Saturday, March 21, 2009

My faves for the day (March 21, 2009)

From MarketBeat at the WSJ, The New New Plan — Same As the Old Plan.:
So who gets left out in the cold? The taxpayer, natch. According to the Wall Street Journal’s report, mortgage-backed securities will be purchased through several investment funds, and the government will act as a co-investor, matching private investments on a dollar-for-dollar basis. For bad loans, the government could offer as much as 80% of the financing.

“What would be a better plan? Seize the insolvent banks, write down the assets to market levels, and make the banks’ bondholders pay for most of the losses by converting a percentage of the bonds to equity,” writes Henry Blodget on “Then sell off and/or re-privatize the banks, which will now be well-capitalized.”
RW: Hmm. I suspect that the FDIC is not prepared nor does it have the resources to seize all of the insolvent banks, especially those the size of Citi. When all was said and done, the FDIC will have lost $10.7 billion after closing IndyMac, sifting through its assets, and selling of the good stuff. The latest details of Geihtner's Financial Stability Plan haven't even emerged in full yet, but what is out there is receiving some skepticism.

Oh, and I see that Edward Harrison over at Credit Writedowns agrees, Does the FDIC have enough money?:
My personal view is that the IndyMac bailout by the FDIC is the first of many to come. The FDIC does NOT have adequate capital to meet all of these bailouts. Many in the markets understand this and are selling shares in any questionable banks. I reckon this could lead to a run 0n some of the more vulnerable players, triggering another IndyMac-like rescue until the U.S. government steps in and raises the FDIC capital.
Brad Sester writes a nice piece about the reltaion between the Fed's buying of agencies and the selling of agencies by global central banks, Did the Fed bail out China by buying Treasuries?:
Actually, it makes more sense to think of the Fed as substituting for China in the market for Agencies — and other central banks — than to think of the Fed as bailing out China and other central banks. The end of the foreign central bank bid, as global reserve growth slowed and central banks shifte dto Treasuries — has had a big impact on the Agency market. That wasn’t helping the US housing market.
Traders always talk about the baltic dry index (the cost to ship raw materials) as a leading indicator of economic activity. The Financial Ninja noticed that the baltic has been crashing, Baltic Dry, Global Trade: The Rally in Equities Isn't Real:
The Baltic Dry Index (BDI) has been losing steam during this rally in equities. A sustainable trend changing rally in equities would be accompanied by an increase in BDI.
RW: Although there is dim light in some of the dark economic reports, its more like a 5-watt light bulb rather than a bright 200-watter.

Spencer has something to say about inflation over at the Angry Bear, DEFLATION ?:
Did you know that over the last six months the compound growth of the total CPI was -5.0%. Of course that is up from January when it was - 5.8%.You have to go back to 1948 to find actual deflation like this, when it bottomed at -4.2%.
RW: I agree, deflation is clearly the bigger threat, especially with the ongoing slack building in the economy (growing idle resources). But eventually, and only when the economy turns around and returns closer to potential output, the Fed must unwind this base (it doesn't turn into money until banks lend out the funds, and right now it is still mostly base, with $778 billion in banking reserves). I assume that we will get a little spurt of inflation when we come out of this thing, as the Fed is unlikely to pull a BoJ in 2000 - raising interest rates too early.

Uh-oh, James over at BubbleMeter reports Karl Case's predictions on the U.S. Housing Market, noting that Case has a tendency to see the rosier side of things, Karl Case on the housing market outlook:
The U.S. housing market slump is nowhere near over and home prices will probably keep falling well into next year, one of the property market's best-known economists said...."I did not think it was probable that we would have a home price decline of this magnitude," he said.

RW: There is a real chance that home values undershoot their equilibrium (whatever that may be).

And I hope that the photographer Kerry Hawkins keeps the spring shots coming; we could all use a break from the doom and gloom!

Rebecca Wilder


  1. Thanks for a great column. Haven't heard about the Baltic Dry Index for years so it is nice to dust it off and look again. The government is so intent on making everything look rosy to the point it covers up reality - that's what they do - Camelot is not here yet.

  2. Also note that the CRB index of industrial Raw Material prices is acting much like the Baltic Dry index-- it is trying to bottom but that is about all.