Steve, As I've been noting for some time, Hamlet dies in Act V. Remember I argued against Roubini's view last year that a recession would start in Q1 2007.
Someone help me here. Is there analysis showing how and why these gov't statistics like CPI are complete fabrications and everyone knows it so we have to rely on other measures like PCE in order to read between the lines and find out what's really going on?
I have one theory why consumer spending remains high even tho the economy isn't so robust.
We've entered a post-saving society. What incentive does one have to save for the future, after one's retirement fund was leveled in the dotcom bust, the value of our currency is in question, inflation threatens to eat up our dollar gains, we question the solvency of our banks, and the stock market swings with no apparent reasoning behind it?
Just a thought - perhaps the avg. citizen rationalizes that the future of any retirement or savings plan is so questionable that you might as well just live for today.
"Some 26 percent of Americans expect to use home equity as a major source of retirement income, which almost squares with the 22 percent of retirees who currently do, Gallup found."
would a big drop in home prices work as an inter generational transfer? i don't know how many of the old population are home owners and how many of the generation X and Y are. even if the young are home owners, they might benefit if they need to move to a bigger house.
I have one theory why consumer spending remains high even tho the economy isn't so robust.
I was talking to my neighbor about this, and here's what we came up with.
20 years ago, we were both spending about $25 a month for all communication/entertainment needs, namely a basic telephone. TV was free and the Net wasn't here.
Now, we are each spending about $250 a month for broadband, cell phones, regular phones, cable, Netflix, iTunes, Tivo, whatever. And we concluded all of these things have become "essentials."
So, the story is there's a lot more things people just can't do without. Until they have to.
I often wonder that myself. It is one reason the Fed's job is to keep the currency stable. Now look where we are.
I also take great exception to the idea that exponential growth can work long-term. When I say long-term, I mean LONG-TERM. Further, when I say work, I mean on money supply growth, population, the price of homes, personal weatlh, and so on.
It seems to me that there is a game of "hold our breath" going on and it is being done by the FED (through money injections, taking crap mortgage paper as collateral for loans, lowering interest rates, etc), the banks and large mortgage companies (please dont make us MARK TO MARKET!), and the hedge funds and stock brokers (What problems, see the DOW is approaching a new high, nothing to see here, please buy our positions, we mean invest for the long term!). This begs the question, when will they turn blue and capitulate? Play a little game called assumption (always dangerous, but fun!)amongst ourselves right now. If you suppose that the average appreciation needed across the broad spectrum of mortgages out there to be anywhere near what is needed to make all this paper good and save serial refinanciers needs to be 10%, what in the world is going to push home prices up that far in say a years time? Asssume 15%, 20%? 20% is not a high figure for tons of hot markets right now. If we play assumption for this idea, how long can the FED, banks, and hedgies (with wedgies!) hang on? 6 months? A year? If we can figure this conundrum out, we could stand to make a few bucks i think!
Have at it
Keerist the dollar is just cratering today...over the last month the purchasing power of the dollar has declined just shy of 4% against a market basket of 16 major currencies.
Those increased costs WILL be working through the economy - and the rate of decline appears to be increasing at the moment - this just isn't going to end well IMNSHO.
You were also spending insane amounts for long-distance, which has dropped to a pittance now (free in some cases with a cell phone). When I first got online (mid 80's) CIS was charging $12/hr for connect time... at 300-baud. That has dropped to bare bones commodity pricing. The price drops in both of those are primarily due to the proliferation of fiber backbones and the wide availability of cheap bandwidth.
Yup, As I watch this trainwreck, I recall the UKPound trainwreck over 5 months in late-summer and autumn of 1992 ( and the one in 1984 and the one before in ... - IMO all part of the adjustment process for the end of the British Empire and dragging itself into participating in the new reality with tremendous ebb and flow of political and economic cross-currents)
When does it start hitting the average Joe's consciousness ? I'm not sure - I've read the 1/3 of the US population doesn't have a passport so their awareness of the importance of the dollar exchange rate could be abysmal.
I believe there is a plan involving the sacrifice of the housing market (deflationary) to offset the possible wave of incoming inflation.
This may keep the inflation numbers within the comfort zone. What a relief! Call it the NINHNG (no income, no house, no gasoline) plan (to replace our NINJA loan plan).
By the way, NINHNG seems to be a word, at least in some language. There are six hits for it on the Internet. Perhaps it is Chinese.
I believe there is a plan involving the sacrifice of the housing market (deflationary) to offset the possible wave of incoming inflation.
That's crazy, Mark. For every 1% national housing prices deline, there will be several hundred thousand extra foreclosures.
Foreclosures have untold cost on many levels, especially state/local revenues. Taxes are a household expense, similar to inflation. Responsible policy-makers should be trying to reduce foreclosurs, if at all possible.
The effect of MEW or housing wealth on PCE cannot be considered in a vacuum.
Two points:
First, PCE (or, better yet, personal outlays) should be evaluated relative to disposable income. Real DPI (4-Q change) has actually trended up a bit during the past year.
Second, stock market wealth (or non-housing wealth) also by most estimates exerts a significant effect on PCE. Stock market gains have been quite strong, on net, in recent years, which ought to be at least partially offsetting the effects of weakness in MEW/housing wealth.
Since the Fed has been saying "the biggest risk to our assesment is that inflation will fail to moderate as expected..", and Paulson has been saying that a strong dollar is in our interest....how can they justify cutting again?
I realize they have a mandate to make sure the markets are working but they also have a mandate to prevent inflation and keep the dollar strong.
Well, last time they could justify the cut based upon a "time sensitive emergency" being the immediate threat of a credit crunch. However that appears to be moderating (eye of the storm IMO).
In addition, now the have record oil prices, and a record weak dollar. These things are making records that are hitting the main stream press and appearing in more media daily. This makes it very difficult to deny and begins to even make a bigger mockery of their inflation gauges.
Thus the fed is unable to hide behind the immediate threat of a credit cruch while the immediacy has shifted to inflation and a weakening currency. Add to that a DOW approaching a record high, and it's difficult to imagine how they could not be forced to raise rates and will have a tough time just keeping them the same without laying bare the hypocracy the we all know exists.
Just an observation re the upcoming holiday season. I was just over at the largest terminal in the largest port in the US, and the place was extremely quiet - very few trucks coming through the gates, no lines, no nothing. This is typically the peak season to get goods to the merchants in advance of Christmas. So I asked an employee "isn't this your peak season? What gives?" He responded "Yup, we are right in the middle of our peak season, and we have been extremely slow." Typically this time of year I look out my office window and see container ships lined up at anchor all the way down the coast waiting for a berth. During big years, the ports get so overwhelmed that the whole delivery system melts down to a crawl due to bottlenecking. Now I see nothing but tankers and a few breakbulk ships at anchor. It's dead.
Regulators Close Troubled NetBank
American Banker |
By Joe Adler
WASHINGTON The Office of Thrift Supervision announced on Friday that it had closed NetBank. The shutdown marked the biggest failure of a depository institution since the savings and loan crisis.
The OTS appointed the Federal Deposit Insurance Corp. as the conservator for the $2.5 billion-asset Alpharetta, Ga., thrift, which had about $2.3 billion of deposits as of June 30.
NetBank, which had suffered a high mortgage exposure and failed bids to sell off nonperforming units, was the largest institution to fail in 15 years. Meritor Savings Bank of Philadelphia failed in December 1992 with $4.1 billion of assets and $2.9 billion of deposits.
The thrift, which specialized in Internet banking, was shut due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies, the OTS said.
As a result, the OTS executed a formal enforcement action with NetBank in 2006 directing the institution to correct its operating deficiencies and enhance its capital position, the OTS said. While the institution continued to operate in excess of minimum capital standards, the actions taken to address these problems were unsuccessful and it became clear that high operating expenses combined with continuing losses were jeopardizing the institutions viability.
The OTS said it shut the thrift after NetBanks efforts to sell to EverBank Financial Corp. fell through last week.
The institution had no remaining prospects for raising capital and achieving profitability, the OTS said. Accordingly, the OTS exercised its authority under the Home Owners Loan Act to appoint the FDIC as receiver of the institution.
Undercover said: "Second, stock market wealth (or non-housing wealth) also by most estimates exerts a significant effect on PCE. Stock market gains have been quite strong, on net, in recent years, which ought to be at least partially offsetting the effects of weakness in MEW/housing wealth."
Is this really the case? Is the MEW-ing portion of the US populace the same as that portion enjoying stock market gains?
For PCE: Disposible income needs to be viewed in the light of the real inflation rate, not the ex-gas, ex-food, ex-housing core cpi (which is a statistical fraud anyway). Also Wall Street gains are made by the holders (many institutions, few consumers). The real damage is hitting the J6P consumers who are the base of the whole pyramid. The housing debacle started in the low-middle income areas, and is spreading up the food chain. The expense squeeze, mortgages, food, gas will hit there first as well, and that's where consumption will start to drop. Martha's Vineyard houses, and Tiffany consumption are still strong. It's going to be a Wal-mart, chevy, Modesto led recession, but it will spread to the rest of the economy, IMHO.
I'm seeing that bad idea poking its head up in this comment section. The bad idea that the dollar is "the most important thing." The dollar is not doing anything that would panic the Fed. In fact, the dollar is part of the mechanism that transmits Fed policy. We can expect less drag on growth from net exports with a weaker dollar. Fed guys say they are worried about growth more than inflation now. They have adjusted policy accordingly.
The Fed is responsible for the dollar in terms of its domestic purchasing power. It has a big impact on the foreign exchange value of the dollar, but no mandate to target the dollar's fx value. If you think the Fed does target the fx value of the dollar, you are going to be confused and frustrated by the Fed's policy actions. Governor Mishkin said today that the dollar's weakness is not a problem. Lockhart said the dollar is not a big deal for monetary policy prior to the Fed's ease. Many Fed officials have said so in the past. They consider the dollar's performance, along with "many other factors" in setting monetary policy.
By misusing terms, we can talk ourselves into things that are not true. The dollar has not lost 4% of its PURCHASING POWER vs a basket of currencies. It has lost 4% of its value against that basket. The dollar's purchasing power is rightly defined by what it can purchase, not what it fetches in exchange for other currencies. That distinction is critical to the Fed's view of things. The Fed's mandate does not cover what gold traders can purchase, or what foreign exchange traders can purchase, until they go to the store and stock up on household items. Nobody in the US has to buy euros with dollars before we buy an apple, unless we are lucky enough to be traveling.
The dollar fell faster in 2002 than it is now. It was far weaker in the early 1990s, against the broad basket of currencies the Fed publishes. And that doesn't take into account the yuan, against which the dollar is quite stable, even though much of the country has been howling for years for a weaker dollar against the yuan.
The dollar is merely a reflection of other things that are going on. It can contribute to inflation, but so can a bunch of other stuff that results from Fed easing. The dollar is reflecting the Fed's ease, along with slowing growth (which the Fed ease might help to cure), more volatile returns on financial assets (which the Fed ease might help to cure) and portfolio decisions buy central banks (over which the Fed has no direct influence).
So it may be fun to complain about the dollar, but don't make the mistake of thinking the Fed is worried about it - for now.
All, Goldman Sachs just waved the Yellow Flag on a recession (not Red yet). Some short excepts:
Over the past several months many economic measures have sunk to levels that they have only previously breached in, or just before, recessions ... a recession prediction model ... indicates about a 40% probability of recession ... The ex-housing economy appears to be coasting ... Confidence remains weak, and early signs suggest spending slowed in September. ... Coast along long enough, and eventually you slow down.
I agree the fed is not or may not be worried about the dollar....but that was my point.
They lose credibility when they say they favor a strong dollar. Even if they don't consider the FX, the rest of the world does and prices their products (oil anyone) and buys our debt with that in mind.
So yes, they may disregard a dollar against other currencies, but their "basket of goods" is being bought by other stronger currencies in this global market and at least that logically could lead to higher domestic inflation.
They already face a large constituency who is suspect of their measure of inflation (minus housing, food, and oil--the three things that virtually EVERYONE needs, come on).
Anyway, it's tougher and tougher for them to convince even those who normally don't pay attention when they say there is no inflation as gas and food are rising to media attention levels.
Fortunately for them we are a nation of borrowers and not savers so there are far more people who care about lower borrowing costs than there are those relying on bank rates for their income.
The dollar has not lost 4% of its PURCHASING POWER vs a basket of currencies. It has lost 4% of its value against that basket.
Good old Harold Wilson, British PM, tried those verbal gymnastics in 1968 when announcing the 14% devaluation of the UK Pound, quote : "It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."
In writing my first post it made me think that there is a vested interest in the financial world to give ammo to the fed to cut more.
They'll play up the recession issue some, but probably will also wine about credit problems leading up to the next meeting.
Short of that they may take a risk of some short term losses by heavy stock selling in order to get people "worried" again like last time when the market went from 14000 to 13000.
Should be interesting.
In any case, I predict Goldman and others to be vocal about problems to give the fed cover for another cut. They know with a crashing dollar and high commodity rates, they will have to create bigger and more immediate "threats" to the economy.
NetBank is a great example of why the FDIC needs to be monitoring the situation. A no warning takeover and funds available in 2-3 days. This way there is no panic unlike what happened at Countrywide and Northen Rock.
Hilarious! The suggestion is that you should sell any security that is the subject of a Warren Buffett rumor...due to most of them tanking soon thereafter.
Sept. 28 (Bloomberg) -- Speculation that Warren Buffett would come to the aid of Bear Stearns Cos., the fifth-largest U.S. securities firm, may be a signal to sell its shares.
We remain bullish on the go global theme, even though it is now widely embraced by investors.
Global portfolio investment flows continue to move towards equities, commodities and currencies that are farthest from the U.S. housing market, i.e. away from the epicenter of economic weakness. The relentless slide in the stock prices of U.S. subprime lending companies is ominous for homebuilding stocks (please see yesterdays Feature Story). In fact, subprime lenders' stocks hit new lows Wednesday, despite the rally in the S&P 500 index during the past week! Conversely, emerging market equities have completely recovered, hitting a new high. Meanwhile, the dollar continues its steady downtrend, reflecting waning interest in U.S. paper as a consequence of relatively unattractive economic and investment prospects. In sum, the environment is the opposite of the 1990s, when the dollar and U.S. equities were king.
"Is the MEW-ing portion of the US populace the same as that portion enjoying stock market gains?"
Good point, but it was the big thing among a certain set to take out interest only loans on "dead money" equity so you could get greater returns elsewhere. Kiyosaki-ism I think it's called. Somebody must have done it or the financial press wouldn't have persisted so long with the meme.
Then there's a larger demographic that may be cashing in retirement accounts when their home ATMs are out of order. So yes, I could see it having an impact.
Interesting coincidental input... today about 3 PM one of the guys I sell for called and asked if I wanted to come in over the weekend and run machines for him (I don't run machines). I asked what this was all about and he said he had just received the largest order for parts he's ever seen from them... BIG order... and he has other orders on the books from the same company he hasn't even run yet. They doubled down big time.
What he really wanted me to do was have me ask if it was okay to run a little late on the delivery (if not THEN come in and run machines over the weekend).
The customer has been buying a lot from offshore the last few years. Obviously something has changed and very recently.
Maybe the dollar fall is a coincidence - maybe not. I have to ask around there a little more.
Also the customer is NOT in automotive or appliances or anything homebuilding related. They make equipment for 'infrastructure'. Electrical transmission, roads, energy exploration - etc. So PCE doesn't apply so much... they are REAL busy.
On the other hand I was at a company this week that does do automotive... almost 100%... they are in deep doo-doo. No one would admit it but folks are leaving the company while the getting is still good.
First to say ?
Real PCE YoY through August.
I don't see much of a discernible trend. Especially over the last two years as the housing downturn has intensified.
Steve, As I've been noting for some time, Hamlet dies in Act V. Remember I argued against Roubini's view last year that a recession would start in Q1 2007.
Unfortunately I believe intermission is over.
Best Wishes.
Someone help me here. Is there analysis showing how and why these gov't statistics like CPI are complete fabrications and everyone knows it so we have to rely on other measures like PCE in order to read between the lines and find out what's really going on?
WOW$
Inflation becomes again normal in the United States: the PCE-PILFE returned in the standards, well installed under the bar of 2%.
Inflation becomes again normal - Jean-Pierre Chevallier, business economist
I think the rest of the world is just waiting to catch up. Inflation is a lagging indicator.
CR,
It seems "Hamlet" can't even be rented out.
I have one theory why consumer spending remains high even tho the economy isn't so robust.
We've entered a post-saving society. What incentive does one have to save for the future, after one's retirement fund was leveled in the dotcom bust, the value of our currency is in question, inflation threatens to eat up our dollar gains, we question the solvency of our banks, and the stock market swings with no apparent reasoning behind it?
Just a thought - perhaps the avg. citizen rationalizes that the future of any retirement or savings plan is so questionable that you might as well just live for today.
I have one theory why consumer spending remains high even tho the economy isn't so robust.
I think the truth is that the economy just hasn't been that bad, again due to the easy availablity of credit.
When it really goes bad though I think it's going the be like a bolt out of the sky.
Could be sooner rather than later...
"Some 26 percent of Americans expect to use home equity as a major source of retirement income, which almost squares with the 22 percent of retirees who currently do, Gallup found."
would a big drop in home prices work as an inter generational transfer? i don't know how many of the old population are home owners and how many of the generation X and Y are. even if the young are home owners, they might benefit if they need to move to a bigger house.
I was talking to my neighbor about this, and here's what we came up with.
20 years ago, we were both spending about $25 a month for all communication/entertainment needs, namely a basic telephone. TV was free and the Net wasn't here.
Now, we are each spending about $250 a month for broadband, cell phones, regular phones, cable, Netflix, iTunes, Tivo, whatever. And we concluded all of these things have become "essentials."
So, the story is there's a lot more things people just can't do without. Until they have to.
Outsider,
I often wonder that myself. It is one reason the Fed's job is to keep the currency stable. Now look where we are.
I also take great exception to the idea that exponential growth can work long-term. When I say long-term, I mean LONG-TERM. Further, when I say work, I mean on money supply growth, population, the price of homes, personal weatlh, and so on.
Exponential Growth and Immortality!
This data is wrong. Nearly 100% of retired Americans who have home equity use it for retirement income.
For example, my parents have paid off their mortgage in full. But they live in a paid-off house rent free. That's equal to income.
OT- AC,dryfly, someone
Does anyone know if Tradestation has
been investing in CDO's, like ETRADE and Schwab? I am looking to move my
account from E_trade?
Thanks
For example, my parents have paid off their mortgage in full. But they live in a paid-off house rent free. That's equal to income.
No, that's equal to savings.
It seems to me that there is a game of "hold our breath" going on and it is being done by the FED (through money injections, taking crap mortgage paper as collateral for loans, lowering interest rates, etc), the banks and large mortgage companies (please dont make us MARK TO MARKET!), and the hedge funds and stock brokers (What problems, see the DOW is approaching a new high, nothing to see here, please buy our positions, we mean invest for the long term!). This begs the question, when will they turn blue and capitulate? Play a little game called assumption (always dangerous, but fun!)amongst ourselves right now. If you suppose that the average appreciation needed across the broad spectrum of mortgages out there to be anywhere near what is needed to make all this paper good and save serial refinanciers needs to be 10%, what in the world is going to push home prices up that far in say a years time? Asssume 15%, 20%? 20% is not a high figure for tons of hot markets right now. If we play assumption for this idea, how long can the FED, banks, and hedgies (with wedgies!) hang on? 6 months? A year? If we can figure this conundrum out, we could stand to make a few bucks i think!
Have at it
Keerist the dollar is just cratering today...over the last month the purchasing power of the dollar has declined just shy of 4% against a market basket of 16 major currencies.
Those increased costs WILL be working through the economy - and the rate of decline appears to be increasing at the moment - this just isn't going to end well IMNSHO.
TV was free and the Net wasn't here.
You were also spending insane amounts for long-distance, which has dropped to a pittance now (free in some cases with a cell phone). When I first got online (mid 80's) CIS was charging $12/hr for connect time... at 300-baud. That has dropped to bare bones commodity pricing. The price drops in both of those are primarily due to the proliferation of fiber backbones and the wide availability of cheap bandwidth.
OT - but RE:
WOW$
ac
Yup, As I watch this trainwreck, I recall the UKPound trainwreck over 5 months in late-summer and autumn of 1992 ( and the one in 1984 and the one before in ... - IMO all part of the adjustment process for the end of the British Empire and dragging itself into participating in the new reality with tremendous ebb and flow of political and economic cross-currents)
When does it start hitting the average Joe's consciousness ? I'm not sure - I've read the 1/3 of the US population doesn't have a passport so their awareness of the importance of the dollar exchange rate could be abysmal.
-K
If we can figure this conundrum out, we could stand to make a few bucks i think!
You would be better off making a few Euros the buck just ain't worth what it use to be kind a like McMansions.
energyecon,
I believe there is a plan involving the sacrifice of the housing market (deflationary) to offset the possible wave of incoming inflation.
This may keep the inflation numbers within the comfort zone. What a relief! Call it the NINHNG (no income, no house, no gasoline) plan (to replace our NINJA loan plan).
By the way, NINHNG seems to be a word, at least in some language. There are six hits for it on the Internet. Perhaps it is Chinese.
This no saving for retirement plan will work out beautifully if our kids implement Soylent Green on our asses.
Commodities headed for the biggest monthly gain in 32 years, led by wheat, crude oil and gold, as the dollar's slump enhanced the appeal of energy, grains and precious metals as a hedge against inflation.
Commodities Post Biggest Monthly Gain in 32 Years (Update2) - Bloomberg.com
Ya think?
From wht i underatand, tradestation routes orders as agent... no interilzation of order flow...'05 data
I believe there is a plan involving the sacrifice of the housing market (deflationary) to offset the possible wave of incoming inflation.
That's crazy, Mark. For every 1% national housing prices deline, there will be several hundred thousand extra foreclosures.
Foreclosures have untold cost on many levels, especially state/local revenues. Taxes are a household expense, similar to inflation. Responsible policy-makers should be trying to reduce foreclosurs, if at all possible.
The effect of MEW or housing wealth on PCE cannot be considered in a vacuum.
Two points:
First, PCE (or, better yet, personal outlays) should be evaluated relative to disposable income. Real DPI (4-Q change) has actually trended up a bit during the past year.
Second, stock market wealth (or non-housing wealth) also by most estimates exerts a significant effect on PCE. Stock market gains have been quite strong, on net, in recent years, which ought to be at least partially offsetting the effects of weakness in MEW/housing wealth.
as a hedge against inflation.
who wrote that... lmao
a comodity contract that you must take physical delivery of and is subject to spoilage is Not a hedge against inflation.
I wonder,
Since the Fed has been saying "the biggest risk to our assesment is that inflation will fail to moderate as expected..", and Paulson has been saying that a strong dollar is in our interest....how can they justify cutting again?
I realize they have a mandate to make sure the markets are working but they also have a mandate to prevent inflation and keep the dollar strong.
Well, last time they could justify the cut based upon a "time sensitive emergency" being the immediate threat of a credit crunch. However that appears to be moderating (eye of the storm IMO).
In addition, now the have record oil prices, and a record weak dollar. These things are making records that are hitting the main stream press and appearing in more media daily. This makes it very difficult to deny and begins to even make a bigger mockery of their inflation gauges.
Thus the fed is unable to hide behind the immediate threat of a credit cruch while the immediacy has shifted to inflation and a weakening currency. Add to that a DOW approaching a record high, and it's difficult to imagine how they could not be forced to raise rates and will have a tough time just keeping them the same without laying bare the hypocracy the we all know exists.
Interesting times. Credibility in the balance.
"a comodity contract that you must take physical delivery of and is subject to spoilage is Not a hedge against inflation"
I've had my gold and silver over 4 years and that stuff hasn't spoiled yet.
rich,
I was being sarcastic!
My bad. I should have used the rolling eyes disclamer, lol.
Just an observation re the upcoming holiday season. I was just over at the largest terminal in the largest port in the US, and the place was extremely quiet - very few trucks coming through the gates, no lines, no nothing. This is typically the peak season to get goods to the merchants in advance of Christmas. So I asked an employee "isn't this your peak season? What gives?" He responded "Yup, we are right in the middle of our peak season, and we have been extremely slow." Typically this time of year I look out my office window and see container ships lined up at anchor all the way down the coast waiting for a berth. During big years, the ports get so overwhelmed that the whole delivery system melts down to a crawl due to bottlenecking. Now I see nothing but tankers and a few breakbulk ships at anchor. It's dead.
undercover,
Agree. Real DPI growth is quite healthy.
Regulators Close Troubled NetBank
American Banker |
By Joe Adler
WASHINGTON The Office of Thrift Supervision announced on Friday that it had closed NetBank. The shutdown marked the biggest failure of a depository institution since the savings and loan crisis.
The OTS appointed the Federal Deposit Insurance Corp. as the conservator for the $2.5 billion-asset Alpharetta, Ga., thrift, which had about $2.3 billion of deposits as of June 30.
NetBank, which had suffered a high mortgage exposure and failed bids to sell off nonperforming units, was the largest institution to fail in 15 years. Meritor Savings Bank of Philadelphia failed in December 1992 with $4.1 billion of assets and $2.9 billion of deposits.
The thrift, which specialized in Internet banking, was shut due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies, the OTS said.
As a result, the OTS executed a formal enforcement action with NetBank in 2006 directing the institution to correct its operating deficiencies and enhance its capital position, the OTS said. While the institution continued to operate in excess of minimum capital standards, the actions taken to address these problems were unsuccessful and it became clear that high operating expenses combined with continuing losses were jeopardizing the institutions viability.
The OTS said it shut the thrift after NetBanks efforts to sell to EverBank Financial Corp. fell through last week.
The institution had no remaining prospects for raising capital and achieving profitability, the OTS said. Accordingly, the OTS exercised its authority under the Home Owners Loan Act to appoint the FDIC as receiver of the institution.
Dear Group
Where can I find information on the personal savings rate...and is it not negative anymore?
Thanks
Love the pink sheets ticker symbol for NetBank - NTBK.
Kett82,
Here
and here 
.
Correct, it is not negative. The downward revisions to GDP for the last few years were because consumers didn't spend as much as previously estimated.
Undercover said: "Second, stock market wealth (or non-housing wealth) also by most estimates exerts a significant effect on PCE. Stock market gains have been quite strong, on net, in recent years, which ought to be at least partially offsetting the effects of weakness in MEW/housing wealth."
Is this really the case? Is the MEW-ing portion of the US populace the same as that portion enjoying stock market gains?
Undercover:
For PCE: Disposible income needs to be viewed in the light of the real inflation rate, not the ex-gas, ex-food, ex-housing core cpi (which is a statistical fraud anyway). Also Wall Street gains are made by the holders (many institutions, few consumers). The real damage is hitting the J6P consumers who are the base of the whole pyramid. The housing debacle started in the low-middle income areas, and is spreading up the food chain. The expense squeeze, mortgages, food, gas will hit there first as well, and that's where consumption will start to drop. Martha's Vineyard houses, and Tiffany consumption are still strong. It's going to be a Wal-mart, chevy, Modesto led recession, but it will spread to the rest of the economy, IMHO.
I'm seeing that bad idea poking its head up in this comment section. The bad idea that the dollar is "the most important thing." The dollar is not doing anything that would panic the Fed. In fact, the dollar is part of the mechanism that transmits Fed policy. We can expect less drag on growth from net exports with a weaker dollar. Fed guys say they are worried about growth more than inflation now. They have adjusted policy accordingly.
The Fed is responsible for the dollar in terms of its domestic purchasing power. It has a big impact on the foreign exchange value of the dollar, but no mandate to target the dollar's fx value. If you think the Fed does target the fx value of the dollar, you are going to be confused and frustrated by the Fed's policy actions. Governor Mishkin said today that the dollar's weakness is not a problem. Lockhart said the dollar is not a big deal for monetary policy prior to the Fed's ease. Many Fed officials have said so in the past. They consider the dollar's performance, along with "many other factors" in setting monetary policy.
By misusing terms, we can talk ourselves into things that are not true. The dollar has not lost 4% of its PURCHASING POWER vs a basket of currencies. It has lost 4% of its value against that basket. The dollar's purchasing power is rightly defined by what it can purchase, not what it fetches in exchange for other currencies. That distinction is critical to the Fed's view of things. The Fed's mandate does not cover what gold traders can purchase, or what foreign exchange traders can purchase, until they go to the store and stock up on household items. Nobody in the US has to buy euros with dollars before we buy an apple, unless we are lucky enough to be traveling.
The dollar fell faster in 2002 than it is now. It was far weaker in the early 1990s, against the broad basket of currencies the Fed publishes. And that doesn't take into account the yuan, against which the dollar is quite stable, even though much of the country has been howling for years for a weaker dollar against the yuan.
The dollar is merely a reflection of other things that are going on. It can contribute to inflation, but so can a bunch of other stuff that results from Fed easing. The dollar is reflecting the Fed's ease, along with slowing growth (which the Fed ease might help to cure), more volatile returns on financial assets (which the Fed ease might help to cure) and portfolio decisions buy central banks (over which the Fed has no direct influence).
So it may be fun to complain about the dollar, but don't make the mistake of thinking the Fed is worried about it - for now.
"So it may be fun to complain about the dollar"
Who's complaining? I want them to cut again ASAP.
k,
That distinction is critical to the Fed's view of things.
LOL! Please explain that to J6P who is living the 'non-inflationary' Fed viewpoint...
There will be inflationary effects for US consumers however you care to parse the language.
So your position is the Fed is not concerned about foreign capital flight?
What does the Fed think about commodities posting the biggest monthly gain in 32 years?
k harris you say the Fed is not worried about the dollar
perhaps you should look at this
US dollar under W is LOWEST EVER
http://graphics8.nytimes.com/images/2007/09/22/business/22charts.700.jpg
shows that the dollar under George W. Bush is the lowest ever in floating era since 1971 ( or the change from gold standard )
All, Goldman Sachs just waved the Yellow Flag on a recession (not Red yet). Some short excepts:
Over the past several months many economic measures have sunk to levels that they have only previously breached in, or just before, recessions ... a recession prediction model ... indicates about a 40% probability of recession ... The ex-housing economy appears to be coasting ... Confidence remains weak, and early signs suggest spending slowed in September. ... Coast along long enough, and eventually you slow down.
Best to all.
From max c at Mish's blog
FFR at 5.23%
FT.com - Markets Data - Research Data Archive / Markets Interest Summary
K Harris,
I agree the fed is not or may not be worried about the dollar....but that was my point.
They lose credibility when they say they favor a strong dollar. Even if they don't consider the FX, the rest of the world does and prices their products (oil anyone) and buys our debt with that in mind.
So yes, they may disregard a dollar against other currencies, but their "basket of goods" is being bought by other stronger currencies in this global market and at least that logically could lead to higher domestic inflation.
They already face a large constituency who is suspect of their measure of inflation (minus housing, food, and oil--the three things that virtually EVERYONE needs, come on).
Anyway, it's tougher and tougher for them to convince even those who normally don't pay attention when they say there is no inflation as gas and food are rising to media attention levels.
Fortunately for them we are a nation of borrowers and not savers so there are far more people who care about lower borrowing costs than there are those relying on bank rates for their income.
It's a credibility issue is my point.
Steve,
Please! You're killing me! The personal savings rate is a joke...
"What does the Fed think about commodities posting the biggest monthly gain in 32 years?"
The FED is to busy proping up zombie banks and zombie consumers to worry about commodity prices.
holy crap! I once had money in NetBank a couple years ago. Jesus.
============================
re:
The dollar has not lost 4% of its PURCHASING POWER vs a basket of currencies. It has lost 4% of its value against that basket.
Good old Harold Wilson, British PM, tried those verbal gymnastics in 1968 when announcing the 14% devaluation of the UK Pound, quote : "It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued."
BBC ON THIS DAY | 19 | 1967: Wilson defends 'pound in your pocket'
All he got for that was a collective raspberrry, as they say, blown at him by the vox populi.
-K
CR,
good catch,
In writing my first post it made me think that there is a vested interest in the financial world to give ammo to the fed to cut more.
They'll play up the recession issue some, but probably will also wine about credit problems leading up to the next meeting.
Short of that they may take a risk of some short term losses by heavy stock selling in order to get people "worried" again like last time when the market went from 14000 to 13000.
Should be interesting.
In any case, I predict Goldman and others to be vocal about problems to give the fed cover for another cut. They know with a crashing dollar and high commodity rates, they will have to create bigger and more immediate "threats" to the economy.
NetBank is a great example of why the FDIC needs to be monitoring the situation. A no warning takeover and funds available in 2-3 days. This way there is no panic unlike what happened at Countrywide and Northen Rock.
Hilarious! The suggestion is that you should sell any security that is the subject of a Warren Buffett rumor...due to most of them tanking soon thereafter.
Buffett Sell Signal
By David Wilson
Sept. 28 (Bloomberg) -- Speculation that Warren Buffett would come to the aid of Bear Stearns Cos., the fifth-largest U.S. securities firm, may be a signal to sell its shares.
[snip]
We remain bullish on the go global theme, even though it is now widely embraced by investors.
Global portfolio investment flows continue to move towards equities, commodities and currencies that are farthest from the U.S. housing market, i.e. away from the epicenter of economic weakness. The relentless slide in the stock prices of U.S. subprime lending companies is ominous for homebuilding stocks (please see yesterdays Feature Story). In fact, subprime lenders' stocks hit new lows Wednesday, despite the rally in the S&P 500 index during the past week! Conversely, emerging market equities have completely recovered, hitting a new high. Meanwhile, the dollar continues its steady downtrend, reflecting waning interest in U.S. paper as a consequence of relatively unattractive economic and investment prospects. In sum, the environment is the opposite of the 1990s, when the dollar and U.S. equities were king.
BCA Research
Yup crashing dollar don't mean nothin.
"Is the MEW-ing portion of the US populace the same as that portion enjoying stock market gains?"
Good point, but it was the big thing among a certain set to take out interest only loans on "dead money" equity so you could get greater returns elsewhere. Kiyosaki-ism I think it's called. Somebody must have done it or the financial press wouldn't have persisted so long with the meme.
Then there's a larger demographic that may be cashing in retirement accounts when their home ATMs are out of order. So yes, I could see it having an impact.
WOW$ - ac
Interesting coincidental input... today about 3 PM one of the guys I sell for called and asked if I wanted to come in over the weekend and run machines for him (I don't run machines). I asked what this was all about and he said he had just received the largest order for parts he's ever seen from them... BIG order... and he has other orders on the books from the same company he hasn't even run yet. They doubled down big time.
What he really wanted me to do was have me ask if it was okay to run a little late on the delivery (if not THEN come in and run machines over the weekend).
The customer has been buying a lot from offshore the last few years. Obviously something has changed and very recently.
Maybe the dollar fall is a coincidence - maybe not. I have to ask around there a little more.
Also the customer is NOT in automotive or appliances or anything homebuilding related. They make equipment for 'infrastructure'. Electrical transmission, roads, energy exploration - etc. So PCE doesn't apply so much... they are REAL busy.
On the other hand I was at a company this week that does do automotive... almost 100%... they are in deep doo-doo. No one would admit it but folks are leaving the company while the getting is still good.
It is a very mixed bag out there right now.