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    Daily Digest – July 14

    by Davos

    Tuesday, July 14, 2009, 2:45 PM

  • When Will The Recovery Begin? Never.
  • Pete Peterson on Charlie Rose (Videos short and long, repost)
  • Roubini and Shiller on U.S. Economy (Video)
  • Detroit Public School System Ponders Bankruptcy
  • Stress Test IQ Test for Banks or the Legal System
  • Water Regulations & Unemployment in Mendota (H/T iDoctor, Video)
  • Banks: Here Come The OptionARM Blowups!
  • Goldman Sachs Likely to Post Huge Profits, Analysts Say
  • Two Beers with Steve: Health Care
  • Shiller: Stocks Fairly Valued But “Could Go Down a Lot”

Economy

When Will The Recovery Begin? Never.

My prediction, then? Not a V, not a U. But an X. This economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.

The X marks a brand new track — a new economy. What will it look like? Nobody knows. All we know is the current economy can’t "recover" because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come.

Pete Peterson on Charlie Rose (Videos short and long, repost)

Roubini and Shiller on U.S. Economy (Video)

00:00 Outlook for the U.S. economy, recession
07:07 Reasons for current economic condition
11:50 Unemployment rate; fiscal consolidation
18:29 Case-Shiller Index; green shoots in housing
30:05 Second stimulus package; consumer spending
34:43 Roubini, Shiller respond to questions.

Detroit Public School System Ponders Bankruptcy 

The Detroit Public Schools may have no choice but to file for Chapter 9 bankruptcy, which would make it the first big-city school district to use bankruptcy court to avoid paying millions to vendors, employees and bondholders, experts said Thursday.

DPS Emergency Financial Manager Robert Bobb is continuing to consider the option and met Thursday with retired U.S. Bankruptcy Judge Ray Reynolds Graves.

Jim McTevia of McTevia & Associates of Bingham Farms, which works with companies with serious financial troubles, said DPS has three choices to solve its projected $259-million budget deficit: raise more money, cut costs or declare bankruptcy.

More revenues are extremely unlikely, given DPS’s projected enrollment decline of 12,000 students and anticipated state funding cuts. McTevia estimated DPS would have to cut its costs as much as 50%, an almost impossible feat given that more than 80% of most school district costs are salaries and benefits mandated by contracts.

Stress Test IQ Test for Banks or the Legal System

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

… court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm — Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. — to defend itself against its own lawsuit, according to court documents.

Wells Fargo’s defense lawyers even filed an answer to their client’s own complaint.

"Defendant admits that it is the owner and holder of a mortgage encumbering the subject real property," the answer reads. "All other allegations of the complaint are denied."
Your TARP money hard at work …

 Water Regulations & Unemployment in Mendota (H/T iDoctor, Video)

Banks: Here Come The OptionARM Blowups!

NEW YORK (Dow Jones)–For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the housing crisis.

A further acceleration of troubles among the loans could mean higher-than-expected losses for Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), as well as the Federal Deposit Insurance Corp.’s own insurance fund.

Yep. Bank-o-rama is not over. And by the way, this is what I said to Dick Bove on this subject well over a year ago:

Also note that we STILL haven’t gotten entirely back to sound lending principles, which are 20% down payments, 36% DTI and a 30 year fixed mortgage. Until we do and prices adjust at that level we are not at a housing bottom.

There is much more, of course, if you care to review that article. It’s actually pretty good.

 Goldman Sachs Likely to Post Huge Profits, Analysts Say

Analysts predict the bank earned more than $2 billion in the March-June period, thanks to its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so dramatically only months after the nation’s financial industry was shaken to its foundations.

The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.

“They exist, and others don’t, and taxpayers made it possible,” said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.

Startling, too, is how much of its profits Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 per employee. Top producers stand to earn millions.

Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter of the year, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.

Two Beers with Steve, Health Care

This time around is a true roundtable discussion on the ‘public vs. private healthcare’ debate. I (Steve) think most people have formed their opinions without chasing this argument all the way through. This turned out to be a fascinating episode.

 Shiller: Stocks Fairly Valued But “Could Go Down a Lot" (Video)

 

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