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

Senior Obama administration officials have confirmed that attempts to stave off a Chrysler bankruptcy filing have failed because of the intransigence of a minority group of bondholders. The Treasury will now try to use the courts to force a settlement in what the administration hopes will be an abbreviated period in Chapter 11 protection. The Associated Press reports :

“The Obama administration had long hoped to stave off bankruptcy for Chrysler LLC, but it became clear that a holdout group wouldn’t budge on proposals to reduce Chrysler’s $6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public. Clearing those debts was a needed step for Chrysler restructure by the Thursday night deadline.

Bankruptcy doesn’t mean the nation’s third largest automaker will shut down. And the privately-held Chrysler is expected to sign a partnership agreement with the Italian company Fiat as early as Thursday as part of its restructuring plan. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company’s creditors would get.

President Barack Obama is expected to discuss the nation’s auto sector at noon Eastern.”

The New York Times reported late last night on the breakdown of negotiations between the Treasury Department and the minority holdout contingent, some 40 hedge funds that control only 30 percent of Chrysler’s debt :

“The battle over how to restructure Chrysler appeared likely to shift from closed-door conference rooms to a bankruptcy court on Thursday, as the carmaker and the Obama administration failed to win the near-unanimous consent they were seeking from Chrysler’s secured lenders.

If that happens, there could be a public brawl between the government, which is effectively propping Chrysler up with billions of dollars in loans, and a group of its recalcitrant lenders over who has claims to the company’s assets.

Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, are likely to argue that they have the first claim to the carmaker’s assets that were pledged for those loans, people briefed on the matter told DealBook.

They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.

Because they hold ‘first lien’ debt, these creditors are at the front of the line to be repaid, and they have the first claim on the plants, equipment and brands that served as collateral to loans tied to Chrysler’s 2007 sale to Cerberus Capital Management.

These creditors hold a more senior position than the government holds for its Chrysler debt. Indeed, because so much of Chrysler’s collateral is already pledged out, the government is likely to provide debtor-in-possession financing to Chrysler on an unsecured basis, one of these people said.”

Associated Press : Chrysler to get up to $8B from govt for bankruptcy

New York Times : A Road Map to a Chrysler Bankruptcy

This morning’s GDP numbers were markedly worse than the consensus estimate of a 4.9 percent contraction for the first quarter. But with consumer confidence up a lot and consumer spending up a little, and with the banks apparently poised to receive billions more in emergency liquidity injections from the government, Wall Street found reasons to rally.

The widespread assumption that federal action to save a few insolvent megabanks will lead to a recovery in an economy that is more than 70 percent consumer spending is worse than incorrect, it is counterproductive. And not counterproductive as in unhelpful, but counterproductive as in your economy just contracted for the third consecutive quarter. According to the Associated Press :

“The economy shrank at a worse-than-expected 6.1 percent pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending.

The Commerce Department’s report, released Wednesday, dashed hopes that the recession’s grip on the country loosened in the first quarter. Economists surveyed by Thomson Reuters expected a 5 percent annualized decline.

Instead, the economy ended up performing nearly as bad as it had in the final three months of last year when it logged the worst slide in a quarter-century, contracting at a 6.3 percent pace. Nervous consumers played a prominent role in that dismal showing as they ratcheted back spending in the face of rising unemployment, falling home values and shrinking nest eggs.”

Most US news outlets focused almost exclusively on the 2.2 percent rise in consumer spending to achieve the positive spin preferred by American audiences, but the fact remains that the GDP numbers are the worst since Buddy Holly released “That’ll Be The Day”. The Daily Telegraph reports:

“The world’s largest economy has now shrunk by 3.3pc since its peak last year, making this the worst recession since the 1957-58 slump, when GDP fell by 3.8pc. In addition, it is the first time since the 1974-75 downturn that America has recorded third consecutive quarters of negative growth.”

Associated Press : Economy shrinks at 6.1 percent pace in 1Q

Daily Telegraph : US in worst recession for 50 years

Just as the efforts of the US government to address the economic crisis have been inappropriately fixated on Wall Street investors to the detriment of the broader populace, so too has the coverage of the problem been overly focused on the plight of relatively comfortable Americans and Europeans, even as the disastrous policies of our financial speculators reverberate tragically throughout the developing world. This evening the Associated Press reports :

“The World Bank on Sunday urged donor nations to speed up delivery of the money they’ve already pledged — and to give even more — to help poor countries weather the steep global recession.

The bank said developing countries face especially serious consequences as the financial and economic crisis turns into what it described as a ‘human and development calamity.’

In a communique, the World Bank’s policy steering committee said the crisis has already driven more than 50 million people into extreme poverty, particularly women and children. ‘We must alleviate its impact on developing countries and facilitate their contribution to global recovery,’ the committee said.”

The AFP is reporting that Chinese officials could not resist another opportunity to poke fun at the US, even in the midst of a humanitarian crisis :

“Meanwhile, China called for reform of the global currency system, dominated by the dollar, which it said is the root cause of the crisis.

Chinese Vice Finance Minister Li Yong said the ‘flawed’ international monetary system is ‘a major defect in the current international economic governance structure.’”

Associated Press : World Bank: Nations should speed aid to poor

Agence France-Presse : World Bank, IMF say crisis becoming ‘human calamity’

It was only 100 short days ago that an affable, well-intentioned young lawyer from the big city moved into the rambling old house with his elegant wife, who immediately set about planting a garden.

They’ve received lots of advice from some of the more experienced locals, who assure them that pretty soon they can expect to see green shoots all over the place.



To curb the excesses of the past, they have enlisted the aid of altruistic career civil servants.



In a related story, Chief White House Economic Advisor Lawrence Summers today pointed to a bustling, colorful tent city in rural Appalachia as an example of the kind of “green shoots” of economic activity that will characterize the nation’s recovery.

Summers and his entourage got lost on their way to a photo opportunity in Hooterville, and were mistakenly directed to one of many local Hoovervilles by their OnStar GPS navigation systems.



Summers praised the resourcefulness of the settlers in what he called the “flexible housing development” before moving on to speak at a luncheon for a banker’s association in Mount Pilot.

New York Times : World Finance Leaders Meet, and Cautiously Glimpse ‘Green Shoots’ of Recovery

Economic Times : More ‘green shoots’ keep Wall Street upbeat

New York Times : Cities Deal With a Surge in Shantytowns