midtowng's blog

The FDIC is Broke

When Colonial Bank failed on Friday, the 77th bank to fail this year, very few people noted that it was the largest bank failure of 2009. Even fewer people noted that the cost of cleaning it up required more capital resources than the FDIC had.
The total losses of Friday's five bank failures, according to the FDIC, would be $3.67 Billion. The problem is that the FDIC had less than $650 million in its Deposit Insurance Fund at the time.

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The Coming Foreclosure Wave

Has housing hit a bottom? Fox News declared that the bottom is in, as had many other talking heads.

In fact, the reality of the situation is a "good news, bad news" scenario.

(Bloomberg) -- The wave of “option” adjustable-rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller than “feared” because many borrowers will default before their bills change, Barclays Capital analysts said.

So you see, the coming tsunami of foreclosures will be much small than expected because people are going to go broke beforehand. That's the good news.

The Tennessee Convict War

In 1997 the Tennessee branch of the AFL-CIO made an agreement with the Corrections Corporation of America (CCA) to support the privatization of Tennessee's state prison system. This opened the door for Tennessee's prison labor being used to compete with private industry.
Currently the highest-paying prisoner in Tennessee earns 50 cents an hour to produce jeans for Kmart and JC Penney, among other things.

Of all the states, Tennessee unions should have been the last ones to support prison labor. The reason lies more than a century in the past, in the days following the end of slavery.

Trouble with our foreign creditors

The massive and unprecedented amount of debt being issued by the Treasury Department, and the relatively finite amount of savings in the world, has left the country vulnerable to a currency crisis. The place where evidence of this crisis might first turn up is in the treasury bond market.

That evidence might have happened in the last two weeks.

Just last week a treasury auction of 5-year bonds nearly failed.

but for the primary dealers the bid-to-cover was less than one, meaning that some of the issue would have been left on the table.

That's a fail; but for the primary dealers the issue would not have subscribed.

The Ultimate Stock Market Sucker's Rally

By now we've all seen reports about the amazing stock market rally of 2009.

The widely followed stock market measure broke above 1,000 on Monday for the first time in nine months as reports on manufacturing, construction and banking sent investors more signals that the economy is gathering strength.
The day's reports were the latest indications that the recession that began in December 2007 could be retreating. Better corporate earnings reports and economic data propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years and restarted spring rally that had stalled in June.

If you listen to the financial news long enough you would know that the all-seeing, all-knowing stock market has declared the Great Recession to be over.

Two years later and still nothing has been learned

Two years ago Friday the financial crisis started.

Most financial media pundits and politicians didn't recognize that we had a problem until Lehman Brothers went under on September 15, 2008. The official start of the recession is marked at December 2007.

But the real start of the financial crisis was July 31, 2007, when Bear Stearns filed for Chapter 15 bankruptcy protection on its two major hedge funds (High-Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leveraged Fund).

And yet 24 months later, after all the job and capital losses, after all the heartbreak and stress on the average Americans, the financial media, the politicians, Wall Street, and most of the blogosphere still refuses to even acknowledge, much less address the root causes of our economic problems.

The Weird Have Turned Pro

"When the going gets weird, the weird turn pro."
- Hunter S. Thompson

When you live in interesting times it is sometimes hard to distinguish the real news from the fake news. For instance, I read this today.

WASHINGTON—A new report has revealed that when it comes to the important matter of owing large sums of money, Americans display a level of expertise and proficiency unrivaled throughout the world.

The same day I also read this.

The Treasury Department said Thursday that it will sell a record total of $115 billion in new notes next week, more than market participants had expected.

They both look like the could be real news, don't they?

Americans not making money, much less saving it

The news out today told a story of Americans going back to their puritan fiscal roots.

Americans Pay Back Debts Most Since ‘52 as Jobless Spur Savings

(Bloomberg) -- For the first time since Harry S. Truman was in the White House, Americans are paying back their debts, a phenomenon that just might help keep interest rates low as the Treasury sells a record $2 trillion of bonds and rising unemployment increases U.S. savings.

The stable rock of the American citizen, repairing his balance sheet so that the Great American Economy can recharge with a clean slate, healthy and ready to take on the world. American Capitalism in action, continuing to work in the same way it has worked for hundreds of years.

At least that is what the first paragraph implies. Once you scratch the surface the story isn't nearly so pretty.

Commercial real estate market cliff-diving

While everyone has been focusing on the housing bubble bust, the commercial real estate market is collapsing at a record rate.

Commercial real-estate prices fell 7.6% in May, according to Moody's Investors Service, as both dollar volume and transaction count reached record lows in the nine-year history of the firm's Commercial Property Price Indices...The indexes are down 29% from a year ago and 35% from their October 2007 peak.

That 7.6% drop wasn't a year-over-year drop. It dropped 7.6% in just May.
In April it dropped 8.6%, thus making a two month decline of 16%.