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Monday, October 20, 2008

Recession Roundup — October 20, 2008

Items of Interest:

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” — Cicero in 55 B.C. via Minyanville
Huffington Post:
US Faces Worst Recession In 26 Years -- The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.

Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not,however, know how deep or protracted it will be.

The focus of concern is shifting from the markets - although these remain dangerously stressed - to the wider economy, where the consumer finally appears to be cracking...
The Guardian [UK]:
Wall Street banks in $70bn staff payout -- Pay and bonus deals equivalent to 10% of US government bail-out package

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed...
Mike Garibaldi-Frick/ Huffington Post: Upper Class Pillaging
Chris Carey / BailoutSleuth:
The End of Bailout Transparency Already?
Wall Street Journal:
Delinquencies Mount for American Express -- Long the darling of the credit-card industry, American Express Co. is looking awfully beaten-up lately.

The New York company's stock price is down 55% so far this year, including a 34% slide in October. The percentage of loans deemed uncollectible in a pool on which American Express reports monthly performance data reached 6.7% in September, up from 3.6% a year earlier. Earnings due after the closing bell Monday are expected to show a decline of more than 30% from last year's third quarter, according to Thomson Reuters.

Known for pitching cards to affluent customers who were required to pay off their purchases every month, AmEx made a big push in the past couple of years to let many of its customers keep a balance and pay the interest that accumulates. While the company, run since 2001 by Chief Executive Kenneth Chenault, has insisted it didn't lower credit standards, those loans are coming back to haunt AmEx now, analysts say...
Anna Schwartz / Wall Street Journal:
Bernanke Is Fighting the Last War -- ... to understand the nature of the current "credit market disturbance," as Ms. Schwartz delicately calls it. We now hear almost every day that banks will not lend to each other, or will do so only at punitive interest rates. Credit spreads -- the difference between what it costs the government to borrow and what private-sector borrowers must pay -- are at historic highs.

This is not due to a lack of money available to lend, Ms. Schwartz says, but to a lack of faith in the ability of borrowers to repay their debts. "The Fed," she argues, "has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue." ...
William Kern / The Moderate Voice:
Sigmund Freud and the Global Financial Meltdown: Prensa Libre of Guatemala — Does the work of Sigmund Freud have anything to teach us about the global financial crisis and how to extricate ourselves from its clutches? ...
NY Times:
F.B.I. Struggles to Handle Financial Fraud Cases -- The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials.

The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes...
Homebuilders scramble to downsize floorplans -- Three years into downturn, builders try to lure buyers with lower prices

When the U.S. housing market hit the skids, homebuilders like KB Home that thrived by offering large homes and expensive amenities began to rethink their home designs with an eye toward making smaller, less costly homes.

Three years into the downturn, that trend appears to be intensifying, as many builders scramble to make their wares palatable and affordable to first-time buyers and compete with a trove of preowned homes and deeply discounted foreclosed homes on the market...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia