Year: 2009

Changes in Philosophy Bubbling Up in Banking Rescue Plans

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In the Wall Street Journal (!), Paul Romer is suggesting something rather similar to my proposal, you know, the one where I suggest amputating the financial industry:

Everyone agrees that the United States urgently needs a few good banks. Turning bad banks into good banks is a difficult and risky way to get them. It’s simpler and safer to start entirely new banks.

In this context, “good” means a bank with assets and liabilities that are easy to value using market prices. At a good bank, officers, regulators and investors can be confident about the value of the bank’s capital.
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The government has $350 billion in Troubled Asset Relief Program (TARP) funds that it can use to encourage new bank lending. If this money is directed to newly created good banks with pristine balance sheets, it could support $3.5 trillion in new lending with a modest 9-to-1 leverage. Right out of the gate, the newly created banks could do what the Fed has already been doing — buying pools of loans originated by existing banks that meet high underwriting standards.

This sounds an awful lot like what I was suggesting.

BTW, it also appears that Timothy Geithner is backing away from the bad bank idea, and looking at having equity shares that have votes, as opposed to preferred stocks.

He’s fighting this kicking and screaming, but the banks are insolvent, and need to be nationalized or otherwise cut loose.

Economics Update

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So we have the new, official jobs report, Oh My God!!!

The unemployment rate went up to 7.6%, and 598,000 jobs were cut, the most since 1974, and it happened across all sectors.

Barry Ritholtz looks at the number in more detail, and finds (excerpting):

  • Total job losses since the recession started in December 2007: 3.6 million;
  • Over the past 12 months, the number of unemployed persons has increased by 4.1 million;
  • For the first time since records began in 1939, there were three consecutive months of 500k + job losses;
  • Household survey showed a record 1.24 million job plunge (Since data began in 1950)
  • The employment-population ratio fell to 60.5%, down from 62.7% at the beginning of the recession, — the lowest rate since 1986.
  • Unemployment rate: 16-year high (1992);
  • The 3.5 million job loss since January 2008 is the largest 12-month decline since the government started compiling those figures in 1939;
  • U-6 Marginally attached and involuntary part-time workers: 13.9% last month — up almost five percent;
  • The employment-to-population ratio was the lowest since 1986.

Except for the jobs report, it’s a slow news day, which is kind of like saying, “Apart from that Mrs Lincoln, how did you enjoy the play?

Then again, I expect at least one bank closing shortly after I shut down for Shabbos, because Friday is bank regulator seizure day (cue Prince Spaghetti Day ad).

The good news is that it looks like the SEC and Treasury are denying any plans of suspending mark to market.

Going back to mark to model would be like pouring gasoline on a the bonfire of the fraudulent.

One odd thing here is that the Federal Reserve appears to be walking away from expanding its Term Asset-Backed Securities Lending Facility (TALF) program, a sh%$ pile for cash givaway lending program, to include consumer credit derived instruments.

Not sure what is going on here, but it would seem to me that this might be one of the better ways to throw money at the problem.

Meanwhile, oil fell on the jobs reports, and the dollar was mixed, up against the Yen, down vs the Euro, and flat vs. the Sterling.

Richard B. Cheney Will You Please Go Now!

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On July 30, 1974, Art Buchwald, with permission of Theodore Seuss Geisel (Dr. Seuss), made a column of the book, “Marvin K. Mooney Will You Please Go Now!”

It appears that Mr. Geisel sent his friend Buchwald a copy of the book and replaced “Marvin K. Mooney” and with “Richard M. Nixon.”

Buchwald wrote, “It sounded like fun so I asked him if I could reprint it” with the suggestion that it be read aloud.

Needless to say, do not have the writing chops of either the late Mssrs. Geisel or Buchwald, but this has to be shared.

At the bottom, is Keith Olbermann’s special comment from last night, saying the same.

“Richard B. Cheney will you please go now!
The time has come.
The time has come.
The time is now.
Just go.
Go.
Go!
I don’t care how.
You can go by foot.
You can go by cow.
Richard B. Cheney will you please go now!
You can go on skates.
You can go on skis.
You can go in a hat.
But
Please go.
Please!
I don’t care.
You can go
By bike.
You can go
On a Zike-Bike
If you like.
If you like
You can go
In an old blue shoe.
Just go, go, GO!
Please do, do, do, DO!
Richard B. Cheney
I don’t care how.
Richard B. Cheney
Will you please
GO NOW!
You can go on stilts.
You can go by fish.
You can go in a Crunk-Car
If you wish.
If you wish
You may go
By lion’s tale.
Or stamp yourself
And go by mail.
Richard B. Cheney
Don’t you know
The time has come
To go, go, GO!
Get on your way!
Please Richard M.!
You might like going in a Zumble-Zay.
You can go by balloon . . .
Or broomstick.
Or
You can go by camel
In a bureau drawer.
You can go by bumble-boat
. . . or jet.
I don’t care how you go.
Just get!
Richard B. Cheney!
I don’t care how.
Richard B. Cheney
Will you please
GO NOW!
I said
GO
And
GO
I meant . . .
The time had come
So . . .
Richard WENT.”

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Regulating Credit Default Swaps

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The head of the Agriculture committee, Collin Peterson (D-MN-07) is proposing that credit default swaps be treated like the insurance that they are. Here is money quote(PDF):

(h) LIMITATION ON ELIGIBILITY TO PURCHASE A CREDIT DEFAULT SWAP.—It shall be unlawful for any person to enter into a credit default swap unless the person would experience financial loss if an event that is the subject of the credit default swap occurs.
…
EFFECTIVE DATE.—The amendments made by this section shall be effective for credit default swaps (as defined in section 1a(34) of the Commodity Exchange Act) entered into after 90 days after the date of the enactment of this section.

Basically, what this is saying is that you can’t buy insurance on something unless you actually benefit from it.

This was discovered a long time ago, specifically 263 years ago, when the British Parliament passed the Marine Insurance Act of 1746:

In 1746, Parliament passed the Marine Insurance Act, requiring anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property. Thus was born the insured-interest doctrine. The indemnity doctrine, which precludes a buyer from insuring property for more than it’s worth, soon followed. The point of these rules is to limit insurance contracts to trading existing risks and not to create new risks by giving buyers of insurance incentive to destroy property. The doctrines have been part of insurance law in both England and the United States (which in 1746 were colonies under English common law) ever since.

Unfortunately, it appears that the distinguished gentleman from Minnesota only intends for this regulation to be temporary, but it’s a good start.

It should be permanent though, there is a reason that this adopted so long ago.

Zimbabwe Passes Power Sharing Law

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Well the Zimbabwean parliament finally passed the constitutional amendments to enable a power-sharing government, though cabinet positions are still not set, and a number of MDC and human rights activists remain detained.

Governments in the west have softened their rhetoric, for a while, at least, but are maintaining the sanctions against Mugabe and senior ZANU-PF officials.

As to whether things are going to get better, the fact that Robert Mugabe’s wife just seized a farm, from a judge on Zimbzbwe’s high court….Damn….It takes stones to steal from a judge in broad daylight, so I’m not expecting things to turn better at any time soon.

In the meantime, Cholera is continuing it’s Zimbabwe concert tour, with the WHO saying that cases have broken 65,000.

I’m not sure if I am a realist, or a pessimist, but I don’t think that things are going to turn out well for the people of Zimbabwe.

Exec Pay Limit as Toothless as Gabby Hays

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Remember when I said yesterday that The Devil is in the Details regarding Obama’s pay limits?

Well, ProPublica is all over this…..The bullet points:

  • No enforcement mechanism or penalties.
  • The conditions for things like stock grants are unclear, and look to be loophole filled.
  • Shareholder votes on pay are non-binding.
  • The $500K limits applies only to banks that aren’t “healthy”, which is basically none of them, because if Citi qualifies as “healthy”, they all do.

Oh, well, it was nice believing that something would be done for a few minutes.

The Next Shoe to Drop on Wall Street

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It appears that Moody’s is reviewing the credit ratings of hundreds of billions of dollars of Commercial Mortgage Backed Securities (CMBS).

These are like residential mortgage backed securities, only they are for things like malls and apartment buildings, as opposed to houses and condos, and they are following the same path as the residential MBS, which is, as Calculated Risk notes, “First the reviews, then the downgrades, followed by the bank write-downs, and then more reviews …”

British the United States on Wednesday of Threats to Conceal Torture

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We now have a report that the UK government demanded that court proceedings detailing torture be suppressed because the United States on Wednesday was threatening to end intelligence cooperation if the details were releases:

Two senior British judges accused the United States on Wednesday of threatening to end intelligence cooperation if Britain released evidence about the alleged torture of a Guantanamo detainee.

The judges quoted lawyers for British Foreign Secretary David Miliband as saying the U.S. government, by reviewing intelligence cooperation, “could inflict on the citizens of the United Kingdom a very considerable increase in the dangers they face at a time when a serious terrorist threat still pertains.”

According to the ruling from High Court judges Lord Justice Thomas and Lord Justice Lloyd Jones, Miliband’s lawyers said the threat had existed for some time and was still in place under President Barack Obama’s administration.

(emphasis mine)

If you think that your behavior is egregious enough that you need to threaten allies to keep it away from public view, that’s a pretty good sign that you should not be doing it in the first place, and that you should be looking at criminal prosecution of the perpetrators.

Friends Don’t Let Friends Link to the AP

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__AP Photo__________“Hope” Poster

For a while now, I have been boycotting the Associated Press, because they established a policy to threaten legal action over copyright for people who link to them and quote a sentence or two.

With one notable exception,* I have avoided their stories, and used Google News to find an alternate when I found a story of theirs.

Well, the Associated Press moron brigade is at it again, with their suing Shepard Fairey, the artist who created the Obama “Hope” poster, because he based the poster on an AP Photo.

As you can see, it’s not a tracing, it’s based on a photo, and clearly fair use. The author took the expression, and you can find dozens of pictures with a similar expression, and little else from the photograph, and what’s more, it appears that the AP may not even have right to the photograph, as the photographer, a stringer named Mannie Garcia, never signed a contract with the AP:

2) Where you either an employee, or a freelance photographer, as defined by their contract, for the AP when you took this image?

I was a temporary hire, filling in for a staffer at the AP. It is my understanding that I was neither a freelancer nor a staffer, but rather a temporary hire. I have never been an AP staff employee, and no, I have never signed an AP contract.

3) So, you own the copyright to the image?

The ownership of the copyright is in dispute, as per the AP. It is my understanding that since I was not a staffer, and was not a freelancer, and did not sign any contract, that I am the owner of the copyright, but I am in discussions with the AP over this issue.

Needless to say, I will continue not linking to Associated Press stories, and using a Google® News search to find alternates.

*When via typo, they referred to Joe Lieberman as the 2000 Vice Presidential pRick.

Economics Update

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Our economy just had one of those days when you wonder why you get out of bet.

First, we have initial unemployment claims spiking to the highest number since October, 1982, 626,000. The consensus estimate had been 580,000.

The more reliable, and less noisy, 4 week moving average was up too, from 543,250 to 582,250, and continuing claims hit 4,788,000, another new record.

In manufacturing, December new factory orders fall 3.9%, well above the estimate of 3 %, and in rental real estate, the MIT commercial property price index posted a record drop, 10% in Q4 of 2008.

In international high finance, the Bank of England its benchmark rate by 50 basis points (½%), to 1%, which breaks last month’s record…..Considering that the BoE has been around since 1694, that’s a long record.

Across the channel in Euro land, the European Central Bank has left its benchmark unchanged, though I think that this is less from optimism than from the inflation-hawk nature of the ECB’s charter, and the fear of the zero rate destroying their ability to manage the economy with monetary means.

Meanwhile, mortgage interest rates have continued their increase, with the 30 year fixed being reported at 5.25%.

With the rate cuts in England, and the ECB still signaling future rate cuts, the dollar was up today.

The dismal job numbers drove oil down.

Adult in Charge

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Note this quote from an interview:

In evening interviews on broadcast and cable television networks, Mr. Obama said he took responsibility for the errors. “And so I’m frustrated with myself, with our team,” he told NBC, “but ultimately my job is to get this thing back on track because what we need to focus on is a deteriorating economy and getting people back to work.”

He added, “I’m here on television saying I screwed up and that’s part of the era of responsibility.”

(emphasis mine)

Think about that for a second….A president admitting error….Like a non psychopathic adult….

Complications in the Iraqi Elections

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It appears that the al-Hadba Gathering, a Sunni Arab party, did well enough in local elections in Nineveh province to take control of the provincial council from the Kurds, which means that they have control of it and its its capital, Mosul.

The party, and its leader Atheel al-Nujaifi, took a fairly explicitly anti-Kurdish line during elections, and needless to say, the Kurds, who had previously held 31 of the council’s 41 seats, are not amused and are suggesting some level of electoral fraud.

While not a part of the Kurdish autonomous region, they Kurds have maintained that Mosul should be incorporated into this area.