by Calculated Risk on 7/08/2011 10:28:00 PM

From the WSJ: Greek Bailout Talks Shift to Attack on Debt

Discussions between bankers and government officials about Greece have undergone a fundamental shift in recent days, turning toward reducing the country's mountainous debt burden instead of just staving off a near-term financial crisis ... Finance ministers from the 17 nations that use the euro are expected to discuss the proposals at a meeting Monday in Brussels. They are expected to debate options that they previously discarded, including the use of European bailout funds to finance purchases of Greek debt.

The key is to reduce the debt. This is similar to the problem mortgage lenders face in reducing mortgage principal - it might make sense for one borrower, but then many other borrowers will want a principal reduction.

If Greece gets a debt reduction, Portugal, Ireland, Spain and Italy will all get in line. Every one likes free money.

Some more from the Financial Times: EU leaders differ over Greek default

Here are the earlier employment posts:
• June Employment Report: 18,000 Jobs, 9.2% Unemployment Rate
• Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
• Return of the Teen! and Unemployment by Duration and Education
• Employment graph gallery

by Calculated Risk on 7/08/2011 08:02:00 PM

Signature panic
"Where can we turn for more cash?"
Go Points West, young man.
by Soylent Green is People
From the FDIC: Points West Community Bank, Julesburg, Colorado, Assumes All of the Deposits of Signature Bank, Windsor, Colorado

As of March 31, 2011, Signature Bank had approximately $66.7 million in total assets and $64.5 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.3 million. ... Signature Bank is the 51st FDIC-insured institution to fail in the nation this year, and the 4th in Colorado.

by Calculated Risk on 7/08/2011 07:16:00 PM

A fairwell send off
It's been tough but nicely done
Best to you Ms. Bair

Capital combust
Chicago concurrently
Cashless corpses crash
by Soylent Green is People
Farewell to Sheila Bair.

From the FDIC: Northbrook Bank & Trust Company, Northbrook, Illinois, Assumes All of the Deposits of First Chicago Bank & Trust, Chicago, Illinois

As of March 31, 2011, First Chicago Bank & Trust had approximately $959.3 million in total assets and $887.5 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $284.3 million. ... First Chicago Bank & Trust is the 49th FDIC-insured institution to fail in the nation this year, and the fifth in Illinois.

From the FDIC: First-Citizens Bank & Trust Company, Raleigh, North Carolina, Assumes All of the Deposits of Colorado Capital Bank, Castle Rock, Colorado

As of March 31, 2011, Colorado Capital Bank had approximately $717.5 million in total assets and $672.8 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $283.8 million. ... Colorado Capital Bank is the 50th FDIC-insured institution to fail in the nation this year, and the third in Colorado.

by Calculated Risk on 7/08/2011 06:04:00 PM

A top European analyst put out a research note last night calling Italy "the elephant in the room". Those fears sent the Italian 2 year yield to 3.5% - nothing compared to Greece, Portugal and Ireland, but a significant increase. The 10 year yield increased to 5.3%.

From the LA Times: Italy and Spain rocked by fears of spreading debt 'contagion'

The “contagion” that has forced Greece, Ireland and Portugal to seek bailouts from the rest of Europe now is threatening Italy, as investors demand ever-higher interest rates on Italian government bonds.

The yield on two-year Italian bonds surged to 3.51% on Friday, the fifth straight increase and up from 3.32% on Thursday. On Monday the yield was 3.04%.

Likewise, Spanish two-year government bond yields jumped to 3.77% on Friday from 3.66% on Thursday and 3.35% on Monday.

The next round of European bank stress tests will be released next Friday, from Dow Jones: EU Fears For Stress Test Credibility As Deadline Nears

Under the terms of the tests, banks that fail to prove that they can preserve a certain capital ratio in the event of a severe downturn are supposed to fill the gap, at the latest, within six months of the results being published. That date has now been confirmed as next Friday, July 15.

In the event that those ailing the test also find themselves unable to raise the required capital, national governments are supposed to step in with "backstop mechanisms" to recapitalize or restructure the banks in question.

There are fears about some of the large Italian banks, however from the Dow Jones article:

Mario Draghi, the incoming president of the European Central Bank, said Friday that he is sure that the five Italian banks taking the test will pass "with [a] rather meaningful, significant margin."

I'm sure people will be asking if the stress tests were credible.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/08/2011 02:10:00 PM

First a reminder: The main reason employment growth is sluggish is because the U.S. is recovering from a housing and credit bubble, and the subsequent financial crisis. There is still too much excess capacity in most of the economy for a large contribution from new investment (except in equipment and software). We see this excess capacity in housing, and in overall industrial production. There is also excess capacity in office space, retail space, and other categories of commercial real estate. In addition, household debt, as a percent of income, remains very high and household deleveraging is ongoing. That is why so many companies identify their number one problem as "lack of customers".

Until the excess capacity is absorbed, and household balance sheets are back in order, the recovery will remain sluggish.

In addition there were some (hopefully) temporary factors that impacted employment in May and June: the supply chain disruption and high oil and gasoline prices.

But it is very disappointing to hear politicians incorrectly identify the reasons for the sluggish employment growth. From President Obama today:

[T]o put our economy on a stronger and sounder footing for the future, we’ve got to rein in our deficits and get the government to live within its means, while still making the investments that help put people to work right now and make us more competitive in the future. ...

The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty that they will need in order to make additional investments to grow and hire and will provide more confidence to the rest of the world as well, so that they are committed to investing in America.

I know there are policymakers who think the problem is confidence and deficits. But this is incorrect. Misdiagnosing the causes of weak employment growth will lead to the wrong policies. Oh well ... this reminds me of 2005 when I couldn't get any policymakers to pay attention to the housing bubble. Frustrating.

Here are a few more graphs based on the employment report ...

Duration of Unemployment
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: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Two key categories are moving up again. The 27 weeks and more (the long term unemployed) has moved up for two consecutive months and is now at 6.3 million workers, or 4.1% of the labor force.

Also the less than 5 weeks category is increasing again and that is very concerning.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down, although only High School Graduates, No College" and "Bachelors degree and higher" declined in June.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment (all four categories are only gradually declining).

Diffusion Indexes
This is a little more technical. The BLS diffusion index for total private employment was at 53.4 in June, about the same as in May, and for manufacturing, the diffusion index increased slightly to 52.5.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Teen Summer Employment
According to the BLS, 714,000 teens (ages 16 to 19) found jobs in June 2011 NSA compared to only 497,000 last year (June is the key months for summer employment). This is the most teen jobs added in June since 2007.

This graph shows the number of teens looking for work and the number of teens found jobs in June (data is not seasonally adjusted).

The doesn't show the participation rate for teens, but that has been trending down for years.

The job market was so bad last summer few teens even bothered to look for work. Although the trend is still down for teen employment, this is a better summer for teenagers looking for work. A little silver lining ...

Best to all

Here are the earlier employment posts (with graphs):
• June Employment Report: 18,000 Jobs, 9.2% Unemployment Rate
• Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
• Employment graph gallery