Archive for the ‘US’ Category
The Stress Tests | Reuters microsite
Reuters have a summary section on the banking stress tests. I think this is a topic that will come back in a years time, when new cracks begin to show.
Banking Crisis – The Stress Tests
Researched by Nobuyo Henderson
“We are less than 50 days away from a meltdown of State government”
California might just be the forerunner of a trend here. The single largest impact of the new smaller world we have entered is reduction in tax revenues, and with Government costs higher than before, the need for deleveraging applies to Government too.
MISH’S Global Economic Trend Analysis
California State Controller John Chiang says California 50 Days From Financial Meltdown.
….
Personal income taxes were $475 million below (-23.0%) estimates in the May Revision. Corporate taxes were down $84.4 million (-25.8%), and sales taxes fell by $109 million (-3.3%).
Researched by Nobuyo Henderson
Option ARM – $98 pm on a $315K mortgage … for now
The last time saw a graphic such as this was 2007, when the schedule for mortgage resets on US sub prime mortgages pointed to an inevitable crash beginning end of 2007 and through early 2008.
Well here is the next picture that is eerily similar with forward predictions of similar catastrophe in 2011. The US option ARM. Apparently these are not necessarily sub-prime at least right now. The real danger exists in the event that interest rates increase meaningfully to co-incide with the reset dates.
Also we must look at this in the context of the Banks rushing to repay government TARP / SCAP money. It is quite possible the reverse will be happening with some banks in trouble again in 2011.
Option ARMs: Paying $98 a month on a $350 Thousand Mortgage | Calculated Risk
About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.
…
“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” [Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia] said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.”
Bernanke is concerned about budget deficits
Fed Chairman Bernanke picks his words carefully here as the US treads that line between economic recovery and much higher interest rates which would produce other unintended consequences such as stifling growth, currency value shifts or inflation.
Bernanke calls for action on deficits | FT
Ben Bernanke on Wednesday called on Congress to take action now to bring down long term US budget deficits, warning that the bond market was concerned about rising US government debt.
The Federal Reserve chairman said the recent increases in bond yields “appear to reflect concern about large federal deficits” as well as improved optimism about the economy and other factors.
Here is the full testimony before the Committee on the Budget, U.S. House of Representatives, Washington, D.C. June 3, 2009
More analysis here.
Relevance to Bankwatch:
As plans are made, these are additional data points and views that point to a much different 2 – 5 years upcoming than we have experienced.
No consumer driven economy in US | Geithner in China
Some important messages within Geithners speech in China today that paint a very different next few years compared to the last 10, and as the ‘G2′ move to manage a transition the American economy into one that is very different, yet stable. And all this to be managed against the backdrop of the fear of eventual inflation, which would devalue foreign holdings in US T-Bills, something China is acutely aware of.
These macro factors will play a large role in US banks and credit unions strategy design for the next 5 years.
- no consumer purchase driven economy in US – with the implication of extended higher Government spending for some time to counter
- US consumers save (increasing savings accounts and paying down debt)
- China’s manufacturing supply is sold more and more within China, not Wal-Mart
Speech by Secretary Geithner – The United States and China, Cooperating for Recovery and Growth
In the United States, saving rates will have to increase, and the purchases of U.S. consumers cannot be as dominant a driver of growth as they have been in the past.
In China, as your leadership has recognized, growth that is sustainable growth will require a very substantial shift from external to domestic demand, from an investment and export intensive driven growth, to growth led by consumption. Strengthening domestic demand will also strengthen China’s ability to weather fluctuations in global supply and demand.
If we are successful on these respective paths, public and private saving in the United States will increase as recovery strengthens, and as this happens, our current account deficit will come down. And in China, domestic demand will rise at a faster rate than overall GDP, led by a gradual shift to higher rates of consumption.
Globally, recovery will have come more from a shift by high saving economies to stronger domestic demand and less from the American consumer.
Cyberpsace Policy Review | WhiteHouse.gov
The President released the following much anticipated document today. Item #10 is of particular interest to me. This aspect has grains of what I happen to think embody the next step in internet beyond where we are.
Cyberspace Policy Review | White House
10. Build a cybersecurity-based identity management vision and strategy that addresses privacy and civil liberties interests, leveraging privacy-enhancing technologies for the Nation.
… …
And this …
The Administration should assist international financial institutions, such as the World Bank and the International Monetary Fund, with the necessary information, tools, and expertise and encourage their use of best practices to protect their information systems, which suffered a series of serious intrusions in 2008. 61
61
www.foxnews.com/story/0,2933,435681,00.html, World Bank Under Cyber Siege in ‘Unprecedented Crisis’, October 10, 2008; www.foxnews.
com/story/0,2933,452348,00.html, Cyber-Hackers Break into IMF Computer System, November 14, 2008.
FDIC aggregate bank losses masked by trading gains Q1 – 2009
The latest FDIC QBP is out and contains some sobering information on the impact of the recession on bank results.
FDIC Quarterly Banking Performance – 31st March 2009
INSURED INSTITUTION PERFORMANCE
- Net Income of $7.6 Billion Is Less than Half Year-Earlier Level (61% less than previous period)
- Noninterest Income Registers Strong Rebound at Large Banks
- Aggressive Reserve Building Trails Growth in Troubled Loans
- Industry Assets Contract by $302 Billion
- Total Equity Capital Increases by $82.1 Billion
Looking behind the apparently positive net income of $7.6Bn we see that first quarter earnings were $11.7 billion (60.8 percent) lower than in the first quarter of 2008 but represented an apparently significant recovery from the $36.9 billion net loss the industry reported in the fourth quarter of 2008, however it included significant trading gains of $9.5 Bn which masked the continuing loan loss problems. Aggregate net income would have been in loss territory based on the business fundamentals.
While at first glance some recovery appears underway, the above along with industry asset contraction, reflecting pay-offs and write downs, suggests we are not close to being out of the woods on the banking sector.
I also note that the level of derivatives is has now increased in 2009 versus 2008, despite earlier commentary that derivatives were being unwound. (Derivatives represent off balance sheet liabilities)
Bank of America plan to repay TARP money
The scramble continues to get out of hock with the Government and Bank of America speak about repaying $45Bn by end of year. More power to them … this would be a good thing if they can pull it off.
BofA seeks to repay $45bn by end of year | FT
BofA is on track to raise more than $35bn in capital by the end of September, say people familiar with the matter, which it must do before paying back the $45bn bail-out money it received under the Troubled assets relief programme.
Bank of America have the right approach – just implementing new things and learning
One thing about Bank of America that I like at the moment is that they are just doing things. I covered their use of twitter the other day, but its worth placing in perspective. They are trying many things, including applications specific to the top two business smart phones shown below – iphone and Blackberry.
To me this iterative small, one thing at a time is essential. The bank gains learning, and importantly gains the following of the early adopters, who will support momentum towards mainstream usage.
UPDATE:
Some additional statistics requested from a BofA representative, so here they are – the scale here is significant.
US Unemployment is not a new problem | industrial revolution underway
Here is the US unemployment rate since the 1940′s. This data says that the unemployment problem occurred in the 1980′s and we have been living a dream in the bubble since 1987.
The data says that US unemployment has been increasing steadily since 1975. Before that the rate was fluctuating in a relatively narrow range of less that 1% based on the 10 year moving average (the red line).
The 60 year picture tells us that we are living in a bubble. Government stimulus will not cure a bubble. Nor will thinking that we can come out the other side with business as usual be an option.
Get ready for a crazy ride to the future world.
