barely said: "Sebastian, does it look like the delinquencies are topping out and this is a regular mid cycle slowdown?

This summer the wheels will come off."

Don't bet on it.

The data that CR posted only goes back to 1991 and he only included three (cherry-picked) data-sets.

However, if you look at the link he posted:

FRB: Delinquency Rates; All Banks, SA

...and look at the far right-hand side (with total loan/lease data that goes back to 1985), the delinquency rates on total loans and leases have been a lot higher in the past than they are now.

Sebastia

...and look at the far right-hand side (with total loan/lease data that goes back to 1985), the delinquency rates on total loans and leases have been a lot higher in the past than they are now.

Sebastian

And what were people paying for interest until late 1993, double digit rates? People are starting to default on rates at half the interest of "the good old days."

Who's the one cherry picking? At least CR states that the data sets only go back to a certain point.

Inspecting the fine graph, credit card delinquencies seem more likely hit their all-time record before mortgages do. Who posted yesterday that card issuers would start imposing declining market restrictions on their customers?

What happens when the streams cross? Geometric or parabolic credit destruction?

Good thing the FED doesn't have any of this junk on it's balance sheet!

--
Price declines are continuing in the worst hit metros as well as nationally and so foreclusures will keep rising exponentially.

We are in the second inning of the credit Crisis.

Jas

"I say next year this time we decide who gets the Macklowe Award. O-Joe or Sebastian. I doubt they will be around to accept."

Of course they will. They're trolls. Why else would self-professed super-optimists hang out here? All they have to say is, "It's a good time to buy," and they get all sorts of attention.

You all gave the troll a good feeding just now. You even woke him up to do it, because you were bored. He'll never leave you.

What were the debt levels in relation to GDP than they were in previous recessions?

Can someone explain how the higher debt levels now are not relevant?

Credit card delinquency rates are at 4.86%, about the same level as the peak of '01 recession.

So you're saying we're at the bottom?

The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices.

So everything will always be carried on the books at the highest price anybody ever paid for it?

Sure, why not.

"A stupid man could never lose $100 billion. For that, you need a room full of geniuses."

Still looking for the source for that quote...

Is the definition listed for delinquent also for credit cards (payment more than 30 days overdue)? Does that mean that someone who doesn't pay the total balance due every month will always be placed in the category of delinquent payer? Even if he/she is gradually paying the principal down?

Just trying to get an idea of what the % means or indicates as it applies to credit card debt.

FWIW - I assist some older folks by handling their finances and have noticed recently that the minimum payment on their CC is frequently zero. This hadn't been the case in the past (they always carry a balance).

Assuming that "delinquent" means the minimum due hasn't been paid, if the minimum is zero then the cardholder can't be delinquent. By varying the minimum payment due, credit card delinqency rates could be manipulated to the point of meaninglessness.

Look at the slop of rise in Commercial Real Estate, it dwarfs the residential RE.

What is a good short in Commercial RE ?

lol. Is oil up to $134.88?

ac,

There are many prices for crude...

Well, it seems like the WTI front month is most popular around here. Just looking at Bloomberg I'm seeing it's closing in on $135:

Bloomberg Commodities

Based on it's chart and price/volume action, I believe that WCI is going to meet its' maker soon. It's trading near the Jan. low ($1.36/share), and the volume has been increasing. A major default on debt maturing in 2013 may occur next in August, and that may be the liquidity event that sends WCI to the same fate as Technical Olympia and Levitt.

Soon it will be a sub-$1.00 penny stock, marooned in the horse latitudes of the pink sheets.

I predict it will go bankrupt before Labor day.

By Thanksgiving, the cries from the homebuilder analysts will be "bring out your dead!"

It's going higher until we get some adult on the playground that has had enough of this crap and cranks margin requirements up and pinches the head off of this snake. Just like the Hunt bros trapped like rats and no where to go.

When it comes down to it I think hedge funds will find reasons to speculate in rocks and dirty clothing if they can't speculate in commodities or bonds or stocks.

These negative real interest rates are like injecting insanity straight into the financial system.

Of course when you try to forcibly make people bet against money you get all sorts of madness. The only thing that's crazier is thinking that these bets will involve productive investment.

LOL.

FT-Top banks call for relaxed writedown rules
"The world’s leading banks have stepped up pressure to relax controversial accounting rules with a new plan aimed at breaking the “downward spiral” of huge writedowns, emergency fundraisings and fire-sales of assets. The proposals on “fair value” accounting by the Institute of International Finance, an alliance of 300-plus companies chaired by Josef Ackermann, Deutsche Bank’s chairman, would enable financial companies to cushion the blow of financial crises by valuing illiquid assets using historical, rather than market, prices."
FT.com / Financials - Top banks call for relaxed writedown rules

Kids.

We are entering a point where there are no more immediate options.

The gas pedal has been on the floor for just too long and the cliff is just too close. The breaks won't do it. Jumping out will only kill ya.

Alec- "What in Glass/Steagall would have prevented anything in this credit crisis so far?"

Damned near all of it, although I would argue that the dike began to show cracks during the late sixties, long before the final repeal of Glass-Steagall, with the Bank Holding Company Act.

Wall Street Examiner: Beserker Funds in Commodities"

“In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion to 2.8 billion barrels, and increase of 920 million barrels. Over the same five-year period, Index Speculators demand for petroleum futures has increases by 848 billion barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!

In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over the
last five years.

Masters believes the cause of the surge in prices is institutional investors diversifying into commodities indexes. He proposes Congress should change ERISA to outlaw pension funds from investing in Commodities.

The scary thing is that if Masters got his way you'd have all these folks exiting their positions at once. In addition to the losses to pension funds and endowments as they all headed for the exits at once, a crash in prices to below the marginal cost of production could set us up for an ugly whipsaw in prices.

AC,

What in Glass/Steagall would have prevented anything in this credit crisis so far?

I've also asked that question several times when arguing about regulation.

The point I've tried to make before is that if you are going to have free markets then you have to accept the consequences.

I think the mistake we've made is to have this endless series of bailouts, really starting with the 1987 stock market crash, in an attempt to have the free markets without the short-term pain of bad decisions.

This has basically selectively rewarded "criminal" behavior and turned the free markets more and more into an instrument of abuse.

I don't think the ideal solution is to throw everyone in jail. I'd really like to maintain markets that are as free as possible.

But I feel like the financial industry is saying "OK, but just one more bailout". Empirically it seems like each bailout just makes the situation worse so I have trouble swallowing this line. Plus these kinds of markets really aren't free. They're rigged in favor of the finance sector at the expense of the public.

If the damage that has been done is so bad that ultimately we do lose our free markets in the near future and are forced into some far more socialist and far less free system, part of me still wants to see some justice done since we're basically destroying the system anyhow. IMO there has to be some cost of screwing up on a collosal scale focused on those primarily responsible for the screwing up, otherwise social structure begins to dissolve.

But I'd rather deal with the pain and keep things mostly the way they were except without the excesses created by serial moral hazard amplification.

Somehow I think that involves not allowing the financial industry to keep gaming the rest of us.

I'm getting old. The last sentence in my last comment should have read:

...with the [amendments to the] Bank Holding Company Act.

Under Glass-Steagall, banks were forbidden to engage in investment banking activities, as many were prior to its passage.

The large east (think Chase, First National City) and west (BofA, Security Pacific) coast banks tried to get around Glass-Steagall by setting up holding companies, which resulted in the Bank Holding Company Act.

Remember, the large banks expected passage of the National Banking Act in 1929 and they were preparing for it. Even Bank of America bought a New York bank, which they were later forced to sell, in preparation for nationwide banking.

To get around Glass-Steagall, many set up holding companies, transferring the bank's stock to the holding company, then using the holding company to buy into investment banking and other activities. That brought about the Holding Company Act of '56.

The big banks started to spread money around Washington during the sixties and began to gut the act with amendments.

Well, the wheel turned around in the nineties when national banking was finally lobbied through, and commercial banks got back into investment banking.

Voila. What goes around comes around.

dryfly- "But anti-trust is also where we've failed the most. It was one of the first places the 'deregs' hit. That was not an accident."

Sometime during the early nineties, '94 I think, I saw a copy of a letter from the president of the Richmond Fed to the Chairman.

The letter concerned national banking and that they expected to end up with 4-6 banks with over 90% of the retail business. Richmond thought that was a good thing.

The letter concerned national banking and that they expected to end up with 4-6 banks with over 90% of the retail business. Richmond thought that was a good thing.
mp | 05.21.08 - 11:46 pm | #

My sister worked as a prosecutor for 'tax' at DOJ throughout the 80s... she knew attys in A/T and she told me pretty much the same thing... That they all told her financial dereg would be 'no problem'. I mean it all made sense at the time... at those cocktail/cocaine parties the DC smarts all hung out at back then. What could possibly go wrong? snoooooort

Bear in mind that these historical default ratios were generally experienced under lower leverage ratios.

Were they? I'd like to see that info too because my recollection of S&L and oil patch and farm crisis default blow outs of way back when was that they were every bit as leveraged then in those industries as today.

But that's sort of like comparing Babe Ruth to Barry Bonds. You know, things do change.

Don't get too excited abot the BED nmbers. Emploment in the construction industry and related industries are having an outsized impact. Remember, there is a depression in certain sectors of the economy right now which is distorting things a bit.

FFDIC writes:
FT-Top banks call for relaxed writedown rules

mock turtle recalls that bob dylan sang
"steal a little and they will throw you in jail...steal a lot and they'll make you the king"

All,

Thank you for even attempting an answer, it's helpeed a lot.

mp,

thank you for the holding corp law info. Without that what people refer to as G/S would have no teeth.

That being said, isn't the big problem at the end of the day the utter lack of oversight? Even Citi's incompetence would've been blunted at some point if TPTB actually gave a shit?

There is rampant corruption in our system. One thing we could change is the treatment of corporate "persons". No "free speach" political contributions from corporations. Period. Offset this with elimination of corporate taxation. Then tax capital gains fairly.

Dryfly:

Good regulation makes it easier to say 'no' to a bail out.

Some thoughts:

I would disagree, in that I think a good regulator makes it easier -- indeed, possible -- to say no to a bailout.

The regulation itself is not precisely irrelevant as it sets up the regulator and their focus of attention. However, the part that is the human capital and institutional capital implicit in the day to day operations of the regulatory bureaucracy is the final test.

IMO, this situation has come to pass not because the rules were ineffectual, because all rule are ineffectual. They are words on paper. The problem arises because the regulatory apparatus and the more general state apparatus that provides the regulatory context have lost their way.

This has everything to do with policy leaders at the executive and regulatory level who are not administratively competent or cognizant of the long-term consequences of their actions. The policy just followed along behind the lapsed regulator, and IMO, would have no matter what the formal regulation's original intent or form was.

Not italics to jump on Dryfly, just to underline the crux of the argument. I don't think I'm being picky or splitting hairs. This is a situation that needs to be answered with a twofold emphasis on growing a decent civil service and increasing the awareness of the population to these policy issues and the role of policy apparatus in reaching solutions.

These are probably insurmountable challenges at this time as the context of decaying states is a self-reinforcing spiral. However, Americans are not the only people reading this. Also, presumably some of us, perhaps just the younger posters, will be helping refound the American state.

I think the real similarity between America and Japan is the intimate relationship between the state and its commercial denizens.

Shared personnel bring about perception of shared interest between the individuals, even if the relationship is largely adversarial by statutory or administrative intention. No doubt, they bring their own illnesses with them, but IMO this crisis really speaks for the utility of a competent and relatively powerful administrative profession / caste that does not draw from the same pool of talent, and loyalties, as private business. It can certainly be said you are trading vested interest for vested interest, but that's true of any administration; if you didn't have multiple parties vying for scarce resources, you'd never conceptualize putting an administrative apparatus in the middle. It seems to me that regulatory capture as a matter of personnel policy is showing its secondary costs far outweigh the savings in training (Japan) and regulator/regulatory sphere information passing (Japan & America).