Larrysyr

A Jobless Recovery? Not This Time

Future job growth will not likely be in the areas where past job growth was. Around here (a medium-sized city in the northeast), the old jobs were in foundries, assembly plants, and chemical and pharmaceutical manufacturers. More recently, there's been a shift to services and IT. The future looks like it will come from air quality innovation, energy conservation and medicine. The only constant is change. The past is the wrong direction to look in if you're concerned about the future.

U.S. Job Growth Likely by December

Recessions are all about restructuring. Some companies get weeded out, some survive to thrive later, some even get a foothold and take off during the downturn. Whatever, the causes, the mechanics involve companies slashing costs (including payroll) in order to survive. When the downturn ends, the surviving companies start growing again, start making new profits and then begin to hire. At first they hire temps. This is what we're seeing now.

Recessions always look bleak. In past recessions (especially the 70s and 80s), the picture looked even worse. Double digit unemployment, underemployment, double digit inflation, deficits, devalued dollar, the "misery index".

I think the overall premise - that the economy is improving - is correct. Actual job growth by December is a little too optimistic for me.

Why Apple Is Worth $80

I have no idea what Apple is worth, but I'm amused at the outburst of comments the headline brought. Steve Jobs for sainthood!

Wall Street Breakfast: Must-Know News

The U.S. dollar I grew up with wasn't so great. Significant devaluation in 1971 and double-digit inflation later in the 70s didn't reflect a really strong dollar. The dollar is (and always was) stronger than the ruble, but that's like getting a D grade and saying it's better than an F.


On Oct 07 10:11 AM Joseph L. Shaefer wrote:

....
>
> The US Dollar is a pale imitation of the solid currency we grew up
> with in which, while traveling behind the Iron Curtain or in China,
> locals would sidle up to us and try to get us to exchange our dollars
> at double and triple the official exchange rates.
>
........

Lawmakers who wanted big banks to match BofA's (BAC) pledge not to further hike credit-card rates got one answer from Wells Fargo (WFC), who expects to raise rates for most customers by 3 percentage points on Nov. 30 - the day before Rep. Barney Frank wants new curbs to become effective.

No way to spin this move into good PR.

Analyzing Larry Summers

The comments stream reminds me how easy it is to blast away in anger after an enterprise fails. I think I would rather figure out what happened and how we can avoid repeating the mistakes that got us into the mess.

Failures, crises, etc. usually occur because risky decisions turned into sour results. The decisions themselves may have been prudent (or maybe not), but the results unquestionably became negative. The very definition of risk means that whatever decision you make, even a good decision, could result in failure.

So we, as a political economy failed. A series of risky decisions didn't work out as intended. It happens. It's bad. Time to move on.

Maybe the main players were ill-motivated. I don't think that's a productive perspective. While nobody gets honor in this mess, somebody gets to clean up. Do you blame the janitor when your office gets dirty?

I didn't like Bush; I do like Obama. I still don't think finger-pointing is worthwhile. I think we need to figure out how to get the train back on the tracks and get on with our lives.

Why We Were Right Not To Nationalize the Banks

I give you credit, Felix, for rethinking a position you advocated so diligently and admitting you might have been wrong.

All decisions, especially in a crisis like last year's, are risky. I suspect the actions of the federal government during this crisis will be studied for years, and the various opinions about how well the crisis was handled will persist. And I think that all sides of the argument will have good points to make, with lots of lessons we can learn about how to deal with severe financial crises.

My take is that both the Bush and Obama administrations reacted relatively well under pressure none of us would like to bear. They made many mistakes but managed to restore stability to the financial markets way faster than I thought possible.

How well or quickly the economy recovers is an open, longer-term question. Without the financial markets stabilizing, however, there would be NO recovery.

Roubini: Don't Expect a V-Shaped Recovery

I like to think of the market crash as beginning in September '08. On most stock charts, that looks pretty much like the edge of the cliff.

As of the end of August 2008, the S&P 500 was at 1282. Today, it's at 1058. That's a decline of 17.5%, and hardly signals great faith in the economic recovery.

What the market IS pricing in is the realization that the world will continue. There is a lot of shaking out and restructuring ahead, but life will go on. Six months ago, that was a lot less certain.

Bank Products: A Eulogy for Vanilla

30 years ago, I got hit with several fees for "uncollected funds." When I complained, the bank refused to waive the fees, and I withdrew what little money I had left.

Turned out there was a credit union down the block. They were happy to take my deposits, had one simple annual charge for a checking account, no per-check charges or minimum balance requirements. Plus, they never charged me for "uncollected funds."

I never went back to a commercial bank for my personal accounts. Today, I have a credit card, ATM access, and various checking and savings accounts with a credit union. The fees are straight-forward and fully disclosed. The interest rate on the credit card is 7.99%. I pay my balances in full, but this is so low compared to other credit cards, I'm still impressed.

Thrift institutions have always functioned this way. Consumers can abandon banks and do business with thrifts and credit unions and enjoy much simpler financial lives.

In Defense of the Rating Agencies, Once Again

Abolishing the rating agencies would slow down the pace of financial innovation. Investors were lulled into thinking the exotic MBSs were safe because they carried the stamp of approval of the agencies, who were assumed to have done legitimate analysis of the securities. Turned out the raters had little more clue about the risks of these securities than the investors themselves. The stamp of approval turned out to be worthless.

Investors taking risks need to take responsibility for those risks. The agencies provided the false security of a AAA short-cut around those responsibilities. I believe that the very existence of these ratings greatly enhanced the magnitude of the housing bubble and subsequent crash.

My proposal seems draconian, but the offenses were egregious, and the fallout close to catastrophic. The consequences for the agencies should match their offenses; thus they should be prohibited from issuing any more ratings.

Whether my proposals about loan covenants are legal or not, I have no idea. There is ample precedent for summarily cancelling property and contractual rights. For instance, the USA fought a bloody civil war over the question of whether slaveholders had legitimate rights to own other human beings. Less drastically, bankruptcy judges routinely cancel or alter contracts, a practice accepted as normal.

We agree that the rating agencies acted badly. My proposals are certainly on the harsh side, but my feeling is that they would constitute a just outcome.

On Sep 23 05:21 PM Mr. Mylo wrote:

> I don't agree with David either, but your simple solution (re: dissolving
> contractual obligations linked to their ratings) is draconian and
> almost certainly illegal. The rating agencies, much like Fannie
> and Freddie, went amok due to profit-seeking over public purpose.
> No questions there. Then again, neither group is truly a public
> organization.
>
> If they are abolished, then that puts the burden of proof on the
> individual investor to investigate each security on its own merit.
> I don't see that happening.
>
> Institutional organizations have staff to make their own credit reports.
> Individuals primarily rely on the work of others.
>
> On Sep 23 11:36 AM Larrysyr wrote:

In Defense of the Rating Agencies, Once Again

I don't agree, David.

Private rating agencies achieved a semi-official place as arbiters of value in our financial markets. Regulators then accepted their ratings at face value and used them to decide which securities banks and other regulated enterprises could invest in.

Turned out that rating agencies were motivated by profit first, not by honesty. They violated their own operating principles and made themselves superfluous. In fact, I would argue that by assigning investment grade ratings to sub-prime MBS, they probably contributed to a massive fraud.

I have a simple solution. Strip all 3 agencies of any semi-official status, and invalidate all loan and regulatory covenants related to their ratings. (I'd actually officially disbar them from the business of issuing ratings to accomplish this.)

Start fresh. Any investor who wants a rating on a security needs to find someone they believe is reputable to do the analysis. Any investor who doesn't need a rating (all those institutions David refers to) will do their own due diligence.

Aging PCs and a fresh OS (Windows 7) will spark corporate PC sales in 2010, Intel (INTC) CEO Paul Otellini tells the FT. "The fleet of PCs is getting fairly aged; most corporate notebooks are now over four years old, desktops are over five years old, they need to refresh."

The original PC purchases were driven mostly by "killer apps" like spreadsheets and word processing. The next expansion came from the internet. Of course, as speed and reliability improve, some older machines start to act like dinosaurs.

But just what would drive anyone to replace an XP machine? I just "refreshed" my home computer with a quicker, larger memory machine that runs all the same software we're used to, and it cost about $200. I think we're set until "Windows 8" comes out.

One Good Thing About Estimated Current Housing Values: Reality

When the loans are packaged into MBS, the link between the loan originator and the borrower is broken. The originator doesn't care whether the loan gets repaid, only whether it can be sold to the secondary market.

I suspect the libertarian approach would be to endorse the securitization of these loans as an operation of free markets. I'm don't disagree with this perspective, but the actual reality is that bad actors get enough rewards in most situations to entice others to follow the lead.

The rational ideal would be that if you make bad loans, Darwinian selection would weed you out of the lending pool. The incentives in markets, however, are not calibrated to such rational outcomes. The incentives are skewed heavily toward short-term results. The accumulation of these short-term results over a long-term time frame can be highly counter-productive.


On Aug 26 01:04 AM johngonole wrote:

> Libertarians would say that if we would just let the credit card
> companies and banks who loaned to those who can't or won't manage
> their debts properly fail, then there would no longer be financial
> institutions left to loan again to those folks. The brutal realities
> of a free market won't allow irresponsibility. But everytime we
> take another step in relieving people of their responsibilities the
> failures just get larger and larger.
>
> I need a beer. This isn't rocket science.

When Insolvent Banks Are Worth Billions

Mark to market is based on the flawed assumption that markets are rational. Bubbles, panics, and manipulation are all evidence against these assumptions. When bank stocks rose as soon as M2M was relaxed, I think the financial markets were proven to be anything but rational.

America's Doomed Small Newspapers

Newspapers are failing because they are too wedded to their delivery medium (paper), rather than their true functions (delivery of information, including advertising). I can't think of anything delivered in my local paper that can't be transmitted over the web faster, cheaper, and even more effectively.

Since I grew up reading newspapers, this development fills me with some nostalgic sadness, but I can't truly say that it's necessarily a bad thing. Newspapers are suffering from economic selection as surely as dinosaurs suffered from natural selection.

There will always be a demand for information, but there is no need for paper and ink any more.