13 billion at the end of March, the latest month for which figures are available, down from $52.8 billon a year ago, as the number of bank failures accelerates. Because many of the troubled banks are small and their losses relatively large, few buyers are snapping them up. Even worse, buyers are reluctant to pick up illiquid assets, like troubled commercial real estate and construction loans that may continue to hemorrhage losses.

So far this year, 77 lenders have been closed, compared with 25 in 2008. Of those, the F.D.I.C. has found buyers for 69.

Analysts are bracing for dozens of additional failures, especially among small and medium-size banks that have made huge numbers of real estate loans that are not being paid back.

Hey, I’ve got a brilliant idea! How about we use a phony color-coded alert system to let us know how the economy is doing? Have the color green at the top (green shoots) to represent that the economy is doing well and people should spend money. We could have yellow in between and brown at the bottom to represent when the economy is in the crapper. We could have Timmay or Benny raise and lower the level of confidence. You know, kind of like how Tom Ridge used to do it for the terror alerts.

Good Morning:
First of all, I have read the posts by all of the posters, and it makes for great reading. The posts are funny, informative, and generally provokes a healthy debate.
I have been mulling over NYC post of a couple of days ago, and how we got to the 70’s. I also grew up in the 70’s as a kid, and I saw the store from the outside, as I grew up in a foreign country, and even that austere living was way higher than what I saw around me.
I think that in order to comprehend the 70’s we need to go back to the Great Depression, and the offspring of that. WW2.
During the GD1, the US was a primarily agricultural country, with heavy doses of industrialization. At the onset of WW2, lingering economic issues made for a short recession, that was killed with the attack on pearl harbor.
After WW2, there were only 2 industrialized countries. The US and the Soviet Union. Both had its areas of influence, and in the US area of influence we were the only game in town.
We rebuilt our sphere of influence and got countries like Japan, Germany, France, the UK, etc back on their feet through selling them not only factories, but the loans to make the factories.
Cue in the growth that the 50’s, and 60’s saw, but at the end of the 60’s those countries’ industrial production was almost ramped up and ready to be used. They slowly starting producing things for local production, and slowly displaced US companies in production, as local production was cheaper.
Que in the ’70s. Most of us who grew up in the 70’s had parents that were a result of growing up the 50’s, not the 60’s. Their view of life was one of hard work, but the company would take care of you from the cradle to the grave (in fact my father retired from the company that he worked for for 24 years). We saw a decade of stability, but all around us it was anything but.
Latin America got the Che guevara bug. It was recolution, nationalization, and green go home all over. US companies where (in some cases rightfully) vilifed. In the ME, the oild shiks wanted more money and went on strike.
In the US, the Carter years, and then what I think killed the manufacturing in the US. The clean air act (a really good idea, really badly implemented!). Signed by Ronald Reagan.
At the end of the ’70s it was obvious that the US products, even though were really good, had a problem. They were very, very expensive for the rest of the world. The rest of the world stopped buying them. Nike’s in my little corner of the world were a luxury. You could get a chinese (Taiwan) made knockoff for 10% of the cost.
We in essence priced our products, and ourselves out of the global market place. There are products, that are so specialized, that only the US can make, and maybe a handfull of other players, but for the bulk of things, ie. a car, most other countries can make them at a fraction of paying the UAW, Managament, the huge CEO bonus, etc.
In conclusion, the last 20-30 years have been about reliving something that just can not happen. We need to get competitive again, but things like Huge Management bonuses, UAW, etc, are making it really, really hard to do. If labor has to take a hit, so does management. No more 500 Million dollar bonuses for fracking a company. No more “but according to the UNION that is not my job!.”
It has to start with all of us. There will be great opportuinity in the future. The worse thing that we can do is cling to the past, and save the usavable.

Professionals Are Buying The Stock Market Rally. Are You?
Posted Aug 21, 2009 08:00am EDT by Peter Gorenstein in Investing, Recession

After starting the week with a big knock, the stock market has resumed its rallying ways, with the Dow closing above 9300 on Thursday while the S&P again surpassed the 1000 level.

Professional money managers are buying into the rally in a big way, according to a Merrill Lynch Survey of Fund Managers :

* 75% believe the world economy will improve in the next 12 months. That’s the highest level in nearly six years and up from 63% in July.
* Average cash balances have fallen to 3.5%, the lowest since July 2007.
* 34% of managers surveyed are now overweight stocks, the highest since Oct. 2007.
* Risk appetite is also increasing, to the highest levels in two years.

The contrarian in you probably thinks that signals a market top.

But Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation, isn’t ready to call an end to the move. “We’ve worked off lots of that oversold condition,” he admits, but that doesn’t mean the rally can’t continue for some time.

Ritholtz, who told Tech Ticker in early March we were in for a monster rally, has 1050-1080 as an upside target for the S&P 500, with a slight chance it can go as high as 1200. If the rally does extend to those outer limits, Ritholtz sees the Dow topping out “somewhere around 12,000.”

Regardless of your position, long or short, Ritholtz’s key message is to remain cautious. “This is a trading rally not a multi-year rally,” he says. Eventually something’s got to give: “We’ve never had six-month period before where we’ve lost two million jobs and the market’s gained 50%,” he says. “That’s simply unprecedented.”

“Were it not for the unprecedented flood of government aid in 2008, private bankers would have been swept away just as they were in the 1930s. But, instead, they were rescued with public funds which allowed them to quickly return to their avocation of profiting from the indebting of others.”

~ Darryl Robert Schoon

THE MYTHICAL FDIC FUND
By William M. Isaac
William Isaac, former Chairman of the Federal Deposit Insurance Corporation, (FDIC)

…”When I became Chairman of the FDIC in 1981,” wrote William Isaac a year ago, “the FDIC’s financial statement showed a balance at the U.S. Treasury of some $11 billion. I decided it would be a real treat to see all of that money, so I placed a call to Treasury Secretary Don Regan:

Isaac: Don, I’d like to come over to look at the money.
Regan: What money?
Isaac: You know . . . the $11 billion the FDIC has in the vault at Treasury.
Regan: Uh, well you see Bill, ah, that’s a bit of a problem.
Isaac: I know you’re busy. I don’t need to do it right away.
Regan: Well . . . it’s not a question of timing . . . I don’t know quite how to put this, but we don’t have the money.
Isaac: Right . . . ha ha.
Regan: No, really. The banks have been paying money to the FDIC, the FDIC has been turning the money over to the Treasury, and the Treasury has been spending it on missiles, school lunches, water projects, and the like. The money’s gone.
Isaac: But it says right here on this financial statement that we have over $11 billion at the Treasury.
Regan: In a sense, you do. You see, we owe that money to the FDIC, and we pay interest on it.
Isaac: I know this might sound pretty far-fetched, but what would happen if we should need a few billion to handle a bank failure?
Regan: That’s easy - we’d go right out and borrow it. You’d have the money in no time . . . same day service most days.
Isaac: Let me see if I’ve got this straight. The money the banks thought they were storing up for the past half century - sort of saving it for a rainy day - is gone.
If a storm begins brewing and we need the money, Treasury will have to borrow it. Is that about it?
Regan: Yep.”

Sound far-fetched? Not at all. Just a few weeks ago the present head of the FDIC mentioned that the “insurance fund” was being sorely taxed because of all the bank failures in the last several months. Sheila Bair said that if the fund runs dry she’ll just go over to the Treasury Department and get whatever is needed.

ITEM: “The FDIC reveals that millions of Americans don’t trust or don’t use banks. These Americans have been called the unbanked or underbanked, meaning that they ‘do not have access to banks or are not fully participating in the mainstream financial system,’ says the FDIC. The FDIC guesstimates that 10 percent of American families are ‘unbanked.’ That’s a lot of capital the banks don’t have access to. Those who hold currency outside of banks are anathema to the gods of banking.”

The above comes from an article by Bill Sardi, who usually writes about health matters. In this piece Sardi is concerned about “pocket book health” and lays out his concerns bluntly:

“If just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.” Aug. 25 - Day of Reckoning?

We’re not recommending that people remove large amounts of cash from their bank accounts. Banks only have a fraction of the cash needed to settle mass withdrawals and the ensuing panic would be ruinous.

BUT - the FDIC insurance fund is running very low and the agency will likely be tapping into the U.S. Treasury directly for funds to pay off depositors of failed banks. Hence the focus on the August 25th report from that agency.

A friend of ours (now deceased) once remarked that he kept $5,000.00 in cash in a shoebox “just in case.” We pointed out that he was losing the interest the money could have earned in a bank. He replied that he merely considered that the premium he was paying for the peace of mind of having some cash on hand in case “the banks closed for two or three days.” He was old enough to remember the bank closings of 1933.

Another 8 Issuers Default In Week; Yr-To-Date At 205 -S&P
Dow Jones News

Another eight corporate debt issuers defaulted this week, bringing the year-to-date total to 205, nearly quadruple the number a year earlier, according to Standard & Poor’s.
Defaults have continued to mount amid tight credit and the recession, which have made borrowing and refinancing difficult, especially for junk-rated companies. This year’s defaults surpassed 2008’s total during May.
This week, six of the defaults were in the U.S. and two were in Europe. The defaults bring U.S. defaults to a total of 146 and 13 in Europe. The rest of the count stands at 33 in emerging markets and 13 in the other developed region that includes Australia, Canada, Japan and New Zealand.
Three were attributed to missed interest payments, now the top reason for default this year at 70 issuers. Those were direct-marketing company Affinity Group Holding Inc., Little Traverse Bay Band of Odawa Indians and RDA Holding Inc.
Three defaults were attributed to distressed-debt exchanges. Most credit agencies consider distressed exchanges a default, though many companies don’t. Distressed exchanges have soared and are the second top reason for defaults this year, with the current tally of 66 issuers, more than four times that for all of 2008.

The companies include European sport-equipment manufacturer Head NV, commercial lender CIT Group Inc. (CIT)and home builder Beazer Homes USA Inc. (BZH).
One issuer, Colonial BancGroup Inc. (CBCG), was placed into receivership and the other, German luxury fashion designer Escada AG filed for bankruptcy. Bankruptcy filings also have soared, at 53 this year, surpassing last year’s total of 49.

“Unbanked” I guess that would mean they use check cashing stores and all of that. Sounds like a growth business. As people learn to distrust banks and FDIC then they might gravitate to a responsible check cashing store.

NYT - The Fall of the Super-Rich

By DAVID LEONHARDT and GERALDINE FABRIKANT
Published: August 20, 2009

The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

The relative struggles of the rich may elicit little sympathy from less well-off families who are dealing with the effects of the worst recession in a generation. But the change does raise several broader economic questions. Among them is whether harder times for the rich will ultimately benefit the middle class and the poor, given that the huge recent increase in top incomes coincided with slow income growth for almost every other group. In blunter terms, the question is whether the better metaphor for the economy is a rising tide that can lift all boats — or a zero-sum game.

This home was going for in the $500k range earlier this summer. The owner had always taken beautiful care of the place. Then all of a sudden things started to go downhill. We learned the owner had committed suicide. The bank just let the place run down.

http://cnyhomes.com/Listing/Search/info.cgi?mlnum=215822

Now it’s on the market for $212k but w/rehab necessary. I know in the bubble zone this has been going on but we don’t have that many foreclosures here. Yet the banks still throw away all the value from mere months of neglect.

Wish you could set up shop out here Ben.

There is really no cause for concern about the 20 pct drop in Chinese stock prices over the past two weeks, as the rest of the world economy has decoupled from China, right?

* WALL STREET JOURNAL
* AUGUST 21, 2009, 12:38 A.M. ET

UPDATE: Asian Shares Fall; Concerns On China Bank Lending

By Colin Ng and Philip Vahn
Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)–Asian stock markets were turning lower Friday amid concerns China might be moving to tighten bank lending, with jitters also creeping into foreign exchange trade.

Australia’s S&P/ASX 200 was down 2.5% with Japan’s Nikkei 225 down 2.1% and South Korea’s Kospi Composite off 0.4%. Hong Kong’s Hang Seng Index was down 1.3%, with Taiwan shares off 0.1%.

The Shanghai Composite Index was 0.7% higher by the market interval there, though off its morning highs.

Traders cited a report by Bloomberg which quoted people familiar with the matter as saying China planned to tighten capital requirements for banks. It said the China Banking Regulatory Commission had sent a draft of rule changes to banks on Aug. 19, requiring them to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital.

There’s little in the way of concrete data, but many China-watchers believe a large amount of bank lending has found its way into the stock market in recent months.

Concerns that China might slow this lending flood, at a time doubts are starting to come in about the strength of the economic recovery, were felt also in currency trade, with the U.S. dollar falling against the Japanese yen to its lowest level in more than a month.

The yield on the U.S. 10-year Treasury note fell to 3.38% in Tokyo, from 3.43% earlier, another indication of risk aversion. U.S. stock futures were down in screen trade, with Dow Jones Industrial Average futures falling 58 points.

Investors were likely to take their cue from where Shanghai shares headed in the afternoon session, given offshore market players tend to view that bourse as a bellwether for sentiment on the Chinese economy.

“In the last two weeks the index has lost more than 20% of its value - and needless to say investors are wondering if this is once again a harbinger of a sharp turn in China’s real economic fortunes,” said UBS economist Jonathan Anderson.
…

Lenderoflastresort posted this link late last night. It’s a blog about living in Iceland and also connects with an English translation of Icelandic news and commentary. It’s a fascinating look at the hardships they’re facing. The blogger’s unemployed and growing a garden for food. Sounds bleak over there. Good thing we’re in full recovery here in the US!

http://www.newsfritter.com/alive/

MarketWatch First Take

Aug 20, 2009, 5:26 p.m. EST
Recession ending? Who cares?
Commentary: Some milestones aren’t worth celebrating

By MarketWatch

WASHINGTON (MarketWatch) — Suddenly, everyone’s announcing the end of the great recession of 2008-2009. But nobody’s telling us why we should care.

Earlier in the week, the International Monetary Fund’s top economist said the global recession was ending. See full story.

On Thursday, the Conference Board said the index of leading economic indicators rose for the fourth month in a row. Combined with the first non-negative reading on the coincident indicators, the rise in the LEI was enough for the research group’s economist to say that the “recession is bottoming out.”

All across America, spontaneous festivities broke out to celebrate the news. It was like VE Day, Mardi Gras and Super Bowl Sunday all wrapped into one. Well … actually, no, that didn’t happen. No one celebrated because no one believes it.

It’s not that the economists are wrong; chances are, they are right. It’s just that economists and the rest of us speak different languages.

To an economist, a “recovery” is a process that simply means that the economy is finally growing again: more output, more sales, maybe even more jobs.

But, to the rest of us, “recovery” is a destination that means we’re back where we’re supposed to be. And with unemployment heading toward 10%, we all (especially the economists) know we’re not there yet.
…
I would add that to most people, “recovery” would imply a bottoming of the housing market. I know this time is different, but in the early 1990s, the “recovery” was dated by the National Bureau of Economic Research as occurring in March 1991, but the California housing market saw price declines for an additional five years, into 1996.

Forbes dot com
Adviser Soapbox
Let’s Hope China Forecloses On U.S.
Thomas C. Scott, 08.18.09, 04:17 PM EDT

A recovery in U.S. markets may depend on how China converts its huge inventory of U.S. Treasuries into equity.

Public officials and media commentators have used the term “green shoots” in recent months to suggest that small signs of improvement may signal our economic firestorm has finally burned itself out. Like a scorched forest floor, renewal is poking through the ashes. This sort of talk appeals to investment advisors and clients hungry for hope, and it worries them that they’ll miss out on the chance to buy stocks or real estate on the cheap, profiting from the expected rebound.

A rebound is a dangerously shaky assumption if you look beyond those green shoots and see that our nation may be in the throes of a rolling bankruptcy with no one left to bail us out. Investors distracted by talk of recovery may find that instead of the giant beanstalk of fairytale fame that allowed Jack to climb into the clouds and steal the giant’s gold, they’ll have ended up grasping at straws.

We’re in a fix, and the world is not going to save us the way the Japanese could in the late 1980s when they poured billions of accumulated dollars into overpriced U.S. assets, nor the way China has since the end of the 1990s technology boom by parking the lion’s share of its ballooning trade surplus in U.S. Treasuries.
Build ETF portfolios that beat the market. Make money. Be Happy. Click here for instant access to model portfolios in Jim Lowell’s Forbes ETF Advisor.

In fact, China has announced “foreclosure proceedings” against the dollar. No one calls it that, but it’s the implied message the Chinese and other major trading partners sent when they recently suggested replacing the dollar as the global standard for transactions. China would like to get rid of those U.S. Treasuries, but it can’t just dump more than a trillion dollars of assets without hurting itself greatly in the process. That’s about the only good news: China has to keep riding the tiger to avoid being eaten by it.

The bad news is that the Federal Reserve faces a high-wire balancing act without a net as it tries to manage long-term interest rates to keep the economy from becoming too hot or too cold. Failure to hit the mark may mean either a deepening recession or runaway inflation, and the window of opportunity is getting smaller all the time.

The global market for U.S. Treasuries is cooling, and yields may have to rise to attract buyers. That, in turn, could actually have an inflationary effect despite the good chance that it would be a drag on growth as the government prints more money to pay rising interest costs. Meanwhile, more than $2 trillion in the various stimulus and bailout proposals may force the government to raise more money by trying to sell even more bonds in a market that is already saying, “Enough!”

As things stand, the outlook for the dollar couldn’t be worse, and that should give investors pause before jumping into the stock market thinking the storm has passed. Since the beginning of this year, yields on both 10- and 30-year Treasuries have been rising, threatening to choke off a full-scale recovery. The Fed could buy Treasury bonds to counteract rising rates, but the money to buy those bonds would have to come from the government’s printing press.

If the Fed’s balancing act is successful and the high wire doesn’t jiggle too much, we could see a short-term economic recovery. But it’s hard to imagine a robust recovery when the American Banking Association says credit card default rates are at a record high, consumers who have money aren’t spending it, and the wealth of the nation has been gutted by the collapse of real estate prices.

If the Fed slips and falls, we may be in for either a continuing deflationary spiral, as happened during the Great Depression, or the opposite curse, hyper-inflation, which we had during the 1970s. Those who stand to lose the most from inflation are savers (as opposed to long-term investors), and salaried workers. Savers get hit because their bank CDs and other safe investments will be paying fixed interest that may be much less than the rate at which the cost of living is going up. Wage-earners get hit because employers won’t be able to raise salaries as fast as prices.

The only silver lining in this dismal scenario is that, like a bank foreclosing on a homeowner, China is maneuvering to pick up U.S. assets at bargain prices. According to published reports this week from Reuters, China’s $200 billion sovereign wealth fund plans to invest up to $2 billion in “toxic” mortgage-backed securities from U.S. banks.
…

China dot org dot cn
China cut holdings of US treasury bonds in June

A report published by the US Treasury Department yesterday shows that China’s June holdings of US Treasury securities were US$776.4 billion, down US$25.1 billion from the previous month, Beijing Business Today reported.

It is the second time that China has reduced its holdings of Treasury securities since the global financial crisis broke out last September. But despite the fact that China cut its holdings by the biggest percentage since a 4.2 percent cut in October 2000, China remains the No.1 holder of the US Treasuries.

China cut its net holdings by 3.1 percent to US$776.4 billion in June from US$801.5 billion in May. It was the first large-scale reduction of US Treasury debt by China so far this year. But its June holdings were still larger than April’s US$763.5 billion and the US$767.9 billion March figure.

“Considering the prospect of long-term depreciation of the US dollar and pessimism on the asset value of investments in US treasury bonds, the Chinese government intentionally trimmed down its holdings to ensure the security of Chinese foreign assets,” said Xu Qiyuan, a researcher with the Global Economy and Politics Research Institute of the Chinese Academy of Social Sciences (CASS).

“China is speeding up its strategy of diversifying its foreign investments,” he added.
…

Can anyone who understands international politics comment on the implications of the following news item for US sovereignty?

CIC may invest in US mortgages
(China Daily/Agencies)
Updated: 2009-08-18 08:04

China’s $200-billion sovereign wealth fund is set to invest up to $2 billion in US mortgages as it eyes a property market recovery, two people with direct knowledge of the matter said yesterday.

China Investment Corp (CIC) plans to invest soon in US taxpayer subsidized investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the $700-billion Troubled Asset Relief Program (TARP), also backed by the US Treasury.

Under the Public-Private Investment Plan (PPIP) launched earlier this year, the US government plans to seed a number of public-private investment funds that would combine taxpayer money with private capital to buy as much as $40 billion in toxic securities from banks.

Compared with TARP, the new and smaller PPIP program focuses on safer toxic securities, which must have so-called “Triple-A” ratings by at least two agencies, and are debts guaranteed by the US Federal Deposit Insurance Corporation (FDIC), sources explained.

“In this case, CIC feels safer to invest and the safer it feels, the more confident it will naturally feel about its investments, as well as in the prospects for the US economy,” said one of the sources.
…

Another blow-out essay by Michael Hudson at globalresearch dot ca. I forget who linked it the other day, but thanks.

And pundits are thinking Arizona real estate prices hit the bottom? LOL

Arizona’s rising unemployment rate proves that recession still has a firm grasp on the state, with economists projecting the jobless number could hit at least 10 percent - and possibly top out as high as 11 percent - before conditions improve.

The number jumped about half a percentage point, to 9.2 percent, in July from June, according to the Arizona Department of Commerce.

more at

http://tinyurl.com/AZ-Jobless

Policy maker’s blanket apology: “If I had not acted as I did, you all would have been much worse off than you are now.”

There is no way I know of to challenge such a claim, as you cannot run history twice to see how things might have turned out differently.

Bernanke: We saved world

Pause to reflect: Kansas City Fed convenes annual symposium Friday in the mountain resort Jackson Hole.

U.S. central bank Chairman Ben Bernanke tells attendees at Fed conference in Jackson Hole, Wyo., that the global economy is emerging from recession — adding that the downturn could have turned disastrous absent aggressive action by monetary-policy makers.
…

NAR-defined “positive data” on housing:

- Ignore them double-digit year-on-year price declines

Aug 21, 2009, 10:19 a.m. EST
US Stock Gains Accelerate After Positive Housing Data

By MarketWatch

U.S. stocks gained on Friday after a report showed a jump in home sales and crude oil touched its highest price this year.

The Dow Jones Industrial Average was recently higher by 148 points at 9498. The S&P 500 gained 1.8% to rise to 1025 and the Nasdaq Composite Index was up 1.5%, climbing back above the 2000 level.

Markets moved decisively higher after a report showed that existing-home sales climbed to their highest level in nearly two years from June to July as cheaper prices and the availability of tax credits continued to entice buyers.

The National Association of Realtors said home resales rose 7.2% last month, a stronger gain than economists had expected.

Foreclosures and short sales reflect 31% of sales in July. Distressed property sales have pushed prices lower, year over year, attracting buyers not sidelined by unemployment or tight credit conditions. The median price for an existing home last month was $178,400, a 15.1% decrease from July 2008.
…

“There is something about August going into September where everybody in Washington gets all wee weed up!” - B. Obama

Can anyone splain this one? I remember Bush used to make statements that made on sense to me. This one… I have not a clue. Does it have to do with incontinence, or do they roll up a few dobbies and inhale?

Clunker program spent, dealers to get government cheese…
Scott Ott Examiner Columnist August 21, 2009

Uncle Sam’s Cash-for-Clunkers program has already spent its allotted $3 billion, making it by government standards an instant success, and forcing Democrats look for alternative ways to compensate auto retailers for the deeply-discounted deals they’ve made on some 457,000 vehicles.

Many car dealers have yet to receive a nickel from the federal government after waving goodbye to dozens of customers who drove off of their lots in new cars marked down by up to $4,500.

However, President Barack Obama today told dealers not to “worry about reimbursement because if cash runs out, we have warehouses across the land stacked high with government-surplus cheese, canned hams and other tangible commodities every bit as good as cash in these tough economic times.”

The president hailed the “surprise success” of the program, noting that “from all I know about economics and business, I never expected that drastically reducing the price of a new car would increase sales like that. It’s like there’s some kind of magical power that turns lookers into buyers when you slash the sticker. Who knew?”

Obama said he has assigned some of the best and brightest minds from top Ivy League universities to “flesh out” his new economic theory that substantially lower prices can drive demand even during times when people are carefully regulating their spending.

“If the principle I’ve discovered holds true for other products as well,” he said, “then for all intents and purposes, this economic crisis is over. I’ll just sign an executive order commanding all retailers to cut their prices in exchange for a government promise to reimburse them at a later date.”

Jive talking

New dorm at UA rising

And here’s the housing angle on this story: During the past few years, there have been quite a few “investment” home purchases near the UA. The idea was to rent the houses out to students or buy the house for your own Ashley or Justin, then sell and bank the profits a few years later.

Well, nowadays, that plan isn’t working out too well. Seems that a lot of other people did the same thing. Which means that there are a lot of SFR vacancies near the UA.

And, after several years of being occupied by students, the houses are really worn and torn. Which means that the owners will have to sink some serious bucks into repairs and spruce-ups before the houses can be listed on the resale market.

Furthermore, there are lots and lots of UA area apartment complexes that still have vacancies. And school starts this coming Monday.

From a NYT editorial (no byline):

Debit Card Trap

[...]

Some bankers claim the system benefits debit card users, allowing them to keep spending when they are out of money. But interest rate calculations tell a different story. Credit card companies, for example, were rightly criticized when some drove up interest rates to 30 percent or more. According to a 2008 study by the F.D.I.C., overdraft fees for debit cards can carry an annualized interest rate that exceeds 3,500 percent.

The banks, which have grown addicted to overdraft fees, will almost certainly resist new regulation in this area. But there are several things that federal regulators must do to protect the public.

First, banks must be barred from automatically enrolling customers in overdraft programs. This must be a service that customers opt in to — and only after they are provided full information about the fees and the penalties they will incur. These disclosure statements must meet the same rules laid out in truth-in-lending laws, since overdraft charges are essentially short-term loans.

Banks must also be required to warn customers in real time when a debit card charge will overdraw their accounts — and what fees they will incur if they still decide to proceed with the purchase.

This will require new technology. But there is almost no chance that the banks will invest in it unless they are legally required to do so. Until that happens, buyers beware. That cup of coffee may be even more expensive than you realize.

Earthquake in FOREX market registers on the exchange rate seismograph:

USD-CHF 1.0575 -0.0054 -0.5127% 12:24
USD-SEK 7.0114 -0.1363 -1.9066% 12:23
USD-DKK 5.1931 -0.0290 -0.5545% 12:23
USD-NOK 5.9924 -0.0220 -0.3655% 12:23
USD-CZK 17.7690 -0.1120 -0.6262% 12:23
USD-SKK 21.0190 -0.1157 -0.5474% 12:23
USD-PLN 2.8640 -0.0410 -1.4097% 12:23
USD-HUF 187.2040 -2.2563 -1.1909% 12:23
USD-RUB 31.6430 -0.1926 -0.6051% 12:22
USD-TRY 1.4840 -0.0068 -0.4545% 12:23
USD-ILS 3.7975 -0.0230 -0.6020% 12:21
USD-KES 76.2500 -0.0500 -0.0655% 10:05
USD-ZAR 7.7898 -0.1102 -1.3956% 12:23
USD-MAD 7.9021 -0.0234 -0.2959% 12:23

Mexico decriminalizes small-scale drug possession.
(AP) – 7 hours ago

MEXICO CITY — Mexico decriminalized small amounts of marijuana, cocaine and heroin on Friday — a move that prosecutors say makes sense even in the midst of the government’s grueling battle against drug traffickers.

Prosecutors said the new law sets clear limits that keep Mexico’s corruption-prone police from extorting casual users and offers addicts free treatment to keep growing domestic drug use in check.

“This is not legalization, this is regulating the issue and giving citizens greater legal certainty,” said Bernardo Espino del Castillo of the attorney general’s office.

The new law sets out maximum “personal use” amounts for drugs, also including LSD and methamphetamine. People detained with those quantities no longer face criminal prosecution.

Espino del Castillo says, in practice, small users almost never did face charges anyway. Under the previous law, the possession of any amount of drugs was punishable by stiff jail sentences, but there was leeway for addicts caught with smaller amounts.

“We couldn’t charge somebody who was in possession of a dose of a drug, there was no way … because the person would claim they were an addict,” he said.

Despite the provisions, police sometimes hauled in suspects and demanded bribes, threatening long jail sentences if people did not pay.

“The bad thing was that it was left up to the discretion of the detective, and it could open the door to corruption or extortion,” Espino del Castillo said.

Anyone caught with drug amounts under the new personal-use limit will be encouraged to seek treatment, and for those caught a third time treatment is mandatory.

The maximum amount of marijuana for “personal use” under the new law is 5 grams — the equivalent of about four joints. The limit is a half gram for cocaine, the equivalent of about 4 “lines.” For other drugs, the limits are 50 milligrams of heroin, 40 milligrams for methamphetamine and 0.015 milligrams for LSD.

Rise of the Super-Rich Hits a Sobering Wall

By DAVID LEONHARDT and GERALDINE FABRIKANT, New York Times
August 20, 2009

The rich have been getting richer for so long that the trend has come to seem almost permanent.

They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

[...]

What? I thought the days of lobbiest paying off D.C. were going to end, once the new crew took over.

Nissan spent $850,000 lobbying government on Cash for Clunkers, other issues in 2nd quarter. August 21, 2009, 12:36 pm EDT

WASHINGTON (AP) — Nissan North America Inc. spent $850,000 in the second quarter to lobby the federal government on the Cash for Clunkers program and other issues, according to a recent regulatory filing.

Nissan North America, the U.S. arm of the Japanese automaker, also lobbied on legislation related to energy, fuel economy and economic trade issues during the April-June period, according to a disclosure form filed July 20 with the House clerk’s office.

Automakers like Nissan have been major beneficiaries of the government’s Cash for Clunkers program, which offers rebates up to $4,500 for consumers who trade in vehicles that get 18 mpg or less for a new, more fuel-efficient car.

The Nissan Versa sedan was the ninth most popular new vehicle purchase through the program, which the Transportation Department will end at 8 p.m. EDT Monday after burning through much of its $3 billion in funding in just a month.

Will the “shadow” foreclosure inventory ever show up in bulk? Unlikely, according to WSJ:

By Nick Timiraos
August 21, 2009, 9:38 AM ET

For weeks, even months, real-estate professionals have been asking the same question: when will the so-called shadow inventory of homes in the process of foreclosure finally hit the market?

Most mortgage servicers ended a foreclosure moratorium in March, and pre-foreclosure filings have accelerated since then, even as the supply of bank-owned properties in some markets has dwindled.

But what if that wave of foreclosures never hits the market? “For those of you still waiting for a surge of foreclosure sales, the truth is you’ll likely be waiting a long time,” writes Sean O’Toole, the founder of ForeclosureRadar dot com, which tracks foreclosure filings in California. He breaks down his argument at his blog in this pithy post here.

For one, the time between a mortgage default and a foreclosure listing has grown longer as more homeowners try to complete loan modifications or short sales. Banks aren’t likely to cancel foreclosures even if they put a borrower into a trial modification. Instead, they’ll simply keep the opportunity to foreclose in case the loan modification fails.

One clue that modifications will work: cancellations of foreclosure auctions. So far, cancellations are up slightly, Mr. O’Toole says, but not enough to explain the yawning gap between mortgage defaults and bank-owned listings.

One possibility: foreclosures will simply stay at an elevated level for the next couple years, he says, but there won’t be a huge wave of inventory added all at once. For now, California is seeing a housing inventory shortage, in part because short sales are still hard to execute. Many homeowners are underwater and can’t sell, and those who can don’t want to put their homes on the market if they’re looking at a big loss.

Mr. O’Toole has done some interesting analysis that shows just how profound government policies may have been in encouraging banks to slow down foreclosures. His argument: When the U.S. last September began purchasing direct obligations of government-sponsored mortgage companies, and later began buying mortgage-backed securities that sent a message to banks that they didn’t need to refill empty cash cushions by foreclosing. Policymakers also changed accounting rules so that banks wouldn’t have to take as severe writedowns. (Scroll down this page to see the accompanying chart).

While the raw data suggests that foreclosures should be increasing, it’s harder to predict because “there’s so much government middling into this process,” Mr. O’Toole told the Developments blog. “When you have this much government intervention going on, things don’t necessarily proceed as they should.” (See our earlier post this week on the topic.)

As for the idea that banks are deliberately holding onto foreclosed homes? Mr. O’Toole shoots that idea down too, with a quick back-of-the-envelope sketch that shows that while the gap between bank repossessions and foreclosure sales stands at around 90,000 in California, the actual shadow inventory is probably closer to 22,500.

More evidence that no end to the crisis is in sight: The epidemic of the dreaded “Spitzer face” disease continues to spread among top policy makers…

F.D.I.C. Seeks to Attract More Buyers of Banks

By ERIC DASH
Published: August 20, 2009

Big banks still hold FDIC captive
Rolfe Winkler
August 21st, 2009

Sheila Bair has moved with impressive alacrity to shutter failed small and medium-sized banks. But she is still held hostage by the too-big-to-fail four.

Over the last eight days, her agency has been particularly busy, handling the two largest bank failures of the year. Last Friday it was Colonial Bank, today it will be Guaranty Bank.

With $25 billion and $14 billion of assets respectively, Colonial and Guaranty are the sixth- and 10th-largest failures in the history of the FDIC. Still, they pale in size compared to the biggest banks.

Bank of America Merrill Lynch, which had $2.3 trillion of assets at the end of the second quarter, is nearly 100 times larger than Colonial. JPMorgan Chase, with $2.1 trillion, and Citigroup, with $1.8 trillion, are nearly as big. Wells Fargo had $1.3 trillion, 100 times more than Guaranty. These amounts don’t include hundreds of billions of dollars of off-balance sheet assets.

Yet even Colonial and Guaranty are large enough to give the FDIC indigestion. Its deposit insurance fund had just $13 billion as of March 31. The 56 failures since then will cost it an estimated $16 billion, including nearly $3 billion for Colonial. (That amount excludes Guaranty – the FDIC should provide an estimate for those losses later today.)

It’s an unsettling thought if you have money in a bank. Officially, FDIC backs $4.8 trillion worth of deposits. If you include “temporarily” insured deposits, the total is $6.3 trillion. Yet the insurance fund protecting these deposits is going broke. Soon, the FDIC may have to draw on its credit line at Treasury.

It’s not surprising, given the sorry state of the Deposit Insurance Fund and the gargantuan heft of the big four, that FDIC is taking a bifurcated approach to bank resolutions.

Bair has moved decisively to close small and medium-sized banks. With the monsters, she not only assisted in their bailouts — providing federal insurance for their debt even as she already insures their deposits — she also sponsored their continued growth — putting WaMu in the hands of JPMorgan and pushing Wachovia into the arms of Wells Fargo.

Not that she had much choice. The biggest banks are far too big for her to resolve. One way to measure this is deposits in failed banks as a percentage of GDP.

Boeing to announce more layoffs today.
Boeing plans to give 60-day layoff notices to about 500 workers companywide today, with about 275 of those in the Puget Sound region.
Seattle Times

Boeing plans to give 60-day layoff notices to about 500 workers companywide today, with about 275 of those in the Puget Sound region.

About 200 of those receiving the notices work in the commercial-airplanes division, Boeing said.

Boeing has been issuing layoff notices monthly since January, when it said it needed to cut 10,000 positions in 2009. Through the end of July, Boeing had cut about 2,400 jobs companywide and not filled more than 1,000 additional open positions.

At the end of July, the Boeing workforce in Washington stood at just over 74,000, down more than 2,800 since its most recent high last October.

A happy FDIC Friday to everyone!

Banking Blues
by Kent Bernhard, Jr. Aug 21 2009

It’s not just the big banks that are in trouble. Community and regional banks are also struggling under the weight of bad loans, with four to seven closing every week for the past two months.

Fridays are bad days for banks, and it’s likely to stay that way for a while.

That’s because Friday seems to be regulators’ favorite day to close banks.

On one June Friday, bank regulators shut down five banks in Georgia, California, and Minnesota. None was very big, but it was the highest number of one-day closures since 1992.

That record stood for a week. Then, regulators closed seven banks—six in Illinois and one in Texas—costing the Federal Deposit Insurance Corporation $314.3 million. In all, regulators had closed 74 banks so far this year by August 16.

“I wouldn’t be surprised if we see three, four, five banks fail every Friday for the next few months,” said Tim Yeager, associate professor of finance and the Arkansas Bankers Association Chair at the University of Arkansas. “I think the commercial real estate market is really weak right now…and it’s the next shoe to drop. It wouldn’t surprise me to see a couple hundred fail,” over the next couple of years.

That rate has held true throughout July and August.
…

Las Vegas jobless rate hits all-time high of 13.1 percent
Las Vegas Review-Journal

Nevada’s latest jobless numbers show no signs of the “green shoots” that economists say they see nationally. The Silver State’s unemployment rose to 12.5 percent in July, while joblessness in especially hard-hit Las Vegas surged to 13.1 percent. It’s the highest jobless rate both statewide and locally since the state Department of Employment, Training and Rehabilitation began tracking data in 1976.

Bill Anderson, chief economist with the employment department, said Nevada remains mired in the longest, deepest recession since World War II, and recent labor-market trends don’t hint at any improvement. Joblessness in Nevada jumped 1.9 percentage points from April to June, the biggest three-month spike on record. Nevada shed nearly 28,000 jobs in the three-month period, including 15,000 jobs from June to July alone. In all, 179,300 Nevadans are unemployed and actively seeking work.

That jobless rate doesn’t include discouraged workers who’ve stopped hunting for jobs, nor does it include underemployed Nevadans who’d like to work full-time but can find only part-time jobs. A July report from the employment department said joblessness could well exceed 18 percent statewide if you factor in discouraged and underemployed residents.

Growth in the national economy will likely return before expansion revisits Nevada, Anderson said. He noted that several indicators point to improvements nationally: The gross domestic product isn’t shrinking nearly as quickly as it had been a couple of quarters ago, unemployment actually ticked down 0.1 percent in July to 9.4 percent and housing starts rose 3.6 percent in June. But even as the national recession flirts with the bottom, Nevada’s economy could head lower still.

“When that growth will trickle down to Nevada is less certain,” Anderson said.

Hey Az. You don’t this wimpy thumb sucker soiling your state anyway.

Travel expert Arthur Frommer says he’ll avoid Arizona because of Obama protesters’ gun display August 21, 2009, 1:58 pm EDT

PHOENIX (AP) — Travel icon Arthur Frommer says he won’t be spending his tourism dollars at the Grand Canyon, or anywhere else in Arizona, because the state’s laws allow people he described as “thugs” and “extremists” to openly carry firearms.

The author of budget-travel guides said on his blog Wednesday that he was “shocked beyond measure” by reports that protesters openly carried guns and rifles outside a Phoenix building where President Barack Obama spoke on Monday.

Frommer says he won’t personally travel in a state where civilians carry loaded weapons as a means of political protest.

Phoenix Mayor Phil Gordon says he spoke with Frommer Thursday and invited him to visit the city to clear up any possible misconceptions about safety.

http://www.321gold.com/editorials/willie/willie082109/1.gif

Colo. could be 1st state to lower minimum wage
By Kristen Wyatt
The Associated Press
Posted: 08/19/2009 01:31:15 PM MDT
Updated: 08/19/2009 01:50:37 PM MDT

DENVER — Colorado’s lowest-paid workers could make even less money next year. That’s because the state has an adjustable minimum wage that may become the first in the nation to drop slightly along with the cost of living.

Colorado is one of 10 states where the minimum wage is tied to inflation. The indexing is thought to protect low-wage workers from having flat wages as the cost of living goes up.

But because Colorado’s provision allows wage declines, the minimum wage could actually drop 3 cents an hour next year. If the wage is reduced by state labor officials in September as expected, it would be the first minimum wage decrease in any state since the federal minimum wage law was passed in 1938.

It’s a small drop, but the prospect has Colorado’s minimum-wage workers fearing times are about to get worse.

http://www.denverpost.com/business/ci_13161137

Wall Street folks are all feeling much better over the uptick in home sales, even as central bankers in Jackson Hole are giving one other group hugs for rescuing the global economy from GD2.

How is it again that Wall Street has anything whatsoever to do with home sales?

House proud

Wall Street is “feeling a heck of a lot better” with existing-home sales at a two-year pinnacle, says Bill Stone of PNC Wealth Management.

Funny how incest works… We (U.S. Taxpayers) GIVE Bolivia 2 billions dollars to drill for oil and guess who buys 2.6 billion in Petrobras stock? Why none other then mister George Soros…

“George Soros must be very bullish on stocks, he bought a lot, especially oil. He was already heavily invested in energy stocks, and he bought more. Petroleo Brasileiro alone is accounted for more than 22% of his fund. Soros Fund Management LLC”.

Business Times Singapore Investment Roundtable
Equities: What’s on the horizon William R. Thomson
Aug 21, 2009 OVERVIEW

STOCK prices around the world recently hit their highest levels for this year, buoyed by a wave of optimism about prospects for a global economic recovery - only to fall back to a three-month low this week on fresh doubts about the sustainability of that recovery. So, is it ‘for real’ or is it destined to run out of steam? The Business Times empanelled a team of key experts to answer this critical question, and to tell us whether the world faces a threat of inflation, deflation or stagflation in the coming months. There were mixed views on the prospects for equity markets, but interestingly, everyone on the panel was bullish about gold.

Panellists

Mark Mobius, executive chairman, Templeton Asset Management

Eisuke Sakakibara, former vice finance minister for international affairs, Japan, and now Professor at Waseda University, Tokyo

Jesper Koll, president and CEO, Tantallon Research, Japan

The Hon Robert Lloyd-George, chairman of Lloyd George Management, Hong Kong

Ernest Kepper, former senior official of the International Finance Corporation (IFC) and Wall Street investment banker who now heads an Asian financial consultancy

William Thomson, chairman, Private Capital Ltd, Hong Kong and senior adviser to Axiom Funds, London and formerly a Vice President of the Asian Development Bank

Christopher Wood, managing director and equity strategist, CLSA Asia-Pacific Markets, Hong Kong

Moderator: Anthony Rowley, Tokyo correspondent, The Business Times

http://www.321gold.com/editorials/thomson/thomson082109.html

Damn, more good news just after the close…

Unemployment rates hit double digits in 15 states, D.C.
California joblessness up to 11.9%; Michigan, Rhode Island lead country.
Aug 21, 2009, 4:10 p.m. EST

SAN FRANCISCO (MarketWatch) — There were 15 states that had unemployment rates in double digits last month, with four including California posting their highest rates since at least 1976, the Labor Department reported Friday.

The report, which gives a regional breakdown of the national employment data released earlier this month, again put Michigan in the lead with the highest jobless rate — 15%.

The state, reeling from the auto industry’s the shutdowns, registered a gain of 38,100 nonfarm payrolls since June but has lost 280,800 in the past year.

Rhode Island followed with a jobless rate of 12.7%. Nevada, at 12.5%, had the third-worst rate.

The District of Columbia also had a double-digit rate, of 10.6%.

Jobless rates in California, at 11.9%, as well as Nevada and Rhode Island set highs for the state surveys, which go back to 1976. Georgia’s rate of 10.3% was also a record for the series.

Workers had the best shot at finding employment in North Dakota, which again had the lowest rate — 4.2%.
Housing Markets Finally Out of a Tailspin?

There are increasing signs that housing markets are coming out of their tailspin, as sales of previously owned homes rose in July. WSJ’s Nick Timiraos discusses housing markets with CEO of Century 21 Tom Kunz.

These compare with a national jobless rate of 9.4%. Economists took the slight drop from June’s 9.5% rate, combined with the smallest drop seen in U.S. nonfarm payrolls in nearly a year, as a sign that the recession may be easing. See story on national employment.

In June’s report, 15 states plus D.C. reported jobless rates of 10% or more.

The deterioration in jobs prospects in various parts of the country appears to support economists who anticipate that consumers won’t recover quickly, even if economic growth starts to pick up.

Earlier Friday, Fed Chairman Ben Bernanke said that the global economy is beginning to emerge from its worst crisis in generations and that “prospects for a return to growth in the near term appear good.”

Wonderful piece on C & AIG by David Favre. I am surprised stock didn’t tank.

Buffett’s imaginary economy
Posted by: Rolfe Winkler

Warren Buffett is back as the nation’s financial conscience, publishing an op-ed in yesterday’s NYT lamenting the dangers of too much monetary and fiscal stimulus. As regular readers of this blog are aware, that’s a message with which I wholeheartedly agree. My problem with Buffett’s piece is that he makes a good argument and then totally undercuts it in his conclusion:

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

This have-your-cake-and-eat-it-too approach is typically what we get from Paul Krugman: Yeah, debt is a problem and has to be dealt with long-term, but in the meantime we should jack up deficit spending in order to boost growth. To paraphrase St. Augustine, make us fiscally and monetarily prudent, just not yet. Ben Bernanke said something of that sort in a speech. He was trying to be funny.

The problem, it seems to me, is that rising GDP and employment—i.e. “recovery”—is not compatible with de-leveraging, which is what Buffett is talking about.

When consumers try to cut debt and boost savings, the economy goes into a deflationary spiral that Keynesians argue must be counteracted with fiscal and monetary stimulus.*

Consumers de-lever, government re-levers.

Private consumption and government spending now drive something like 80% of GDP. It can’t keep rising unless consumers, the government or both continue borrowing huge sums.

The goldilocks economy Buffett describes, in which we can have “recovery” without increasing debt, is a fantasy.

My point is that in order to reduce debt we have to endure some sort of deflationary recession. The alternative is to spend and print perpetually, which Buffett points out is the worse option.

What Buffett should have said? Suck it up folks, we’ve no choice but to learn to live with less.

Be careful out there hiking in Utar

“Authorities say they have found a hiker who went missing in southern Utah. The Washington County Sheriff’s Office said rescuers found 49-year-old Jim Williamson Tuesday in the Red Mountain area near Ivins. He was taken to a local hospital for treatment. The Salt Lake City man apparently fell off a ledge into a narrow canyon. Rescue crews had to land a helicopter on the ledge, rapel down and hoist Williamson out on a stretcher. Williamson fell far and knocked most of his teeth out, but he is expected to be okay”.

The entire orthopedic center at Eisenhower is closed, all of Aug-Sept 30. Closed at noon on Fridays.
No one is at the office at all, just an answering machine.

Either they are being “furloughed” or the medical/pharma corporate complex is making way to much money.

I doubt they are ‘furloughed’. I saw 100s of volunteers in the hospital. I saw so many people standing around in uniforms.

Just wanted to add an observation.

I know it’s late to be commenting (I’m on a night shift this week and next).

For those who don’t follow Denninger, you might have missed a great explanation (with #’s) that explains why Japan was in doldrums for years and why we will be too:

The saving/borrowing spread and its effect on GDP

Yes, he gets worked up as usual, but he’s dropped the profanity and it’s very easy to understand.

What do investment bankers do when they get bored?

Mr Jenkins was a contestant on the VH1 reality show Megan Wants a Millionaire, a US television show in which men with a net worth of at least $1 million vie to win a woman seeking to become a “trophy wife”. He is variously described as an architect, property developer and investment banker.

Evidence is surfacing to suggest the private sector is more efficient than the public sector even in the realm of murder! Who’d of thunk it?

I, for one, hope this notion that the private sector is always prefferred gets rethunk a lot. It really makes no sense to have private contractors conducting military operations, unless endless war is the objective. As was understood as long ago as Shakespeare’s time, ending wars is bad for the mercenary business.

United States

Private security contractors
Blackwater’s dark heart

Aug 21st 2009 | WASHINGTON, DC
From Economist dot com
New revelations about an American private-security contractor

THE “war on terror” has left many blots on America’s reputation—weapons of mass destruction, Abu Ghraib prison, Guantánamo Bay—and one stain continues to darken with time. This week the New York Times reported that the Central Intelligence Agency (CIA) had once hired Blackwater, a private-security contractor, in connection with a plots to assassinate al-Qaeda operatives. It was the latest in a string of controversial news. This month Erik Prince, Blackwater’s founder and chairman, was accused of facilitating or committing murder. Blackwater released a statement calling the allegations “unsubstantiated and offensive”.
…

United States

Private security contractors
Blackwater’s dark heart

Aug 21st 2009 | WASHINGTON, DC
From Economist com
New revelations about an American private-security contractor

From Shakespeare to Eric Prince:

And therefore, since I cannot prove a lover,
To entertain these fair well-spoken days,
I am determined to prove a villain,
And hate the idle pleasures of these days.

I like how The Economist seeks out closet communists for their opinions on the implications of the housing free fall. Did it occur to Zandi that lower prices equate to affordability, liquidity and a restoration of activity in the housing market? Free falls are very good for the health of the housing market. Illicitly and surreptitiously using “tax dollars” to prop up prices is very bad, as it stifles economic activity and leaves used home sellers going to bed very hungry.

“We’ve only just begun to live,
White lace and promises
A kiss for luck and we’re on our way.
And yes, We’ve just begun.”

Finance and Economics

America’s housing market
Where it all began

Aug 20th 2009 | NEW YORK
From The Economist print edition
Signs of stabilisation should not obscure the big problems still ahead

Illustration by S. Kambayashi

HE IS hardly your typical distressed seller. Hugh Hefner recently sold his personal residence in Holmby Hills, California, next door to the Playboy mansion, to a 25-year-old entrepreneur for $18m—some 36% below the asking price. It will come as little solace to the ageing Lothario that the discount looked about right: house prices have fallen by one-third from their peak nationwide, and by much more than that in the worst-hit states, such as California, Florida and Nevada.

This blog sure kicked the experts’ @$$es on them home price decline predictions

Although global financial sickness first erupted in American residential property, thanks to ludicrously lax subprime lending, policymakers have recently seemed more worried about asset classes to which the infection subsequently spread. When the Federal Reserve this week extended the life of a facility to support asset-backed securities, for instance, it was more out of concern for commercial property than for housing. Nevertheless, observers agree that America’s economy—and all those banks still saddled with underperforming mortgages—will struggle to recover while house prices are still falling. The Obama administration’s economic successes “will be for naught” if the housing free-fall continues much longer, says Mark Zandi of Moody’s Economy dot com.
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With 1.8m homes already in foreclosure, a “similar amount” may be heading that way, reckons Torsten Slok, an economist at Deutsche Bank. Even those states that were the first to feel pain are still seeing a sharp increase in pre-foreclosure notices. In California one type of notice, for “trustee sales”, leapt by 32% from June to July, according to ForeclosureRadar, a website. Even more worryingly, delinquencies, the raw material for foreclosures, are still on the rise across much of the once-golden state. In Orange County nearly 7% of mortgages are at least three months overdue but not yet foreclosed, up from around 5% at the start of the year.
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My back-of-the-envelope estimate based on something like 13 percent of 45 million mortgages in nonpayment status (including homes already in the foreclosure process) suggests that something like
0.13*45m = 5.9 million homes may soon be in foreclosure. If you net out the 1.8m homes already in foreclosure, that gets you back to 5.9 - 1.8 = 4.1m homes soon to be in foreclosure that aren’t yet. That is more than twice the supposedly “similar amount” of 1.8m.

In fairness to The Economist writers, they did not have access to yesterday’s report when they quoted the Slok figure.

FDIC Failed Bank List with tonight’s updates

“”Major combat operations in the financial crisis have ended.”

Fed leader gives ‘victory speech’ on economy
By MARK DAVIS
The Kansas City Star

Ben Bernanke, chairman of the Federal Reserve, handed out a central banker’s version of high fives Friday with his latest outlook on the economy.

“The prospects for a return to growth in the near term appear good,” Bernanke told an audience of other central bankers, economic policy makers and investment mavens.
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Group hug time in Jackson Hole

Silver lining if BB is reappointed: The guys waiting in the wings are birds of the same feather.

HuffingtonPost dot com
Michael Brenner
Senior Fellow, the Center for Transatlantic Relations
Posted: August 20, 2009 05:39 PM

In a season of bizarre political happenings, none is stranger than the exaltation of Ben Bernanke as the natural successor to himself as Chairman of the Federal Reserve Bank. Obama seems primed to reappoint the establishment favorite in yet another declaration of his attachment to the status quo. Bernanke is being promoted from several influential quarters — including some critics of the Fed’s failings in encouraging the very policies and practices that brought the country’s (and the world’s) financial system to the brink of ruin. Nouriel Roubini for one. The economics fraternity is only a step behind Wall Street in the cheerleading.

Our collective near death experience has changed next to nothing in our deformed financial system. Now we seem about to keep in charge the man at the controls when it all went off the rails. Indeed, he is grasping for more powers for the Fed with the backing of Timothy Geithner, Larry Summers and Rahm Emanuel — Obama’s enforcer who been charged with riding herd on his economic advisers. The search for explanation of this phenomenon defies conventional reasoning. We must look to anthropology and social psychology for clues.
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New soap opera
The young, the old and the pregnant

Save Tamiflu for the young, old and pregnant August 22, 2009 3:37 AM ET

All Associated Press newsLONDON (AP) - The World Health Organization said Friday that Tamiflu should only be given to particularly vulnerable people — a warning to countries like Britain where the swine flu drug is being handed out freely.

WHO previously said it was up to doctors to decide who should get Tamiflu. On Friday, the U.N. agency said healthy people who catch mild to moderate cases of swine flu don’t need the drug, but the young, old, pregnant, and those with underlying health problems surely do.

If countries use Tamiflu too liberally, that could lead to resistant viruses, leaving the world with few resources to fight swine flu.

WHO said people thought to be at risk for complications from swine flu — children less than 5 years old, pregnant women, people over age 65 and those with other health problems like heart disease, HIV or diabetes — should definitely get the drug.

How important was government-sanctioned fraud in driving the housing crisis? Pretty important, according to Mr Robert J Zimmer.

I note that as of maybe three years ago, I wrote a lengthy HBB post on the various different type of “premiums” built into housing prices. The “fraud premium” was one of many I described.

Fraud seen as culprit for housing meltdown
August 22nd, 2009, 12:12 am · posted by Jeff Collins

Robert J. Zimmer has been investing in real estate for 32 years, buying and managing residential and multi-family properties in Orange, San Diego and Los Angeles counties. He spent considerable time tracking and analyzing monthly housing data in order to gain a richer understanding of Southern California real-estate cycles.

He composed a nine-page outline on what he sees as the causes of the recent economic meltdown, “Key Participants and their Roles in the Global Financial Crisis,” based primarily on reading penetrating press articles about the crisis. Although Zimmer’s background isn’t in finance, we found his ideas thought-provoking and thought it would be interesting to hear what he has to say.

Us: You determined that the economic meltdown was caused by fraud at multiple levels. What kind of fraud and who were the main culprits?

Zimmer: The Federal Reserve & Treasury Department talked about “systemic risk” but they didn’t identify systemic fraud, which included:

* Credit Rating Agencies rated bonds, which were really “BBB” quality or unrateable, and transformed them to “AAA” with highest rating.

* Investment banks, which provided funds for subprime loans that were bought and bundled into mortgage-backed securities, and they marketed “junk quality” bonds as triple A bonds globally.

* Subprime lenders, who targeted first-time home buyers, especially minorities, with Option Arm loans and strapped them with loans they had little to no chance of ever being capable of repaying.

* Real estate agents, some of whom earned outrageous fees for directing “naïve” borrowers to lenders who pushed loans with higher interest rates, points and fees.

* Appraisers, who were pressured by loan brokers and lenders to pump up appraisals to hit inflated and unrealistic values in order to secure financing.

* Buyers, who falsified income and assets to procure their home loans.

Us: What set the stage for this crisis? How far back do the roots of the economic meltdown go?

Zimmer: The federal government set the stage for the financial meltdown by attempting to increase home ownership, especially among minorities starting with initiatives and legislation passed in the early 1990’s.

The government encouraged lenders to develop more creative, alternative mortgages, and adhered to a laissez-faire philosophy of regulating financial markets. Also, changes in tax laws exempting from capital gains taxes the first $500,000 in gains from any home sale enticed people to purchase multiple homes.

And lastly, mortgage rates have been at decades lows due to the Federal Reserve’s decisions after the 9/11 attack, and China’s willingness to purchase U.S. government securities ($1 Trillion) at relatively low interest rates.

In early 2004, investment banks began increasing the number of subprime mortgage loans underlying many collateralized debt obligations (C.D.O.). These loans formed too large a part of the packaged debt, thereby increasing the risk to unacceptable levels. From 2006-2007, Wall Street sold $1.2 Trillion of these higher yielding C.D.O.s to investors around the world. With the inevitable cyclical downturn in the U.S. housing market, it was a disaster waiting to happen.

Us: Were those who approved the changes that set the stage for the crisis ignorant or complicit?

Zimmer: The federal government and Wall Street hire some of the most intelligent and best educated people on the planet. It would be hard to use the word ignorant in describing their decisions to approve changes that set the stage for the financial crisis. One can only speculate on their intentions and motivations.
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As for Wall Street, it has inordinate clout with deep pockets and ties to the government. In recent years, numerous high-level positions have been filled with former executives such as Robert Rubin, Henry Paulson and Lawrence Summers.

With everything that has been uncovered about Wall Street’s machinations, does anyone really trust these guys?
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Us: What articles do you suggest readers look at to get a better understanding of what happened?

Zimmer:

* “The Reckoning,” The New York Times, Oct. 2 – Dec. 28, 2008, a series of 18 articles on the financial crisis.
* “Holding On for Dear Life – The Economy & You: A Special Report,” Time, March 9, 2009.
* “The Big Takeover,” by Matt Taibbi, Rolling Stone, April 2, 2009, pages 66-73 and pages 94-97.

In the article below, I read that San Diego County lost 15,400 jobs last month, while overall California state job losses totaled 35,800.

(3,001,072/36,756,666)*100 = 8.1 percent.

S.D. County jobless rate up slightly
But state’s figure is highest in modern record-keeping
By Dean Calbreath
Union-Tribune Staff Writer

2:00 a.m. August 22, 2009

San Diego County’s unemployment rate was above 10 percent in July for the second straight month, and there were few hints of a pickup in hiring anytime soon.

The state Employment Development Department reported yesterday that the county lost 15,400 jobs last month, largely because of seasonal fluctuations as schools close for the summer. Employment was down by 55,100 jobs from a year earlier.
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After taking into account seasonal fluctuations — including temporary, summer-related layoffs at schools — the state’s job losses totaled 35,800, pushing the jobless rate from 11.6 percent to 11.9 percent, the highest in modern record-keeping.

San Diego’s jobless rate, which is not seasonally adjusted, moved from 10.2 percent in June to 10.3 percent in July. On the same unadjusted basis, California’s jobless rate rose to 12.1 percent. Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said the bursting of the housing bubble continues to lie at the root of the high unemployment rate.

The bursting of the real estate bubble also triggered a larger-than-average drop in retail jobs as demand slowed for furniture, home improvement supplies and other big-ticket items.

Retail jobs have dropped about 10 percent from their most recent seasonally adjusted peak in San Diego County and 9 percent in California, compared with a 4 percent drop nationally, as cash-strapped mortgage payers cut back on purchases.
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“A significant amount of money has come into San Diego for construction at the Navy bases, so it seems that jobs are being created in anticipation of contracts being awarded,” Baxamusa said, adding that federal programs for energy-efficiency refurbishments also seem to be creating jobs.

In the private sector, however, there are few job openings. Of the nation’s 50 largest metropolitan markets, San Diego ranks 31st for employment possibilities, according to a job market competition index by indeed dot com, an employment service that collates Internet job listings for its report.

According to the index, there is only one job posting for every five unemployed workers.
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