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