Friday, May 8, 2009

Great News This Week!

Workers continue to lose jobs!

Unemployment rate in the U.S. has risen to 8.9 percent!

That's the news out of the Bureau of Labor Statistics today.

And yesterday, the Treasury Department rejoiced in their discovery that 19 of the biggest American banks could lose nearly $600 billion by the end of 2010, if the economy worsens!

Other good news out of Treasury - ten of these 19 banks are now required to raise billions as a capital cushion! More than half of our biggest banks are teetering on the wire without an appropriate safety net!

All this good news leaves me feeling like I'm inhabiting a Terry Gilliam movie. Why do I feel gloom instead of joy when reading these stories? What am I missing?

According to the NY Times, the jobs report was "pretty encouraging."

Because the loss of 539,000 jobs in April was not nearly as big a slide as we've seen in previous months (699,000 in March, 681,000 in February, 741,000 in January), the green shoot in this story is that we've hit the bottom!

At least we hope. I suppose it is nice when we can see blooms in one of the worst job reports in 30 years.

(We do live in a land where appearance carries the weight of fact - and sometimes is even a heavier consideration than truth...)

Not everyone is seeing green. The NY Times surveyed a number of economists on this topic. Some quotes include:

“In April, more than one in four unemployed workers, 27.2 percent, had been without jobs for six months or longer, the highest rate on record since the government started calculating this statistic in 1948.” — National Employment Law Project

“[W]ith the smaller headline job loss number, many are interpreting the April employment report as yet another sign that the economy is “stabilizing,” but the more accurate assessment is that the economy’s pace of contraction is slowing, which is not quite the same as stability and is still a long way from the economy actually improving.” – Richard F. Moody, chief economist, Forward Capital, LLC

“Soaring unemployment is depressing wage gains, up only 0.1% in Apr, putting the y/y rate down to 3.2%, a 40-month low. There’s much further to go here; seriously bad news because without wage gains people can’t deleverage unless they cut spending deeply.” – Ian Shepherdson, chief United States economist, High Frequency Economics

“[I]t still looks like the unemployment rate will move above 10% in coming months which will exacerbate the credit losses confronting the financial sector.” – David Greenlaw and Ted Wieseman, Morgan Stanley

Kind of a bummer to read those quotes. So let's turn our attention to the health of the banks who, last fall, were so close to collapse that Henry Paulson demanded nearly a trillion dollars to hand out to them... or else.

According to Ben Bernanke, chairman of the Federal Reserve, the results of the stress tests "should provide considerable comfort to investors and the public."

In the golden spin of Bernanke, most of the banks should be able to withstand the winds of "hypothetical adverse" events that could blow out more money from their books.

And whatever happens, whatever crisis befalls the titans, Bernanke notes, "...our government, through the Treasury Department, stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn."

Tim Geithner feels we're on track to get back to business again:

"Our government has taken extraordinary actions to ensure the stability of our banking system because this is essential to contain the risk of a worse recession and to lay the foundation for a sustainable recovery.

With this support, and with the clarity provided by today's announcement, banks should be able to get back to the business of banking."

And he he has some words for the titans of Wall Street on his expectations for them:

"Those in leadership positions in our banks are going to have to work hard to repair the loss of confidence in the financial system and regain the public's trust. They can do this by expanding lending to creditworthy families and small businesses that we depend on to generate economic growth. And they need to demonstrate that they are reforming compensation practices to reinforce limits on future risk taking. And this responsibility must be felt by all banks, including those that hope to be in a position to repay the government's capital investments."

However, with news of the bonuses people are set to get this quarter, I have to believe that his words are falling on deaf ears. The compensation system is unchanged; the cost of credit remains high; loans are not easier to come by; the toxic assets remain on the books of these banks, quietly exuding fumes of failure and poison into the system.

Has anything really changed?

Or was Geithner saying what he truly meant - that he sees a return to the "business of banking" that got us into this crisis as desirable - instead of creating a new financial system designed to avoid brinksmanship like this from happening again?

Is he asking the people for whom self-regulation is clearly an impossible task to self-regulate themselves into a new business model?

What do you think? Will it work?

No comments: