Why it is likely the banks ARE solvent

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The FDIC has a legal responsibility to take over insolvent banks.

They have aggressively done that, including taking over WAMU for liquidity concerns when it was legally solvent.

I view that as overly aggressive, as the banking model includes FDIC insured deposits for the further purpose of not using the liability side of banking as the place for market discipline. And, in fact, legal action vs the FDIC’s response to WAMU’s liquidity issues is not in progress.

So what may have happened subsequently in the case of the major banks getting government capital may have been something like this:

Phone call:

Shiela: Hi Barry, just a head’s up. A couple of major banks are up for exam, and if they don’t pass I’m legally bound to shut them down.

President: We don’t want that to happen, is there anything we can do?

Shiela: Well, you could increase their capital to levels where you can be sure they are legally viable.

Presidents: Thanks!

Next phone call:

President: Hi Ken. We need to get you enough capital right away to make sure you are legally solvent for the coming FDIC exam.

Ken: We are solvent, Barry, we don’t need any capital, but thanks for your concern and the kind offer!

President: Sorry, but we can’t take the chance the FDIC might decide to mark something down, declare some asset impaired, or otherwise cause your capital to fall under the legal minimum and declare you insolvent.

Ken: Ok, whatever you say, but again, we don’t want it or need it. So let me ask one favor- make sure we are allowed to give it back as soon as you feel it’s no longer in the national interest for us to keep it.

President: Thanks!


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China negotiating on the dollar

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Ridiculous, of course, but they are playing the ignorance of our leadership for all its worth. They know we don’t know it’s a bluff, and they have us on the defensive.

That’s what happens with leadership that doesn’t understand its own monetary system, and that we don’t need them or anyone else as buyers of our securities to fund our expenditures.

China calls for new reserve currency

by Jamil Anderlini

Mar 23 (FT) — China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.


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CA Real Estate

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Thanks- more evidence it all could be turning the corner.

New Supply of ‘jumbo’ financing in pipeline

by Kenneth R. Harney

Mar 22 (LA Times) — LA Times says jumbo mortgage financing to increase – major banks are about to ramp up financing availability into the jumbo mortgage market, not to then securitize the loans but to keep on their own books. The market has been starved for financing since the onset of the credit crunch in ’07. BAC is one of the lenders rolling out a large financing program for jumbos.


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2009-03-24 USER

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ICSC UBS Store Sales YoY (Mar 24)

Survey n/a
Actual -1.4%
Prior -1.4%
Revised n/a

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ICSC UBS Store Sales WoW (Mar 24)

Survey n/a
Actual -0.4%
Prior -0.1%
Revised n/a

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Redbook Store Sales Weekly YoY (Mar 24)

Survey n/a
Actual -1.3%
Prior -1.1%
Revised n/a

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Redbook Store Sales MoM (Mar 24)

Survey n/a
Actual 0.0%
Prior 0.0%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Mar 24)

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House Price Index MoM (Jan)

Survey -0.9%
Actual 1.7%
Prior 0.1%
Revised -0.2%

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House Price Index YoY (Jan)

Survey n/a
Actual -6.3%
Prior -8.9%
Revised n/a

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House Price Index ALLX (Jan)

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Richmond Fed Manufacturing Survey (Mar)

Survey -51
Actual -20
Prior -51
Revised n/a

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Richmond Fed Manufacturing Survey ALLX (Mar)


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Existing Home Sales Rose 5.1% in February

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Typical biased reporting. The fall in price from last year is emphasized while the increase from last month isn’t even mentioned.

Existing Home Sales Rebound, but Prices Plunge

by Jeff Bater

Mar 23 (WSJ) — Existing-home sales rebounded in February, climbing above expectations, but prices plunged again.

Home resales climbed to a 4.72 million annual rate, a 5.1% increase from January’s unrevised 4.49 million annual pace, the National Association of Realtors said Monday.

Foreclosures and short sales reflect about 45% of total existing-home sales. Distressed properties are discounted, so the abundance of these sales prices new homes out of the market, discouraging construction and weakening the overall housing sector further.

With so many distressed sales, the median price for an existing home fell last month. At $165,400 in February, the median price was down 15.5% from $195,800 in February 2008. The median price in January this year was $164,800. The 15.5% plunge is the second biggest ever, behind January’s 17.5% drop.


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Obama on fiscal limits

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This says it all.

And only days after Bernanke explained how government spends by changing numbers in accounts.

Obama is either ignorant or subversive:

From 60 minutes last night:

Obama on 60 minutes

Mar 22 (CBS) —

KROFT: Is there some limit to the amount of money we can spend?

OBAMA: Yes.

KROFT: Or print trying to solve this crisis?

OBAMA: There is.

KROFT: And are we getting close to it?

OBAMA: The limit is our ability to finance these expenditures through borrowing. And the United States is fortunate that it has the largest, most stable economic and political system around. And so the dollar is still strong because people are still buying treasury bills. They still think that’s the safest investment out there. If we don’t get a handle on this, and also start looking at our long-term deficit projections, at a certain point, people will stop buying those treasury bills.


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China to keep buying Treasuries

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Clever, those Chinese. Now they get to keep their currency down to support their exports while claiming they are acting altruistically to support Obama.

Fortunately for us this keeps the imports flowing our way and supports our standard of living.

I don’t think we did this by design, but instead it falls under better lucky than good.

China to Keep Buying Treasuries, Top Official Says

by Dune Lawrence and Kevin Hamlin

Mar 23 (Bloomberg) — China’s top foreign-exchange official said the nation will keep buying Treasuries and endorsed the dollar’s global role, supporting the U.S. as the Obama administration increases spending to revive growth.


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Trichet on funding the national governments

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Trichet on funding the national governments

When asked specifically if there are any obstacles to the ECB purchasing government assets, Mr Trichet reiterated that the ECB “are not pre-committed for any new decisions”, while his comments suggest the issue of risk-sharing and fiscal indemnity remains an important consideration: “One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities”.


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Swiss National Bank confirms beggar thy neighbor policy

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AKA, “Beggar Thy Neighbor” policy straight from the book.

SNB’s Jordan says Franc Can’t be Allowed to Strengthen Further

by Dermot Doherty

Mar 22 (Bloomberg) — The Swiss franc can’t be allowed to appreciate further as “excessive” strength would put Switzerland’s export industry at a “disadvantage” and threaten the country with higher unemployment, Sonntag reported, citing Swiss National Bank board member Thomas Jordan.

The SNB’s decision this month to purchase corporate bonds is aimed at reducing the risk premium by narrowing the spreads on such debt instruments, Jordan said in an interview in today’s
newspaper.

“We are facing a severe recession” and need to be “unconventional” in dealing with it, Jordan said. The SNB will expand the money supply “as strongly as is needed” to prevent deflation, according to the newspaper.


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Re: New CBO chief Elmendorf gets it wrong

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(email exchange)

Thanks!

In case you thought the new head of the CBO understands the way the monetary system works…

>   
>   On Sat, Mar 21, 2009 at 1:37 AM, Scott wrote:
>   
>   FYI . . . from page 43 of CBO’s 10-year projections published
>   today…influence of CBO’s new head Doug Elmendorf (co-author a few
>   years ago of a widely cited paper on the effects of deficits on interest
>   rates) is pretty clear . . . .
>   
>   ”Capital accumulation is affected because the increase in government
>   debt is expected to displace, or “crowd out,” a smaller amount of private
>   capital.
>   

There is no such thing.

>   
>   That result occurs because the reduction in overall national saving
>   dampens spending on business fixed investment and the construction of
>   housing.
>   

Non-sensical rhetoric. ‘National savings’ as he is using the term is a relic from the gold standard when there were hard supply side constraints on reserves.

>   
>   Although the size of such displacement is very uncertain,
>   

Yes, in fact it doesn’t exist.

>   
>   CBO assumes that, in the long run, each dollar of additional federal debt
>   crowds out about a third of a dollar’s worth of private domestic capital
>   (with the remainder of the rise in debt offset by increases in private
>   saving and inflows of foreign capital).”
>   

Ridiculous empty rhetoric from yet another deficit terrorist.


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