bank run blog

A Minnesota bank was taken over by regulators on Friday, becoming the fourth bank to fail this year. According to the Associated Press :

“Federal regulators on Friday shut down a small Minnesota bank called First Integrity, saying unsafe practices had weakened its financial condition.

The Federal Deposit Insurance Corp. was appointed as receiver of First Integrity National Association of Staples, Minn., which had $54.7 million in assets and $50.3 million in deposits as of March 31.”

This week the FDIC issued a warning that US banks remained at risk, despite a mad rush to hoard reserves since last August. The New York Times reports :

“The Federal Deposit Insurance Corporation warned Thursday that the nation’s ailing banking industry was likely to weaken further.

The F.D.I.C. said the combined profit of the financial institutions it regulates plunged 46 percent, to $19.3 billion, during the first three months of the year.

During that time, banks and savings institutions set aside more money to cover future losses than in any quarter in the last 20 years, the regulator said. Reserves totaled $37.1 billion — four times their level a year earlier.

Even so, the percentage of troubled loans covered by such reserves, a measure of the industry’s strength known as the coverage ratio, sank to its lowest level since 1993. The number of borrowers who fell behind on loan payments increased sharply during the quarter.”

Associated Press : Bank regulators shutter First Integrity bank

New York Times : Agency Sounds an Alarm on Banks’ Shaky Outlooks

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The disorderly unwinding that economists have feared is upon us, and one result is that uncertain investors have been driving up commodities, which are suddenly seen as the only safe haven for large positions. The Associated Press ran an analysis today titled Institutional money drives up commodities :

“Institutional investors such as pension funds, university endowments and sovereign wealth funds have ramped up investing in commodities as a hedge against inflation and to seek out higher returns versus stocks and bonds.”

The institutional dollars have to go somewhere. For the last decade they have flowed into various securitized debt instruments, but now that party is over. The AP piece continues :

“In recent weeks, however, more attention has been drawn to the big money these investors are putting into commodity-index funds. They don’t actually own any of the commodities. Instead, they trade futures contracts, which are agreements that oblige the investor to buy or sell an asset at a predetermined price. Futures are considered a benchmark for prices in the market.

Critics allege that the continual inflow of institutional money is hijacking the market because the indices are permitted to bypass traditional speculative position limits imposed by the Commodity Futures Trading Commission.”

full story

One bubble begets another in an economy where the only product is debt. USA Today looked at market behavior last week, wondering Commodities bubble brews? :

“Commodities are the first growth industry of the 21st century. The prices of energy, basic metals and foodstuffs have soared, and so, some say, has speculation. This year alone, cocoa is up 40%, copper has soared 24%, and corn has risen 33%. And the price charts for some commodities are beginning to look suspiciously like the Nasdaq fever line in 1999, just before the tech-laden stock index crashed in March 2000. And, as the economy continues to work through the more recent crash in home prices, the question inevitably arises: Is there a commodities bubble brewing?”

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The rebate checks that have been sent out to US taxpayers in an effort to revive consumer spending are having little effect, with the weak dollar pushing prices higher on a wide range of goods and services. The Associated Press ran a feature today about the dissipation of the checks amid every day expenditures :

“But reality has interfered, in the form of ever-climbing food bills and $4-a-gallon gasoline. Day-to-day living costs have sopped up the checks for many other early recipients and spoiled their rebate fantasies. Government figures released Friday showed consumer spending inched up just 0.2 percent in April, despite widespread anticipation of the stimulus payments sent out starting late in the month.”

Consumer Affairs reported last week that retailers knew what was in store :

“A survey conducted for the National Retail Federation finds that the biggest leap in rebate spending will come at the gas pump, as 17.2 million people plan to use at least some of their tax rebate check to pay for gas, up from 12.1 million people who planned to do so in February.

The rising cost of everyday items like milk, bread and rice — and even chicken — means that consumers will wind up spending a bigger chunk of the checks on groceries, with 21.2 million people saying they will use a portion of the check for food, up from 20.4 million people in February.”

Associated Press : Many consumers spend rebates on cost of living

Consumer Affairs : Tax Rebate Checks Going Towards Necessities

Local TV station WKCRA in Contra Costa County, CA, reports on an incident of foreclosure arson. Redstateupdate.net reported earlier this year on the trend toward “foreclosure flameouts”;

“Occurances of homeowners turning to arson hoping to collect insurance money have cropped up across the nation. Insurance authorities in California have reported that suspicious fires that destroy foreclosed properties have doubled in the past year. The Deputy Fire Marshal of Fresno California told KFSN TV News that his department has seen personal residences, commercial properties and even vehicles set ablaze by frustrated owners who are faced with imminent foreclosure or repossession.”

see stories-

redstateupdate.net : Consumer Burnout Spawns Trashouts, Flameouts
WKCR TV : Three More Arrests In Lincoln Arson Attempt

General Motors has revealed a program to increase profits that includes retiring older workers early, hiring new workers at reduced wages and shifting its manufacturing focus from SUVs and trucks to more fuel efficient autos. GM said that more than 19,000 workers accepted an early retirement package. The Houston Chronicle writes;

“The world’s largest automaker expects to replace some of the workers at a new entry level wage of about $14 per hour, about half the rate of current production workers, as agreed to under a contract reached last year with the United Auto Workers.”

Analysts expect the company to hire as many as 16,000 non-assembly workers at a salary of half the wages of those workers who retired early. The company said, “This attrition program gives us an opportunity to restructure our U.S. work force through the entry-level wage and benefit structure for new hourly employees.” At the same time, GM plans to “furlough entire shifts of workers at some truck factories and may move them to nearby car plants as it restructures to adjust to a rapidly changing U.S. market,” according to the Chronicle.

The Toronto Star reports that the early retirement/wage-restructuring plan comes on the heels of General Motors announcing the “shutdown of a major transmission plant that will eliminate 1,400 jobs directly and thousands more indirectly.” The Star reported, “GM’s largest supplier, American Axle and Manufacturing Holdings Inc., said Wednesday it will cut more than half of its U.S. hourly work force, or 2,000 jobs.” The Star quotes the president of the Canadian Auto Workers union who said;

“For every manufacturing job that goes out of this plant, the economists will tell you there are six or seven other jobs that will be gone.”

see stories-
Associated Press : GM says 19K US hourly workers taking its buyout offers
Houston Chronicle : GM jobs may move from trucks to cars
Toronto Star : GM cuts 1,400 more jobs

The Federal Deposit Insurance Corporation reported today that banks that are insured by the FDIC have set aside $37.1 billion in the first quarter of 2008 to cover expected losses realted to failed mortgages and other loans, more than four times larger than the amount reported last year. The set asides were the largest ever reported by the FDIC.

The FDIC also said that banks profits have dropped by nearly half since last year at this time. The Associated Press wrote;

“Federal Deposit Insurance Corp. data show that Citigroup Inc., Bank of America Corp. and roughly 8,500 other institutions earned a combined $19.3 billion in the January-March period. That was a drop of 45.7 percent from the $35.6 billion earned a year earlier.”

Even though the industry has set aside tens of billions of dollars to brace for the failure of hundreds of thousands of loans, the Associated Press reported that the head of the FDIC, Shelia Bair said that the record level of reserves set aside by the banks “didn’t keep pace with the increase in troubled loans.” The service reported, “Troubled assets - loans that are 90 or more days past due - continued to soar in the first quarter, rising to $136 billion, an increase of 24 percent from last year.”

See articles-
Market Watch : Real estate sinks first-quarter bank earnings – FDIC Earnings plummet 46% from year-ago period
Associated Press : Housing woes cut 1Q bank profits by nearly half
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Federal Deposit Insurance Corp

These stories from the past few days illustrate aspects of the social backlash that is certain to intensify as the economy deteriorates :

Associated Press : Mechanics, police say gas theft changing with times :

“While gas station drive-offs and siphoning are far more common methods of stealing gas, reports of tank and line puncturing are starting to trickle into police departments and repair shops across the country.”

Pittsburgh Tribune-Review : Crackdown on rising metal thefts catches scrap dealers in middle :

“Rising metal prices have brought a nationwide surge in thefts of copper pipes and downspouts from homes — even about 500 manhole covers from the streets of Philadelphia last year.”

Chicago Tribune : Apparent copper wire thief electrocuted :

“Authorities Tuesday were trying to identify a man who was electrocuted while trying to steal copper wire from an electrical transformer on the West Side.”

The Conference Board released its consumer confidence index report that showed consumer confidence fell to the lowest point ever recorded by the Board. The Conference Board has been assessing consumer confidence since 1992.

The Chicago Tribune quotes Lynn Franco, head of the Conference Board’s consumer research group;

“Weakening business and job conditions, coupled with growing pessimism about the short-term future, have further depleted consumers’ confidence in the overall state of the economy.”

The ABC News/Washington Post Consumer Comfort Index showed a similar decline, dropping to -51 in the week to May 25 from -49 the previous week. The number is below the Consumer Comfort Index’s lowest point (recorded in 1992) and the lowest point ever recorded since the index was initiated 22 years ago.

Consumer confidence measures are generally viewed as a barometer of consumer spending, which accounts for two-thirds of the U.S. economy.

see stories-
Chicago Tribune : Consumer confidence tumbles to a 16-year low
Reuters : Consumer confidence at record low: ABC/WashPost

RealtyTrac reported that foreclosures in US towns that host military bases are increasing at a pace almost four times the national average. Foreclosure filings in 10 towns close by military facilities rose by an average 217 percent during the first quarter of 2008 compared to last year. Reuters writes that foreclosures in Columbia, SC, near Fort Jackson, rose by 492 percent since last year, and foreclosures in Woodbridge, VA, home to the Marine base Quantico, rose by 414 percent.

Bloomberg quoted Paul Sullivan, executive director of Veterans for Common Sense;

“The last time veterans lost homes to this extent was during the Great Depression. We’ve never faced a situation like this, not in the Vietnam War, World War II, or the Korean War, where so many military are in danger of losing their homes.”

Foreclosure Filings Near Military Bases from January to April, Compared With a Year Earlier:
Columbia, South Carolina: 492%
Woodbridge, Virginia: 414%
Triangle, Virginia: 363%
Oceanside, California: 182%
Norfolk, Virginia: 155%
Havelock, North Carolina: 133%
Carlsbad, California: 131%
Barstow, California: 120%
Columbus, Georgia: 102%
Twentynine Palms, California: 73%
U.S. Total: 59%

see stories-
USA Today : Report: Foreclosure rates rise much faster near military installations
Bloomberg : Foreclosures in Military Towns Surge at Four Times U.S. Rate