by Calculated Risk on 8/23/2009 07:31:00 PM

From Reuters: Analyst Bove sees 150-200 more U.S. bank failures (ht Ron at WallStreetPit)

[Dick] Bove said "perhaps another 150 to 200 banks will fail," on top of 81 so far in 2009, adding stress to the FDIC's deposit insurance fund.
...
Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.

He said these assessments could total $11 billion in 2010, on top of the same amount of regular assessments. "FDIC premiums could be 25 percent of the industry's pretax income," he wrote.

Meredith Whitney said Friday that she expects around 300 banks to fail this cycle. With 109 failures so far (81 this year), 300 seems low. I'll take the over ...

by Calculated Risk on 8/23/2009 06:09:00 PM

(ht The Economic Populist)

"We've got a problem with terminology because we usually say either the economy is in recession or the economy is recovering. Either you're in hell, or you're in heaven. And the trouble is we're actually in purgatory. We're actually in a situation almost for sure GDP is growing; almost for sure the business cycle leading committee will eventually decide that the recession ended this summer. But almost surely also we're still losing jobs. The unemployment rate is going to continue to rise. So we're in that infamous jobless recovery state."
...
"What we have now is a whole lot better than seeing the end of the world six months down the pike, but it is not good enough - or even remotely good enough."
emphasis added

by Calculated Risk on 8/23/2009 11:34:00 AM

For something a little different ...

For the first time since the automatic cost of living adjustments (COLA) were adopted in 1975, Social Security benefits will not increase in December 2009. This also means the contribution base (currently $106,800) will not increase in 2010.

There is also a reasonable chance that there will be little or no increase in benefits in 2011 (starting in December 2010).

Click on graph for larger image in new window.

This graph shows the cost of living adjustments for social security benefits since 1975 (increases start in December, but are mostly for the following year).

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W¹ for the three months in Q3 (July, August, September) and compares to the average for the proceeding year Q3 months. Note: this is not the headline CPI-U.

In 2007, the average of CPI-W was 203.596. In 2008, the average was 215.495. That gives an increase of 5.8%.

Since Q3 2008 CPI-W has fallen - to 210.526 in July - and CPI-W will certainly be below 215.295 in August and September.

Instead of cutting benefits by the change in CPI-W, the benefits will stay the same for 2010.

However, for 2011, the calculation is not based on Q3 2010 over Q3 2009, but Q3 2010 over the highest preceding Q3 average - the 215.495 in Q3 2008. This means CPI-W could increase 2.3% over the next year, and there would be no increase in Social Security benefits in 2011.

Contribution and Benefit Base

In addition, this means the contribution base will not increase in 2010. Although the base is calculated using the National Average Wage Index, the law - as currently written - prohibits an increase in the contribution and benefit base if COLA is not greater than zero.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

In 2011, for benefits, the increase will be zero or small because the calculation is based on CPI-W in Q3 2008.

However, for the contribution base in 2011, if the COLA is even slightly positive, the increase will be based on changes in the national average wage index (not COLA).

Note: It seems very likely that the base in 2011 will be increased by new legislation, so this probably will not matter - but it does matter for 2010.

⁽¹⁾ CPI-W usually tracks CPI-U (headline number) pretty well. From the BLS:

The Bureau of Labor Statistics publishes CPIs for two population groups: (1)the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) ... which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.

by Calculated Risk on 8/23/2009 09:16:00 AM

We've discussed this all year, and this is happening in many low priced areas ...

From Carolyn Said at the San Francisco Chronicle: 'Cash is king' in market for foreclosed homes

"Since January, I've put in 10 bids (on foreclosed homes); some were up to $80,000 over asking price and were still turned down," said [first-time home buyer, Jay] Nielsen, 41, a medical assistant. Each time, the banks selected offers from investors with all-cash offers - even when those offers were lower than his, Nielsen said.

"Cash is king right now," said Glen Bell of Keller Williams Realty in Berkeley. For foreclosed homes, "a cash offer that hits the target price will many times trump a higher-priced offer with a loan. The ability to close has become just as important to banks as price. The prospect of a property being tied up longer, still on their books and then falling out is costly."

The result is that average consumers say they are being shut out because they can't compete against deep-pocketed investors snapping up homes to rent out or flip. ...

All-cash sales are most common where prices are low and bank-owned properties account for the lion's share of listings. In foreclosure-ridden Pittsburg, for instance, 42.7 percent of home sales in the first three weeks of July had no record of a purchase loan, according to county data analyzed by MDA DataQuick. The median price for those transactions was $105,000.

There is a buying frenzy right now for first-time homebuyers trying to take advantage of the $8,000 tax credit (see 6 things to know for details) before the program expires at the end of November (must close escrow by then).

Meanwhile cash-flow investors are buying properties in the same price range (the numbers don't work on higher priced homes). In some of these areas, the only buyers are first-time homebuyers frequently using the tax credit as their downpayment and investors. The sellers are banks or short sales.

Not exactly signs of a healthy market.

by Calculated Risk on 8/23/2009 12:36:00 AM

Here: Good News/Bad News - America's Recession

by Calculated Risk on 8/22/2009 09:02:00 PM

Excerpt from Paul Krugman: Some call it recovery

The real problem here is that the standard language doesn’t make much allowance for the kind of gray zone we’re now in; that’s because in the pre-1990 era recessions tended to be V-shaped, so that jobs snapped back as soon as GDP turned around. I don’t think what we’re going through is good news — but GDP is almost surely rising, so the recession, as normally defined, is over.
...
But the economy is not recovering in the most crucial area, job creation ...

Excerpt from The Economist: U, V or W for recovery

The world economy has stopped shrinking. That’s the end of the good news

... a rebound based on stock adjustments is necessarily temporary, and one based on government stimulus alone will not last. Beyond those two factors there is little reason for cheer. America’s housing market may yet lurch down again as foreclosures rise, high unemployment takes its toll and a temporary home-buyers’ tax-credit ends (see article). Even if housing stabilises, consumer spending will stay weak as households pay down debt. In America and other post-bubble economies, a real V-shaped bounce seems fanciful.

It does appear the cliff diving is over, and that the U.S. economy will grow in the 3rd quarter. But there are still more problems ahead for consumer spending and housing (I think housing is still the key - and I'll discuss this soon).

An immaculate recovery seems remote.

by Calculated Risk on 8/22/2009 06:40:00 PM

Here is a followup story on the Inland Empire in California, from the NY Times: A Cul-de-Sac of Lost Dreams, and New Ones

This quote caught my eye:

"You have to think of it like a gold-mining town in a Clint Eastwood movie,” Mr. [John Husing, an economist whose expertise is Southern California] said. “Money comes to a place where there has never been any, and next there are tool stores, a saloon, a general store and so on. But the saloon doesn’t exist without the gold mine, and the gold mine here was construction.”

Exactly. And the gold mine closed a few years ago.

Here is how I saw it in 2006 for the Inland Empire:

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

by Calculated Risk on 8/22/2009 01:37:00 PM

From Felix Salmon at Reuters: Fed official: rates to be kept low past upturn (ht Anthony)

Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.

"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.

The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.

Bullard is repeating the FOMC statement:

The Committee ... continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Bullard thinks the markets haven't "digested what that means" - rates will be low for a long time - maybe through much or all of 2010.

Here is an interview with Bullard on a few other subjects, expects slow growth, discusses unwinding current policy.

by Calculated Risk on 8/22/2009 08:34:00 AM

As a companion to the Problem Bank List (unofficial), below is a list of failed banks since Jan 2007.

But first a few graphs ...

Click on graph for larger image in new window.

The graph shows the cumulative estimated losses to the FDIC Deposit Insurance Fund (DIF) and the quarterly assets of the DIF (as reported by the FDIC). Note that the FDIC takes reserves against future losses in the DIF, and collects fees and special assessments - so you can't just subtract estimated losses from assets to determine the assets remaining in the DIF.

The FDIC closed four more banks on Friday, and that brings the total FDIC bank failures to 81 in 2009. The following graph shows bank failures by week in 2009.

Note: Week 1 on graph ends Jan 9th.

The FDIC is seizing about 4 to 5 banks per week recently, and with over four months to go in 2009, this suggests close to 150 bank failures this year.

At the current pace there will be more failures in 2009 than in the early years of the S&L crisis. From 1982 thorough 1984 there were about 100 failures per year, and then the number of failures really increased as the 2nd graph shows.

The 2nd graph covers the entire FDIC period (annually since 1934).

For a graph that includes the 1920s and early '30s (before the FDIC was enacted) see the 3rd graph here.

Of course the number of banks isn't the only measure. Many banks today have more branches, and far more assets and deposits.

Failed Bank List

Deposits, assets and estimated losses are all in thousands of dollars.

Losses for failed banks in 2009 are the initial FDIC estimates. The percent losses are as a percent of assets.

See description below table for Class and Cert (and a link to FDIC ID system).

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. You can click on the number and see "the last demographic and financial data filed by the selected institution".

by Calculated Risk on 8/21/2009 09:01:00 PM

From Bloomberg at Jackson Hole: (ht km4)

We are up to 81 bank failures this year, and 109 since the crisis started. With 391 banks on the unofficial problem bank list (and more to come), I think 300 is probably low. I'll take the over ...