The Economy, stupid

[NorthSideSox72]

The sad thing is though, it's going to be another bump that hits soon. It's still people trying to reinflate the bubble. Add together Congress chipping in $8000 with the fact that people are looking at how much housing prices have dropped rather than whether or not the housing prices are actually affordable, and the reason those inventories are dropping is that people are still doing exactly the behavior they were doing at the peak; figuring that the housing prices have to go up from here and they can't possibly drop more so now it's a great investment.

 

The Alt-A resets are just going to hammer this thing. I'd wager that a majority of them are underwater.

Resets worry me, but the drops in inventory don't so much. Yes there is a technically unsustainably cash flow resulting from that, but really, we're getting to a point where prices are somewhere near what will be their lows. Might be a little lower, might not, but its close enough. So people buying here is a good thing for many.

 

There will always be some % of people out there who get themselves in to deep - either they just don't understand finance at all, or they take risks too large, or they hit some perfect storm of income loss and debt gain... some will falter. But I reall don't think this current wave of buyers will cause nearly the scale of bubble we saw before.

 

By the way, on housing, here is an interesting thing to think about in terms of impact. In Chicago, the "typical" yuppie-type lifeline usually involves buying a condo in the city, living there with a spouse for a few years, having a first kid, and often then moving to the burbs for the better schools (and a yard and garage). This is not everyone of course, but, its a very common course. Well now, because it is so hard to sell in order to move, combined with new incoming money and tax incentives for first time buyers (young)... you are seeing a swell of urban 20- and 30-something populations in certain parts of the city. Condo sales are actually recovering faster than homes in the suburbs. And here is the kicker - they are staying in the city when the kids reach school age. What this will undoubtedly result in is a large surge of new kids going into city schools (both private and public), and from higher income families who will tend to demand more from their schools. All this with falling property tax revenue for this schools.

 

Look for city schools to come under huge pressure of dropping spending levels per student in the next couple years. Likely will set up some big fights, politically.

 

[NorthSideSox72]

Obama proposing business tax changes, specifically regarding international profits and operations. He calls is closing loopholes, businesses call it a tax increase. They are both correct, really.

 

So this means companies are less likely to shelter profits overseas, since that would risk possible tax evasion prosecution. But will some companies just pick up shop and leave entirely? That is unlikely, as these companies are generally owned and managed by Americans who don't want to leave. But will it work as intended, to keep more profits and more operations (read: jobs) here?

 

[kapkomet]

Obama proposing business tax changes, specifically regarding international profits and operations. He calls is closing loopholes, businesses call it a tax increase. They are both correct, really.

 

So this means companies are less likely to shelter profits overseas, since that would risk possible tax evasion prosecution. But will some companies just pick up shop and leave entirely? That is unlikely, as these companies are generally owned and managed by Americans who don't want to leave. But will it work as intended, to keep more profits and more operations (read: jobs) here?

Boy do I know this well... I see ATH started a separate thread, so I'll go there on it later.

 

[lostfan]

http://www.theonion.com/content/news/natio...e_lied_to_about

WASHINGTON—After nearly four months of frank, honest, and open dialogue about the failing economy, a weary U.S. populace announced this week that it is once again ready to be lied to about the current state of the financial system.

 

Tired of hearing the grim truth about their economic future, Americans demanded that the bald-faced lies resume immediately, particularly whenever politicians feel the need to divulge another terrifying problem with Wall Street, the housing market, or any one of a hundred other ticking time bombs everyone was better off not knowing about.

 

In addition, citizens are requesting that the phrase, "It will only get worse before it gets better," be permanently replaced with, "Things are going great. Enjoy yourselves."

 

"I thought I wanted a new era of transparency and accountability, but honestly, I just can't handle it," Ohio resident Nathan Pletcher said. "All I ever hear about now is how my retirement has been pushed back 15 years and how I won't be able to afford my daughter's tuition when she grows up."

 

"From now on, just tell me the bulls*** I want to hear," Pletcher added. "Tell me my savings are okay, everybody has a job, and we're No. 1 again. Please, just lie to my face."

 

The national call for decreased candor began last month, after the Department of Labor released another soul-crushing report that most Americans agreed "wasn't helping anything" and "didn't need to be so specific, at least."

 

The report estimated that 663,000 private and public sector jobs were lost in the month of March—a revealing statistic many people found shockingly blunt. Responding to the new information, an overwhelming majority of citizens said they believe that, during these extremely uncertain times, our leaders have a responsibility to come together, sit the American people down, and lie through their teeth about everything from misappropriations of taxpayer dollars to the severity of the credit crisis.

 

"I don't need to be constantly reminded that the lack of regulations on Wall Street compounded with failing institutions like AIG basically plunged the world economy into a global recession," said 32-year-old office manager Alexis Harrington. "What I want is for someone to tell me with a straight face that the GDP is through the roof so that I can feel better and instantly forget what all these terms even mean."

 

"For the first time in my life I know who the secretary of the treasury is," Harrington continued. "And I don't like it."

 

Reluctantly informed citizens like Harrington have also asked that CEOs of the nation's five largest banks release a joint statement saying that the October bailout worked perfectly, normal lending has resumed, and that we're nowhere close to having the entire monetary system collapse upon itself like a house of cards.

 

According to a CBS News/New York Times poll, 98 percent of Americans no longer appreciate President Barack Obama's attempts to break down the economic crisis into simple terms they can understand. Instead, many say the president should have the decency to insult their intelligence by using complex jargon to confuse and deceive them, perhaps even implying that the subprime mortgage fallout was just a big misunderstanding that resulted from a clerical error.

 

"I know when he's telling the truth, and it bothers me," recently laid-off schoolteacher Mary Hanover said of Obama. "He gets this serious expression on his face and says things like, 'This is the worst economic crisis since the Great Depression.' Who needs to hear that? For Christ's sake, smile a bit and say we just found a diamond mine under Montana that's going to pay for everything. I'll believe you."

 

"Please, treat me like a child. Treat me like a five-year-old," Sacramento resident David Cooke, 64, wrote in a letter to Congress. "I lost everything when the Dow tanked, and I'm too old to start working again, so why punish me further by explaining in detail the clever ways these investment firms ripped me off and how they're all going to get away with it?"

 

Thus far, many policymakers in Washington have responded favorably to their constituents' requests, saying they respect and understand the public's need for dishonesty.

 

"I think we can accommodate the American people on this," Senate majority leader Harry Reid (D-NV) told reporters. "Why, just today we made excellent progress with GM, whose CEO Fritz Henderson told us that every penny of federal and taxpayer funds would go directly to the construction of three new auto plants in Detroit that will create over 90,000 new jobs and spark the economic rebound we've been waiting for."

 

Continued Reid, "Things are looking very, very bright."

[HuskyCaucasian]

Stock continue to rise:

Brightening news about the economy sent investors rushing into stocks Monday and put Wall Street close to break-even for the year.

 

Gains in housing, financial and materials stocks pushed market indicators up by about 2 percent. The Dow Jones industrial average jumped 165 points, while the Standard & Poor's 500 index rose nearly 3 percent and came close to erasing its losses for 2009.

[StrangeSox]

Stock continue to rise:

 

My 401k actually has a positive return year-to-date.

[NorthSideSox72]

My 401k actually has a positive return year-to-date.

Weird to see that, huh?

 

May not last. I think the year will be up and down, though I think later in the year we will see a good solid rise.

 

[southsider2k5]

I actually locked in my 401k recovery today... I am now officially waiting for the Stress Tests to clear.

[kapkomet]

I actually locked in my 401k recovery today... I am now officially waiting for the Stress Tests to clear.

Me too. Cashed the check into the IRA today.

[Balta1701]

The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after.

 

During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy.

 

The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value.

 

Mr. Friedman also was overseeing the search for a new president of the New York Fed, an officer who has a critical role in setting monetary policy at the Federal Reserve. The choice was a former Goldman executive.

WSJ.

 

You know, there have been a lot of times in the past couple years I've just wished I was this corrupt.

[southsider2k5]

WSJ.

 

You know, there have been a lot of times in the past couple years I've just wished I was this corrupt.

 

I heard this on MSNBC today and then got to thinking... Hello Mr SecTreas., you know, the guy out of the New York Fed bank... Why hasn't he been mentioned in any of this, because this is who GS was dealing with.

[Balta1701]

I heard this on MSNBC today and then got to thinking... Hello Mr SecTreas., you know, the guy out of the New York Fed bank... Why hasn't he been mentioned in any of this, because this is who GS was dealing with.

At least he made wall street happy. That's all that's really important in the end, you know?

[Cknolls]

If we break 888 and hold under it would signal the correction is underway. Should pull back to 800 and maybe all the way to 765, where there is a gap in the futures. 783.75-784 is midpoint of high/low for the year. I would like to see the futes ttrade up to 911.25 to 913 before the pullback.

[bmags]

read this last night, seemed encouraging:

 

http://online.wsj.com/article/SB124148189109785317.html

[southsider2k5]

read this last night, seemed encouraging:

 

http://online.wsj.com/article/SB124148189109785317.html

 

I will say this much... The Obama admin has finally learned how to handle screwing Wall Street a little better. At the start they would have just done this and released the info, and what ever happened, happened. Now they are leaking the bad news out in little bits, and they were smart enough to delay the release of the full report until the banks could raise enough capital that the brunt of the report should be taken out of the market.

[Balta1701]

Roubini and Richardson have a stress-test related op-ed in the WSJ this morning. I'll excerpt a good portion of the interesting bits.

Still, with Thursday's announcement of the results, it shouldn't be a surprise when the usual suspects emerge. We fear that we are back to bailout purgatory, for lack of a better term. Here are some suggestions for how to extricate ourselves.

 

First, while Treasury Secretary Timothy Geithner's public-private investment program (PPIP) to purchase financial firms' assets is not particularly popular, we hope the government doesn't give up on it. True, the program offers cheap financing and free leverage to institutional investors, which will lead to the investors overpaying for the assets. But it does promote price discovery and remove the assets from the bank's balance sheets -- necessary conditions to move forward.

 

And to minimize the cost to taxpayers, banks must not be allowed to cherry-pick which legacy assets to sell. All the risky loans and securities banks were never meant to hold should be on the block. With enough investors participating in the PPIP program, the prices of the assets should be competitive, and there should be no issue of fairness raised by the banks.

 

Second, the government should stop providing capital, loan guarantees and financing with no strings attached. Banks should understand this. When providing loans to troubled companies, they place numerous restrictions, called covenants, on what these firms can do. These covenants generally restrict the use of assets, risk-taking behavior, and future indebtedness. It would be much better if the government focused on this rather than on its headline obsession with bonuses.

 

For example, consider the fact that the government, while providing aid to banks, did not restrict their dividend payments. A recent academic study by Viral Acharya, Irvind Gujral and Hyun Song Shin (www.voxeu.org) notes that banks only marginally reduced dividends in the first 15 months of the crisis, paying out a staggering $400 billion in 2007 and 2008. While many banks have been reducing their dividends more recently, bank bailout money had been literally going in one door and out the other.

 

Consider also recent bank risk-taking. The media has recently reported that Citigroup and Bank of America were buying up some of the AAA-tranches of nonprime mortgage-backed securities. Didn't the government provide insurance on portfolios of $300 billion and $118 billion on the very same stuff for Citi and BofA this past year? These securities are at the heart of the financial crisis and the core of the PPIP. If true, this is egregious behavior -- and it's incredible that there are no restrictions against it.

 

Third, stress tests aside, it is highly likely that some of these large banks will be insolvent, given the various estimates of aggregate losses. The government has got to come up with a plan to deal with these institutions that does not involve a bottomless pit of taxpayer money. This means it will have the unenviable tasks of managing the systemic risk resulting from the failure of these institutions and then managing it in receivership. But it will also mean transferring risk from taxpayers to creditors. This is fair: Metaphorically speaking, these are the guys who served alcohol to the banks just before they took off down the highway.

 

And we shouldn't hear one more time from a government official, "if only we had the authority to act . . ."

 

We were sympathetic to this argument on March 16, 2008 when Bear Stearns ran aground; much less sympathetic on Sept. 15 and 16, 2008 when Lehman and A.I.G. collapsed; and now downright irritated seven months later. Is there anything more important in solving the financial crisis than creating a law (an "insolvency regime law") that empowers the government to handle complex financial institutions in receivership? Congress should pass such legislation -- as requested by the administration -- on a fast-track basis.

 

The mere threat of this law could be a powerful catalyst in aligning incentives. As the potential costs of receivership are quite high, it would obviously be optimal if the bank's liabilities could be restructured outside of bankruptcy. Until recently, this would have been considered near impossible. However, in 2008 there was a surge in distressed exchanges of debt for equity or preferred equity.

[bmags]

I have to say, as an aside, Roubini's time in the spotlight has shown me a personal improvement of his to write more clearly to the average reader. His writing has really improved.

[southsider2k5]

Question for the general populace...

 

How would a typical Chamber of Commerce be chartered? Would it be as a 501 ©3?

[Balta1701]

Question for the general populace...

 

How would a typical Chamber of Commerce be chartered? Would it be as a 501 ©3?

Just grabbing from the Wikipedias:

According to the IRS Publication 557, in the Organization Reference Chart section, the following is an exact list of 501© organization types and their corresponding descriptions.[1]

501©(6) — Business Leagues, Chambers of Commerce, Real Estate Boards, etc.

[southsider2k5]

Just grabbing from the Wikipedias:

 

Any idea of their ability to politic?

[Balta1701]

Any idea of their ability to politic?

Here's the official IRS rules, in pdf form. It's designed poorly so I can't excerpt, but go to page 47 for the summary for that one.

[StrangeSox]

BofA and Citi need capital as stress tests results loom

WASHINGTON/NEW YORK (Reuters) - Regulators have told Bank of America Corp it needs $34 billion of capital to withstand a deep economic downturn, an industry source familiar with results of a government stress test said late on Tuesday.

 

Citigroup Inc may need as much as $10 billion, a person familiar with the matter said this week. About 10 of the 19 big U.S. banks being stress-tested may need more capital, a person familiar with the official talks has said.

 

The sources were not authorized to speak because the stress test results have not yet been made public. Results are due late Thursday.

 

Early results of the tests may unnerve investors who had hoped they might show the industry was in less dire condition than feared.

 

Bank of America's test results are also certain to increase pressure on Chief Executive Kenneth Lewis, who was ousted as chairman last week in a shareholder vote. That ouster could also lay the groundwork for his departure from the company he has served for 40 years, including the last eight as CEO.

 

In morning trading, Bank of America shares rose 36 cents to $11.20, while Citigroup rose 14 cents to $3.45. Standard & Poor's 500 index futures rose 0.8 percent. Stocks rebounded from earlier losses after a report suggested the U.S. economy lost fewer private-sector jobs than expected in April.

 

Analysts believe other banks that may need capital include Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, PNC Financial Services Group Inc Regions Financial Corp and SunTrust Banks Inc.

 

BANK OF AMERICA SURPRISE

 

The government has spent three months conducting stress tests on the 19 largest U.S. banks to determine their capital needs should economic conditions worsen more than many economists now expect.

 

It is unclear how Bank of America might raise capital, whether by selling assets, issuing more common stock or other steps. The largest U.S. bank has already received $45 billion of government help.

 

Bank of America spokesman Scott Silvestri, the Federal Reserve and the U.S. Treasury Department declined to comment.

 

Citigroup analyst Keith Horowitz raised his price target for the bank's shares to $14 from $10, though he believes Bank of America will need a "substantial increase" in common stock.

 

Bank of America is struggling with its controversial January 1 takeover of Merrill Lynch & Co as well as heavy credit losses.

 

Lewis told analysts on an April 20 conference call that "we absolutely don't think we need additional capital," but added: "Make no doubt about it, credit is bad, and we believe credit is going to get worse."

 

Through Tuesday, shares of Bank of America had fallen 68 percent since the Merrill purchase was announced September 15.

 

Bank of America could raise capital by selling some or all of its 16.6 percent stake in China Construction Bank Corp, that country's second-largest bank.

 

It may sell 13.5 billion CCB shares, a 6 percent stake worth $8.3 billion, when a lock-up period ends on Thursday. Bank of America has also said it may sell its First Republic Bank business.

 

If Bank of America cannot sell enough assets, it might be forced to convert some of its preferred shares held by the government into common stock, leaving the government as one of its biggest shareholders.

 

Fed Chairman Ben Bernanke on Tuesday said most banks needing capital can raise it through "either issuance of new capital or through conversions and exchanges, or the sales of assets and other measures."

 

GOVERNMENT PRESSURE

 

Critics fault Lewis for failing in December to back away from the Merrill merger or disclose Merrill's sinking finances. Merrill later posted a $15.84 billion fourth-quarter loss.

 

U.S. regulators are examining the Bank of America disclosures, as well as $3.6 billion of bonuses that Merrill paid out.

 

Lewis has said in testimony that he felt pressure from Bernanke and former U.S. Treasury Secretary Henry Paulson to close the merger, so as to not upset the financial system. Law professors and governance experts say Lewis owed a fiduciary duty to his shareholders first, not to regulators.

 

Bernanke on Tuesday told lawmakers he did not pressure Lewis to withhold information from shareholders about Merrill.

 

(Reporting by Karey Wutkowski and Jonathan Stempel; Additional reporting by Dan Wilchins in New York; Mark Felsenthal and David Lawder in Washington, D.C.; Douwe Miedima in London; and Michael Flaherty and Parvathy Ullatil in Hong Kong; Editing by David Holmes and John Wallace)

[BigSqwert]

via the cnn.com homepage Bank of America would like to know if you trust the US banking system...

 

 

 

[lostfan]

I just looked at that, it's "no" by about 2:1.

[BigSqwert]

I just looked at that, it's "no" by about 2:1.

Just thought it was an unusual sponsor.

 

Tomorrow the Catholic Church will sponsor a poll on child abuse. Yay or nay.