Beige Book, Black Picture

The infamous beige book report was released by the Fed. Initial reports are that it makes for somewhat grim reading.

The WSJ Real Time Economics site says that the report paints a picture of a financial sector still in a downward spiral.

The New York Fed reported that “a contact monitoring the financial sector maintains that the industry is still far from hitting bottom.” As the failure of Lehman Brothers continues to work its way through the industry, and Citigroup stands on the precipice of being split up, there appears to be more pain to come.

“At the larger institutions, a substantial number of job reductions in the pipeline have yet to show up in the payroll statistics, due to ongoing severance payouts,” the beige book said. “Moreover, year-end bonuses are seen falling 20%-30% from last year at some of the smaller, healthier firms but more substantially at the larger establishments.”

That’s kind of disturbing, isn’t it? Just when all of the blogs have been telling us that the credit markets are starting to return to normal and spreads are getting back to normal, the Fed says we haven’t seen the worst yet. Yikes.

Comments

[DaveW:]

It amazes me the sheer magnitude of the black holes banks call their balance sheets. Like the Great Oz, they wanted us to "pay no attention to the man behind the curtain!" Let's hope, when the dust settles, we come out of this with some healthier standards...

Jan 14 06:31 PM

[CautiousInv...:]

There is growing evidence that the black hole could be as large as $2 trillion in financial sector losses and we are only half way through the writedown process. If true, TARP II is right around the corner.

Jan 14 08:40 PM

[paxjds:]

The Great OZ was a Narcissist as is Wall Street/Bankers with its "entitlements" to be bailed out. The Fed and Treasury are like the Wicked Witches, Borderline Disordered Agencies, doing the dirty work of bailing them out, living in a half psychotic-half neuratic world of finance. Congress is a bunch of Proxies stamping everthing with their approval to make it legal.
It would have cost nothing to let the bad banks fail, let the bank investors lose their investment, and let the suckers who bought the great "packaged mortages" lose a big chunk of their investment.
Now Wall Street, Big Banks, and Congress have passed the losses down to mainstreet affecting everyone. Obama's team is Bush team #2, no different. Both parties are in this fraudulant bailout together.
They have no shame! How Narcissitic!
God help th USA, as they sure are not.

Jan 14 08:50 PM

[John Lounsbury:]

Another good article tonight by James Kwak on the same general subject:
seekingalpha.com/artic...

I wrote a comment there and will not repeat it here.

Jan 15 12:04 AM

[Nikola:]

If you haven't been following the news, TARP II has been in the works for a while now, and details are already available.

Jan 15 12:07 AM

[zalo:]

The Mexican crisis originated a latin american crisis in the same way that the housing crisis has triggered a credit/financial crisis. When the mexican debt crisis started, the american government implemented the Brady Plan to reestructure Latin American debts to US Banks, and sell them to investors. In this way, they cleaned the US Banks balance sheets and reestructured the latin debt. Why not a Housing Brady?. The difference that i see necessary from the actual plans is that a huge cash pool should be made available to mostgage debtors (not banks), where they can get the cash to prepay and refinance their motgages o convenient terms. The government can then sell the Housing Brady Bonds with certain government collateral to investors and recoup their money. As the mortgage debtor will be owing to a special rescue fund from the government, instead of a bank, they will feel morally compelled to pay instead of walking away.

Jan 15 12:24 AM

[zalo:]

Regarding of the things said by the Fed Beige Book....who really thought that the 4Q was good for banks? It probably was the worst quarter of the whole 2008 by far. I don´t understand why people are so surprised. Stocks didn´t fall sharply for its own sake...they were telling that this was going to happen. The issue is, have the markets already incorporated the 4Q results plus the grim situation of 2009, or is the situation growing worser than originally expected?. With people already speaking about a depression, i dont know how can this be really worse.
Still, i think that governments have powerful weapons to fight this recession. Monetary policy have deployed powerful weapons and governments are delivering fiscal backstops. Governments must not worry now for their credit ratings (for now at least), they must fight the implosion of their economies.

Jan 15 12:31 AM

[Glen L.:]

There is only one stimulus that can have any positive long-term effect: massive downsizing of government at all levels, resulting in much lower taxes, including elimination of capital gains taxes. Governments fighting "the implosion of their economies" - as if governments own the economy! - by exploding the money supply, and creating the risk of massive inflation for years to come, is illogical to a fault.

Jan 15 10:46 AM