The truth, from what I can see, is that recovery is just
not happening anytime soon. I'm
not talking about a technical definition of the word as it may relate to some about our economy. I'm talking about things getting better for the other 99% of us,
not just here in the U.S., but around the world.
The truth is things are getting worse on Main Street by the minute, while the powers that be and the MSM go to even greater lengths by the day to distort the real story.
It's to the point where we have to dig more each day just to get to the facts.
On Banks Repaying TARP and Their Profitability
Yesterday, this appeared on page one of the NY Times (the freakin' NY Times!): "As Banks Repay Bailout Money, U.S. Sees a Profit."
I'm not even going to pull a quote from this story (the one linked above). It's so fictitious, it's beyond pathetic.
Taibbi ripped the grey lady a new one on this: "Bailout Propaganda Begins."
Bailout Propaganda Begins
Matt Taibbi
Sep. 1 2009 - 9:42 am
It was inevitable that the same people who pushed through the multi-trillion-dollar bailout of Wall Street would come out later on and tell us what a great idea theirs turned out to be, in retrospect and under the light of evidentiary examination. And we're getting that now, with a pair of reports, the above one in the New York Times and another in the Financial Times, telling us the bailout is working because the government has made some money on TARP. They came to this conclusion by quoting Fed officials, who apparently calculated how much interest the Fed earned on TARP investments above what it would have earned on T-bills. The amount so far, according to these worthy gentlemen: $14 billion...
--SNIP--
...To start talking about what a success TARP is now is beyond meaningless.
...The real burden carried by the government and the Fed comes from the various anonymous bailout facilities -- the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed's purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there's the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don't know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg's FOIA request for those records actually goes through.
In light of all this, the Fed's decision to brag publicly about a few loans that are actually performing is sort of scary -- it speaks to a level of intellectual desperation and magical-thinking unusual even for a banker in the subprime/MBS era. Don't be surprised if you hear more of this sort of thing...
Oh, and are we ever hearing "more of this sort of thing..."
Here's Yves over at Naked Capitalism, as she rips them a new one, too: "More Bogus Bailout Reporting: "As Big Banks Repay Bailout Money, U.S. Sees a Profit."
And Dean Baker in yesterday's Guardian, expanding upon the story, since it's more clever than we may, at first, realize: "Reverse bank robbery."
Reverse Bank Robbery
The Guardian
August 31, 2009
In fact, much of the story of the return of bank profitability has this character of money in one pocket and out the other pocket. To make the story as simple as possible, banks can now borrow money short-term at near zero cost from the US Federal Reserve. The Fed has pushed rates to near zero in order to boost the economy. On the other side, banks can buy up US government bonds that are currently paying around 3.5% interest.
This means that we lend the banks the money that they lend back to us, albeit at a considerably higher interest rate. To take round numbers, let's say that the banks have borrowed $1 trillion from the Fed's various lending facilities. (The Fed's total loans are now over $2trn.) Suppose they pay an average interest rate of 0.2% on this money. If the banks then buy up government bonds that pay a 3.5% interest rate, they can pocket the difference of 3.3 percentage points. On a trillion dollars of lending, this will give the banks $33bn a year in net interest or profit. This is the extra money that the government is paying the banks to borrow back the money that it lent them through the Fed.
Yep. Lend the banks a couple of trillion dollars. Let them park it at the Fed, claiming they need the money to maintain reserves. Then have the taxpayers pay them interest on it. And, since that's not enough to satisfy the vampire squids' insatiable appetites for everything that isn't nailed down on Main Street, let them buy the bonds that nobody else is buying and pay them tens of billions of interest on that, too!
The Auto and Housing Sectors
And, of course, there are the government programs to support our ailing auto and housing sectors...note the first sentence of the story, below...today we heard that Ford's sales were up 17% last month...but...wait a minute...GM and Chrysler were down?
From: "Clunkers and Home Sales - It's All the Same Thing."
Clunkers and Home Sales - It's All the Same Thing
Wednesday, August 26, 2009
Bruce Krasting
The car clunker program was a huge success. Close to 700,000 cars were sold as a result of the program. The cash rebate was the down payment that was necessary for consumers to borrow more money and buy a car. The clunker concept has now been extended to washing machines. No doubt that the availability of government rebate checks will stimulate demand for these products as well.
It will be very interesting to follow car sales over the next few months. The sales volume will fall, as the stimulus to buy is no longer there. The question will be: " Did the clunker program just steal from future consumption, or has there been a permanent increase in demand that reflects a stronger economy? My bet is that the demand is going to fall flat. I visited a car dealer on Tuesday and they had not seen a customer. Without the rebate there are no buyers.
There is another clunker like program that is out there stimulating demand. It is focused on the low end housing market. Given the huge success of car clunkers it is reasonable to assume that this segment of the housing market is being positively influenced by the subsidy. The question here will be whether that stimulus is responsible for the improved housing numbers that have surfaced over the past few months.
The American Recovery and Reinvestment Act (ARRA) of 2/17/2009 created an $8,000 tax credit for first time home buyers. The number of homes that have been sold as a result of this program is not clear at this time. As I drive around my neighborhood I see many For Sale signs that highlight the $8,000 credit. Until the success of the car clunker program I thought that this incentive was not a significant factor. I have revised my own view regarding its impact on the housing market.
--SNIP--
...it is possible that as much as 20% of the sales over the last three months were tied to the rebate. Without that contribution we would not have seen any recovery in home values over the past three months.
These stimulus measures work. That has been proven. But these programs are not sustainable. The budget deficit is already too large. At some point the music has to stop with all of the economic intervention. When that happens the economy will have no boost. Economic activity will suffer. We have bought some time with all of the subsidies for consumption. That time is running out...
So, let's look a little further into how well these stimulus programs are working...
Houses and Autos: The Cost of a Tax Credit per Additional Units Sold
Tuesday, September 01, 2009
by CalculatedRisk on 9/01/2009 01:14:00 PM
To calculate the cost of a tax credit per additional unit sold, we need to sum up the total cost of the credit - as an example $2.877 billion for Cash-for-Clunkers according to the Dept. of Transportation - and then divide by the estimated increase in sales because of the credit.
Remember some cars or houses would have been sold anyway (even though they still receive the tax credit), but it is the additional sales that matter. That was the purpose of the tax credit! (update: Shnaps notes that the auto credit had an additional benefit of better mileage)
--SNIP--
First, for autos, if sales in August had been about the same as June (pre-tax credit), there would have been 850 thousand light vehicles sold (NSA). This is about a 9.7 million SAAR.
Next we add in the tax credit: Although the DOT reported close to 700 thousand car sales associated with the Cash-for-Clunkers program, probably about 550 thousand were in August. If these were all additional sales, then the total sales (NSA) for August would be about 1.4 million, or almost 16 million SAAR.
If Edmonds.com is correct, and total sales were 1.17 million (NSA) in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn't perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200.
And, then there's homes...
The numbers are much worse for the first-time home buyer tax credit. The NAR reported this morning:
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. I believe the NAR underestimates first-time home buyers, especially considering the definition for the tax credit is anyone who hasn't owned a home in three years - not really a "first-time" buyer. I also think the NAR is overestimating the number of additional buyers.
--SNIP--
With 1.9 million first-time buyers, the total cost of the tax credit will be $15.2 billion. Divide $15.2 billion by 350 thousand, and the program cost $43.4 thousand per additional buyer. The actual number could be much higher if there were fewer additional first-time buyers than the NAR's estimate - or if the overall cost is higher (more buyers claiming tax credit).
This is the actual cost per additional home sold. And since buyer interest will fade (like with the Clunkers program), the cost per additional house will increase sharply if the program is extended.
Also, from today's news: "Housing Won't Lead U.S. Out of Recession, Gross Says."
But...this is America...the land of the free...the home of the brave...where absolute power corrupts...absolutely!
Where'd The Money Go?
Apparently, the government has decided that it's no longer in our best interests to know the truth.
Federal Reserve Says Disclosing Loans Will Hurt Banks
By Mark Pittman
Aug. 27 (Bloomberg) -- The Federal Reserve argued yesterday that identifying the financial institutions that benefited from its emergency loans would harm the companies and render the central bank's planned appeal of a court ruling moot.
The Fed's board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.
"The immediate release of these documents will destroy the board's claims of exemption and right of appellate review," the motion said. "The institutions whose names and information would be disclosed will also suffer irreparable harm."
The Fed's "ability to effectively manage the current, and any future, financial crisis" would be impaired, according to the motion. It said "significant harms" could befall the U.S. economy as well.
As we all know, it's much easier and more manageable if we have just one person lying to us (some call this: "streamlining," see below) than a whole committee of people: "The Case Against a Super-Regulator." But, others say it might actually be better for Main Street if we don't make it easier for Wall Street to lie to us...
The Case Against a Super-Regulator
NY Times Op-Ed
By SHEILA C. BAIR
Published: August 31, 2009 In Print: September 1, 2009
THE Obama administration has proposed sweeping changes to our financial regulatory system. I am an active supporter of the key pillars of reform, including the creation of a consumer financial protection agency and the administration's plan to consolidate the supervision of federally chartered financial institutions in a new national bank supervisor. This consolidation would improve the efficiency of federally chartered institutions while not undercutting our dual system of state and federally chartered banks.
But some are advocating even more drastic changes, like the creation of a single regulator for all banks (and bank holding companies). We clearly need to streamline the system, but a single regulator is not the solution. Calls for consolidation beyond the administration's plan fail to identify the real roots of last year's financial meltdown. The truth is, no regulatory structure -- be it a single regulator as in Britain or the multiregulator system we have in the United States -- performed well in the crisis.
--SNIP--
The creation of a single regulator for all federal- and state-chartered banks would not address these problems. Rather, it would endanger a thriving, 150-year-old banking system that has separate charters for federal and state banks. Within this system, state-chartered institutions tend to be community-oriented and very close to the small businesses and consumers they serve. They provide loans that support economic growth and job creation, especially in rural areas. Main Street banks also are sensitive to market discipline because they know that they're not too big to fail and that they'll be closed if they become insolvent.
Concentrating power in a single regulator would inevitably benefit the largest banks and punish community ones. A single regulator's resources and attention would be focused on the largest banks. This would generate more consolidation in the banking industry at a time when we need to reduce our reliance on large financial institutions and put an end to the idea that certain banks are too big to fail. We need to shift the balance back toward community banking, not toward a system that encourages even more consolidation.
We're told things are looking up; but these statements are based upon slight upticks in manufacturing indices which are only temporarily inflated by short-term government programs. Both the retail auto and housing sectors are, indeed, projected to continue to tank after the federal supports are withdrawn.
And, On and On...
We're told consumers are saving, not spending; but, even THAT is really a lie: "The Savings Rate Has Recovered...if You Ignore the Bottom 99%."
We're told that unemployment is rising, and that's true. But, the reason it's going up is because jobs aren't being created! Where are all those jobs, anyway?
Could it be that most of the "stimulus" money is, in fact, being used to support unemployment benefits and basic social programs which are historically stressed now?
And, then there are those "rallying" stock markets...do I even need to go there?
And, of course, there are the problems at the state and municipal level. They're getting worse, not better: "U.S. Cities' Woes to Worsen as Taxes Trail Pace of Recovery."
"Recovery?"
There's that word, again.
Sometimes, the truth is right in front of us, but we do what we can to deny it.
Honest.