Friday, November 13, 2009

Hysterical, in a black comedy way

Ford Commercial

Re-inflating the housing bubble

How cool is that?
The government, in cooperation with the lending industry, is working to allow greater debt and increase housing costs!

Check out this lovely bit of junk mail I received today...

Saturday, October 17, 2009

The end of an era...

...of easy money for over-building strip malls in Bakersfield.

In the 99th Bank seizure of the year, the FDIC took over San Joaquin Bank.

I still remember the commercials these guys were airing 5-6 years ago featuring non-actors who had joined the bank for access to easy money. "They gave me a loan when no other bank would!", said one smiling yokel in a commercial spot.

Well, since I am pretty certain that San Joaquin is the first bank in Kern county to be closed by the FDIC, we can safely assume those "other banks" are still in business. Who looks smart now?

The full story, courtesy of the Bakersfield Californian.

Regulators close bank
SAN JOAQUIN: Bank employees, regulators worked late into the night
BY JOHN COX AND COURTENAY EDELHART, Californian staff writers, | Friday, Oct 16 2009 10:59 PM

Last Updated Friday, Oct 16 2009 11:18 PM

State regulators shut down San Joaquin Bank Friday, ending a year-long effort to recapitalize the Bakersfield institution. The closure came despite what the bank's chairman said was a successful last-ditch effort to raise enough money from local investors to satisfy liquidity and capital concerns.

Regulators' decision to arrange the sale of the 29-year-old bank's deposits to Ontario-based Citizens Business Bank is expected to have little effect on account holders and borrowers. All five branches of the bank are expected to reopen Monday under the Citizens name.

Brought down primarily by sour real estate development loans, San Joaquin was the largest of three Bakersfield-based banks, and one that was heavily involved in charities and the local business community.

Friday's action by the state Department of Financial Institutions was preceded by negotiations with bank officials culminating in a deadline announced Oct. 1. It gave San Joaquin until Thursday to raise $27 million in new capital. The deadline passed quietly, with little more than a statement by Chairman Rogers Brandon that the bank's efforts to raise money continued.

Those efforts came to fruition Friday, Brandon said, as about a dozen local investors -- "farmers, doctors, lawyers, accountants and media people" -- together pledged $27.4 million in exchange for company stock.

But it was too late: At 3 p.m. Friday, he said, the department informed leaders of San Joaquin's holding company that it was closing the bank.

The order caused some confusion among bank officials, Brandon said, because on Thursday the department's commissioner offered the bank an undisclosed amount of additional time if it could come up with the $27 million by the close of business Friday -- which he said it essentially succeeded in doing.

"We had a very good day at the bank that ended in a very bad result," he said.

Bart Hill, who served as the bank's president and CEO, had no comment Friday.

The closure brings to 99 the number of banks shut down across the country this year. The Federal Deposit Insurance Corp., which has had San Joaquin on its "watch list" since December, said the closure would cost the industry-supported fund $103 million.

According to the state Department of Financial Institutions, the bank's assets totaled $766 million and its deposits came to $626 million on Sept. 30.

Citizens paid the FDIC face value for San Joaquin's deposits. Also, Citizens agreed to purchase essentially all the assets, according to the FDIC. This does not directly impact shares in San Joaquin's holding company.

San Joaquin's highly public downfall, punctuated by news accounts of negotiations with regulators and reassurances by bank executives, was made all the more dramatic Friday as FDIC staffers descended on the bank's 17th Street headquarters shortly before the 6 p.m. close of business.

Men and women in dark suits, some in sunglasses and carrying laptops and briefcases, went inside and posted gatekeepers at the front door.

A couple of them could be seen addressing employees who watched attentively with grim faces. One woman wept quietly as she listened. Most stood still as statues with their arms folded. Occasionally, someone glanced over his or her shoulder at curious onlookers peering through streetfront windows.

Security was discreetly sprinkled in and around the bank, a routine precaution, said Terre Price, regional ombudsman for the FDIC.

Citizens Bank officials began arriving at the bank about 7 p.m., walking quickly and purposefully. They, too, addressed San Joaquin employees, some of whom hugged afterward.

Then bank workers and regulators scattered to desks and cubicles, where they continued working late into the night. No one was allowed in or out.

Outside, Price spoke with reporters about what was taking place.

"It's just like any other acquisition," he said. "The new owners want to see the books and the inventories and the cash deposits, except we do it at an accelerated pace because we want it to be completely seamless for customers.

"When they come in on Monday when the bank reopens, or if they want to make an ATM withdrawal over the weekend, they will be able to do that without any interruption in service."

Price said regulators knew fundraising activity was under way.

"It's always preferable to the FDIC for those efforts to be successful, so we don't want to do anything that would discourage that," he said, adding that that's why the state didn't pull the bank's charter until after the close of business, Price said.

In a written statement issued Friday evening, Brandon thanked bank officers, directors, employees and the general community.

"... On behalf of the board of San Joaquin Bank, I want to personally thank everyone in the community for their support, especially those who came together in an effort to help the Bank continue serving its customers."

Californian Publisher Ginger Moorhouse is a member of the bank holding company's board of directors and Hill is a member of the newspaper's board.

Sunday, August 2, 2009

Enabling follow-up

Back from vacation and ready to ponder the implication of the enabler's latest financials. Once again, I merely quote their own financial statements and then stand back and marvel at their astounding banking abilities.



Entry into a Material Definitive Agreement, Results of Operations and Finan

Item 1.01 Entry into a Material Definitive Agreement. On July 20, 2009, the Company entered into stock purchase agreements with the following individuals: Gurpreetinder Singh, Ashok Kumar, Prem Chand, Vijay K. Gupta, Kewal Krishan Garg, Gurmail Singh, Girdhari Lal, Niranjan Singh Sra, Dr. Sham Lal Goyal, Ms. Usha Rani Sood, and Mjr. Surinder Singh (together the "Investors"). The agreements provide that the Company will issue and the Investors will purchase, pursuant to a private placement, 8,137,250 newly issued shares of common stock ("Shares") at $4.68 per share. The obligations of each Investor under the agreements are several and not joint with the obligations of any other Investor. Upon issuance and sale of all of the Shares as currently contemplated by the parties, gross proceeds of approximately $38 million dollars are expected to be raised. The agreements provide that an initial closing will occur on July 31, 2009 or as soon as possible after that date.

Glad none of my money is part of that $38 million. Check out what comes next:

Item 2.02 Results of Operations and Financial Condition.

The Company's management has concluded that the Company's previously issued consolidated financial statements for the three months ended March 31, 2009, as reported in the Company's quarterly report on Form 10-Q, can no longer be relied upon. Accordingly, the Company intends to promptly amend and restate its Form 10-Q for the quarter ended March 31, 2009 as well as other previously filed regulatory reports for the 2009 first quarter as soon as it can reasonably do so.

Not good. We can't trust the previous quarter's (Q1) financial statement and where is the report for Q2?

As originally reported, the Company had a net loss after tax of $3.6 million. Management now believes that its net loss for the first quarter will increase to approximately $18.2 million. Earnings per share (EPS), both basic and diluted, for the first quarter of 2009 were originally reported to be a loss of $0.91. This EPS figure per share on a basic and diluted basis is now projected to be a loss of approximately $4.63. The Company originally reported an addition to its provision for loan losses of $10.7 million; however, it now projects that its provision for loan losses for the first quarter will increase by more than $26.3 million to about $37 million.

Which might explain the need for $38 million to be raised from Indian investors. But what will Q2 bring in the way of losses?

At March 31, 2009, the Company originally reported that it had $105.5 million in classified loans. Based upon additional information related primarily to asset and loan quality that became available to management following the filing of its first quarter report on Form 10-Q and after consultations with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions, management determined that approximately $163 million of loans should have been deemed classified for the quarter ended March 31, 2009. Of these classified loans, at March 31, 2009, management now expects to report that approximately $98 million are deemed to be impaired compared to the originally reported amount of $61.6 million. As of March 31, 2009, it is now expected that non-performing and restructured loans will be reported at about $98 million compared to the originally disclosed amount of $45.1 million in non-performing and restructured loans.

That sure is a lot of empty strip-malls. Buy stock in plywood companies. The windows of vacant strip-malls always need lots of that. But inquiring minds are curious: How does the cash value of non-performing loans double between issuing a quarterly financial report and the time to report the next quarter's results? Hopefully no insiders sold shares in the company while share prices were still high! That wouldn't look very good at all...

Insider shares bought/sold Dodged a bullet! Not corrupt, apparently clueless though.

Total shareholders' equity at March 31, 2009 is expected to decline by approximately $14.6 million to approximately $38.5 million from the previously reported amount of $53.1 million. On a preliminary basis, the Company's leverage ratio, tier 1 risk-based capital ratio and total risk-based capital ratio will be restated to approximately 4.34%, 5.06% and 7.14%, respectively. The Bank's capital ratios are expected to decline to similar levels as follows: 4.28%, 4.99% and 7.07%, respectively. As a result, the Company and the Bank will be deemed to be undercapitalized under guidelines established by bank regulatory agencies as of March 31, 2009.

Thank goodness for the timely arrival of the Indian investors! If it weren't for their astute investment skilz, we might have consequences of enabling on our hands.

Tuesday, July 28, 2009

Enabling: An Indian investment opportunity!

Short and sweet. I am on vacation with intermittent internet access. Wish I had caught this bombshell in real-time.

San Joaquin Bank announces the "Company’s quarterly report on Form 10-Q, can no longer be relied upon" No kidding!?!

How come it took the bank so long to announce what the rest of us already guessed without even looking at their books?

Sunday, June 28, 2009

Descent into Credit Card hell

Check THIS out!!!

Visa. It's everywhere you want to be. NOT!!!

If you wanted to go to the Beijing Olympics and had to put it on your Visa, you couldn't really afford to go, could you?

Wednesday, June 17, 2009

Sad News in Music

The Ventures guitarist Bob Bogle dies at 75

LOS ANGELES (Reuters) – Pioneering guitarist Bob Bogle, whose rock-instrumental band the Ventures scored a pair of hits in the 1960s with "Walk, Don't Run" and "Hawaii Five-O," has died, the group said on Tuesday. He was 75. Bogle died on Sunday of non-Hodgkin's lymphoma at a hospital after falling ill at his home in Vancouver, Washington, according to bandmate Don Wilson. The Ventures were "the most popular instrumental rock 'n' roll band of all time" and are worshiped as "gods" in Japan, rocker John Fogerty said at the band's Rock and Roll Hall of Fame induction last year. Influenced by the likes of Les Paul and Chet Atkins, the Ventures helped pave the way for surf music, and sent 38 albums into the pop charts between 1960 and 1972. They continue to perform to this day with a slightly different lineup.

I love the twangy surf-guitar sound. I prefer the older tunes. Here is a video of the Ventures performing the "Hawaii Five-0" theme (I don't see the horn section anywhere)!

Here is another favorite: "Walk, Don't Run"

"Wipeout" Originally by the Surfaris. (Jan and Dean and the Beach Boys also covered this classic).

Lastly an all-time favorite: "Pipeline"

Tuesday, June 16, 2009

Must Read !

Tight Spot for Fed, Blind Spot for Investors

Housing Recovery!

Well, maybe not so much...

Funny how misleading it is when they "forget" to mention that housing starts *always* pick up in the spring.

This is not unlike how river flows increase every spring as the snow melts (Look Maw, the river is up and so the drought must be over!!!)

For realistic comparison purposes, it's best to compare housing starts for the month with the same month of the previous year to eliminate normal seasonal swings. Look for the bold text in the article below if you want clarity rather than spin.

Below the article is a chart with a tiny circle showing the true housing activity level this article refers to...

Plucked from the Yahoo headlines.

May housing construction jumps by 17.2 percent

May housing construction climbs by largest amount in 3 months, building permits also rise

* Martin Crutsinger, AP Economics Writer
* On Tuesday June 16, 2009, 9:02 am EDT

WASHINGTON (AP) -- Construction of new homes jumped in May by the largest amount in three months, an encouraging sign that the nation's deep housing recession was beginning to bottom out.

The Commerce Department said Tuesday that construction of new homes and apartments jumped 17.2 percent last month to a seasonally adjusted annual rate of 532,000 units. That was better than the 500,000-unit pace that economists had expected and came after construction fell in April to a record low of 454,000 units.

In another encouraging sign, applications for building permits, seen as a good indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

The better-than-expected rebound in construction was the latest sign that the prolonged slump in housing is coming to an end, which would be good news for the broader economy.

The current recession -- the longest since the Great Depression -- was triggered by a collapse in the housing market that led to soaring loan losses and a banking system crisis. A healthy home market is needed to support an economic recovery.

President Barack Obama is scheduled to unveil on Wednesday the administration's plan to overhaul financial regulation in an effort to crack down on the lending abuses that triggered the most severe upheaval in the nation's financial system in seven decades.

Even with the encouraging news, analysts don't expect a quick rebound in housing, since the economy is still shedding jobs and home prices are falling in many places, making people hesitant to commit to buying a new home.

Many economists say home construction likely will stop falling in the current quarter but any sustained rebound isn't expected to take hold until next spring. That's partly due to the huge overhang of unsold homes and a record wave of mortgage foreclosures dumping more unsold homes on the market.

With foreclosures and other distressed properties for sale at deep discounts, builders often can't compete. Rather than launching new developments, they are waiting for signs of a broader recovery. Many economists believe that home prices will keep falling until next spring and that sales won't start to show significant gains until the summer of 2010.

The 17.2 percent rise in housing construction for May still left activity 45.2 percent below where it was a year ago.

The jump reflected a 7.5 percent rise in construction of single-family homes, the third consecutive increase in this critical segment of the market.

Construction of multifamily units rose 61.7 percent in May to an annual rate of 131,000 units. This volatile part of the market plunged 49.4 percent in April.

Construction rose nationwide led by a 28.6 percent surge in the West. Construction rose 6.8 percent in the South and 11.1 percent in the Midwest. The Northeast had the smallest gain of 2 percent in May.

The National Association of Home Builders said Monday its housing market index slipped by one point in June, reflecting many builders' uncertainty about when their business prospects might improve. The Washington-based trade association said the index fell to 15. It was the first decline since January, when the index dropped to a record low of 8.

That report was "proof that the rise in U.S. mortgage rates lately is dampening activity," Jennifer Lee, an economist with BMO Capital Markets, wrote in a research note.

Earlier this month, major builders Toll Brothers Inc. and Hovnanian Enterprises Inc. reported smaller quarterly losses, rosier sales trends and more prospective buyers visiting model homes. Industry executives, however, say the recession and fear of job losses are keeping many would-be homebuyers on the fence.

Here's the impressive new housing starts data (circled at bottom right) that this glowing article is based on.
(click image to enlarge)

Monday, June 15, 2009

Chart theft

I stole this chart from Clusterstock. I think it shows quite well the problem we are facing with housing. It's California-specific, but the problems are national, and to some extent, global.

You can see the short term effect when the first foreclosure moratorium went into effect in September of last year. You can also see that the long-term effect of the moratorium was negligible.

Houses are being foreclosed at roughly twice the pace of sales. Are banks holding all these foreclosed houses off the market, hoping (praying) for pricing to improve before they attempt to sell them? If so, are banks disclosing this fact in their financial statements?

What if mortgage rates spike and nobody can afford to buy all Repo'd McMansions we built over the past decade at prices the banks need to get?

Unarmed Robbery

From the Fresno Bee

Looks like the state is stealing from counties because the state cannot get its fiscal act together.

State may borrow millions from Fresno, Clovis
Published online on Sunday, Jun. 14, 2009
By Marc Benjamin / The Fresno Bee

Clovis may have to borrow from its own city funds to save jobs and keep its reserve intact for emergencies.

The state is considering borrowing $2 billion in property tax revenue from cities and counties -- a projected $9.24 million from Fresno and $1.66 million from Clovis -- to help close its budget gap.

With the state's financial noose tightening, cities are considering ways to find money to replace what could be lost. The city's building and equipment reserve and self- insurance funds are being targeted by Clovis officials, said Robert Woolley, the city's finance director.

He said they city already has tapped its self-insurance revenue to work on the city's landfill.

The possibility of borrowing likely will be discussed when the Clovis City Council holds budget hearings tonight.

Other issues to be discussed today will be ways to reduce a $5.3 million shortfall because of falling property- and sales-tax revenue.

The city is seeking 5.74% in concessions from employees, city administration and council members beginning July 1 to avoid layoffs.

The city also is proposing an early-retirement incentive for public safety employees to avert eight possible layoffs.

If the state does take property tax revenue, borrowing will reduce the need for more layoffs.

The city has about $3 million in emergency reserves, but that money -- about 6% of the city's general fund -- needs to be kept available if there is an emergency, such as a larger than expected need for police or firefighter overtime or other one-time emergency costs.

"It's hard to say what we are going to do, whether we are going to have to make more drastic cuts," said Clovis Mayor Harry Armstrong, a League of California Cities board member. "It doesn't look good. Everyone is trying to pull a genie out of the bottle."

Fresno is in the same boat, proposing $26.8 million in cuts this year and next year to make up for a $21.2 million revenue decline since last year, said Renena Smith, Fresno's budget director.

Fresno Police Officers Association members are considering giving up a 2% salary increase for the fiscal year that begins July 1. Members also would have to accrue more than twice as many holiday hours before they could cash them in for pay.

"We will have to do borrowing of some sort," Smith said. "We have actually planned for that, but the loss of cash is not going to help our situation any."

Fresno's cuts take into account the revenue decline, costs for retirement contributions and money for borrowing to pay for loans if the state takes property tax revenue.

"It's a similar approach many cities are evaluating as the state looks to take billions of dollars to finance its deficit," said Michael Coleman, a financial adviser with the League of California Cities. "If [cities] have other funds they can borrow from on a short-term basis and feel confident those funds can be re-paid, then that's a perfectly reasonable thing to do."

And property taxes are not the only item on the table for the state. Another $1.6 billion of money used for street maintenance and construction could be tapped, too, Coleman said.

If Clovis borrows from itself, the plan is to return money at an interest rate the city would have received if the money remained invested.

That interest rate would be lower than going to a lender, City Manager Kathy Millison said.

Another option may be available, allowing communities to pool property tax revenues through a state agency in exchange for an up-front payment from a lender that would take a percentage, Coleman said.

In 2005, during another state financial crisis, cities faced losses in vehicle- license funding. Under a statewide authority, cities were given 92% of the money up front and investors took the risk that the state would pay back 100% of the amount plus interest.

Coleman said times are different now and investors may not be inclined to bank on California's ability to pay that money back with interest.

With the state's bond rating taking a beating, Coleman said creditors have their doubts. Even if they do agree to a similar program, lenders may offer less than 92% of the amount.

Monday, June 8, 2009

Why doesn't right now "feel" like the Great Depression?

From commenter "Shargash" over at Zero Hedge

I'm convinced that the social safety net is the main reason a lot of people don't realize we're in a depression. None of it (social security, food stamps, unemployment insurance, etc) existed at the start of the Great Depression. The safety net now accounts for 16.2% of income. It is probably an even higher percentage of consumer spending, as that kind of money tends to be spent as soon as people receive it.

And a follow-up comment:

IMO, without food stamps, unemployment insurance, and social security/medicare, we would be totally screwed. The spending from these things is preventing the bottom from falling out of the economy. It is also preventing an enormous amount of misery which, besides the inherent badness of misery, would produce large amounts of social unrest.

My point was simply that things are worse than they "feel", because our meager social safety net is masking (for now, at least) how bad things really are. Also, one of the big dangers going forward is that our budget woes may cause government to cut back on social programs, just as they need to be increased. This is happening already in California.

Happily the internet has arrived! Many states now require unemployment benefits to be applied for online. That should prevent scenes like the following from occurring at most unemployment offices. This is important, as 26 million Americans are currently under or unemployed.

Sunday, June 7, 2009

Milk data

I have been curious about the distress that the dairy industry is in, as opposed the the consistent prices I see in grocery stores for dairy products. Typically when there is a glut of an item, the price drops, and demand increases due to the low pricing. It's an automatic self-regulating mechanism.

However something appears to be broken between wholesale prices farmers are paid for dairy products, and what the public is charged at retail. Below is a brief description of the different classifications of dairy products, and how the prices are set at the wholesale level in California. Courtesy of the California Department of Food and Agriculture

Class Prices:
To promote stability in the dairy industry, California’s milk marketing program establishes minimum prices that processors must pay for fluid grade or Grade A milk received from dairy farmers based on end product use. These prices are established within defined marketing areas where milk production and marketing practices are similar.

Currently, California operates its milk pricing plan with two marketing areas: Northern California and Southern California. Each marketing area has a separate but essentially identical Stabilization and Marketing Plan. Each plan provides formulas for pricing the five classes of milk. In general, the classes and the products they contain are:

Class 1: Milk used in fluid products.
Class 2: Milk used in heavy cream, cottage cheese, yogurt and sterilized products.
Class 3: Milk used in ice cream and other frozen products.
Class 4a: Milk used in butter and dry milk products, such as nonfat dry milk.
Class 4b: Milk used in cheese, other than cottage cheese, and dry whey products.

Now have a look at this chart I made up based on pricing provided by

From what I can see, pricing has dropped about 50% in this period. However according to the Bureau of Labor Statistics (BLS), prices that consumers PAID for milk has only dropped 5%.

Here's the reason why the self-correcting market pricing mechanism of supply and demand is broken (it's Von's and Albertson's):

Milk prices, pour better or worse

In California, they're all over the map. What people pay is based on a complex combination of state regulations and retailing tactics.

Have you checked out the price of milk lately? Be prepared to be confused, baffled and amazed.

What people pay for milk in California is based upon a complex combination of state regulations and retailing strategy.

The state determines the minimum price that milk processors -- the companies that bottle milk or turn it into cheese and ice cream -- must pay farmers. The price fluctuates monthly based upon what butter, cheese and powdered milk sell for on commodity exchanges.

Retailers can set milk prices as high as they want, but state regulations prohibit them from selling milk below cost unless they can prove they are matching the price of a competitor.

Depending on the brand and how many cartons you want to purchase, you can pay anywhere from $2.70 to $6.99 for a single gallon of milk, and that's just at one grocery store -- Ralphs.

It doesn't stop there.

The Fresh & Easy Neighborhood Market chain was recently asking $2.99 for a gallon of fat-free milk and $3.18 for low-fat milk, but the price dropped to $3.08 for 2% and whole milk. It didn't charge extra for low-fat milk when purchased in a half-gallon carton.

"It's crazy," said Elisa Odabashian, director of the West Coast office of Consumers Union. "There is no reason why you should pay 50% to 100% more for what is basically the same product. The farmers aren't the ones getting the extra money. The retailers know that consumers just don't shop around for milk."

Consumers should pay attention in the dairy section, even if it just amounts to looking at the prices of the various brands where they shop, she said. It's one of the easiest ways to trim a grocery bill.

Saving just a couple of dollars a week on milk adds up to enough money to purchase about two tanks of gasoline over the course of a year, Odabashian said.

Lots of stores -- not just supermarkets -- sell milk. You can find it in Rite Aid, Target, Wal-Mart, Costco and gas station mini-marts, and the prices can be all over the map.

There are more than a dozen stores selling milk on a four-mile stretch of Los Alamitos Boulevard from Seal Beach to Hawaiian Gardens. They include small Latino grocers, multiple big-chain drugstores, large supermarkets and an upscale Sprouts Farmers Market natural food store. The price can double, depending on where you shop and how much you buy.

Saturday, June 6, 2009

Stealing an entire blog post...

... because it is that important. Article courtesy of VoxEU

This is not a "Great Recession". This is Great Depression #2.

Please read this article comparing global economic data now vs then. The obsessive and exclusive focus on the US has blinded us to how devastating this downturn really is.

A Tale of Two Depressions

Barry Eichengreen Kevin H. O’Rourke
4 June 2009

This is an update of the authors' 6 April 2009 column comparing today's global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion -- today's crisis is at least as bad as the Great Depression.

Editor’s note: The 6 April 2009 Vox column by Barry Eichengreen and Kevin O’Rourke shattered all Vox readership records, with 30,000 views in less than 48 hours and over 100,000 within the week. The authors will update the charts as new data emerges; this updated column is the first, presenting monthly data up to April 2009. (The updates and much more will eventually appear in a paper the authors are writing a paper for Economic Policy.)

New findings:

  • World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.
  • World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.
  • There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.
  • The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.
  • Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.

The facts for Chile, Belgium, Czechoslovakia, Poland and Sweden are displayed below; note the rebound in Eastern Europe.

Updated Figure 1. World Industrial Output, Now vs Then (updated)

Updated Figure 2. World Stock Markets, Now vs Then (updated)

Updated Figure 3. The Volume of World Trade, Now vs Then (updated)

Updated Figure 4. Central Bank Discount Rates, Now vs Then (7 country average)

New Figure 5. Industrial output, four big Europeans, then and now

New Figure 6. Industrial output, four Non-Europeans, then and now.

New Figure 7: Industrial output, four small Europeans, then and now.

Start of original column (published 6 April 2009)

The parallels between the Great Depression of the 1930s and our current Great Recession have been widely remarked upon. Paul Krugman has compared the fall in US industrial production from its mid-1929 and late-2007 peaks, showing that it has been milder this time. On this basis he refers to the current situation, with characteristic black humour, as only “half a Great Depression.” The “Four Bad Bears” graph comparing the Dow in 1929-30 and S&P 500 in 2008-9 has similarly had wide circulation (Short 2009). It shows the US stock market since late 2007 falling just about as fast as in 1929-30.

Comparing the Great Depression to now for the world, not just the US

This and most other commentary contrasting the two episodes compares America then and now. This, however, is a misleading picture. The Great Depression was a global phenomenon. Even if it originated, in some sense, in the US, it was transmitted internationally by trade flows, capital flows and commodity prices. That said, different countries were affected differently. The US is not representative of their experiences.

Our Great Recession is every bit as global, earlier hopes for decoupling in Asia and Europe notwithstanding. Increasingly there is awareness that events have taken an even uglier turn outside the US, with even larger falls in manufacturing production, exports and equity prices.

In fact, when we look globally, as in Figure 1, the decline in industrial production in the last nine months has been at least as severe as in the nine months following the 1929 peak. (All graphs in this column track behaviour after the peaks in world industrial production, which occurred in June 1929 and April 2008.) Here, then, is a first illustration of how the global picture provides a very different and, indeed, more disturbing perspective than the US case considered by Krugman, which as noted earlier shows a smaller decline in manufacturing production now than then.

Figure 1. World Industrial Output, Now vs Then

Source: Eichengreen and O’Rourke (2009) and IMF.

Similarly, while the fall in US stock market has tracked 1929, global stock markets are falling even faster now than in the Great Depression (Figure 2). Again this is contrary to the impression left by those who, basing their comparison on the US market alone, suggest that the current crash is no more serious than that of 1929-30.

Figure 2. World Stock Markets, Now vs Then

Source: Global Financial Database.

Another area where we are “surpassing” our forbearers is in destroying trade. World trade is falling much faster now than in 1929-30 (Figure 3). This is highly alarming given the prominence attached in the historical literature to trade destruction as a factor compounding the Great Depression.

Figure 3. The Volume of World Trade, Now vs Then

Sources: League of Nations Monthly Bulletin of Statistics,

It’s a Depression alright

To sum up, globally we are tracking or doing even worse than the Great Depression, whether the metric is industrial production, exports or equity valuations. Focusing on the US causes one to minimise this alarming fact. The “Great Recession” label may turn out to be too optimistic. This is a Depression-sized event.

That said, we are only one year into the current crisis, whereas after 1929 the world economy continued to shrink for three successive years. What matters now is that policy makers arrest the decline. We therefore turn to the policy response.

Policy responses: Then and now

Figure 4 shows a GDP-weighted average of central bank discount rates for 7 countries. As can be seen, in both crises there was a lag of five or six months before discount rates responded to the passing of the peak, although in the present crisis rates have been cut more rapidly and from a lower level. There is more at work here than simply the difference between George Harrison and Ben Bernanke. The central bank response has differed globally.

Figure 4. Central Bank Discount Rates, Now vs Then (7 country average)

Source: Bernanke and Mihov (2000); Bank of England, ECB, Bank of Japan, St. Louis Fed, National Bank of Poland, Sveriges Riksbank.

Figure 5 shows money supply for a GDP-weighted average of 19 countries accounting for more than half of world GDP in 2004. Clearly, monetary expansion was more rapid in the run-up to the 2008 crisis than during 1925-29, which is a reminder that the stage-setting events were not the same in the two cases. Moreover, the global money supply continued to grow rapidly in 2008, unlike in 1929 when it levelled off and then underwent a catastrophic decline.

Figure 5. Money Supplies, 19 Countries, Now vs Then

Source: Bordo et al. (2001), IMF International Financial Statistics, OECD Monthly Economic Indicators.

Figure 6 is the analogous picture for fiscal policy, in this case for 24 countries. The interwar measure is the fiscal surplus as a percentage of GDP. The current data include the IMF’s World Economic Outlook Update forecasts for 2009 and 2010. As can be seen, fiscal deficits expanded after 1929 but only modestly. Clearly, willingness to run deficits today is considerably greater.

Figure 6. Government Budget Surpluses, Now vs Then

Source: Bordo et al. (2001), IMF World Economic Outlook, January 2009.


To summarise: the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.


Eichengreen, B. and K.H. O’Rourke. 2009. “A Tale of Two Depressions.” In progress.

Bernanke, B.S. 2000. Bernanke, B.S. and I. Mihov. 2000. “Deflation and Monetary Contraction in the Great Depression: An Analysis by Simple Ratios.” In B.S. Bernanke, Essays on the Great Depression. Princeton: Princeton University Press.

Bordo, M.D., B. Eichengreen, D. Klingebiel and M.S. Martinez-Peria. 2001. “Is the Crisis Problem Growing More Severe?” Economic Policy32: 51-82.

Paul Krugman, “The Great Recession versus the Great Depression,” Conscience of a Liberal (20 March 2009).

Doug Short, “Four Bad Bears,” DShort: Financial Lifecycle Planning” (20 March 2009).

This article may be reproduced with appropriate attribution. See Copyright (below).

Tuesday, June 2, 2009

How we got here

This chart comes from the weblog called "Brad Setser: Follow the Money". Notice that household borrowing has NEVER gone negative in the entire 55 year period. Prior to this one, there have been 11 post-war recessions, and none of them caused household borrowing to go negative - Until now.

I have been posting charts from time to time, each showing very long term trends with recent behavior that is highly unusual. This recession is so bad that the financial press has taken to calling it "The Great Recession". What is it that makes this particular recession so different from the other post-war recessions? Let's take a little time to learn, using a video and some charts.

First, the video. It's long, but worth every second. Elizabeth Warren lecturing in 2005, when economic times were "wonderful". The introductory chat ends and the lecture begins at about 6:20. If you don't take time to watch this, you won't understand how your country arrived where it is today.

Link Here

I think that Elizabeth Warren has done a masterful job of explaining how US families managed to arrive at their fragile condition, and how our pathetic medical uninsurance system contributes to it. But I suspect that her results were influenced heavily by the time-frame of her research. She did this research and lecture at the pinnacle of the greatest housing bubble of all time (see below).

I believe that the housing bubble is the primary reason why so many people were (and are) so debt-ridden. They purchased housing that was unaffordable, without ever pausing to question the assumption that their "housing investment" would continue to increase in value. I would go further and say that few of the purchases of overpriced housing were even necessary. Renting was and always has been an option. Just ask those who have been evicted.

People also never questioned that their pensions, jobs, and 401(k)s might be in a great deal of jeopardy either. Why is it that everyone felt so smug about the smooth continuity these things? Why did magical thinking overwhelm financial common sense?

Let's face it: The world is not as stable and benign as we would like to believe, and our leaders would like us to believe. If we are wise, we would be as prepared as possible for events that we cannot foresee. (And the housing bust wasn't even one of these unforeseeable events!)

Check out the chart below. Was it really necessary for Americans to do this to themselves??? As much as I admire Elizabeth Warren and her work, I have to say no. This entire debt orgy was utterly unnecessary.

In reality, things are considerably worse than this. A lot of people are savers (in spite of tax and interest rate disadvantages). A lot of people own their houses outright, so they have no mortgage to default on. That means that the non-savers and people with mortgages are really in VERY bad shape.

We have looked at how US savings deteriorated and debt built up. All the while no one ever worried that the world often is more volatile than we tend to believe. It's now time to share a fable from Aesop:

Once there lived an ant and a grasshopper in a grassy meadow.

All day long the ant would work hard, collecting grains of wheat from the farmer's field far away. She would hurry to the field every morning, as soon as it was light enough to see by, and toil back with a heavy grain of wheat balanced on her head. She would put the grain of wheat carefully away in her larder, and then hurry back to the field for another one. All day long she would work, without stop or rest, scurrying back and forth from the field, collecting the grains of wheat and storing them carefully in her larder.

The grasshopper would look at her and laugh. 'Why do you work so hard, dear ant?' he would say. 'Come, rest awhile, listen to my song. Summer is here, the days are long and bright. Why waste the sunshine in labour and toil?'

The ant would ignore him, and head bent, would just hurry to the field a little faster. This would make the grasshopper laugh even louder. 'What a silly little ant you are!' he would call after her. 'Come, come and dance with me! Forget about work! Enjoy the summer! Live a little!' And the grasshopper would hop away across the meadow, singing and dancing merrily.

Summer faded into autumn, and autumn turned into winter. The sun was hardly seen, and the days were short and grey, the nights long and dark. It became freezing cold, and snow began to fall.

The grasshopper didn't feel like singing any more. He was cold and hungry. He had nowhere to shelter from the snow, and nothing to eat. The meadow and the farmer's field were covered in snow, and there was no food to be had. 'Oh what shall I do? Where shall I go?' wailed the grasshopper. Suddenly he remembered the ant. 'Ah - I shall go to the ant and ask her for food and shelter!' declared the grasshopper, perking up. So off he went to the ant's house and knocked at her door. 'Hello ant!' he cried cheerfully. 'Here I am, to sing for you, as I warm myself by your fire, while you get me some food from that larder of yours!'

The ant looked at the grasshopper and said, 'All summer long I worked hard while you made fun of me, and sang and danced. You should have thought of winter then! Find somewhere else to sing, grasshopper! There is no warmth or food for you here!' And the ant shut the door in the grasshopper's face.

It is wise to worry about tomorrow today.

General Motors: Over the cliff

Best of luck to all those employed directly or indirectly by GM at getting other work. Best of luck to those who were anticipating a pension from GM as well.

Wednesday, May 20, 2009

Fresh & Easy

I've noticed a large number of new grocery stores opening in town recently named Fresh & Easy. I've never seen such an aggressive business expansion in my life, let alone an aggressive expansion during a global economic downturn that rivals the Great Depression.

I noticed that it's taking Fresh & Easy quite a long time to open a couple of their stores. One that I am aware of is on Stockdale, and the is other on Coffee. They remain empty, in spite of the fact that the buildings have been ready for several months now. Curious why they would spend money to set up a storefront, only to leave it empty, I decided to do a little research on what Fresh & Easy Neighborhood Market is all about. Hint: Perhaps it should be spelled Neighbourhood ;)

The first place I visited was the website for Fresh & Easy Neighborhood Market. The website has such a calculated earth-muffin "green" look it made me laugh a little (Really. check it out!). I guess they are going after the Trader Joe's crowd. Trader Joe's is "Your Neighborhood Grocery Store", in case you weren't aware of that fact. Such nice neighborly companies! Gotta love that marketing.

Apparently all is not well in the world of Fresh & Easy "Neighborhood" stores, however, because the second link I located was this one: Someone has an axe to grind against Fresh & Easy Neighborhood Markets, and their parent company, Tesco., by the way, has some tiny 2pt font at the very bottom admitting that "Fresh and Easy Facts is a project of grocery workers, food industry professionals and the United Food and Commercial Workers."

Whatever Tesco/Fresh & Easy has done, they have angered unions enough to hire Blackrock Associates, an online marketing and fund-raising firm, to oppose expansion. I'd suspect it has something to do with a non-union workforce, in which case you would expect much cheaper groceries.

Back to Tesco, though. Let me just rip this straight from wikipedia and brutally expose you to the concept of a British-based mega-corporate "Neighbourhood Market".

"Tesco plc is a British-based international grocery and general merchandising retail chain. It is the largest British retailer by both global sales and domestic market share with profits exceeding £3 billion. Currently the third largest retailer based on revenue, Tesco is second only to Wal-Mart in terms of profit"

There you have it. "Neighbourhood" Markets will never be the same, with a WalMart-like entity playing the game.

The Upshot: If you just want cheap groceries, and aren't swayed by the earth-muffin marketing, shop at WinCo. At least they aren't a foreign-based megacorp masquerading as a 'green' Mom & Pop store.

If you want a REAL (non-corporate) neighborhood grocery store, shop at the Green Frog Market. Just don't shop at Trader Joe's or Fresh & Easy, deluding yourself that you are supporting a real Mom & Pop store. You are not.

The pathetic thing about this entire blog post is that as much as I learned about Fresh & Easy/Tesco, I was unable to learn the one thing I wanted to learn: Why haven't the stores opened?

Monday, May 18, 2009

Jaw-dropping chart

Courtesy of Chart of the Day

According to the chart itself, this is the inflation adjusted earnings of the S&P 500 going back to 1935. This is an unprecedented crash in corporate earnings. It also explains why companies are shedding employees. They cannot afford to keep them with no earnings to pay them. Just in case you were confused, and wondering if things are getting better...

I have been surprised by the legs of the recent rally in the stock market. The length and breadth have been decent, although "the surge" has been on low enough volume to make it suspect.

Moreover, I have been deeply skeptical about what job growth/income is going to drive the economy into the positive territory. Most of the experts all seem to see positive growth in the second half of this year.

From what rebound in jobs? Automotive? Housing construction? Newspapers? Retail shops? Government work? Casinos? Last time I checked, all these sectors of the economy (as well as many others not mentioned) were shedding jobs by the thousands.

Sunday, May 3, 2009

The most disturbing, manipulative commercial. Ever.

This one is from 2005 or 2006 I believe. This would have been about the time people were questioning the wisdom of overpaying for a house.

It kinda makes you wonder what Suzanne's research is pointing to these days. And where destiny has led the apocryphal Suzanne...

The Californian does SJV Bank

San Joaquin reports quarterly loss
BY JOHN COX, Californian staff writer Friday, May 01 2009 06:35 PM

Bank officials said the company would have earned a profit of more than $2 million if not for the $10.69 million it deposited in a reserve fund to buffer it against the declining value of residential property it holds as collateral in loans to local homebuilders.

Hahaha. I like this!

In a similar vein, I would have much more money in my checking account at the end of each month, if I didn't have to set aside money to pay bills.

Saturday, May 2, 2009

Enabling pain

Apologies for the lack of posting recently. I have been working 60+ hour work weeks since the end of March. Between that and family obligations, there has been precious little time or energy to blog. I anticipate a bit better posting frequency after mid-May. Thanks for your patience!


San Joaquin Bancorp Reports 1st Quarter Results

Part of what stood out was this section. They wrote it - I merely copy/paste, and add a little bold text to help focus the mind:

Asset Quality
“Classified loans” are the loans and other credit facilities that we consider to be of the greatest risk to us and, therefore, they receive the highest level of attention by our account officers and senior credit management officers. Classified loans include both performing and nonperforming loans. During the 1st quarter of 2009, the Company continued to closely monitor all of its more significant loans, including all loans previously classified, due to heightened credit risk primarily in the real estate development market within the Company’s primary market area, concentration risks, and more general concerns about the economy.

At March 31, 2009, the Company had $105.5 million in classified loans compared to $20.0 million at March 31, 2008. Of these loans, at March 31, 2009, $43.9 million were accruing loans that were not impaired and $61.6 million were deemed impaired. A loan “impairment” is a classification required under generally accepted accounting principles when it is considered probable that we may be unable to collect all amounts due according to the contractual terms of our loan agreement. Impaired loans can be further categorized as performing or non-performing. Non-performing loans include loans past due 90 days or more that are still accruing interest and nonaccrual loans. At March 31, 2009, we had $45.1 million in non-performing impaired loans. This compares to $5.1 million in non-performing loans at March 31, 2008.

Non-performing loans as a percentage of total assets at March 31, 2009 and 2008 were 5.07% and 0.56%, respectively. The Company had restructured loans, included in impaired loans, of $1.6 million at March 31, 2009 compared to no restructured loans at March 31, 2008. There were no foreclosed assets at either reporting date.

Included in the $61.6 million balance of impaired loans at March 31, 2009 are $43.5 million of construction and land development loans in Kern County, which were previously identified in the 4th quarter of 2008 as “impaired” due to declines in real estate collateral values associated with those loans. Compared to the impaired loan balance of $66.9 million reported for the period ending December 31, 2008, impaired loans for the 1st quarter of 2009 decreased by $5.3 million from payoffs of certain of those loans. However, due to further declines in real estate values associated with existing impaired loans that were identified in recent appraisal information, the Company allocated an additional $8.9 million as a specific valuation reserve for the 1st quarter of 2009, which is included in the total amount of the Company’s allowance for loan losses, which is discussed further herein.

Quite the turnaround from a year ago.

Also worth noting: The requirements set forth in the Federal Reserve Bank's Enforcement Action (April 7, 2009) occurred right after the reporting period (Jan1-March 31, 2009) ended. Funny, that.

Inquiring minds might be wondering if the FRB had any influence on the fact that the bank set aside $10,688,000 for loan loss reserves in Q1 2009, as opposed to the paltry $110,000 set aside in Q1 2008. Bakersfield Bubble pointed out one year ago that considering the epic financial crisis banks were facing, the tiny provisions for losses seemed a bit odd compared to their peers.

It will be interesting to see:
  • How the Q1 results affect this lenders' stock price on Monday, and
  • Whether meeting the upcoming requirements of the FRB Enforcement Action will affect the lender in a positive or negative way in Q2.

Tuesday, April 21, 2009


I suppose that I shouldn't be surprised. What I used to think was a vacant lot across from the Quinn building on Rosedale Hwy is now full of unused Caterpillar earthmoving rental equipment.

CHICAGO (Reuters) - Caterpillar Inc (CAT - News), the world's largest maker of construction and mining equipment, reported its first quarterly loss in 17 years on Tuesday, pulled into the red by more than half a billion dollars in charges from its wave of recession-triggered layoffs.

The company also slashed its full-year earnings and sales forecast, sending its shares lower in early trading.

Caterpillar, which has eliminated about 25,000 full-time and temporary positions over the past few months, posted a first-quarter loss of $112 million, or 19 cents a share, compared with a year-earlier profit of $922 million, or $1.45 a share.

Sales fell 22 percent to $9.2 billion.

Caterpillar said it now expects full-year earnings of $1.25 a share, before restructuring costs, on sales of $31.5 billion to $38.5 billion. Three months ago, the company forecast profit of $2.50 a share, before restructuring, on sales of $36 billion to $44 billion.

The company blamed the cut, and the wide estimate range, on "the high degree of uncertainty" surrounding the global economy, the timing and impact of stimulus measures around the world, and the ability of its dealers to reduce inventory.

Shares of Caterpillar were down about 5 percent at $28.93 in trading before the market opened.

Sales of the company's distinctive yellow construction and mining machinery tumbled 29 percent overall, led by a 46 percent decline in sales in Europe, Africa and the Middle East as a result of lower commodity prices and lower oil production,

The results reflected $558 million in charges Caterpillar booked during the quarter as a result of the layoffs.

Stripping out those costs, Caterpillar said it made 39 cents a share.

On that basis, the results were better than expected. Analysts, on average had expected Caterpillar to report a profit of 2 cents a share, according to Reuters Estimates.

But despite the earnings beat, Jim Owens, the company's chairman and chief executive officer, warned in a statement that it was "extremely difficult to know how our customers will respond during the remainder of 2009."

"They gave you a better first quarter, but it's going down the rest of the year" said Eli Lustgarten at Longbow Research.

"They're trying to level out and hold things together and stay profitable for the year before charges. But the first quarter is the best of the year and it's clearly getting weaker and there's still uncertainty about next year."

Caterpillar said economic activity had dropped over the past six months but that the rate of decline seemed to be moderating. Even so, it predicted world output would continue to fall in the near term.

It said it was taking several steps to conserve cash, including suspending stock repurchases and cutting capital expenditures by $3 billion.

It also said additional job cuts might be necessary, but that they "would likely be handled with flexible and cost-effective rolling layoffs" rather than permanent separations.

"In this environment, liquidity is a major focus," Owens said, "and as a result we've decided to hold more cash than usual."

(Reporting by James B. Kelleher)

Another not so good trend...

The Port of Long Beach is a major import-export point for the US. It should serve as a decent barometer of trade flows between the US and its trading partners.

The Port of Long Beach has a website with monthly data going back to 1995, so here is a chart I made with the latest available data (March 2009).

(click to enlarge)

I like this barometer better than the erratic stock and housing markets. The housing market is in disarray and the stock market is driven by a) government intervention and b) huge institutions trying to rub nickels together and make millions.

This import/export volume rather, shows data on millions of items manufactured, shipped, and purchased in the real world by everyday people. And it has collapsed to 1997 levels.

Thursday, April 16, 2009

Woah! Never saw this one coming...

We didn't see this one coming, did we?

The owner of Valley Plaza mall has declared bankruptcy

General Growth files for bankruptcy protection

NEW YORK (Reuters) – General Growth Properties Inc (GGP.N), the second largest U.S. mall owner, filed for bankruptcy protection on Thursday in one of the biggest real estate failures in U.S. history.

Ending months of speculation, the Chicago-based mall owner, which listed total assets of $29.56 billion and total debts of $27.29 billion, sought Chapter 11 bankruptcy protection from creditors along with 158 of its more than 200 U.S. malls, while it seeks to restructure some of its debt.

Since November, General Growth has warned that it may have to seek protection from its creditors when it was unable to refinance maturing mortgages.

The company said in a statement that it planned to continue exploring strategic alternatives during the bankruptcy protection, from which it is seeking to emerge as quickly as possible through a reorganization that preserves its national business.

General Growth's filing in the U.S. bankruptcy court in Manhattan makes it one of the largest nonfinancial companies to succumb to the financial crisis in the U.S.

Before the bankruptcy protection filing, the company had defaulted on several mortgages as well as a series of bonds. It has also put several of its flagship properties up for sale.

Analysts and other real estate experts have speculated that mall owners Simon Property Group Inc (SPG.N) and Westfield Group (WDC.AX) would be interested in buying some of General Growth's assets from bankruptcy.

General Growth has been generating enough cash flow for the company to pay monthly interest costs and expenses, but it has been unable to refinance the principal of loans and mortgages as they come due because banks and other financing sources have been reluctant to issue large mortgages and loans.

"Our core business remains sound and is performing well with stable cash flows," General Growth Chief Executive Adam Metz said in a statement.

"While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11."

General Growth has received a commitment for a debtor-in-possession financing facility of about $375 million from Pershing Square Capital Management LP, as agent.

The hedge fund run by William Ackman also owns about 25 percent of General Growth shares.

Ackman, who has been urging General Growth to file for bankruptcy protection, described it as "a great company" with "phenomenal assets" at a conference on April 2.

At the end of 2008, about $15.17 billion of General Growth's debt was comprised of mortgage loans that had been securitized into commercial mortgage-backed securities, according to research firm Trepp.

"This underscores that real estate companies are most vulnerable to refinancing risk rather than market risk," said Nomura's London-based property analyst Mike Prew. "The U.S. insolvency process is, we think, a cure for General Growth's liquidity problems, which stem from external factors, and not a traditional bankruptcy per se."

Shares of General Growth have deteriorated as the credit crisis worsened. They closed at $1.05 in the United States on Wednesday, making the company's market capitalization $283.90 million, down from $11.l8 billion when it traded at a 12-month high of $44 in May.

So far, fallout from the General Growth bankruptcy has not hit European mall owners. Europe's biggest mall owner, Unibail Rodamco (UNBP.PA), was trading up 2 percent at 118.69 euros, while Anglo-French retail specialist Hammerson (HMSO.L) edged up 0.2 percent to trade at 307.75 pence.


The Chicago-based company started when brothers Martin and Matthew Bucksbaum decided to expand the family grocery business and build a shopping center in Cedar Rapids, Iowa, in 1954.

It grew by new development as well as by acquisitions, the largest being the 2004 purchase of Rouse Cos for $14.2 billion. Rouse brought the company 37 of the highest-quality and most valuable malls in the country, including Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston.

General Growth's refinancing troubles in the frozen credit markets led to the firing of former Chief Financial Officer Bernard Freibaum in October. John Bucksbaum, who succeeded his father Matthew in 1999, stepped down as chief executive the same month, although he remained chairman.

In recent months, the new management team under Metz has been wrestling with loan after loan coming due, bargaining for extensions. As of the end of 2008, General Growth had $1.18 billion in past due debt and an additional $4.09 billion of debt that could be accelerated by its lenders.

Earlier this month, the company had been seeking to restructure $2.25 billion of Rouse bonds, offering bondholders a percentage on their bonds if they allowed the company to skip interest payments and principal until the end of the year. But the company failed to garner the necessary support it needed.

General Growth said several of its other subsidiaries in addition to the malls were also placed into bankruptcy protection, while several properties that are part of joint ventures were unaffected.

The company has hired law firms Weil Gotshal & Manges and Kirkland & Ellis to represent it, according to court papers.

The case is In re: General Growth Properties Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-11977.

(Reporting by Ilaina Jonas, Emily Chasan and Sinead Cruise in London; editing by Elaine Hardcastle and Lisa Von Ahn)

Friday, April 10, 2009

Enabling Behavior

Here is a discussion of Enabling Behavior. Now think of this behavior in the context of enabling massive amounts of debt rather than in the context of enabling someone addicted to drugs or alcohol.

Kudos to the Californian for keeping an eye on these financial clowns.

Here is a .pdf of the Federal Reserve Bank enforcement action against SJ Bank.

San Joaquin Bank, lender for many of the Central Valley's vacant strip malls, appears to have caught the attention of regulators. I have been wondering about these guys for quite a while now. Actually I have been wondering for a couple of years, but only started this blog and posted about it in January.

To provide timely information to blog readers here is an interesting chart of SJ Bancorp, courtesy of Yahoo Finance: Please note the chart does not indicate recent action. Shares are trading at $4.20, so we are actually off the bottom of this chart by two bucks.

And now... Courtesy of the Californian:

Federal crackdown causes local bank's stock to fall
CFO says actions are intended to 'maintain already sound ' status
Courtenay Edelhart Thursday, Apr 09 2009 07:26 PM

State and federal regulators cracked down on Bakersfield’s San Joaquin Bank Thursday, demanding tougher oversight, improved risk management and set urgent
deadlines for cleaning up troubled loans.

The new expectations were laid out in a 15-page written agreement released by the Federal Reserve Board of San Francisco that puts teeth behind an oral agreement made in November. Spooked investors dumped San Joaquin stock Thursday while the rest of the banking sector rallied.

San Joaquin’s price fell 36 percent to $4.20 a share in over-the-counter trading. Trading volume surged to 66,410 shares, more than 40 times the average daily amount.
The Fed did not respond to repeated requests for an interview. The board usually does not comment on individual enforcement actions.

San Joaquin officials insist their bank is strong and that such written agreements are not unusual. “It’s not to rectify or improve our financial soundness, but it’s to maintain the already sound status of the bank,” chief financial officer Steve Annis said. “And we agree. In the environment in which we find ourselves, we want to do everything we possibly can to protect our customers and our shareholders.”

The Fed agreement gives San Joaquin two months to implement most reforms. Some changes, though, must happen sooner. The bank has only 10 days either to charge off or collect problem loans that have not previously been classified as troubled, for instance.

The time frame won’t be a problem, chief executive Bart Hill said, because the bank has been addressing the issues raised since late last year. “Because of the way the government works, it’s taken this amount of time for them to make all this
information public,” he said. “But we’ve been talking about all this for months,
and the vast majority of the things they have asked for are either things that have been done for months or are almost completed.”

The bank has a new credit risk manager who just started last week, Hill said. Another person was hired to work in credit administration about six weeks ago, he said. The agreement prohibits San Joaquin from extending or otherwise modifying problem loans and bans the institution from taking on more debt. San Joaquin said it doesn’t generally borrow much anyway.

Nearly $90 million worth of troubled loans were on the bank’s books at the end of last year, with $43 million put into so-called “impaired” status during the fourth quarter alone, according to documents filed by the bank to the Securities and Exchange Commission.

Many borrowers secured loans with property, and that property is worth less since the real estate bubble burst. “We’re working through our loan portfolio,” Hill said. “We’ve already collected $12 million since Dec. 1. We’re making collections every month.” The Fed also asked San Joaquin to “review and revise” its allowance for loan and lease losses, a rainy day fund that can be drawn upon if loans go bad. Bank officials say they put money into the rainy day fund every year and wanted to set aside more during the real estate boom, but accounting rules prevented that. Those practices are “counter-cyclical,” Hill said. Banks ought to be able to set aside more when times are good, but regulations call for just the opposite.

The California Department of Financial Institutions, which is also listed on the enforcement action along with the Fed, said it doesn’t comment on active banks or regulatory orders, but could address general banking questions. “Raising capital helps provide a cushion during the housing market downturn and current economy, so it’s not uncommon for regulators to tell banks to increase their capital levels to help cushion any losses going forward,” department spokeswoman Alana Golden said in an e-mail.

The holding company of the bank, San Joaquin Bancorp, was profitable last year despite a spike in troubled loans during the fourth quarter, an annual report filed with federal regulators showed.

Tuesday, March 31, 2009

Jaw-dropper of the day

IBM sought a patent for software that maximizes US Government subsidies while outsourcing US workers.

The patent was withdrawn, likely due to publicity.

By Christine Young
Times Herald-Record
Posted: March 30, 2009 - 2:00 AM

As IBM was firing thousands of American workers last week, the U.S. Patent and Trademark Office published Big Blue's application to copyright a computerized system that calculates how to offshore jobs while maximizing government tax breaks.

Update: IBM withdraws its application, calling it an error.

In their application to patent a "method and system for strategic global resource sourcing," five Hudson Valley IBMers describe how it weighs such plans as "50 percent of resources in China by 2010," against such factors as labor costs, infrastructure and the "minimum head count to qualify for incentives."

The five Westchester County inventors, Ching-hua Chen-ritzo, Daniel Patrick Connors, Markus Ettl, Mayank Sharma, and Karthik Sourirajan, submitted the application to the patent office in September 2007, but it took a year and a half for that patent to be published online.

None could be reached by telephone Sunday except Ching-hua Chen-ritzo of Mahopac, who declined to comment, and attempts to reach IBM were unsuccessful.

Lee Conrad, national coordinator for Alliance@IBM, a group trying to unionize Big Blue, was stunned to learn of the application.

"This is obviously outrageous — a patent on how to offshore U.S. jobs," Conrad said. "IBM is obviously doing all it can to decimate the U.S. work force, and it is all the more reason why IBM should not get any tax breaks or stimulus money. They clearly are abandoning the U.S. work force."

The application says the system weighs moving into or out of a particular country against criteria such as wages, political systems, "incentive contracts" and the economic impact of "violating and/or satisfying those incentives."

In January, IBM reported that about 115,000, or 29 percent, of its global work force of about 400,000, is in the United States.

Sunday, March 29, 2009

A new bit of dirt about CALPERS

Posted by Tyler Durden at Zero Hedge

Zero Hedge will be on the blogroll from now on.

Today's required reading

The Quiet Coup

Now we know why the cops aren't going to come.

I will try to have a more local outlook in the near future!

Friday, March 27, 2009

Sen. Chris Dodd, (D) Connecticut

Lookin' good Chris...

It's always good to see how well our elected officials are are representing the good folks of America:

Top Contributors

Senator Chris Dodd 2003 - 2008

Citigroup Inc$316,494
United Technologies$264,400
SAC Capital Partners$248,500
American International Group$223,478
Royal Bank of Scotland$218,500
Bear Stearns$201,000
Goldman Sachs$180,200
Credit Suisse Group$157,050
Morgan Stanley$156,600
JPMorgan Chase & Co$134,050
Merrill Lynch$132,950
Lehman Brothers$122,300
Hartford Financial Services$117,150
KPMG LLP$116,650
General Electric$113,000
UBS AG$110,800
St Paul Travelers Companies$107,100
Travelers Companies$104,700
Deloitte Touche Tohmatsu$103,000
The Hartford$94,550

Tuesday, March 24, 2009

Interesting tidbit

Who gave these clueless guys control of our public employee's retirement money? Remember this post?

Courtesy of the Sacramento Bee:
State pension funds aim to lead suits against BofA

By Dale Kasler
Published: Tuesday, Mar. 24, 2009 - 12:00 am | Page 9B

California's two big public pension funds sought "lead plaintiff" status Monday in shareholder lawsuits against Bank of America over its controversial merger with Merrill Lynch.

If granted, the status would give the California Public Employees' Retirement System and California State Teachers' Retirement System considerable influence over the shareholder suits pending against BofA. It's expected that the various suits will be consolidated into one case.

BofA took over Merrill Lynch as the financial crisis gained steam last fall. After the deal closed, new information emerged suggesting that Merrill was in worse shape than previously believed.

The suits allege BofA misled its shareholders by not disclosing the depths of Merrill's problems while shareholders were considering whether to support the deal. The pension funds are seeking compensatory damages.

BofA's shares have fallen by about half since shareholders approved the deal Dec. 5; the stock closed Monday at $7.80, up $1.61, on the New York Stock Exchange.

"Our boards are very much wanting to hold Bank of America accountable," said CalSTRS spokeswoman Sherry Reser.

She said CalSTRS owned about 16.5 million shares of BofA as of last June, the latest figures available. CalPERS owns nearly 19 million shares, according to Thomson Financial.

Figuring out Geithner's Plan

A while back I posted about my Paradigm Shift.

At the time I pondered:
Suppose my Rite Aid stock purchase was instead a $500,000 house. Suppose further that I borrowed every bit of money (100% financing) to purchase my Rite Aid stock. Also suppose that the lender is willing to have my Rite Aid stock as full collateral on the loan I used to purchase the stock. And lastly of all, suppose that I am completely flippant and dismissive of debt, other than as it relates to my month-to-month carrying costs. My HOME is essentially a "casino investment".
There are some other less obvious consequences of 100% financing in a casino-environment. One of the consequences is that you are willing to bet more (i.e pay more for the house). Why not? It's financed with other people's money!

With easy access to borrowed money (also called leverage) you end up with bidding wars and overinflated prices. In short, a housing bubble.

Treasury Secretary Geithner's plan is to allow certain well-connected institutions to use up to 97% financing to purchase toxic assets from banks. From an outsider's perspective, it appears that the INTENT is to create a financial bubble in toxic MBS.

Taxpayers will provide the leverage, and investors will reap the profits. Should this program fail to produce a MBS bubble, taxpayers will shoulder 97% of the losses.

I read that to invest in the Treasury program, one must have a minimum of $10 billion in assets. So truly only a handful of firms can drink this Treasury-provided champagne. The rest of us will be picking the grapes and trimming the vineyards.

Your standard of living

Very highly respected economists have been saying for some time that the standard of living for many Americans will have to fall. This is due to loss of wealth as asset values in housing and 401(k)s fall.

If you have been leasing a Mercedes and doing serial refinancing of your home to cover your credit card debts, this is surely true. However...

The Federal Government - specifically the Treasury Department, seems hell-bent on ensuring that this occurs ahead of schedule. Wall St. is loves the idea, course.

What she said...

Pretty much also sums up my thoughts.

On a lighter note, unlike in the financial arena, authorities certainly manage to punish evildoers and uphold the law with respect to flatulence