“Many banks are making money. ‘‘I’m starting to get more optimism,’’ Bair said.

TO BE NOTED: From Bloomberg:

"FDIC’s Bair Says Signs of Credit ‘Thawing,’ Banks Making Money

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By Steve Geimann

March 24 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Shiela Bair said steps to help the financial industry are working, and some banks are starting to make money.

“We are seeing some signs of thawing,” Bair said in an interview on Bloomberg Television. “Many banks are making money.

‘‘I’m starting to get more optimism,’’ Bair said.

To contact the reporter on this story: Steve Geimann in Washington at sgeimann@bloomberg.net

Last Updated: March 24, 2009 16:10 EDT "

in granting the requests of carriers based in their states for looser reserve and capital requirements

TO BE NOTED: From Bloomberg:

"Regulators Say State Funds Can Handle Insurer Failure (Update1)

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By Andrew Frye

March 17 (Bloomberg) -- State insurance regulators said it’s “unlikely” that any U.S. carrier is too big to fail and that guaranty funds are ready to pay claims should companies collapse.

“Even a major insurer failure, while traumatic in terms of job displacement and, perhaps, for shareholders, will generally not impose systemic risk,” Michael McRaith, director of insurance for Illinois, said in prepared testimony to the Senate Banking Committee today on behalf of the National Association of Insurance Commissioners.

Regulators are seeking to reassure policyholders after investment declines reduced the value of assets backing policies at insurers, and falling stock prices and ratings downgrades made it harder for the industry to raise capital. The 24-company KBW Insurance Index has plunged by more than half in the past 12 months.

“Regulation, of course, cannot ensure that insolvencies will not occur in extreme circumstances,” McRaith said. “A wholesale collapse” of stock or bond markets could lead to insurance company failures, McRaith said.

The U.S. government took a majority stake in American International Group Inc., the insurer that almost collapsed from a liquidity crunch in September, to help limit losses at banks that had outstanding derivative contracts with the carrier. Regulators led by New York Insurance Superintendent Eric Dinallo have said AIG’s insurance customers were protected because there were enough assets backing their policies.

McRaith has joined watchdogs Susan Voss of Iowa and Thomas Sullivan of Connecticut in granting the requests of carriers based in their states for looser ( NB DON ) reserve and capital requirements."

"Consumer spending in the U.S. fell less than forecast"

Interesting news on Bloomberg:

"By Bob Willis and Courtney Schlisserman

Dec. 24 (Bloomberg) -- Consumer spending in the U.S. fell less than forecast as cheaper gasoline left Americans with more cash( GOOD NEWS ), while jobless claims climbed to a 26-year high( BAD NEWS ), signaling purchases will keep sliding into 2009.

Spending dropped 0.6 percent in November, and rose for the first time in six months after accounting for inflation, the Commerce Department said today in Washington. First-time unemployment benefit claims jumped to 586,000( BAD NEWS ), and durable-goods orders declined less than anticipated( GOOD NEWS ), other reports showed.

The deteriorating job market means consumers will probably further rein in spending( TRUE ); economists including those at Morgan Stanley estimate more than 400,000 people will lose their jobs this month. The outlook forced Sears Holdings Corp., the largest U.S. department-store company, earlier this month to abandon its earnings forecast for the rest of the year.

“The economy continues to struggle and unfortunately the first half( I AGREE ) of 2009 does not look very good,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “We look for a further contraction and a continued acceleration in the pace of layoffs.”

Gasoline prices fell by a total of 50 percent in October and November, and discounts by retailers from Toys “R” Us Inc. to Wal-Mart Stores Inc. helped prevent a bigger drop in purchases last month. Today’s Commerce report also showed that the gain in spending adjusted for inflation was the biggest in almost two years( GOOD NEWS ).

Spending Outlook

“The increase in real spending is unlikely( UNLIKELY IS FINE ) to be sustained with the job losses we are seeing,” said Benjamin Reitzes, an economist at BMO Capital Markets in Toronto. The gain last month “was more a technicality based on the drop in gasoline prices( HOWVER<>

Stocks were little changed after today’s reports. The dollar remained lower, while Treasuries advanced. The Standard & Poor’s 500 Stock Index was up 0.2 percent at 864.56 at 10:14 a.m. in New York, benchmark 10-year note yields slipped to 2.17 percent from 2.18 percent late yesterday, and the dollar lost 0.5 percent against the euro to $1.3994.

A separate Commerce report showed orders for durable goods in November fell 1 percent( NOT BAD ), after an 8.4 percent decrease in October that was bigger than previously reported. Excluding a slump in transportation gear, orders for goods designed to last several years unexpectedly increased.

Capital Goods

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, increased 4.7 percent( GOOD NEWS ), the most since September 2006, after a 6.6 percent slump in October. Shipments of those items, used in calculating gross domestic product, rose 0.2 percent( GOOD NEWS ).

“Orders were so down in the previous months that there’s probably a little payback for that( WE'LL TAKE IT. HOWEVER, THIS WOULD SUPPORT MY VIEW THAT WE WENT DOWN MORE THAN WE WOULD FUNDAMENTALLY HAVE DUE TO THE FEAR AND AVERSION TO RISK ),” Robert Stein, senior economist at First Trust Advisors in Lisle, Illinois, said before the report.

Today’s Labor Department report showed that the four-week moving average of claims, a less volatile measure, also was the highest since 1982, at 558,000 for the week to Dec. 20. Initial claims were projected to increase to 558,000, according to the median of 32 forecasts in a Bloomberg News survey.

The number of people staying on benefit rolls fell to 4.37 million in the week ended Dec. 13 from 4.387 million.

Rising joblessness contributed to a drop in personal income last month. The Commerce figures showed income fell 0.2 percent in November after being unchanged the prior month( NOT GOOD ).

Hit to Income

“Given the further increase in jobless claims,” wage and salary income “is likely to further decelerate in the near term,” Deutsche’s Riccadonna wrote in a note to clients.

The drop in consumer spending last month extended declines to a record fifth consecutive decline, the Commerce Department said. Economists forecast unadjusted spending would fall 0.7 percent, according to the median of 64 estimates in a Bloomberg News survey.

Today’s report also confirmed inflation is retreating as demand wanes. Prices plunged 1.1 percent, also the biggest since records began in 1992. The gauge increased 1.4 percent from November 2007, the smallest gain in six years. The Fed’s preferred price measure, which excludes food and fuel, was unchanged for the second consecutive month, the first time that’s happened since 1999.( TRUE )

Gasoline Price

The average price of unleaded regular gasoline at the pump fell by $1 to $2.11 in November from the prior month, according to AAA, leading the drop in overall prices.

The decrease in spending pushed the savings rate up to 2.8 percent from 2.4 percent in October. A positive rate suggests consumers are restraining spending to boost savings( THIS RATE IS FINE ).

Even after the bump in November sales, retailers are concerned about the holiday shopping season, which brings in one- third or more of annual revenue. The International Council of Shopping Centers and Goldman Sachs Group Inc. said yesterday that November-December sales may fall as much as 2 percent. The ICSC had previously projected a drop of as much as 1 percent.

“Given the current economic and retail environment, we will carefully evaluate alternatives that provide financial flexibility in the near-term,” Sears’s interim Chief Executive Officer W. Bruce Johnson said in a statement.

Consumer spending dropped at a 3.8 percent annual pace in the third quarter( NOT GOOD ), the biggest plunge since 1980, revised Commerce figures showed yesterday. The economy shrank 0.5 percent. Economists surveyed by Bloomberg forecast the economy will contract through the first half of 2009."

A better report than expected.

"… We think that’s counterproductive.”

Willem Buiter on the transparency of the Central Banks:

"Bloomberg News filed a federal lawsuit on November 7, 2008, to force disclosure by the Federal Reserve, under the US Freedom of Information Act, about the lending by the Federal Reserve system to private banks. Bloomberg wants to know the identities of the borrowing banks, how much each one borrowed, and the assets the Fed has accepted as collateral for these loans by the Fed.

The request is not prima facie unreasonable. Under the 11 facilities cited in the lawsuit (which don’t include the $700 bn of the TARP, which is a Treasury programme), the Fed has extended well over $2 trillion worth of credit. Initially, most of this was secured. With the growing volume of Fed purchases of commercial paper, and given the range of options for outright purchases of private securities provided by the $800 facility announced on November 26 ($200 bn for consumer credit and $600 bn for purchases by the Fed of mortgage-backed securities and of debt issued by mortgage lenders), the Fed is now also a major unsecured creditor.

The Fed’s exposure to credit risk is likely to escalate rapidly as the Fed engages in large-scale quantitative easing, taking onto its balance sheet, either as collateral or through outright purchases, ever larger amounts of every poorer quality private securities. A trillion here, a trillion there - even in Washington DC, you are talking real money for which accountability to the Congress, the US tax payer and the wider public is essential.

Our financial leaders certainly talk the accountability and transparency talk."

The also say that guarantees aren't guarantees. Read the rest of the post. Here's my comment:

“As regards the specific request of Bloomberg News, a short delay in making public the identities of the individual borrowers (sellers of securities to the Fed) may under certain conditions be justified. All other information (what collateral was offered, what securities were purchased, valuations, terms etc.) must be in the public domain immediately. Central banks have no immunity from accountability for the use of public resources. Congress, the Courts, the media, the tax payer and the public at large should reject Chairman Bernanke’s ‘nyet’ to a legitimate request for information.”

Frankly, it’s a shame it had to come to this. I feel particularly strongly that, going forward, we the people need to know what guarantees we’re on the hook for. I’m quite sure that I’m not going to like the answer. Maybe that’s why they’re delaying telling us the skinny. It turns out we’ve grown fat, and some dreadful years of drastic dieting are called for. It could also be that there’s no scale to weigh ourselves on this time, the figures are getting so large.

In any case, don’t p–s on my head and tell me it’s raining, as some philosopher said.

Posted by: Don the libertarian Democrat | November 29th, 2008 at 10:15 pm |

"But the 40-ish percent range can't really be called a natural rate of 'but'-use. ": Isn't It More Like 100%

Zubin Jelveh dares to consider the uses of "but":

"In catching up on some James Surowiecki, I came across this most bizarre example of trying to please the customer. Referring to a Vanity Fair piece on Bloomberg News, Surowiecki writes:

Bloomberg banned the word "but" from its stories because it required readers "to deal with conflicting ideas in the same sentence." It's a little hard to tell from the context whether this rule is still in effect or not, but (there I go again) I can guarantee I will now be looking for "but"s or "however"s in every Bloomberg story I read."

Now, here he gets very courageous:

"Newswire copy is meant to be easily digested and is typically "just about the facts." Meanwhile newspapers have to add value through analysis -- even more so over the past couple of decades with the rise of 24-hour TV news and the web. That latter notion would mean that the 'but'-usage divide between wires and papers would have been smaller 20 or so years ago. And this seems to be supported by the data. In 1988, the average newswire had 'but' in 37 percent of its articles, while the average paper had it in 60 percent.

The following chart shows the evolution of newspaper 'but' use since 1984:

Surely he knew the early history of newspapers and "buts". Here's my comment:

Posted: Nov 22 2008 10:44am ET

–conjunction
1. on the contrary; yet: My brother went, but I did not.
2. except; save: She was so overcome with grief she could do nothing but weep.
3. unless; if not; except that (fol. by a clause, often with that expressed): Nothing would do but that I should come in.
4. without the circumstance that: It never rains but it pours.
5. otherwise than: There is no hope but by prayer.
6. that (used esp. after doubt, deny, etc., with a negative): I don't doubt but he will do it.
7. who not; that not: No leaders worthy of the name ever existed but they were optimists.
8. (used as an intensifier to introduce an exclamatory expression): But she's beautiful!
9. Informal. than: It no sooner started raining but it stopped.
–preposition
10. with the exception of; except; save: No one replied but me.
–adverb
11. only; just: There is but one God.
–noun
12. buts, reservations or objections: You'll do as you're told, no buts about it.
—Idioms
13. but for, except for; were it not for: But for the excessive humidity, it might have been a pleasant day.
14. but what. what (def. 24).

I think that it has to do with style. There is less of a need to vary usage for stylistic reasons, style becoming less important. "But" has become the default usage for a large number of longer and less common words or expressions.

It's a short,common word, with comic associations to the posterior in its pronunciation. In other words, it perfectly fits the needs of our time, where style is being lost, and we feel the need for comic undertones in all discourse.

Oh well, it's a theory.

Posted: Nov 22 2008 10:46am ET

The above comment was from Don the libertarian Democrat. No need for anyone else to be blamed for it.

By DonthelibertarianDemocrat

"Ambac said that it expected to make “positive adjustments” to its mark-to-market and impairment reserves as a result of the settlements"

I'm interested in Ambac because of this Alphaville post. Here's the recent reaction to a downgrade from the NY Times:

"The big bond insurer Ambac Financial Group said Wednesday that it had agreed to pay $1 billion in cash to counterparties to cancel default protection on $3.5 billion of collateralized debt obligations.

Ambac said the settlements should improve the capital position of its insurance unit, the Ambac Assurance Corporation, which lost its AAA rating on its debt in June because of its exposure to mortgage-backed debt.

“My immediate focus as Ambac’s new C.E.O. is to restore confidence in our balance sheet through aggressive risk reduction,” David Wallis, Ambac’s chief executive, said in a statement. “Ambac has consistently emphasized that in this period of extreme uncertainty in the capital markets, the de-risking and de-leveraging of our balance sheet is our highest priority.”

Once again, Flight From Risk.

"Earlier Wednesday, Standard & Poor’s cut its ratings on Ambac Financial and its insurance unit by three notches, to A, saying the company remained exposed to heavy losses from mortgage-backed securities. Ambac’s shares fell by a third following the S.&P. downgrade.

Ambac said that it expected to make “positive adjustments” to its mark-to-market and impairment reserves as a result of the settlements, and that the move should improve its standing in capital models at rating agencies.

“It’s a positive deal for Ambac,” David Havens, a desk analyst at UBS, told Reuters. “At the end of the day Ambac would probably have had to pay more than $3.5 billion to its counterparties, though that would have happened over a longer period of time.”

Here's my comment:

So:
1) Ambac’s credit rating was downgraded, so:
2) It had to meet higher capital requirements, so:
3) They bought back some insurance policies for less than their full payout price, thereby getting their debt limit down and so saving them from putting up more capital, but they did have to buy the policies out
Is that it?
And the people getting the cash for a possible higher payout later got, what, a tax deduction?

— Posted by Don the libertarian Democrat

Unlike Alphaville, the NY Times doesn't respond to posts.

Here's from Bloomberg:

"Nov. 19 (Bloomberg) -- Ambac Financial Group Inc., the second-largest bond insurer by outstanding guarantees, agreed to pay $1 billion in cash to cancel default protection on $3.5 billion of collateralized debt obligations, further freeing itself from the largest source of losses in its industry.

The settlement will result in positive adjustments to the Ambac's mark-to-market and impairment reserves, and improve its standing in rating-firm models, according to a statement today from the New York-based company.

Ambac and rivals including Syncora Holdings Ltd. and FGIC Corp., after being stripped of AAA ratings because of their CDO guarantees, have been able to cancel some of their contracts on mortgage-tied CDOs at discounts to their projected losses. In some cases, the banks with the protection also have benefited, after marking down the guarantees to reflect the insurers' declining creditworthiness amid surging U.S. foreclosures.

``My immediate focus as Ambac's new CEO is to restore confidence in our balance sheet through aggressive risk reduction,'' Chief Executive Officer David Wallis said in the statement."

Same basic story.

"Ambac's ``exposures in the U.S. residential mortgage sector and particularly the related collateralized debt obligation structures have been a source of significant and comparatively greater-than-competitor losses and will continue to expose the company'' to potentially greater-than-expected losses, Standard & Poor's said in downgrading the company earlier today.

CDOs repackage assets such as mortgage bonds and buyout loans into new debt with varying risks. The debt, much of which was tied to subprime-mortgage securities, has been the largest source of more than $966 billion of writedowns and credit losses reported since the start of last year by global financial firms.

Ambac today fell below $1 a share for the first time since going public in 1991 after its insurance rating was cut three levels to A by S&P. The shares declined 38 cents to 76 cents as of 4:15 p.m. in New York Stock Exchange composite trading, though they rose as high as $1.09 in late trading.

The shares are down 97 percent over the past 12 months.

Moody's Investors Service cut Ambac on Nov. 6 to Baa1, two steps lower than S&P's current ranking, prompting the bond insurer to post collateral and terminate contracts by shifting cash from its guarantee unit to its investment division."

Now, I want to follow Ambac because Alphaville believes that its whole mode of insuring bonds is dead, and this fascinates me.

"The cost of living in the U.S. probably fell in October by the most in almost sixty years"

Well, Bloomberg says this:

"The cost of living in the U.S. probably fell in October by the most in almost sixty years, while manufacturing and homebuilding sank deeper into a recession, economists said before reports this week.

Consumer prices probably dropped 0.8 percent last month, the most since 1949, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in at least a half century and factory output weakened further, other reports may show.

Commodity costs plunged in October when the economy, which descended last quarter, went into freefall as credit and financial markets collapsed. Slumping sales are forcing retailers to lower prices, giving the Federal Reserve scope to keep cutting interest rates to limit the damage.

``Tumbling energy and commodity prices have altered the inflation landscape,'' said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. ``More rate cuts are needed as the economy is sinking deeper into recession.''

The Labor Department's consumer-price report is due Nov. 19. Fuel, clothing and auto costs probably dropped last month as sales at U.S. retailers fell 2.8 percent, the most since records began in 1992, economists said.

The slump in crude oil is feeding through to prices at the pump. The average cost of a gallon of regular gasoline plunged 17 percent last month to $3.08, according to AAA."

Here's the thing: Shouldn't the drop in the price of gas and other commodities act as a stimulus?

"Commodity Deflation

``We are seeing the fallout of global recession on inflation,'' said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. ``In commodity prices, it's leading to deflation.''

Core prices, which exclude food and energy, rose 0.2 percent last month after a 0.1 percent gain the prior month, according to the survey median.

A report from the Labor Department on Nov. 18 may foreshadow the drop in retail costs. Wholesale prices fell 1.8 percent last month, the most since records began in 1947, according to economists surveyed.

As sales fall, manufacturers are cutting output and firing workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter after an 18 percent drop in U.S. sales this year, Angie Kozleski, a spokeswoman for the Dearborn, Michigan-based automaker, said last week.

Auto cutbacks probably pushed down manufacturing output last month, economists said a report from the Fed tomorrow may show. Overall industrial production, which includes factories, mines and utilities, rose 0.2 percent in October, led by a resumption of work at Gulf Coast refineries after Hurricane Ike shut down oil rigs the prior month, economists forecast."

I'm going to post about Yves Smith's post on this.

"Hurricane Rebound

A report from the New York Fed the same day may show manufacturing in the state contracted this month at the fastest pace since at least 2001. A similar report from the Philadelphia Fed on Nov. 20 may show regional activity shrank for an 11th time in 12 months.

The economic slump will intensify this quarter and persist into the first three months of 2009, making it the longest downturn since 1974-75, according to economists surveyed this month.

The housing recession at the heart of the economic downturn shows no signs of letting up. New-home starts in October dropped to a 780,000 annual pace, the lowest level since records began in 1959, the Commerce Department is forecast to report Nov. 19."

Here's a case where a weather word can be used both literally and metaphorically.

"Outlook Dims

A gauge of the economy's course will point to continued weakness, economists project a private report on Nov. 20 will show. The New York-based Conference Board's index of leading economic indicators probably fell 0.6 percent after increasing 0.3 percent in September.

Central bankers are battling to cushion the economy from the worst financial crisis in seven decades.

``Policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant,'' Fed Chairman Ben S. Bernanke said Nov. 14 at a panel discussion in Frankfurt hosted by the European Central Bank.

Heads of state of the Group of 20, which represents almost 90 percent of world output, met in Washington Saturday to lay the framework for coordinated actions to stem the global recession."

They must be reading Roubini.

"Abdullah Hajeri led a march on the Emir's palace in Kuwait last week"

Speaking of the Gulf. Bloomberg, again:

"The region's rulers are under pressure from citizens to shore up investors, not just banks, as they try to fend off what may be the worst economic crisis since December 1998, when oil at $10.35 a barrel forced them to slash spending. Crude prices have fallen 50 percent from a record $147.27 in July, and stock indexes in Dubai and Saudi Arabia are down by as much this year.

Gulf economies are more susceptible to financial turmoil than in the past because of their greater dependency on international expertise, investment and tourists to diversify away from oil. While Dubai, home to the world's tallest building and the man-made Palm Island, is considered most at risk, no part of the Persian Gulf will go untouched."

Where have we encountered this conundrum before? Citizens who don't like only the banks getting a bailout? Now that's globalization. We're all alike.

"There aren't many international investors left in the region, he added.

Regional competition to attract investors and tourists from around the world led to a surge in record-breaking projects."

Put those on hold, just like everywhere else, there's an economic credit hoovering back home going on.

"The emirate has almost 8 percent of the world's oil reserves and a sovereign wealth fund with assets between $250 billion and $875 billion, according to a range of estimates compiled by the International Monetary Fund. Even with its decline, oil still averages $110 a barrel for the year.

Residents of the region are used to government intervention. All Gulf countries are run by unelected rulers who maintain political power through tribal allegiances and marriages. Generous state welfare programs have traditionally damped demands for more political participation.

How the region's rulers cope with the turmoil may define relations with their people in the future, as they try to wean their subjects off state handouts and encourage them to find jobs and embrace market capitalism.

``There's no question that it sets back the move from socialist, paternalistic societies toward more modern capitalist states,'' said Gabriel Stein, a director at London's Lombard Street Research, which provides economic analysis to investors and companies. ``It is a trend that we have seen all over the world. The immediate reaction is that you told us to do this, so now things are going wrong it's up to you to help us out.''

Ah yes, governments will grow larger for the near term. However, helping citizens through economic downturns needn't be seen as a rush towards socialism. Nor, apparently, massive government interventions in the economy. So don't go all marxist quite yet.

``The U.S. financial crisis has ramifications for all countries, including the Gulf,'' U.S. Deputy Secretary of Treasury Robert Kimmitt said this week during a speech in Dubai, where he met representatives of sovereign wealth funds. ``Our capital markets are more integrated than ever before, allowing opportunities, but also financial difficulties, to spread rapidly across borders.''

We did some good before, look at all your wondrous buildings, so please don't blame us for this financial crisis which we started.

"Of the Gulf states, Dubai may be hardest hit by a global economic slowdown because it has borrowed more to finance its transformation from a Persian Gulf trading post to a financial and tourist hub, and has only 4 billion barrels of oil reserves.

Government-controlled companies owe at least $47 billion, more than Dubai's gross domestic product, and they will continue to accumulate debt faster than the economy grows, Moody's Investors Service estimated in an Oct. 13 report. It concluded that Dubai may need financing help from Abu Dhabi."

Let's change that from 'may' to 'will'.

TED Spread

On the TED spread, the necessary blog Calculated Risk:

"Here is the TED Spread from Bloomberg. The TED spread hit a record 4.13 this morning. This is far above the highs reached during the previous waves of the credit crisis.

Note: the TED spread is the difference between the LIBOR interest rate and the three month T-bill. Usually the TED spread is less than 0.5%. The higher the spread, the greater the perceived credit risks (compared to "risk free" treasuries)."

Read the whole post.