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Monday, March 8, 2010 |
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Economic Events of the Week Monday March 8 -
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e21 Exclusive Front Page News Washington Update Financial Markets News Editorials and Commentaries |
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e21 ExclusiveFDIC Report and BanksThe Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile (QBP) for year-end 2009. Things have never been worse for the banking system: bad loans (loans that are 90 days or more past due) account for 5.37% of all loans and leases, an all-time record; net charge-offs (NCOs) – losses taken on bad loans – totaled $53.0 billion, or 2.89% (annualized), in the fourth quarter which is also the highest rate ever recorded in the QBP’s 26 year history. |
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Front Page NewsBig Bank Regulation to Stay with Fed (Financial Times)Banks with more than $100bn of assets will be overseen by the US Federal Reserve under a regulatory reform plan that represents a partial victory for the central bank after months of attacks in Congress. Chris Dodd, the Senate banking committee chairman, had proposed hiving off all bank supervision to a single regulator but is set to propose this week that the 23 largest institutions stay under the Fed’s oversight, according to people familiar with the plans. The regime is designed to prevent a repeat of the costly bail-out of AIG or the damaging bankruptcy of Lehman Brothers. The Fed’s retention of authority over the biggest banks is partly a result of demands by Tim Geithner, Treasury secretary and former president of the New York Fed, who has told senators that only the central bank is qualified to oversee the core of the system. |
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Washington UpdateDemocrats Hunt for Health Care Reform Votes (Financial Times)Barack Obama has given Democrats a March 18 deadline for the House to pass the Senate version of a healthcare reform bill before he leaves on a trip to Asia, leading to a frenzy of arm-twisting and vote tallying on Capitol Hill. But Democratic leaders in the House are struggling to get the 216 votes they need to pass the Senate bill. As many as 12 conservative Democrats who voted in favour of the House bill because it included tough new restrictions on abortion funding are now threatening to vote against the Senate version, which is less restrictive. The House bill passed by 220 to 215 so Democrats have few votes to spare. For more, see the Wall Street Journal which reports that Democrats are "voicing Health-bill doubts." 50 Senators Open to Using Reconciliation for Health Reform (OpenLeft.com)In a letter to a constituent, Senator Mark Begich has indicated that he is open to using reconciliation for health reform. That makes 50 Senators publicly open to using reconciliation to finish health reform without any maybes. There will be a reconciliation fix to the Senate health bill, as long as the House first passes one. For a breakdown of the vote count, see this detailed spreadsheet which uses public statements to record the Senators are wiling to use reconciliation to finish health reform. |
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Financial Markets NewsDebating Debtflation (Morgan Stanley)The Greek crisis has brought sovereign debt to the forefront, capturing markets' attention. We think another dimension of the sovereign issue, the inflation risks inherent in high levels of public debt for economies that can print their own currency, is being overlooked by the markets. High levels of public debt in many advanced economies raise the spectre of inflation, in our view: if high debt is deemed undesirable, but the political will for higher taxes and lower spending is lacking, then ‘soft default' through inflation becomes a possibility. We think investors should hedge against inflation risks. |
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Editorials and CommentariesReconciling With The Past (New York Times Editorial Chart)Would using reconciliation to pass health reform represent an anomalous and dangerous power grab? The accompanying chart, which lists 15 major reconciliation bills passed by Congress since the process was first used in 1980, provides evidence for assessing that charge. Reconciliation was intended to be a narrow procedure to bring revenues and spending into conformity with the levels set in the annual budget resolution. But it quickly became much more. The 22 reconciliation bills so far passed by Congress (three of which were vetoed by President Bill Clinton) have included all manner of budgetary and policy measures: deficit reductions and increases; social policy bills like welfare reform; major changes in Medicare and Medicaid; large tax cuts; and small adjustments in existing law. Timothy Geithner: Inside Man (Green in The Atlantic)Geithner doesn’t breed nuance of opinion. You’re either for him or against him, and popular sentiment leans strongly toward the latter. But it’s possible to view him as someone who was indispensable in halting the crisis (his understanding of Wall Street’s psychology was particularly valuable) while still doubting whether someone so steeped in the institutional cultures of Washington and Wall Street has the necessary distance to direct their reform. Click through for a "profile of how Timothy Geithner saved the economy, and why he's the wrong man to fix Wall Street." What Assets Could the United States Sell? (DMarron.com)Several German lawmakers hit a nerve last week with their suggestion that Greece sell some of its assets in order to cut its debts. The German newspaper Bild summarized this line of reasoning quite memorably: “We give you cash, you give us Corfu.” There’s plenty of rhetoric that the United States should set a target for its publicly-held debt. If we do adopt one, we should keep in mind that asset sales may be one way that policymakers may try to reach it. So what does the United States own? That’s a hard question to answer completely, but a good place to start is the Financial Report of the United States Government. According to the 2009 report, the U.S. owned $2.7 trillion in assets at the end of 2009. An Irish Mirror (Krugman in New York Times)We can look at countries that avoided the worst of the financial crisis, like Canada, and ask what they did right. We can also look at countries whose financial institutions and policies seemed very different from those in the United States, yet which cracked up just as badly, and try to discern common causes. So let’s talk about Ireland. As a new research paper by the Irish economists Gregory Connor, Thomas Flavin and Brian O’Kelly points out, “Almost all the apparent causal factors of the U.S. crisis are missing in the Irish case,” and vice versa. Yet the shape of Ireland’s crisis was very similar: a huge real estate bubble — prices rose more in Dublin than in Los Angeles or Miami — followed by a severe banking bust that was contained only via an expensive bailout. |
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