bank run blog

Amid the nervous chatter about green shoots and imminent recovery, it is difficult for anyone outside the deluded and lavishly subsidized financial sector or its laptop-wielding lapdogs in the business media to get too optimistic, as they are buffeted by reports of record foreclosures, record commercial bankruptcies, and, today, record unemployment.

The latest figures from the federal government put the national U3 rate at 9.4 percent, with the U6 at 16.4 percent. According to the Associated Press :

“The unemployment rate in the West jumped over 10 percent last month, the first time that regional threshold has been broken in about 25 years. On the state level, eight set record-highs and only two — Nebraska and Vermont — did not report increases.

The Labor Department reported Friday that 48 states and the District of Columbia saw employment conditions deteriorate last month. The fallout from the longest recession since World War II, was the worst in Michigan as automakers cut tens of thousands of jobs. Its unemployment rate rose to 14.1 percent.

The West region reported the highest jobless rate at 10.1 percent. The last time any region had a rate of at least 10 percent was September 1983, when the country was emerging from a severe recession.

The region is home to California, where the jobless rate jumped to a record 11.5 percent last month, Nevada, where it’s a record 11.3 percent, and other states that have been slammed when the housing boom went bust — snatching jobs and wealth.

The other six states that set new highs on records dating to 1976 were: North Carolina, Oregon, Rhode Island, South Carolina, Florida and Georgia.”

The situation is no longer confined to the Western region, or to the worst of the residential bubble states, as deteriorating fundamentals undermine the US economy in more serious and lasting ways than even during the 1930’s. CNN reports that thirteen states now have official unemployment rates above 10 percent :

“Several states and regions posted their highest unemployment rate since the report debuted in 1976.

Over the year, jobless rates were higher in all 50 states and the District of Columbia.

Michigan once again led the nation with a 14.1% jobless rate, up from 12.9% a month earlier, followed again by Oregon at 12.4%, up from 12% in April. Thirteen states have rates above 10%.”

Associated Press : Jobless rate in Western US tops 10 percent

CNN Money : Jobless rate rises in nearly all states

Bureau of Labor Statistics : The Employment Situation : May 2009

Just as the some of the nation’s largest and most coddled banks step up to ostentatiously “repay” a tiny fraction of the money that the Treasury and Federal Reserve have funneled to them through a purposely bewildering variety of mechanisms since August 2007, the ratings agencies have discovered similar widespread insolvency at the regional and super regional level. According to Reuters :

“Standard & Poor’s on Wednesday cut its ratings on 18 banks citing expectations of more difficult operating conditions due to volatile financial markets and tighter regulation.

Among the rating changes, S&P cut the counterparty credit ratings of Wells Fargo & Co by one notch to AA-minus, U.S. Bancorp by two notches to A-plus and Fifth Third Bancorp by two notches to BBB.

S&P also downgraded the counterparty credit ratings of Huntington Bancshares and Carolina First Bank by two notches to junk-status BB-plus with a negative outlook. It also cut Citizens Republic Bancorp counterparty credit rating by three notches to BB-minus with a negative outlook.”

The Associated Press reports that S&P analysts predict “permanent repercussions” still to come from the banking crisis that so many believe is over :

“Widescale changes to the industry because of the credit crisis and ongoing recession will dramatically alter the banking landscape, S&P credit analyst Rodrigo Quintanilla said in a release.

‘We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions,’ Quintanilla said. ‘Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality. Such a transition period justifies lower ratings as industry players implement changes.’”

Reuters : S&P cuts credit ratings on 18 US banks

Associated Press : Standard & Poor’s cuts ratings on 18 banks

Bloomberg : U.S. Stocks Fall, Led by Banks on Downgrade; Health Shares Gain

As politicians and financial gurus spin happy talk about the chimera of a recovery, and America’s ‘private banks’ cue up on the receiving end of the so-called public/private partnership offered by the Treasury Department, regular working Americans see something else on the horizon and prepare for a coming cataclysim, the Associated Press writes;

“From teachers to real estate agents, these budding emergency gurus say the dismal economy has made them prepare for financial collapse as if it were an oncoming Category 5 hurricane. They worry about rampant inflation, runs on banks, bare grocery shelves and widespread power failures that could make taps run dry.”

At least working America’s interest in end-times preparedness has created a bit of survivalist-bubble, the AP reports;

“The surge in interest in emergency stockpiling has been a bonanza for camping supply companies and military surplus vendors, some of whom report sales spikes of up to 50 percent. These companies usually cater to people preparing for earthquakes or hurricanes, but informal customer surveys now indicate the bump is from first-time shoppers who cite financial, not natural, disaster as their primary concern, they say.”

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Associated Press : Crisis spurs spike in ’suburban survivalists’

Speaking to members of Congress today, Federal Reserve Board Chairman Ben S. Bernanke delivered a message of cautious optimism about the US economy, saying that modest growth may be possible later this year. The Associated Press reports :

“Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy should start growing again later this year, his most optimistic assessment of the country’s financial health since the recession struck with force last year.”

Bernanke sees reasons for renewed hope that the economy may be on the rebound :

“’We continue to expect economic activity to bottom out, then to turn up later this year,’ he told lawmakers. ‘We expect that the recovery will only gradually gain momentum.’

Recent data suggest the recession may be loosening its grip on the country, Bernanke said.

‘The pace of contraction may be slowing,’ he said. It was similar to an observation the Fed made last week in deciding not to take any additional steps to shore up the economy.”

If the tenor of Bernanke’s economic prognosis sounds familiar, it’s only because you’re paying attention. Here’s what the Fed chairman told an audience of distinguished academics and policymakers at the International Monetary Conference in Barcelona in June, 2008 :

“We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus, reduced drag from residential construction, further progress in the repair of financial and credit markets, and still solid demand from abroad. This baseline forecast is consistent with our recently released projections, which also see growth picking up further in 2009.”

Today’s guardedly upbeat remarks were made in Congressional testimony before the Joint Economic Committee. Bernanke told the same committee in March, 2007 :

“Growth in consumer spending should continue to support the economic expansion in coming quarters. In addition, fiscal policy at both the federal and the state and local levels should impart a small stimulus to economic activity this year.”

Bernanke’s forecast for 2007 concluded :

“Overall, the economy appears likely to continue to expand at a moderate pace over coming quarters. As the inventory of unsold new homes is worked off, the drag from residential investment should wane. Consumer spending appears solid, and business investment seems likely to post moderate gains.”

Keenly sensing a “cooling” of the US housing market in 2006, USA Today reported that Bernanke was expecting a “soft landing” :

“The housing market, after flying high for five years, has lost altitude but appears headed for a safe landing, Federal Reserve Chairman Ben Bernanke said Thursday.

‘It seems pretty clear now that the U.S. housing market is cooling,’ Bernanke said in a question-and-answer session following a speech he delivered on banking in Chicago.

He noted that home sales and construction are slowing.

‘Our assessment at this point … is that this looks to be a very orderly and moderate kind of cooling,’ Bernanke said.”

A former professor of economics at Princeton, with degrees from Harvard and MIT, it is certain that Bernanke is one of the best and brightest of his generation. The question is, at what?

Associated Press : Bernanke: Economy should grow again later in 2009

Federal Reserve Board : Remarks by Chairman Ben S. Bernanke at the International Monetary Conference, Barcelona, Spain (via satellite), June 3, 2008

Federal Reserve Board : Prepared Testimony of Chairman Ben S. Bernanke Before the Joint Economic Committee, U.S. Congress, March 28, 2007

USA Today : Bernanke: Housing market is headed for a soft landing (May 18, 2006)

Data from the Federal Reserve shows that, as can be expected in a deflationary depression, bank lending has continued to contract. This, in the long term, would actually be good for the underlying fundamentals of the economy, but it is disastrous for those who hope to paper over the cracks and rebuild in the same sandbox. The Associated Press reports :

“A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday.

The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.

Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the last survey.

‘Even if you had a stellar credit history, banks were reluctant to lend in this environment,’ said Richard Yamarone, economist at Argus Research. With unemployment rising, it raises the odds of more people defaulting on their mortgages, he said.”

According to the Financial Times, the tendency was also apparent in commercial loan activity :

“About 40 per cent of US banks said they had tightened standards on commercial and industrial loans to businesses over the previous three months, the survey reported. The Fed said this proportion was “still very elevated” but noted that it represented fewer than half the banks for the first time since January 2008.

About 80 per cent of US banks said they had increased spreads on loans to large and mid-sized businesses, down from 95 per cent in January.

‘Large majorities of both domestic and foreign banks reported a less favourable or a more uncertain outlook, a worsening of industry-specific problems and a reduced tolerance for risk’ as reasons for tightening standards and terms on business loans, the Fed said.”

Associated Press : Fed says more banks tighten home loan standards

Financial Times : Bank lending terms keep squeeze on consumers