Treasury Releases Depressing Monthly Lending Numbers

The Treasury just released its first monthly lending snapshot for the banks which are on the federal dole. I don't have a link at present, which is probably just as well because it is depressing and not worth dwelling on before dinner.

Here are the "highlights": banks are lending! Sort of.

Despite significant headwinds posed by unprecedented financial market crisis and economic turn, banks continued to originate, refinance and renew loans. [emphasis in original]

Great! But......

Significant challenges facing both banks and consumers that impact demand for and extension of credit include the shut down of various credit markets and the process of loan securitization.

Surely that has to be the end of the bad news. No... wait, there's more..

Due to decreasing loan demand and tighter underwriting standards, as well as other factors such as charge-offs, or losses written off on loans, banks reported a general trend of modestly declining total loan balances. [Emphasis in original]

So they're still lending! Just lending less. There's more:

a.From October to December, total residential mortgage balances across the twenty banks was essentially flat. The median percent change in total residential mortgage balances was a decrease of 1 percent.

Ok, that sucks. And so it goes. Corporate loan balances down, and now this goody:

c.Credit card borrowing increased, while available credit decreased. The median percent change in average total loan balance for U.S. credit cards was an increase of 2 percent. The median percent change in total used and unused commitments for U.S. credit cards was essentially flat. For banks with the largest credit card loan balances, the decrease was more marked.

Wow! Wonderful! An area of prosperity: usurious loans to the poor, though banks are cutting back on that too. What a great economy we have.

© 2009 Gary Weiss. All rights reserved.

You Know We're in Trouble....

... before I complete that thought, I'd like you to identify the source of the following:

As the Bush administration attempts to ram a bailout package of nearly one trillion dollars through Congress, it begins to feel like Colonel Sanders asking the public to trust him to take care of the chickens.

If it weren’t so damn serious, there would be something almost comical about it. Here we have the White House, which has squandered trillions of dollars over eight years, and its point man, Hank Paulson, fresh from 38 years of gaming the financial system while working at Goldman Sachs, insisting that Congressional leaders hand over a trillion dollars to them with no debate and no strings attached.

Could have come from pretty much anywhere, right?

Give up? OK, I took it from an article entitled "Ramming Through the Bailout," published the other day by the Communist Party USA Online.

To finish the sentence...

You know we're in trouble when the Communist Party line on the bailout could have been crafted by the House Republican Caucus.

© 2008 Gary Weiss. All rights reserved.

Markets to Bush: No Rescue Package

It's interesting to gauge the stock market's reaction to President Bush's declaration today that "we are going to get a [Wall Street bailout] package" passed. The market slide, which began at the opening bell, hesitated but then continued, unaffected.

You can say a lot of things about Bush, but he is no Lyndon Johnson when it comes to jawboning. He appears to be the politically weakest president since Gerald Ford, or perhaps Jimmy Carter at his least effective.

A lot's been said about the rescue package's failure to give any direct relief to homeowners, so I won't add to it. The New York Times editorial today framed the issues the best. But it is cheery to see that executive compensation will apparently be restricted in some unspecified way.

© 2008 Gary Weiss. All rights reserved.

A Solution to the Financial Mess?

Business Week's Peter Coy has an intriguing suggestion for resolving the financial crisis: a more focused approach that would help the strongest banks and let the weakest ones wither.

Read about it here.

Peter writes:

The risk. . . of a free-market bailout is that the money will be spent inefficiently. The companies that get the biggest benefits will be the ones that accumulated the biggest globs of unwanted securities. As a result, the government could be propping up zombie firms that wouldn't survive under ordinary circumstances. These companies are unlikely to have enough funds to lend effectively. Instead, they will focus all their energy on simply surviving, while sucking up funds that would be better used elsewhere.

He suggests that it may be better "for the government to focus less on buying bad assets and instead recapitalize the financial system by buying substantial stakes in selected companies. That amounts to picking winners and losers, a hated concept in free-market circles. But it would save money and give taxpayers some of the gains when banks eventually recover."

(Hat tip: Peter Cohan.)

UPDATE: Dow Jones's Michael Rapaport has another worthy idea:

First, the government should buy only a limited amount of bad assets - say 20% of each bank's holdings - at their full current carrying value. (Paulson's $700 billion plan might not buy all the bad assets anyway; banks now hold more than $1.3 trillion of mortgage-backed securities alone.) That would enable banks to unload some of their worst assets, inject a big chunk of capital into them, and start thawing the market freeze that has left banks reluctant to lend to each
other.


Then, whatever amount the government saves by not buying more bad assets would be used to help homeowners facing foreclosure and commercial borrowers facing similar trouble, and to beef up federal deposit protection. . .

As of AM Friday, however, it seems that no idea (good, bad or indifferent) stands any chance of going anywhere. And none will give relief to homeowners, such as by amending the abysmally pro-business bankruptcy laws.

© 2008 Gary Weiss. All rights reserved.

Journalists Need to Show Skepticism on the Mega-Bailout

Pulitzer winner and former New York Times reporter David Cay Johnston today posted an appeal for skepticism in the Romenesko journalism website.

Johnston writes:

In covering the proposed $700 billion bailout of Wall Street don't repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don't assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don't assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

Johnston suggests some specific questions, including:

How does banning short selling of the stocks of 900 companies help the markets? (The markets are heavily biased toward the sell side, so why constrain the shorts, who often turn out to be right about stocks whose share prices has been artificially inflated.)

How is banning short selling of this growing list of companies show a commitment to "free markets," a stated goal of this and a long lost of previous administrations?

During this short selling ban, why are there no parallel controls on insiders getting out of their positions?

I would add to this list, as I suggested yesterday, why not simply reinstate the uptick rule rather than eliminate all shorting?

Coverage of the bailout has not been terrible, but Johnston is right -- more skepticism is needed, lest the media wind up complicit in yet another Iraq-style deception.

© 2008 Gary Weiss. All rights reserved.