I'm shocked...SHOCKED to find that gambling is going on in here

Roger Lowenstein's op-ed for NYT yesterday advocates for: 1) trading derivatives on exchanges and in standard contracts; and 2) banning or at least regulating credit default swaps. These seem like eminently reasonable suggestions.

Four Bears

It's been awhile since I posted charts from dshort.com.  Here is the Four Bad Bears graph:

And here is the Mega Bear Quartet (mentioned near the bottom of the linked entry; apparently not inflation-adjusted):

And here is the Real Mega Bears (an inflation-adjusted overlay of three secular bear markets):

Bringing home the bacon. Or not. (Three bacon posts in a row. Thank you very much.)

Here's where we're at on unemployment: 9.7% for August 2009. (This is from the Bureau of Labor and Statistics.)

And to refresh recollections, here's the projected unemployment graph from the Romer/Bernstein report used to justify the stimulus bill. (This is the third time I've posted this graph. Previous posts on the topic from June 5, 2009 and January 16, 2009.)



I'll leave it to economic historians to say whether the stimulus has helped with unemployment. This much is clear: we have not seen a downward turn to the unemployment rate yet; the report projected that we would see a relatively sharp turn by now. Of course, things may have been worse than was understood when the report issued in January 2009 and the stimulus money may be being spent more slowly than the plan provided.

Iceland

Is anyone following what's going on in Iceland? Iceland, faced with the banking disaster of 2008, let its banks go belly up rather than bail them out. Who knows? Maybe they'll be in better shape for it in the end, but right now, things are grim there.

Iceland's gross domestic product (GDP) shrank 2.0 percent in the second quarter from the preceding three-month period for an annual contraction of 6.5 percent, preliminary data from the statistics office showed on Friday.

[JUMP]

'Contrary to other countries in the region, quarterly growth in Iceland is probably going to remain negative for the rest of this year,' he added.

[JUMP]

Although the central bank sees the economy of the island of only 320,000 inhabitants contracting around nine percent this year and shrinking still further next year, there is little scope for reducing interest rates, currently at 12 percent.

There are a lot of fascinating things about the Iceland situation. I'm just beginning to follow it. Maybe others here know more and could write about it. Letting the banks fail is clearly not the end of the story when vast sums of money are owed to other countries or citizens thereof, regardless of what the Icelanders may want. The Iceland situation makes one ponder the meaning of national boundaries and sovereignty.

Update: Here's a link to a Vanity Fair article from April 2009 about Iceland's banking collapse and its response to it.

Status check on bailouts

I haven't checked these numbers, but according to Tim Fernholz at Tapped today, here's the current tally on bank bailout money:

Even the limited transparency has allowed federal regulators to examine the weird compensation practices at the banks, creating a prototype for real financial regulation. And for all the talk of taxpayer money and expense, we may end up being surprised by how relatively cheap the bailouts ultimately are -- keep in mind, for all the talk of spending, the Obama administration's policies will still result in a lower deficit than if Bush administration policies had been kept in place, that banks are paying back their loans, plus interest, and that ultimately the cost of the bailouts will be much lower than its sticker price, especially if management of the program continues to improve under congressional and public pressure for higher returns. Of the $1.1 trillion in bailout money being tracked by ProPublica, only $583 billion has been committed, even less has been spent, and $77 billion has been returned.

That picture will only continue to improve as banks continue to pay the loans back. I don't know whether the bailouts were a good idea, but it's useful to keep the actual dollar amounts in mind when considering the topic.

CRA: not guilty

I'm not trolling any right wing blogs these days (now that Hot Air crashes my browser), so I don't know if they're still pushing the story that the Community Reinvestment Act is to blame for our recent economic collapse. Let's hope not, since that idea has been debunked, most recently by Ellen Seidman at The American Prospect.

Based on the Canner and Bhutta study, former Federal Reserve Governor Randall Kroszner concluded, "we believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis." In reaching this conclusion, Kroszner and the Federal Reserve Board joined other bank regulators in affirming that CRA did not cause the mortgage-market meltdown. Federal Deposit Insurance Corporation Chair Sheila Bair has stated, "I want to give you my verdict on CRA: Not guilty." Comptroller of the Currency John Dugan agrees: "CRA is not the culprit behind the sub-prime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with sub-prime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA." All of these regulators were appointed by President George W. Bush.

Bear: Was it over several months ago?

From dshort.com:

Bear: Age 20 months

From dshort.com, as of the end of trading June 12:

Free market in troubled assets and banks owning troubled assets

Ezra notes this about market effects on pricing of the troubled assets and the banks holding them:

One odd argument I stumbled upon while reporting out the PPIP story yesterday that has relevance to this chart: Part of the story behind the crash in lending earlier this year was that large investors apparently sat on their money hoping that the banks would have to unload troubled assets at fire-sale prices. They didn't want to invest in normal opportunities because they sensed the possibility of extraordinary opportunities. "I know a bunch of hedge fund people who thought these things were screaming bargains," recalls Douglas Diamond, a banking expert at the Chicago School of Business, "but would become even bigger bargains soon."

Now it looks likely that the banks that own these assets are going to try -- and might even succeed -- at holding these things to maturity. Which means that it might be the banks holding the assets, rather than the assets themselves, that are the bargain.

Unemployment rate now at 9.4%: What does that say about the stimulus?

Back in January 2009, when the administration-elect was selling its stimulus plan, it released a report authored by Christina Romer and Jared Bernstein. I mentioned the report here. (The link to the report in that post doesn't work anymore but you can find the report here.) I think it's time to see whether we can determine if the stimulus is having the projected effect. The report included an unemployment graph that (almost) allows for this kind of accountability assessment:

There are, however, some fuzzy things about making this comparison:

1) Unemployment numbers come in two varieties: regular and seasonally-adjusted. I don't know whether the projected numbers are regular or seasonally-adjusted, so I don't know which of the actual numbers to use for comparison;

2) I don't know exactly what the projected timeline is. I mean, does the hash mark for "Q1" mean January 1? or does it mean the end of Q1, i.e. March 31? One's comparison could be off by as much as 3 month, given this ambiguity. I would assume that the Q1 hashmark marks the start of Q1, except that the graph projects the effect of the stimulus beginning right at Q1 2009, before the new administration was sworn in, and weeks before a stimulus plan could or would be in place.

3) Since the stimulus plan wasn't signed into law until February 17, 2009, its effect starts later than what is depicted in the graph (unless the Q1 hash mark is supposed to designate the end of Q1).

4) As always the case with projections, maybe projected rate without the stimulus wasn't pessimistic enough and, thus, maybe the stimulus if helping more than we can see.

Given all the fuzziness, I'm not drawing any conclusions yet.

I do note, though, that the current 9.4% is much higher than the projection depicted on this graph, even without the stimulus spending. This table from the Bureau of Labor Statistics (the source for the 9.4% number) shows unemployment rates by month since 1999:

The report includes this footnote explaining that the projection in the graph might be too low:

Forecasts of the unemployment rate without the recovery plan vary substantially. Some private forecasters anticipate
unemployment rates as high as 11% in the absence of action.

I appreciate that the report didn't use the scariest prediction available to make the case for the plan, but it's looking like the private forecasters were closer to right.

[Update: I meant to note about the table that the unemployment numbers track relatively well with the projections (sans stim) in the graph until the latest number which is much higher than the projection.]

Toxic Asset Relief Program: DOA

The administration's plan to buy bad debt from banks to help them clear their balance sheets is on indefinite hold due to lack of interest from the banks.

Ezra analyzes what this means: either a) banks would be rendered insolvent if they participated (i.e. the plan wasn't right to achieve its intended purpose of saving banks) or b) banks no longer need the help.

Geography and the Recession

I’m trying to not to actually post Stratfor’s lengthy twice-weekly reports (Geopolitics and Security) because they take so much space but I really liked this one by Peter Zeihan on The Geography of Recession. As a nation, we really are incredibly blessed by Geography: two oceans, terrific ports and a breadbasket served by linked, navigable rivers. Compared to the Geography of Europe, Russia and China, we’re almost too blessed to fail.

Rethug hypocrisy

Just heard a 10 second blurb on the radio from my Sen. Hutchinson complaining about dealership closings and all those poor employees that are being laid off.

Rethugs who do this exhibit blatant hypocrisy based (I suspect) upon dealers who've made contributions. I won't condemn KBH based on such a short blurb but I have my suspicions.

The proper gripe is not tweaking the plan; it is the plan.

Update: my heart goes out to anyone losing a job. My point was consistency.

Bear? Age 19.2 months

From dshort.com as of the end of the day on Friday, May 15:

Zoo Privatization

Looks like it is part of the plan to save Los Angeles from the financial maelstrom. Looks like they might be selling off a lot of things. From a reporter at the Los Angeles Business Journal with the most unlikely name of Howard Fine (sounds like one of the Three Stooges):

The city is facing a $450 million deficit in the 2009-10 fiscal year beginning July 1 and a projected deficit of at least $500 million the following year.

Bear: Age 18.7 months

From dshort.com as of the end of the day Friday, May 1:

The pain

Clients who have paid promptly in the past are now sloooooooow to pay. And until the check arrives, there's no way to tell the difference between "slow to pay" and "stiffing the attorney".

Is the stock market cheap?

In response to Anonymous' question earlier about whether it's time to get back in, dshort.com notes that "every time the P/E10 has fallen from the first to the fourth quintile, it has ultimately declined to the fith quintile and bottomed in single digits." If that pattern holds true this time, we're still on the way down.

Bear: age 18.5 months

From dshort.com as of the end of the day Friday, April 24:

Texas not going to take it (like federal money that comes with conditions) anymore

What's up in Texas? What are these proposals they're talking about that (apparently) differ in kind and scope from what previously existed?