Pixie Dust Has Many, Many Uses

Tinkerbell lives:

The revival may be short-lived. Analysts who have examined the quarterly profits and government tests say that accounting rule changes and rosy assumptions are making the institutions look healthier than they are.

The government probably wants to win time for the banks, keeping them alive as they struggle to earn their way out of the mess, says economist Joseph Stiglitz of Columbia University in New York. The danger is that weak banks will remain reluctant to lend, hobbling President Barack Obama’s efforts to pull the economy out of recession.

Citigroup’s $1.6 billion in first-quarter profit would vanish if accounting were more stringent, says Martin Weiss of Weiss Research Inc. in Jupiter, Florida. “The big banks’ profits were totally bogus,” says Weiss, whose 38-year-old firm rates financial companies. “The new accounting rules, the stress tests: They’re all part of a major effort to put lipstick on a pig.”

I don’t know what the hell this has to do with Sarah Palin, but I’m not sure I agree with the green shoots some people seem to be seeing. Personally, I’m going to stay with the skeptics like the PBS (powder blue Satan).

*** Update ***

Here is a great post at Calculated Risk comparing the current employment situation with the assumptions used during the “stress tests.” We’re doing worse, employment wise, than the assumptions in the “more adverse” scenario. But the market is up 50 points!






69 replies
  1. 1
    Zifnab says:

    Clap harder dammit!

    Saying, “I don’t believe in economic recovery” just kills it.

  2. 2
    Zifnab says:

    Seriously, though, I don’t have a problem giving the banks some breathing room to recover. That was the whole goal of the bailout to begin with. It was the assumption that – over the long term – banking institutions were solvent. If we just prop them up for a few years, they’ll come around and pay us back when they get the money again.

    But I don’t see how lax accounting rules help anything. Sure, this might extend credit a bit further for some of the more desperate institutions. But, in the long run, you start asking questions about the central premise of the initial bailout – that banks will be solvent ten or twenty years from now.

    Fudging the numbers over and over again isn’t going to turn a trainwreck firm into a model business again.

  3. 3
    El Cid says:

    I think these sorts of things lots of times, but then I remember I’m some crazy fringe ultra-lefty who’s been thinking similar thoughts over the last couple of decades, so, obviously all the better people know better.

  4. 4
    gex says:

    My hands are getting sore. Can’t we just get an applause track?

  5. 5
    Johnny B. Guud says:

    Citigroup could be an ominous cloud for the Obama administration.

    The bank is so politically connected with a significant tilt toward the Democratic party, that if it were to go under, the reprecussions would be huge. Not to mention Timmeh’s industry connections.

  6. 6
    gex says:

    @Zifnab: I think the problem is that giving them time to recover is an attempt to wait it out and hope that the housing values rise back up to the numbers they have on their books. Are we really going to get back to those levels again anytime soon? Not to mention that stagnant/declining wages and job losses are undermining this approach.

  7. 7
    Bootlegger says:

    @Zifnab: I concur, so much of our economy is psychological (too much for my comfort, but there it is). Think about all the selling that led to the 40% drop in the stock market, it certainly wasn’t rational to sell when you’re losing money, but people panicked like a spooked herd. Similarly, the housing burp wasn’t based on *real* estate value (pardon the pun) but rather on what people imagined it could be. Hell, you could argue that much of the free market system is based as much on psychological forces as it is supply and demand, particularly since so many of the actors have limited knowledge of the actual supply and/or demand (see behavioral economics).

    That’s my convoluted way of saying, so what if people think they see green shoots, a situation defined as real is real in its consequences (Thomas theorem). Of course I’d rather we had more transparency and good information rather than smoke and mirrors, but for now I’ll take feel-good economics over doom and gloom.

  8. 8
    Comrade Dread says:

    Same old bulls***.

    I wonder how much of our GDP would vanish if we instituted stringently honest accounting methodology and standards.

  9. 9
    Notorious P.A.T. says:

    Obama must really love those banks, because he is risking his presidency for them.

  10. 10
    Xenos says:

    Bailing out banks may not be a good idea, but there is at least a sensible rationale for it.

    Bailing them out, and then letting them fudge the books, while paying dividends to shareholders and fat bonuses to executives, is just insane. If this is what Obama, Timmy, and Larry are doing, then they deserve to lose in 2012.

  11. 11
    Montysano says:

    Apparently Obama is set to propose a new regulatory framework for the finance industry. So far, I’ve been more than willing to give Obama some time to sort things out. I’ll begin to have some doubts if his regulatory proposal turns out to be just another handjob for the banking industry.

  12. 12

    With Geithner doing his best Sister Mary imitation with these hand waving “stress tests” we now have the Fed hiring one of the inmates to guard the asylum.

    The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

    Whew! That make you feel a little less like the guy who went to see his proctologist to get an exam and he places both hands on his shoulders to git’r’done.

    Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

    Oh, wait. I’m getting a real bad feeling here … I’m all for recycling but I don’t think this qualifies for the kind of green I had in mind.

    Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said.

    Ya think?

    So hey, you’re wrong John. We can trust them they’re from the goverment (or they used to be)! They’ll respect us in morning. And I know the check is in the mail. If we’re lucky they’ll hire someone to sell us a really nice bridge in the NYC area. But, hey that may be asking for too much.

    I just hope we get kissed while we’re being fucked. That’s the least they can do.

  13. 13
    Brachiator says:

    @Zifnab:

    Fudging the numbers over and over again isn’t going to turn a trainwreck firm into a model business again.

    Any criticism, any recommendation from an economist or a pundit has to come down to 2 things:

    Do the government’s efforts lead the banks to increase lending?

    Do the government’s efforts correctly identify and aid strong banks?

    Some of these accounting rule changes are troubling, but might be acceptable if they give the Fed and the Treasury some room to do what they need to do.

  14. 14
    Johnny B. Guud says:

    We’re doing worse, employment wise, than the assumptions in the “more adverse” scenario. But the market is up 50 points!

    After Memorial Day, Friday market action is essentially irrelevant. Extremely low volume tends to skew market direction (whether it’s up or down).

    Once the BLS report was released this morning, the SP Futures jumped significantly on the headlines, and then backed off some. My guess is that there was some spin on the numbers, but as they unpacked the data, there really wasn’t much to cheer about.

    Up 45 right now—I wouldn’t make much of it.

  15. 15
    Zifnab says:

    @Bootlegger:

    Think about all the selling that led to the 40% drop in the stock market, it certainly wasn’t rational to sell when you’re losing money, but people panicked like a spooked herd.

    A lot of that was the result of leveraged purchases. You can still buy on margin today, and if you’re really deep in the market that’s how real money is made.

    The problem is that once stocks really start tanking, the lenders pull back hard on their borrowers. So you’ll have guys like Sumner Redstone caught in the credit crunch.

    http://articles.latimes.com/20.....redstone11

    “This was a margin call in the broadest terms,” said Hal Vogel of Vogel Capital Management, a longtime media analyst and investor. “When the banks don’t renew your credit, you get a margin call and that is, in effect, what happened to National Amusements.”

    So that was millions of dollars in stock hitting the street when it was well below what any savvy investor would have released it for.

  16. 16
    Santiago says:

    O/T

    JC, all you guys, congrats for being the 25th.

    http://blogs.abcnews.com/theno.....phere.html

  17. 17
    Zifnab says:

    @Brachiator:

    Do the government’s efforts lead the banks to increase lending?

    We can’t afford plan old “lending” for lending’s sake. If the banks go out and make a bunch of new bad investments on the taxpayer’s dime, what does that get us in the long run?

    Do the government’s efforts correctly identify and aid strong banks?

    I assume, again, that your definition of “strong banks” works on a 10+ year time line, because there is nothing strong about the banks currently getting bailed out.

    Some of these accounting rule changes are troubling, but might be acceptable if they give the Fed and the Treasury some room to do what they need to do.

    In the short run, yes. And, in the short run, that’s fine. But getting the genie back in the bottle is hard work. Once you loosen up rules like this, putting them back on the books means you’re “hurting the banks” in a way that will make the newly enriched institutions scream bloody murder.

    We aren’t going to deregulate our way out of this mess. If banks have a problem with getting credit, I don’t see why a creditor would accept cooked books tomorrow from a firm that was deep in the red today. If the banks want to put out their own separate set of numbers in an attempt to coax creditors to the table, “Hey – look, if you just ignore all these losses, we’re profitable, hurray!” then that’s free market capitalism and they can do that on their own time.

    But you’re not really changing how the banks handle money with these new rules. You’re just pulling a rug over the top of the uglier issues. That’s not going to help anyone in the long run, especially if those bad debts and ugly investments continue to leech money out of the “healthy” banks.

  18. 18
    The Moar You Know says:

    If I turn up my car stereo when my engine starts making grinding noises, the problem is fixed, right?

  19. 19
    Bootlegger says:

    @Zifnab: Sure, I understand that. I’m talking about all the people who panicked and sold as prices dropped. I couldn’t say what percentage that is, only that it is a factor. People thought the economy was going down and it became, robotrades aside, a self-fulfilling prophecy. Think about what *really* changed last year. Did we suddenly start producing less or have a crop failure? Our real value didn’t decline, only our “market” value which was also overinflated by the same processes at the time. So I’m not saying that there isn’t anything real in these events, just that the psychological processes are important as well.
    Also let me reiterate that I agree with everyone above that I’d rather have strict and transparent account standards than pixie dust, but until we get them I’ll take another toke off the dust.

  20. 20
    Bootlegger says:

    @Santiago: Behind The Corner, Malkin, Reason and that Volokh (whatever Klingon name) Conspiracy; that hurts. Maybe if there was more nudity.

  21. 21
    Santiago says:

    Maybe if there was more nudity.

    LOL

  22. 22

    Looks like Cole is going to have to make a video in a cheerleading outfit to move up in the rankings.

  23. 23
    John Cole says:

    @Santiago: The people that make those rankings emailed me about giving me a sneak preview of the rankings to post on the blog like they did at ABC, and we exchanged several emails. Basically, I had no clue who or what they were, and didn’t want to put something up on the site that I didn’t understand or that might just be link farming. They explained it to me after several emails and I guess I forgot to write back.

    I still have no idea how they determine those rankings. Plus, being 25th and a dollar still won’t buy me a cup of coffee.

  24. 24
  25. 25
    Comrade Mary, Would-Be Minion Of Bad Horse says:

    I will hit that PayPal button so damn hard if he does that.

    If not a cheerleader outfit, how about a Hemingway outfit?

    (Seriously, you can buy me off with some Tunch pics or video. I’m easy like that.)

  26. 26
    AhabTRuler says:

    @Bootlegger: I think that between the pets and the ads for cartoon porn, people might have questions about this place and they just keep walking.
    I mean, is it irresponsible to speculate?

  27. 27
    Brachiator says:

    @Zifnab:

    We can’t afford plan old “lending” for lending’s sake. If the banks go out and make a bunch of new bad investments on the taxpayer’s dime, what does that get us in the long run?

    This is kind of basic. Lending is the purpose and function of financial markets. The government’s premise, Bush and Obama, was that banks and other institutions needed to be rescued in order to maintain liquidity in financial markets.

    If not the present group of banks and lenders, some other group has to do the job. The fear was that if the usual suspects of lenders were not saved, economic activity would ground to a halt and we would spiral down into a recession.

    I assume, again, that your definition of “strong banks” works on a 10+ year time line, because there is nothing strong about the banks currently getting bailed out.

    No. Banks have to resume or increase lending soon. Banks, factors, even pawn shops, even bookies, are clearing houses for credit. There is no reason to save a bank if it can’t lend, and what happens 10 years out is not relevant.

    Quick concrete example. Let’s say my business makes 80% of its revenues from January to June, and the economy is still good for me. But I need extra money to make sure I can meet payroll and expenses through the end of the year, and I also want to get a loan to expand. I go to the banks and other credit markets (e.g. factors, who might give me a loan on my receivables). Unstable, risky, wobbly institutions will charge me a higher interest rate, reducing the amount I will be able to put into my pocket.

    But I got to get the money from somewhere. I recall reading a story that some Italians were using organized crime lenders, which is all kinds of risky. But they are a bona fide kind of financial market.

    But you’re not really changing how the banks handle money with these new rules. You’re just pulling a rug over the top of the uglier issues. That’s not going to help anyone in the long run, especially if those bad debts and ugly investments continue to leech money out of the “healthy” banks.

    You’re right that bad debts and crappy investments add to the complexity of the problem. But even proposed solutions (nationalization, setting up special bad banks to hold toxic assets) have their own risks as well.

    I don’t have any clear suggestion as to an answer on this stuff. But I hope that I can provide a little context and a few of what some of the key issues might be.

  28. 28
    John Cole says:

    Speaking of the TunchCam, I was showing a co-worker those videos and she was showing me videos of her lab sliding on linoleum, and all she said during the Tunch videos was:

    “How big is that cat? Does he do anything? Is he always on that couch?”

    Poor fella gets no love from anyone.

  29. 29
    Colette says:

    @Bootlegger:

    Maybe if there was more nudity.

    Well, yesterday we had masturbation, undercover farting, David Carradine, and internet hookups spanning several continents, time zones, and sexual orientations, so that should move us up a few spots.

  30. 30
    AhabTRuler says:

    @John Cole: Dude, I don’t think Tunch is going to be able to leap as high as Malkin did (God, I still wish I hadn’t seen that video).

  31. 31
    The Moar You Know says:

    Maybe if there was more nudity.

    @Bootlegger: Maybe if there were less. I keep seeing that ad with Pam Anderson’s inflated basketball tits and her Hep C-infected cooter at the top of the page and a little part of me dies every time.

  32. 32
    AhabTRuler says:

    @Colette: Hey look, we have a bisexual Asian Minnesotan fake-married to a gay Australian lawyer here, what more can you ask for out of life?

  33. 33
    MikeJ says:

    Exciting news! ABC comes up with a way to get 100 links from left and right blogosphere.

  34. 34
    AhabTRuler says:

    @The Moar You Know: To be fair, you would have to try really hard to contact Hep C from her cooter, as the sexual transmission of that strain is rare.
    This is not to say that it might not be noxious for other reasons, but I wouldn’t know, and furthermore, there is no reason to tarnish Hepatitis C’s reputation by association.

  35. 35
    Colette says:

    @The Moar You Know:

    I keep seeing that ad with Pam Anderson’s inflated basketball tits and her Hep C-infected cooter at the top of the page and a little part of me dies every time.

    Which part? ‘Cause there are treatments for that sort of thing now, you know. I saw it on TV.

    And if you’ve ever tried to answer a 5-year-old boy asking “Mommy, what’s an erection lasting more than 5 hours?” you’ll know there isn’t any more special feeling a mother can have.

    (Sorry, John, just trying to boost your ratings here.)

  36. 36
    The Moar You Know says:

    @John Cole: I love Tunch!

    Seriously, get a TunchCam.

  37. 37
    John Cole says:

    RIP, this thread.

  38. 38
    PeakVT says:

    I’m not sure I agree with the green shoots some people seem to be seeing.

    Seeing green shoots = talking one’s book in the cases I’ve bothered to read.

    Most of the unemployed didn’t have a book to talk in the first place, so the market pop is irrelevant for them.

  39. 39
    geg6 says:

    Personally, I don’t want BJ and John to rank any higher. (Sorry, John!). You may have noticed the effect of a NYT link on this blog yesterday. Shudder. Troll infestations complete with giant paper mache puppets. No thanks. We’ll have enough of that right here in the ‘Burgh in Sept.

  40. 40
    AhabTRuler says:

    @John Cole: Look, we must ensure that certain, say, “key” words show up in every thread on BJ. It keeps the archives searches interesting futile.

    @geg6: Yeah, but that’s the Times. They don’t run with a good crowd.

  41. 41
    Brachiator says:

    @John Cole:

    “Does he do anything? Is he always on that couch?”

    Seems kinda like a feline at his best to me. A cool cat, just hanging out.

    For example, you rarely find cats implicated in auto-erotic asphyxiation scandals. Too much unnecessary effort.

  42. 42
    AhabTRuler says:

    For example, you rarely find cats implicated in auto-erotic asphyxiation scandals. Too much unnecessary effort.

    OTOH, you rarely find movie stars licking their own genitals in public. Bit of a trade-off, really.

  43. 43
    Death By Mosquito Truck says:

    Plus, being 25th and a dollar still won’t buy me a cup of coffee.

    Still, it does indicate a certain amount of influence on our national political discourse.

  44. 44
    Woody says:

    Ravi Bhatra is one of those skeptical of the apparent, howsoever weak, rebound.

    The problem, or at least one of them, is those pesky option ARMS that are fixin’ to roll over, this summer…

  45. 45
    AhabTRuler says:

    Still, it does indicate a certain amount of influence on our national political discourse.

    When someone furminates Wolf Blitzer I will be impressed, but not until then.

  46. 46
    Zifnab says:

    @Brachiator: I would argue further, but it appears I’d be interfering with the conversations about adorable fluffy kitties.

    Also, office work, she is a-call’n. :-p

  47. 47
    greynoldsct00 says:

    Poor fella gets no love from anyone

    Now that’s just not true, we love the guy. We await his photos and videos with rapt anticipation. We know he just sits there to piss you off. Which reminds me, it’s been a while so post us some Tunch soon.

  48. 48
    Comrade Dread says:

    OTOH, you rarely find movie stars licking their own genitals in public. Bit of a trade-off, really.

    Someone really needs to give Evolution a good long talking to about removing that ability from our gene pool.

  49. 49
    JackieBinAZ says:

    OTOH, you rarely find movie stars licking their own genitals in public. Bit of a trade-off, really.

    We refer to that in our house as “playing the cello.”

    sorry for my contribution to making this thread die a little more…

  50. 50
    The Cat Who Would Be Tunch says:

    Here is a great post at Calculated Risk comparing the current employment situation with the assumptions used during the “stress tests.” We’re doing worse, employment wise, than the assumptions in the “more adverse” scenario.

    Duh. We reached parity with the “adverse” scenario in April, which might’ve indicated that we needed to do some downward revisions on the assumptions. This is why I’ve been skeptical of the stress tests since February. To be fair, I think the Treasury did mention that the “adverse” scenario was not supposed to be the “worst-case” scenario, more like a nominal upper/lower bound.

    Another funky nuggets from the stress tests include the fact that following the adverse scenario, we’re still looking at a combined loss of $600 billion from the top 20 banks (by size). Since we’re tracking past the adverse case, what do you think the actual loss is going to look like?

    Also, no surprise about Citi’s situation. One of the things contributing to their profit in Q1? $2.7 billion dollar gain from a mark down of their debt due to fair value accounting. Put in an extremely simplified analogy, imagine that John bought Tunch and his lifetime supply of food for $1 billion dollars. John goes ahead and finances this debt instead of paying it outright. Now let’s say that owning Tunch turns out to have lots of complications (he eats way more than expected, goes on a rampage, etc), thereby increasing John’s debt levels and making his household less financially viable. So owning John’s debt is less attractive now since he has less of a chance to pay it back. But with fair value accounting, he can report a gain (profit) for his net worth. Brilliant!

    The only silver lining is that the rate of job losses has declined from the 600K range down to the 300-400K range. Yay!

  51. 51
    bago says:

    Alright. If we’re going to have a great orange satan and a powder blue satan, don’t you think it’s time we had some kind of satanic alert system, to keep our color coding in line?

  52. 52
    mclaren says:

    The available evidence appears to contradict the “green shoots” theory:

    Health care crippling the economy.

    Here’s a CFO survey, which bypasses the rosy views of government forecasts. This survey of CFOs in the biggest companies in America shows the following:
    Most large companies expect the recession to drag on through the rest of 2009; credit conditions continue to deteriorate for many companies, and capital spending and employment are going to be slashed further.
    No duh. Obvious if you look at the balance sheets of most companies in America, but it does contradict the “green shoots” fantasy being bruited about right now.

    “Why the present depression will be deeper than the Great Crash of 1929″ by Charles Hugh Smith.

    Among the reasons he lists are the so-called Reagan Revolution (which really meant nothing more than “borrow and spend” instead of “tax and spend”), a corrupt-to-the-core corporate structure, fraud on Wall Street unprecedented in history, federal entitlement growth which continues to spiral out of control, global military spending of 1.4 trillion per year (Soviet levels of military spending), and an industrial and transportation infrastructure which we’ve allowed to crumble and degenerate. The fastest train in America in 1930, for example, was faster than the fastest train today.

    “Demand for oil is in the toilet.” Ominous because U.S. oil demand serves as a proxy for U.S. industrial output.

    Apparently, there’s going to be another wave of foreclosures soon when option ARMs reset to higher rates and people can’t afford the balloon payments. Credit Suisse predicts the next wave of foreclosures will last through 2012.

  53. 53
    Irony Abounds says:

    The hope with the banks is that the very steep yield curve we now have will pump banks’ profits up enough to provide them with some much needed capital. Right now they can get essentially free money from the Fed and, to the extent they are making loans, loan it out at much higher rates. That really isn’t sustainable in the long run, and the higher interest rates are already negatively impacting mortgage rates, thereby making the housing situation worse (thank God I was able to lock in a 4-3/8% refi rate).

  54. 54
    TenguPhule says:

    JC, all you guys, congrats for being the 25th.

    Malkin, Assrocket & Doughy Pantload all rank higher then skullfucking kittens?

    There is no abstract conception of supernatural forces personified in anthromorphic resonance.

  55. 55
    bago says:

    I recall reading a story that some Italians were using organized crime lenders, which is all kinds of risky. But they are a bona fide kind of financial market.

    This sentence is awesome in all kinds of languages.

    And if you’ve ever tried to answer a 5-year-old boy asking “Mommy, what’s an erection lasting more than 5 hours?” you’ll know there isn’t any more special feeling a mother can have.

    This requires some disambiguation.

  56. 56
    bago says:

    @TenguPhule: I believe there are furries who will disagree.

  57. 57
    Brachiator says:

    @Irony Abounds:

    The hope with the banks is that the very steep yield curve we now have will pump banks’ profits up enough to provide them with some much needed capital. Right now they can get essentially free money from the Fed and, to the extent they are making loans, loan it out at much higher rates.

    This is why I noted that the Fed and Treasury have to co-ordinate some of their actions (and Fed policy has a direct impact on interest rates).

    Also, obliquely connecting the dots, the power play in the UK has implications for the US and US financial policy (A woman scorned: Flint quits accusing Brown of running a two-tier government and using women as ‘window dressing’)

    A sixth minister resigned today with a devastating attack on Gordon Brown accusing him of running a ‘two tier’ Government and treating women in his Cabinet as ‘female window dressing’. Caroline Flint revealed she was walking out just as the Prime Minister was telling reporters in Downing Street that he had no intention of standing down despite the mutiny against him…. Her devastating statement undermined Mr Brown’s attempt to restore his credibility in the face of a series of resignations and one of the worst set of local election results in Labour’s history.

    The article contains a nice graphic summarizing those MPs who are singing “Should I stay or should I go?”

    A significant part of the current global financial mess was fueled by the UK branches of the bigger banks and institutions. Now, as the Member of Parliament expenses scandal threatens to topple the British prime minister, British conservatives are looking for an opening.

    This doesn’t hurt the US directly, but it complicates the Obama administration’s attempts to get the economy together since the UK and Germany are two of the nations whose input on solutions carry great clout, and their has been some co-ordination as these nations wrestle with fiscal policy. And UK input (good and bad) also strongly affects our efforts in Afghanistan and Pakistan.

    Lastly, Pakistan continues to turn into a bigger mess.

    A bomb has exploded at a mosque in north-western Pakistan during Friday prayers, killing at least 38 people and wounding dozens more.

    Meanwhile: “Italian PM Silvio Berlusconi has reacted angrily to the publication in Spain of photographs showing topless women and a naked man at his villa.”

    No cats have been implicated in the release of these photos.

  58. 58
    The Cat Who Would Be Tunch says:

    @Brachiator:

    Lastly, Pakistan continues to turn into a bigger mess.

    What’s annoying is that it’s just NOW being noticed. Here’s a sobering statistic. In 2008, there were approximately 60 bombings, or a little more than one a week. Compare that with a decade or even five years ago where it was just a handful.

  59. 59
    Johnny B. Guud says:

    The next 6 months should be interesting as far as the banks go. This pretty much sums up the scenario:

    In all likelihood, the very worst of the credit crisis is behind us, but the balance sheet problems are as alive as they’ve ever been. We had our opportunity to hold the banks over the fire and force them to take their losses, but we chose to pour more booze down the drunk man’s throat. We are going to let the banks earn their way out of this. Those earnings of course are not sustainable.

  60. 60
    jcricket says:

    @Johnny B. Guud: What’s the term for the “next 6 months?” We had those FUs (Friedman Units) for the war in Iraq, how about the economy? GUs (Geithner Units?) Or do we measure in “Krugmans?”

    Seriously, there’s no way we’re out of the woods. The worst of the worst of the worst is over, but we’re still really sick. There’s a lot of sickness (foreclosure, CRE bust, job losses, toxic assets, inventory overhang) to work its way through the system before we’ve even at the bottom. And then, as others have mentioned, tons of structural elements (tax system tilted towards the rich, no real re-regulation happening, healthcare coverage/cost crisis, consumer credit card debt, lack of wage growth, and so on) that will prevent the recovery from being as robust as it would otherwise be.

    I’m a little scared we’re headed for a lost decade.

  61. 61
    Snarki, child of Loki says:

    …keeping them alive as they struggle to earn their way out of the mess,

    and where exactly are they going to get those “earnings”? Inflated property values? Captial injections != earnings, so that’s not it.

    I’m guessing “higher fees on consumers”, as in “all your money are belong to us”.

  62. 62
    Johnny B. Guud says:

    @jcricket: I’m with you for the most part.

    The CRE market is slowly melting, and the ARMs resets are just around the bend. And let’s not forget the credit card debacle that’s coming. Couple that with no real organic growth in personal income, and we’ve got ourselves a new calamity a-brewin’. Not to mention gasoline will head higher, which will crimp spending even more.

    Fun times ahead…

  63. 63
    jcricket says:

    @Johnny B. Guud: Add in corporate bond defaults. I keep forgetting about those. And then the funds that are comprised of corporate bonds go down (or at least lose value), etc.

    I can’t see a “V” or even narrow “U” shaped recession recovery. A slightly up-turned “L” (think hockey stick) is the best scenario I think is reasonable. I’m more worried about a “W” (where we pick up for a year, and then get hammered again).

    That’s why I’m depressed we aren’t doing more to improve some of the structural, underlying issues I mentioned (tax base, credit policies, bankruptcy law, healthcare, lack of employee power).

    Frankly, the 401k/IRA thing is also a ticking time bomb. Millions of boomers are going to find themselves under-invested if the market doesn’t sustain any kind of rally. And then all the pension funds will likely go bust because they’ve been raided for years when states were broke.

    If we’re lucky and smart, we’ll end up with much higher taxes and better services, along with an improved social safety net and public transportation (etc) down the road.

    If we’re unlucky and stupid we’ll basically enshrine the current situation and we’ll end up like California.

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    Johnny B. Guud says:

    @jcricket:

    Frankly, the 401k/IRA thing is also a ticking time bomb. Millions of boomers are going to find themselves under-invested if the market doesn’t sustain any kind of rally.

    Great point.

    I think the rally that the market has seen since March is more the result of the Fed turning the liquidity spigot on rather than anything economically fundamental.

    The Fed has all but admitted that they ran out of bullets when they started quantitative easing a few months back—they’ve essentially ran out of options. So the market is benefiting from all of that, in my opinion. But it won’t be anything sustainable.

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    feebog says:

    @Johnny B. Guud:

    Once the BLS report was released this morning, the SP Futures jumped significantly on the headlines, and then backed off some. My guess is that there was some spin on the numbers, but as they unpacked the data, there really wasn’t much to cheer about.

    Color me crazy, but I actually think the unemployment numbers do provide a little good news. I know that we still lost a shitload of jobs, but it was a lost less than the numbers just three months ago. Also, BLS revised job losses downwards for March and April. We may not be seeing a trend yet, but if we come in under 250K losses in June, I think we can call it that. Also, this is anecdotal, but a friend of mine manages a large civil engineering firm here in SoCal. He says that from day one follwoing the the passing of the stimulus bill his firm has been swamped with work on all kinds of projects. None of these have started construction, but a number of are close; like in the next 60 days. We need to remember that the infrastructure part of the stimulus package has not even kicked in yet.

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    There are two things going on in a recession, one is structural and the other is psychological, same as in an expansion. The structural problems need to be addressed but doing so may have little to no effect on the psychological and that has to be addressed as well. The emotional component can accelerate or brake a recovery, it should be obvious which effect we’d like.

    I’m in a hellish jamb with work, structural difficulties are cutting my work badly and fear is doing a wonderful job of killing it off entirely. I have several previous customers who badly need work done but for structural reasons can’t and then there are the ones who need it and are afraid to spend money. In the long run it is going to cost them badly and it isn’t cost effective to keep having me repair things past their useful life, but…

    I lost one job to someone so hungry he bid the thing ridiculously low, enough I’m ahead of the game by not getting it.

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    TenguPhule says:

    I lost one job to someone so hungry he bid the thing ridiculously low, enough I’m ahead of the game by not getting it.

    Free blowjobs to the client?

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    @TenguPhule:
    Not far from it, I could almost have afforded wage costs at his price and certainly not covered any of insurance or risk.

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    […] a lousy, overpriced product – Natasha Chart, Open Left It could be worse – John, Powerline Pixie dust has many, many uses – John Cole, Balloon Juice What about June 5th? – Derek Scissors, The Foundry No compass, no key, […]

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