So maybe we could summarize the recent strength in the leading economic index this way. The main reason we think the economy is improving is because many of us think the economy is improving.
I Think The Economy Is Improving, Therefore It Is – Econbrowser
Add comment June 29th, 2009
John Mack of Morgan Stanley (MS) made sure that he had a large base salary for this year, even though his firm nearly fell apart last year. The management of Citigroup (C) also wants to do something for its “best” employees. According to a number of media reports, the bank plans to give its senior investment bankers raises of up to 50%.
It won’t matter. The very best people will flee the Citi pay caps to make millions of dollars at private equity firms and hedge funds.
The federal government has proved adroit at forcing the cream of the crop, the people who create the revenue and earnings, out of America’s largest banks and brokerage firms. These people are used to making $10 million a year or better. They make their employers tens of million if not hundreds of millions of dollars in return. Talent at that level can write its own ticket. Boutique firms like Greenhill (GHL), large hedge funds, private equity operations, and foreign banks will pay the going rate to get the stars.
The Administration has made certain that the key managers at banks, their intellectual capital, will be displaced, further damaging their chances of rebounding from their worst year in decades. An operation that the government should have performed with a scalpel instead of a meat cleaver has chopped the wages of mediocre and extremely skilled bankers with the same cut.
The government can say that it saved the banks but it also took away from them their best weapons to withstand what is still likely to be a rough and dangerous future.
Douglas A. McIntyre
Citi’s Raises Won’t Retain Talent – Douglas McIntyre, 24/7 Wall Street
Add comment June 29th, 2009
With a subtitle like “From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again” run, don’t walk, to your nearest kiosk and buy Matt Taibbi’s latest piece in Rolling Stone magazine. One of the best comprehensive profiles of Government Sachs done to date. Speaking of GS, they sure must be busy today, now that Bernanke is about to be impeached and take the fall for all their machinations.
Goldman Sachs: The American Bubble Machine – Matt Taibbi, Zero Hedge
Add comment June 29th, 2009
Joe Nocera has said his peace with respect to Obama’s proposed overhaul of the financial system. And in doing so, he expressed disappointment with several aspects of the proposal. In particular, he is displeased that the proposal “doesn’t attempt to diminish the use of … bespoke derivatives.” That certainly sounds ominous. But it’s also not true.
The proposal calls for increased capital charges on bespoke trades, which is a strong incentive away from them. But frankly, I’m sick of writing about the proposal. So rather than regurgitate and parse the administration’s plans for financial regulation, I’d like to take a moment to get familiar with some of the key concepts at play in the proposal, so that you can read it and come to your own conclusions. The two core areas I focus on here are derivatives and regulatory capital. With an understanding of these two areas, you should be able to get a grasp on what the administration is thinking and what effects the proposal will have in practice.
Obama’s Financial Overhaul: What You Need to Know – The Atlantic
Add comment June 29th, 2009
Falling home prices have eroded the equity that American homeowners have in their homes, as David Wessel observes in his Capital column.
More than half of American home equity is in homes for which there are no mortgages; there never was one or it has been paid off. Of the remainder, the bulk isn’t in homes with high-end jumbo mortgages or in homes with subprime mortgages, it’s in homes with conventional mortgages, the sort backed by Fannie Mae and Freddie Mac.
The situation may have to get worse before it gets better. Most economists in the latest Journal forecasting survey expect home-price declines to continue at least through this year.
Here are the numbers, courtesy of Greenspan Associates, the former Fed chairman’s consulting firm.
Total: $8 trillion
Without mortgages: $4.4 trillion.
With mortgages: $3.6 trillion
Subprime negative $0.1 trillion
Alt-A $0
Prime Jumbo $0.6 trillion
FHA/VA $0.1 trillion
Conventional/conforming $2.9 trillion
First lien home-equity loan $0.1 trillion
Source: Greenspan Associates
Where’s the (Remaining) Housing Wealth? – David Wessel, RT Economics
Add comment June 29th, 2009
n its post-meeting statement, the Fed removed a passage it had used after its three previous meetings to warn of the risk of deflation, meaning a broad-based decline in prices. Deflation is closely linked with another “D” word: depression.
The old statement wording read, “The Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”
That was code for deflation.
Fed Tries To Turn Conversation Away from Deflation Risk – Money & Co.
Add comment June 29th, 2009
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