by Calculated Risk on 6/06/2010 08:49:00 AM

First, from the Financial Times: G20 drops support for fiscal stimulus

Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday ...

The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances.
Excerpts with permission

And from the G20 communiqué:

The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability, differentiated for and tailored to national circumstances. Those countries with serious fiscal challenges need to accelerate the pace of consolidation.

And from Paul Krugman: Lost Decade, Here We Come

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.
...
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
...
Utter folly posing as wisdom. Incredible.

by Calculated Risk on 6/05/2010 10:28:00 PM

Since we all need a laugh - Jon Stewart has a suggestion for how to use a vacant McMansion ... Here is the link at the Daily Show

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Spilling Fields - To Shell and Back
www.thedailyshow.com

by Calculated Risk on 6/05/2010 05:46:00 PM

Some comments from Fannie Mae chief economist Douglas Duncan ...

From Greta Guest at Freep.com:

Douglas Duncan, chief economist for Fannie Mae, said he expects the home-building industry to be tested until early 2013 before demand will catch up with the large supply of houses on the market.

He said the combination of current inventory of unsold homes plus the foreclosures not yet for sale has elevated supply by roughly 2 million houses over normal levels.

He said that housing starts would be below normal levels until that inventory is absorbed.

And from Elizabeth Razzi at the WaPo: Is bulldozer the best option for some boom-time housing?

Said Duncan: "Some of that shadow investment could have to be torn down. It was not economically viable when it was put in place." ... Duncan said people could find that the cost of sustaining their lifestyle in some developments--including high transportation costs to far-away jobs--is greater than the cost of the home. That would wipe out demand.
...
The idea is being discussed by economists, but Duncan said he doesn't know of any policymakers who are considering it. "It's un-American to think about tearing down housing," he said. "But we have a long history of ghost towns."

And I posted this comment yesterday via Kathleen Howley and Daniel Taub at Bloomberg: Fannie Mae’s Duncan Says Homebuyer Tax Credit Shifted Demand

“Temporary tax credits change behavior temporarily. It’s simply shifted demand forward. ... It actually created some price appreciation that’s not supportable long term.” [said Douglas Duncan, Fannie Mae chief economist]

by Calculated Risk on 6/05/2010 01:16:00 PM

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories as provided by the BLS: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

As we've discussed before there was more turnover in the '70s and '80s - back then the 'less than 5 weeks' category was much higher as a percent of the civilian labor force than in recent years.

What really makes the current period stand out is the number of people (and percent) that have been unemployed for 27 weeks or more (red line). In the early '80s, the 27 weeks or more unemployed peaked at 2.9 million or 2.6% of the civilian labor force.

In May 2010, there were a record 6.763 million people unemployed for 27 weeks or more, or a record 4.38% of the labor force. This is significantly higher than during earlier periods.

It does appear the number of long term unemployed is near a peak (the increases have slowed). But it is still very difficult for these people to find a job - and this is a very serious employment issue.

by Calculated Risk on 6/05/2010 08:33:00 AM

There were a few reports yesterday of a Hungarian official talking about a possible "default", and saying the budget numbers had been "manipulated". A couple of readers (from Hungary), sent me better translations - and the comments were clumsy, and not as scary.

Today from Reuters: Hungary government says aims to meet 2010 deficit goal

Hungary's government said on Saturday it still aimed to meet this year's deficit target, as it sought to draw a line under "exaggerated" talk of a possible Greek-style debt crisis that had unnerved markets a day earlier.

State secretary Mihaly Varga ... said Hungary's previous socialist governments had hidden the true state of the country's public finances, and that additional measures would be needed to reach the 3.8 percent of GDP target.
...
"Those comments which were made on this issue are exaggerated, and if a colleague makes them it is unfortunate," Varga told a news conference.

"I have to say that the situation is consolidated, and the planned deficit (target) is attainable, but for it to be attainable the government must take measures."

This scare helped push the euro to the lowest level against the dollar since March 2006.

More from the WSJ: Hungary Rushes to Calm Markets

Click on graph for larger image in new window.

The Euro has only been around since Jan 1999. The graph shows the number of dollars per euro since Jan 1, 1999.

The dashed line is the current exchange rate. Just a little further (below 1.1667 dollars per euro), and we will be discussing the lowest level since 2003.

by Calculated Risk on 6/04/2010 11:03:00 PM

Earlier employment posts today:

May Employment Report: 20K Jobs ex-Census, 9.7% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks (including graph of job losses during recessions aligned at the bottom)

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 4, 2010.

Changes and comments from surferdude808:

The Unofficial Problem Bank List finishes the week unchanged in terms of the number of institutions at 762, but there was a substantial increase in assets to $385.9 billion from $369.2 billion.

There were four additions this week including Firstbank of Puerto Rico, Santurce, PR ($18.8 billion Ticker: FBP); Home Savings of America, Little Falls, MN ($472 million); Builders Bank, Chicago, IL ($464 million); and the Bank of Little Rock, Little Rock, AR ($185 million).

Removals include the failed TierOne Bank ($2.8 billion Ticker: TONE) and Arcola Homestead Savings Bank ($17 million). Other removals are from the OCC terminating Formal Agreements against Valley National Bank, Espanola, NM ($337 million) and Standing Stone National Bank, Lancaster, OH ($74 million). However, it is likely these removals will be short-lived as the OCC has frequently replaced a terminated Formal Agreement with a Consent Order during this banking crisis.

We are anticipating the OCC will release its enforcement actions for May by next Friday

CR note: The FDIC reported there were 775 institutions with assets of $431 billion on the official problem bank list at the end of Q1. There are some timing issues, but the overall number of institutions on the unofficial list is very close to the official list. The addition of Firstbank of Puerto Rico has closed the asset gap, but there is the possibility that a large regional bank may be on the official problem bank list.

by Calculated Risk on 6/04/2010 07:06:00 PM

Many tears at Top Tier
How have the mighty fallen.
Free falling from peak.
by Soylent Green is People
From the FDIC: Great Western Bank, Sioux Falls, South Dakota, Assumes All of the Deposits of TierOne Bank, Lincoln, Nebraska

As of March 31, 2010, TierOne Bank had approximately $2.8 billion in total assets and and $2.2 billion in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $297.8 million. ... TierOne Bank is the 81st FDIC-insured institution to fail in the nation this year, and the first in Nebraska. The last FDIC-insured institution closed in the state was Sherman County Bank, Loup City, on February 13, 2009.

I guess they weren't top tier ...

by Calculated Risk on 6/04/2010 06:08:00 PM

From the FDIC: FDIC Approves the Payout of the Insured Deposits of Arcola Homestead Savings Bank, Arcola, Illinois

The FDIC was unable to find another financial institution to take over the banking operations of Arcola Homestead Savings Bank....

As of March 31, 2010, Arcola Homestead Savings Bank had approximately $17.0 million in total assets and $18.1 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $3.2 million. Arcola Homestead Savings Bank is the 80th FDIC-insured institution to fail in the nation this year, and the twelfth in Illinois. The last FDIC-insured institution closed in the state was Midwest Bank and Trust Company, Elmwood Park, on May 14, 2010.

No one wanted this one ...

by Calculated Risk on 6/04/2010 05:02:00 PM

From the FDIC: The Jefferson Bank, Fayette, Mississippi, Assumes All of the Deposits of First National Bank, Rosedale, Mississippi

As of March 31, 2010, First National Bank had approximately $60.4 million in total assets and $63.5 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $12.6 million. ... First National Bank is the 79th FDIC-insured institution to fail in the nation this year, and the first in Mississippi. The last FDIC-insured institution closed in the state was Bank of Falkner, Falkner, on September 29, 2000.

by Calculated Risk on 6/04/2010 04:00:00 PM

“Temporary tax credits change behavior temporarily. It’s simply shifted
demand forward. ... It actually created some price appreciation that’s not
supportable long term.”
Douglas Duncan, Fannie Mae Chief Economist, June 4, 2010 via Bloomberg (ht Brian)

And more on condo shadow inventory in New York from Bloomberg: Manhattan Empty Condos May Be Rentals as Leases Reign (ht Mike In Long Island)

About 8,700 new condos sit empty in Manhattan, with 75 percent not even listed for sale yet ... Developers taking out construction loans borrow an additional amount for interest reserves, which is intended to cover the monthly payments on the loan while the project is under construction and until sales begin ... reserves on loans made in 2007 and 2008 will dwindle in the second half of 2010 and early 2011.

We've discussed this before - the flood comes when the interest reserves run dry.

The euro is down to 1.196 dollars. This is the lowest level since March 2006.

The TED spread increased to 41.59 (a measure of credit stress). This is still fairly low, but this is the highest level in eleven months. Note: This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is below 50 bps.

Click on graph for larger image in new window.

This is a slightly different graph from Doug Short of dshort.com (financial planner).

This graph shows the ups and downs of the market since the high in 2007.

Earlier employment posts today:

May Employment Report: 20K Jobs ex-Census, 9.7% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks (including graph of job losses during recessions aligned at the bottom)