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

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

Henry Blodget of the Business Insider had an interesting post Friday on the topic of bear market rallies in historical context, accompanied by some excellent charts :

“Now that stocks have rallied nearly 30% off their low, pundits agree: It’s a new bull market. So be very afraid.

Market punditry is a lagging indicator, not a leading one. Pundits are excellent at describing what has happened, not what is going to happen.”

Of course, many serious economists have been warning that the tumult in the financial sector is far from over, and that the markets will see large movements as a result. Nouriel Roubini made the rounds in Europe a couple of weeks ago, purveying that same message. The Independent reported on April 21 :

“In particular, the economist warned of further dangers ahead for the financial services industry in the US. ‘I see financial shocks in the months ahead. Some financial institutions are in so much trouble we may have to take them over,’ he said, before adding that losses in the industry could rise from $1 trillion to as high as $3.6 trillion.

Firms from across financial services will go out of business or be taken over, he said, particularly focusing on the bleak future for hedge funds.

Mr. Roubini also disagrees with more optimistic forecasts for the US economy. In an interview published on Forbes.com yesterday, he said that the prediction of a 2 per cent growth rate next year was far too bullish. He called it at somewhere around 1 per cent. ‘So while we are going to be technically out of a recession, it is going to feel like a recession,’ he added.

He blamed weak recovery, deflation which would dog the US for the next two years, and financial shocks for the lower-than-expected growth.”

Business Insider : Stop Thinking The 30% Stock Rally Means The Bear Market Is Over

Independent : Stock market bulls have got it wrong, warns Nouriel Roubini

This year’s May Day protests across Europe were larger and more militant than last year’s, as the global depression marks its second year. Bloomberg reports :

“France’s eight labor unions joined for the first time for May Day demonstrations across the country to protest government measures on the economic crisis as insufficient and corporate leaders as out of touch.

Protests also took place today in Berlin, Athens and Istanbul. In Russia, tens of thousands of demonstrators for and against the government marched against a backdrop of rising unemployment and economic gloom, the Associated Press said.

‘Labor is changing; for the first time in perhaps decades, we are in agreement at the core,’ said Francois Chereque, secretary general of France’s biggest union, Confederation Francaise Democratique du Travail, in an RTL radio interview today. ‘There is a strong unity among the unions.’

Labor unrest is on the rise in France, as seen with ‘bossnappings,’ where workers hold company executives hostage to force negotiations on job cuts and plant closings, and demonstrations. In March, as many as 3 million people, or almost 5 percent of the population, marched in 213 protests. A January strike brought out 1.1 million people, according to police, and spurred President Nicolas Sarkozy to meet union leaders and offer more money in the country’s stimulus plan.”

Although the mainstream media shuns the European protests for the most part, May Day has in recent years become the occasion for massive immigrants’ rights marches in the US. According to the Associated Press :

“Thousands of immigrants and their families marched in cities from coast to coast, hoping to channel the political muscle Hispanics flexed last fall as President Barack Obama won election. This time, they hoped to jump-start an old cause: forging a path to citizenship for the estimated 12 million illegal immigrants living in the U.S.

Crowds were dampened in many areas though, as the swine flu scare kept numerous people home Friday. The area hardest hit by the swine flu is Mexico, also the native home of many rally participants.”

Bloomberg : French Unions Lead May Day Protests, Europe Marches

New York Times : Anger and Fear Fuel May Day Europe Protests

Associated Press : Immigrants push for reforms at rallies nationwide

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