Monday + Tuesday Open Thread
AIG losing money at incredible speeds... - Looking for another bailout.
However Consumer spending is up, reversing a trend . We'll see if that will cheer the markets up today.
We have a fairly big storm here in the NorthEast today and I am one of the very few who came in to work. Amazingly some dumbass in my department called in very "believably" sick. How are you guys doing?
Submitted by Ender on Mon, 2009-03-02 10:25
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Did you know...?
From Richard Florida
:
(see link for maps and tables)
Makes perfect sense. In fact, there are tables scattered on the net that show statistics to support that. Areas with highest speculative booms saw the biggest declines. No big surprise.
But the larger point in that is that talk of "nationwide" conditions obscure these details. Many areas haven't seen much of a difference at all.
I saw a stat recently that showed that my home state of PA has actually had a decline in foreclosures rates. Go figure.
With all that in mind, it makes you wonder about the sense in new nationwide, one-size-fits-all laws for tightening lending standards. My brother and and his wife have great credit and were given a hard time on their re-fi at their local bank a few weeks ago....not that their credit was down but simply because tighter mandates procedures...because of other parts of the country. The bank is just fine....as is my bank where I have my business accounts. I was talking about it with the branch manager. He said basically that they were fine and that they didn't have those problems. They weren't part of the problem but they sure dealt the solution along with the problem areas where it started.
Almost forgot....
my bro did get the loan after jumping through many hoops. Happy ending.
Pannsylvania Foreclosures
Over the past year, according to RealtyTrac, Pennsylvania foreclosure activity is up 127%
-- a faster increase than the national increase of 81%. The total number of homes in foreclosure in Pennsylvania is still far below the national average... 0.68% of Pennsylvania home are in foreclosure, as opposed to a 1.84% nationwide.
The month to month data right now could be misleading, due to foreclosure holidays announced by Fannie and Freddie as well as big lenders such as Citi and Bank of America.
There's no question that the problem of foreclosures is concentrated in certain regions.
skymutt: accept no substitutes!
IF those are the correct numbers
on home foreclosurers..... then something is fishy in Denmark. What percent of this 1.84% number is sub-prime. What percent is alt+A and what percent are prime? This ruins the myth that low income folks are to blame for this mess.
Today we saw the global insurance company AIG that insured these loans is bust. They are said to be leveraged 60-1. That drug the DOW down 300 points.
it is not realistic that 2% of home loans being in foreclosure could bankrupt the global financial system.
These numbers either speak to astronomical leveraging by financial institutions, or ignore other areas of credit that were thrown into the toxic pie.
The next shoe to drop will be Commercial Paper, which at least wasn't put in the meat grinder known as the Credit Default Swap.
If the DOW goes to the 3,000 - 4,000, range will the anti-nationalizion crowd finally succumb to the reality that these big banks are gone bust and let them be restructured by the government, so we can fire the bankers and their staff that let this happen on their watch?
I'm only half stupid
nope.
Let the banks sell of whatever is left of themselves at heavily discounted pricing, close their doors, and move on.
The median price of a home
www.chicagotribune.com/news/nationworld/chi-detroit-housingjan29,0,5435392.story
Of course, I suppose there isn't much point in foreclosing on a house if you can only get $7,500 for it.
qui tacet consentire
Laugh a little
LOL
Yep, that's pretty much right... although I think they did pass a new rule prohibiting Congress from flying free on corporate jets a couple years ago as part of the 2007 ethics reform bill.
skymutt: accept no substitutes!
5*
That was a good one.
http://wealthweekly.blogspot.com
Wii FC:2805-8311-8040-2678 Brawl: 2277-7051-2186
The perfect gift
for your Republican friends:
velvetpaintings.com/Velvet/Cheney%20Gallery/Cheney%20Gallery.shtml
qui tacet consentire
Bryan Caplan has question for you...
See here
Good question. I think his take on the answer is about right too.
Caplan's hypothetical is kind of silly
When you already have borrowed a couple trillion dollars from other countries, it's questionable whether you really even have the final say in these matters as a practical matter. I don't think China and the other nations we borrow from would not have stood for us letting their investments dangle in the wind.
Nonetheless, we sort of tried laissez-faire policies once by letting Lehman Brothers fail, and sure enough, there was a massive flight to safety led by foreign central banks and soverign wealth funds which can be traced to Lehman. What followed was the worst month in the stock market since the '87 crash, coupled with a complete freeze in the corporate credit market. And Lehman was a pretty small firm.
My belief is that we had done nothing and let the big firms fail, things might have degenerated into chaos and true panic, with dangerous and unpredictable results. As it is, we're just in a really bad economy and financial slump, but most people still have a job, the utilities all work, the shelves at the grocery store are stocked, and crazed mobs are not terrorizing our streets. Things could be a lot lot worse.
skymutt: accept no substitutes!
I understand what you're saying, skymutt
We could talk forever about everything that might or would happened. True panic? No stuff on the shelves? Crazed mobs? I don't think so.
Nonetheless we still don't know. But all this is beside the point.
You are still kind of showing that double-standard that Caplan is talking about at the heart of his question. SInce then, we have spent over a trillion, interferred in many ways, forced banks to react to what the government is doing for them instead of reacting to market conditions and finding their own solutions...as painful as that would have been. And yet, all the numbers we have now are given the prior assumption that it would have been much worse right now without them. Caplan's point is that it doesn't work that way in reverse. Decreasing GDP, Dow below 7000, raising unemployment and so on...if we were here without all the bailouts and restructuring, people wouldn't be taking a glass half full view of a "do-little" or "do-nothing" approach. That's his point.
Let's talk about banks
Let's talk about banks "reacting to market conditions and finding their own solutions...as painful as that would have been."
1.) An insolvent bank can't "find its own solutions", not even painful solutions. This makes them distinct from most other types of businesses, which can make the painful choices, such as deep layoffs, asset sales, or Chapter 11 bankruptcies, and continue to operate and in many cases emerge as viable enterprises. There's a word that encompasses the process that a bank goes through when it fails: the word is dissolution, a word which, when broken down into its parts, means "not a solution".
2.) For banks, already under the umbrella of the long-standing government FDIC insurance program, the laissez-faire ship had already sailed over seventy years ago. Implicit in your statement "we have already spent over a trillion" is the thought that a laissez-faire policy would have cost the government nothing, or at least less. But FDIC insurance already had put the government on the hook for making certain depositors whole. The failure of relatively small IndyMac bank with $32 billion in assets, is costing the FDIC an estimated $9 billion
. Back of the envelope calculations of the direct costs to the government of a CitiGroup failure, at 64 times the size of IndyMac in terms of assets, could yield a cost to the FDIC of $570 billion 
... for just one bank failure.
The fact is that the government faced roughly the situation that was posed by the mechanic in the old Fram Oil Filter commercial-- "You can pay me now (replace your oil filter) or you can pay me later (replace your engine)". I'd like to see you or Caplan or another laissez-faire proponent explain to me how replacing the engine and not the filter would have been less costly in the short, medium, or long run.
skymutt: accept no substitutes!
Is dissolution that bad?
So I have a question: Why couldn't we have spun these big banks' assests off into the medium and small-sized banks who aren't having these issues? The suspect/bad accounts could have been restructure at the local/regional level in loans that they could have afforded. Yes, I understand the moral hazard of letting them "get away with it," but if this was a bunch of car loans I'd understand. But if it is housing loans at the center of this mess, the value of homes will now fall greatly.
http://wealthweekly.blogspot.com
Wii FC:2805-8311-8040-2678 Brawl: 2277-7051-2186
If you did that
you would be giving away assets to these smaller banks, assets that (although reduced) still have value and must eventually be sold for the government to be paid back.
The smaller banks certainly are not going to want to buy such toxic loans unless it is at some ridiculous fire-sale price. The best solution for taxpayers is an RTC-like plan where the government commits enough funding to keep these banks solvent and waits a few years until values for these assets are restored -- and then sells them.
qui tacet consentire
Bankk dissolution = the IndyMac approach
In the case the failure of an FDIC insured institution, the FDIC will step in, take over the institution, and will attempt to sell the bank in whole, in large operating parts, or by liquidating its assets. This is not optional; it is part of the mission statement of the FDIC
:
So what this means is that if we let a big bank like Citigroup fail with the thought of selling the bank in parts to several smaller but healthier regional banks, the FDIC would be in charge of managing the process.
There are immediate and obvious questions as to whether there are enough healthy regional banks to absorb the parts of a $2 trillion bank. Secondary to that, there are questions as to whether they are interested in doing so.
As an anecdote, I would point out what happened when the FDIC managed the failure of the much smaller IndyMac. The FDIC just sold IndyMac a couple of months ago to a consortium of private investors, not a bank.
This likely means that there were no healthy regional banks willing and able to buy the remnants of IndyMac for better terms than the private investors negotiated. And the FDIC kicked in a cushy safety net for the buyers:
This concession in order to close this deal represents an indeterminate cost to the taxpayer at this point:
If you put the parts of Citigroup on the market all at once, it's not just that it's 64 times as big as IndyMac that's the problem in terms of finding willing buyers and making the deals; the sheer amount of supply on the market would likely mean that the government would have to kick in even juicier guarantees to close the deals, driving up the cost to the taxpayer even more. And perhaps most importantly, the costs to the taxpayer are open-ended, which puts the lie to the claim that allowing banks to fail would get the pain over sooner rather than later. I think that some folks in the laissez-faire camp who have not looked into this situation in any detail might be under the misguided illusion that the FDIC is only on the hook for deposit insurance in a bank failure situation. Not the case by a long shot.
All this of course does not even consider whether the FDIC has the staff and resources to effectively handle the breakup of even one huge bank, much less 2 or 3 at the same time.
Given all this, it just does not seem wise or prudent to me to allow a big bank like Citigroup to fail. I am welcome to arguments to the contrary.
skymutt: accept no substitutes!
I get your points
But I think you take a lot for granted in the clear cut conclusions you find inevitable. I really don't want to get into what you think or I think things would like now if we had had no intervention.
The point of Caplan's question was psychological in terms of what priors people are likely to hold when considering current circumstances.
Russia Playing Hardball With Obama...
Underlying all arguments against the free market is a lack of belief in freedom itself. ~M. Friedman
LOL.... if it weren't so true it'd be funny...
Underlying all arguments against the free market is a lack of belief in freedom itself. ~M. Friedman
This is what I have done
Here is a link to one of my photogalleries for your perusal and amusement.
If you would like to take your mind off the grimness of the news. ;-)
http://www.betterphoto.com/Premium/Default.aspx?id=34373&mp=V1
I'm only half stupid
Nice!
I'm going to go with "Latched" as my favorite. Very interesting colors and textures!
We are the environment. There is no distinction. What we do to the earth we do to ourselves. —David Suzuki
Thanks!
That's the latch on the side of train car door.
One of my favorites is "Kind Hands" for many reasons, the contrast between black and white, big and tiny and the look of absolute love and satisfaction on the man's face as he holds his new puppy in his big hands. Plus the cultural nuance of having a huge black man holding a tiny white puppy.
The very last photo is my handsome husband.
I'm only half stupid
Mt Elbert!
Ahhh... in a few months I will be away from these boring flat lands and back into the mountains... I know Mt. Sopris too, I know my Colorado mountains :-)
Ahhh... golf... in an even shorter period of time, I will be on the golf course :-)
These pictures are really great, there's not a dog in the bunch! Well, except for the few that are literally pictures of dogs... I like how they look together, they have a lot of personality, all different.
skymutt: accept no substitutes!
I thought you loved Utah!
the most.
The Rocky Mtns are now half red and half green due to the pine beetle kill off.
The mountains around the greater Aspen area are so so beautiful.
I'm only half stupid
I love all the western states
Colorado is right there amongst my favorites... here's my ranking in terms of overall scenery and hikeability/climbability, including the western Canada provinces:
1. California
2. British Columbia
3. Colorado
4. Alberta
5. Utah
6. Wyoming
7. Montana
8. Oregon
9. Arizona
10. Idaho
Jeaz I didn't realize the pine beetle had hit that far south... that's shocking :-( I hope it doesn't get as bad as what I've seen in other places... For instance, when I was in British Columbia a few years ago, there was just miles and miles of the brown trees. And I noted the signature mountainsides of brown trees in the Sawtooth mountains of Idaho last year.
skymutt: accept no substitutes!
Nice!
It's been too long since you've posted some of your work. Those are divine.
Thx PF
appreciate that.
I'm only half stupid
Nice ML!
Good for you, well done.
Underlying all arguments against the free market is a lack of belief in freedom itself. ~M. Friedman
Thx
// =)
I'm only half stupid
The Formula That Killed Wall Street
The Formula That Killed Wall Street
In our society, people are rewarded for pretending to be certain about things they're clearly not certain about. -- Sam Harris,
repeat
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