John Lounsbury

The Volcker Inspired Financial Reform Bill

Unfortunately, Paul Volcke's views and experience are under represented in the Obama administration.

Christmas Economic Cheer

Mark - - -

Here in a southeastern suburb of Raleigh we saw flakes from time to time but we really got only rain. Reading the news today from farther northeast it sounds like the snow stuck pretty tight to the coast after it left you. The ski areas got very little "up east". Virginia and West Virginia ski areas are boasting record or near record two day total accumulations. So, Yankee skiers, drive south to ski this week.

So "up east" Murphy's law really struck. Folks had trouble going shopping or driving to the mountains and the mountains got limited new snow.

New Accounting Rule Delayed

User 480333 - - -

Thanks for sharing your research.

Can Citigroup Flail Its Way to Solvency?

RE - - -

Citi has been revealing what parts are viable through asset sales, which they have used to offset massive operating losses. I have not tried to do the work (massive, for me) to design a break up of Citigroup. There are some other contributors here at Seeking Alpha who are much better bank analysts than I am and they would be good candidates to attempt this. Two I can think of right off the top are Edward Harrison and Reggie Middleton. If I had more time right now I would go back over what they have written in the past year or so to see if either has taken a stab at this. I don't recall seeing anything, but my memory is not infallible.

New Accounting Rule Delayed

I wrote:

"I don't believe these SIVs were considered in the stress tests and they will eventually have an impact."

Since writing this I have read a number of arguments maintaining that the off-balance sheet assets were included in the stress tests. I can not yet document whether they were or not, so I might better have posed a question instead of making a statement of belief.

Can Citigroup Flail Its Way to Solvency?

RE - - -

The survival by dismemberment idea goes as follows:

The TBTF giant contains a number of identifiable businesses. Once divided into those parts the units that are not viable go into bankruptcy proceedings (or FDIC resolution for banking units) and the businesses that are functional can proceed unencumbered by their defunct brethren.

This is a simplified summary but it covers the concept. The mechanics of FDIC handling the resolution of failing banks is, of course, a problem at present because the FDIC is bankrupt itself. They have announced increased member fees to address this problem, but it could take many years to recover the losses through higher fees. That leaves our favorite uncle on the hook for a long term loan to keep the FDIC in business.

Richard Bernstein's Ten Predictions for 2010

In spite of some disparaging comments from those whom I find are often quite perceptive, I find the ten predictions not at all implausible. If they all come to pass it does not bode well for the economy or stocks in 2011. A rosey 2010 means that things will get further ahead of themselves and a flattening yield curve will presage a new downturn.

New Accounting Rule Delayed

Graham and Dodd Investor - - -

Sieve is a good pseudonym for SIV. In the past I have suggested SHIV, describing a weapon in the hood, which could imply a threatening weapon exists for unwary investors.

No Economic Joy for Joe Six-Pack

Steve - - -

Excellent analysis as always. Let me go back to the first graph you showed and ask a question:

If the Conference Board Coincident Indicator fails to follow their Leading Indicator, will they be forced to changed the name of the later? (LOL)

Can Citigroup Flail Its Way to Solvency?

Edward Harrison (seekingalpha.com/artic...) has an excellent detailed discussion of the tax break issue mentioned in my article.

Three Types of Bankers

Robert - - -

I think simple derivatives and futures are very valuable risk management tools when properly used. The first qualification for being "licensed" to use these weapons (which can be misused to become "weapons of wealth destruction" - Warren Buffett) is: can you count. If that barrier is passed, we can go on to more sophisticated tests like addition and subtraction.


On Dec 16 09:56 AM robert.b.ferguson wrote:

> Excellent article, thank you John. I would submit that the invention
> of derivatives as a risk mitigation tool run amok was a significant
> contributor to this melt down and should be banned. However I don't
> hear any one talking about that on Wall Street or Capitol Hill. What
> do you think?

Loss of Data on SA: Mechanical or Procedural Error Seems Likely.

HTL - - -

I just looked at an Andrew Butter article on gold. The first three comments he replied to are missing.

Loss of Data on SA: Mechanical or Procedural Error Seems Likely.

HTL - - -

That may explain why I had to confess a couple of times to people in comment streams that I couldn't find what they were referring to to when I wanted to discuss something that followed from the missing reference. I was concerned that I might be missing a key aspect of their point by not seeing the reference.

I never thought to do the research that you have done.

What the Public Is Paying for Healthcare

Noah - - -

I much appreciate hearing well developed comments from those working in the medical profession. As your comments indicate, physicians are also suffering under the system we have. It's not only the patients (both insured and uninsured) who are not well served. It is this idea that keeps bringing me back to the solution to healthcare should be sought at the doctor/patient level, not the Medicare rules or insurance company policy level.

However, it appears that public and private sector monoliths are loathe to pare back any of the power and/or profit they control.

Pondering the Statistical Recovery

John - - -

You always cover a lot of ground, but this week more than usual. Some specific comments:

1. The $100 imported part (from the Dennis Gartman quote) is presumably subtracted from GDP because imports are subtracted. Therefore, the full price of the car can be included in GDP because the imported part has already been subtracted in the final GDP calculation.

2. The projections that you and Mike Shedlock developed for future unemployment under various scenarios are a very valuable addition to understanding the headwinds this economy must overcome. In that regard, the BLS has data indicating that 57% of jobs lost in this recession are "permanent", as opposed to "lay-offs". Using that figure, I have estimated that close to 5 million jobs are not coming back, considerably higher than your estimate. I would rather that you are correct. (The graph of the BLS data can be seen at seekingalpha.com/artic... )

3. Your observation about the level of manufacturing output is very important. The way recession is experienced is very different for various sectors of the economy. For example, on Main Street, the recession may be increasing (more unemployment, lower income) long after the recovery has started on Wall Street. This was the experience of the 2001 recession, as you have discussed very well in the article. Your future unemployment scenarios indicate that there could be even more discrepancy between Main Street and Wall Street this time.

Good job in dispensing a healthy dose of reality.