September 2009

Saturn Dies

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No, not the planet, but that wouldn't surprise me either these days. Nope, a deal fell through to sell off the Saturn brand of cars. Bloomberg has the best details on what happened.

General Motors Co. will close Saturn, the brand created 24 years ago to mirror Japan-based companies’ carmaking, after Penske Automotive Group Inc. said it has broken off discussions to buy the unit.

Penske, operator of 310 auto retailers, backed out because of concern it wouldn’t have access to cars and sport-utility vehicles after 2011 when GM stopped supplying vehicles.

Makes sense, why buy a brand if there will be no new cars to sell? But guess how many jobs this involves:

Death to Buy American, brought to you by our own trade representative

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Ya know that meager, token Buy American clause in the Stimulus? Well, surprise, surprise, of course they are still out to kill it. So here comes Canada, now seeking an exemption in order to bid on U.S. contracts.

In USTR Kirk: Deal With Canada On 'Buy American' Not Yet Sealed, of course our U.S. trade representative is trying to subvert a clause passed by Congress and ship U.S. taxpayer stimulus money off to Canada, instead of U.S. manufacturers. It appears the new plan is to just give U.S. manufacturers priority, uh huh in contract bids.

New Economic Inequality Data: Surprising and Frightening

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The newest economic inequality numbers, which ran counter to the expectations of almost all experts, are frightening. Yesterday, the Associated Press released an article titled, US income gap widens as poor take hit in recession. The opening paragraph of the article, based on recent census data, reads:

The recession has hit middle-income and poor families hardest, widening the economic gap between the richest and poorest Americans as rippling job layoffs ravaged household budgets.

The Fed proposes new credit card rules

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The Federal Reserve is proposing new rules (large pdf), on credit cards.

This is a second stage of rules, to go into effect on February 22, 2010.

One of the best things is banning the credit card industry from applying payments to your lower interest rate first.

Ya know, you have a balance and you get an offer which says "2.99% on new purchases for 6 months", which you accept.

Well, your payment goes to pay off any purchases under that 2.99% interest rate and not that huge balance you have that is accruing at 17.99%!

That interest rate fake out game will be gone!

Another goodie is banks must not only disclosure exorbitant over the limit fees, but get acknowledgment from the card holder such fees are ok.

The rules also ban that lovely technique of offering you a low rate and then magically raising it in the first year you have the card.

FDIC is now broke, wants banks to prepay fees up to 2012 to replenish funds

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Remember all of the claims the FDIC would never run out of money? Well, they're broke.

The Federal Deposit Insurance Corp. is asking lenders to prepay three years of premiums, raising $45 billion, to replenish reserves drained by the fastest pace of bank failures in 17 years.

The insurance fund will have a negative balance as of tomorrow after 120 banks were shut in the past two years, and will be positive by 2012, the staff said. Banks failures may cost $100 billion through 2013 with half the cost already incurred, the FDIC said. The agency today rejected options for a second special fee or borrowing from the Treasury Department.

Case-Shiller Home Price Index Increases for July

Case-Shiller Home Price Index increased in July by 1.2%. Calculated Risk provides the details. But let's look at the spin on the numbers.

“The worst has passed,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets.”

Tremendous oversupply may be understatement especially if financial conglomerate's 'shadow inventory' starts hitting the market.

Federal Reserve IS the mortgage market

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The Federal Reserve announced this week that it is going to wind down its program to purchase $1.5 Trillion worth of mortgage backed securities.

“I don’t think there are enough private buyers to replace the central bank,” said Sung Won Sohn, professor of economics at California State University. “If there is even an inkling that the Fed is going to start selling by 2010, we would see mortgage rates go up right away.”

People are right to be concerned about the Fed trying to sell any of that massive pile of overpriced securities. But that isn't the only reason to doubt the Fed's ability to wind down this program.

Banks Still Love Credit Default Swaps

File this under Same Shit Different Day. I came across this article today on HuffPost:Banks Still Trading In Risky Derivatives. The articles is OK but the links to the Office of Comptroller of the Currency website are great.

I found a new report: OCC's OCC’s Quarterly Report on Bank Trading and Derivatives Activities Second Quarter 2009 (pdf file). I am kind of slow so this report may not be old news to most EP people.

First, the press release that accompanied the report:

U.S. commercial banks reported trading revenues of $5.2 billion in the second quarter of 2009, compared to record revenues of $9.8 billion in the first quarter of 2009, the Office of the Comptroller of the Currency reported today in the OCC's Quarterly Report on Bank Trading and Derivatives Activities.

Financial Balance of Terror

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Sometimes you wonder if Larry Summers is reading the blogs. The catch phrase Financial Balance of Terror has been coined by none other than 1990's Financial Terror Architect, Obama economic adviser Larry Summers!

President Barack Obama and fellow Group of 20 leaders are trying to end what Obama adviser Lawrence Summers has called the “financial balance of terror.”

World leaders, meeting in Pittsburgh last week, adopted a framework for more durable economic growth as they sought to prevent a replay of the worst crisis since the Great Depression. They also acknowledged the growing clout of China and other emerging economies by giving them a bigger voice in decision- making.

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