Daily Digest
Daily Digest - October 5
by Daily Digest
Monday, October 5, 2009, 10:51 AM
- Expert on Structured Finance and Derivatives Gives the Big Picture
- Inventory in the Shadows Twice as Big as Normal Resale Inventory in Los Angeles
- US Senate OKs 1-Month Emergency Extension Of Federal Government Funding Levels
- 'Planned recession' could avoid catastrophic climate change
- Stiglitz Deflation Threat Pushes Fed to Stay at Zero
- Will California become America's first failed state?
- Key S.F. departments warn of cash shortfalls
- Another Finger of Instability
- Economy Losing 11,000 Jobs per day since December of 2007
Economy
Expert on Structured Finance and Derivatives Gives the Big Picture (Vinny A.)
Janet Tavakoli is one of the foremost experts on structured finance and derivatives. Tavakoli made an outstanding presentation to the IMF last week on the fraud which led to the financial crisis.
US Senate OKs 1-Month Emergency Extension Of Federal Government Funding Levels (Vinny A.)
Facing a midnight deadline, the U.S. Senate Wednesday approved an emergency one-month extension of current funding levels for the federal government. The extension is necessary because lawmakers have been unable to complete work on the 12-must pass spending bills required to keep the various arms of the federal government running each year. With the federal government's fiscal year in its waning hours, all non- essential parts of the government would have been required to shut down at midnight had the extension not been agreed to.
The Senate voted 62-38 to agree to the extension. House lawmakers voted strongly in favor of the measure last week. President Barack Obama must sign it into law by midnight to avert the shutdown. The extension was attached to one of the spending bills - legislation to fund Congress and its related agencies. It is the first of the dozen bills that lawmakers have finished.
Inventory in the Shadows Twice as Big as Normal Resale Inventory in Los Angeles
The shadow inventory is larger than the actual re-sale number. The reality is that most of these loans won’t cure. Sure, a handful will be modified. But the REO number won’t be modified, the bank already owns these properties. Those scheduled for auction are pretty much a lost cause with the owner.
The notice of default data is linked to an audience that is 3 to 6 months behind and given the large mortgage payments in California, if you are this behind chances are you are not catching up. Keep in mind that this data is only for homes that have action being taken on. There is probably a shadow to the shadow inventory! That is, we have heard and know that many banks are not even sending notice of defaults to some late paying borrowers. In other words, there is a boatload of toxic debt out there.
'Planned recession' could avoid catastrophic climate change (Vinny A.)
Britain will have to stop building airports, switch to electric cars and shut down coal-fired power stations as part of a 'planned recession' to avoid dangerous climate change.
Stiglitz Deflation Threat Pushes Fed to Stay at Zero (Vinny A.)
The U.S. faces the possibility of deflation for the first time since the Eisenhower administration, a threat that may prompt the Federal Reserve to keep interest rates near zero through next year. Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in earnings in the second quarter, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp. A sustained price drop might set off a chain reaction in which lower profits force employers to pare wages and payrolls. That would erode consumer demand, exacerbating wage cuts and firings. Such a spiral led to Japan’s “lost decade” of slow economic growth in the 1990s. A more vicious version in the U.S. helped create the Great Depression six decades earlier. Bond investors are forecasting retreating consumer prices, as shown by the yield they demand to hold a one-year bond versus a similar inflation-protected bond.
Will California become America's first failed state? (lpowell23)
California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.
But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kenneth Starr, who has written an acclaimed history of the state, recently declared: "California is on the verge of becoming the first failed state in America."
Key S.F. departments warn of cash shortfalls
Just three months into the new fiscal year, several of San Francisco's largest departments are warning they will run out of money unless the mayor and Board of Supervisors find extra cash during one of the worst financial times in city history.
Already, the jails are housing 300 more inmates each day than planned for in the sheriff's budget. The public defender's office is declining five major felony cases a day, forcing the city to hire private defense lawyers instead. The Superior Court says its indigent defense program, which picks up many of the cases refused by the public defender, is incredibly strapped financially. The Asian Art Museum warns it can't fully pay for the security staff to guard its treasures.
And the fire, police and public health departments have told the controller's office they have concerns about their funding, too.
Another Finger of Instability (Jim B.)
The Obama administration tells us that the government deficit is going to be well over $1 trillion a year for at least ten years. And that does not take into account the outlier years in the 2020s when the really heavy lifting of Social Security and Medicare kicks in. There is a truism that goes a little like, "If something can't happen, then it won't." Let me make a prediction. We won't have a trillion-dollar deficit in ten years. Why? Because it can't happen. The market will simply not allow it.
Economy Losing 11,000 Jobs per day since December of 2007 (C. Watcher)
824,000 Jobs Lost in Statistical Revision: 8 Million Jobs Lost Since Start of Recession. Nationwide Unemployment Rate at 17 Percent. That is, in February of 2010 (sic) when revisions are made some additional 824,000 jobs were lost! That is correct, some 824,000 jobs have been lost and these do not show up in the current BLS data....This revision if incorporated today would put the official number of jobs lost during this recession at 8 million, or 10 percent higher than what is being fed in the headline numbers. The U.S. Treasury and Federal Reserve sold the American people that banks needed money to lend out in the so-called liquidity crisis. What really happened is banks got money to protect themselves from additional losses that they know they will face....Banks are holding tight to this money because we have many issues coming down the pipeline including the $3 trillion in commercial real estate that will cause further problems.
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