Category: Economy

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Economy

How many banks are too big to fail?

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Week in review 042009 – 042509

According to Obama administration‘s stress test, the magic number is 19. Basically they are saying the US gov will do whatever necessary to keep the big ones afloat because they are systematically important. Or in laymen’s words, they are too big to fail. Sorry, those smaller ones, I mean not so small regional banks such as Regions Financial, SunTrust, and Keycorp.

How many banks seized by FDIC this year so far?
29 (according to CNNMoney). But this is not the point, the point is many banks are taken over by stronger ones (such as First Idaho bank branches taken over by US bank), before the seizure of FDIC. As explained in CBS 60 minutes (video) couple weeks ago, FDIC will try to sell a bank asset and deposit (secretly) when it finds the bank cannot survive. If it cannot find a buyer, then it will take over. In this case, FDIC will not run a bank forever. Like in the case of IndyMac, it sold the operations to private investors after certain period. So, the right question is, how many banks failed this year? I guess only FDIC and OTS (Office of Thrift Supervision) knows.

Who is the next Sun Microsystem

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Economy

The Geithner Plan

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The plan
Tim Geithner (WSJ): My Plan for Bad Bank Assets (aka Public Private Investment Partnership, PPIP); Treasury dept press release.

Notice the PPIP will leverage the TALF program launched by Fed recently. Here is a picture explains how PPIP works with TALF. (click to enlarge)

talfbaitandswitch

I think it’s important to read those before reading others comments, no matter a guy is nobel laurate or a blogger. Blackrock and Pimco, two large asset (bond) managers, appeared like the plan.

Psychology Book
Influence: Science & Practice by Robert Cialdini

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Economy

Protectionism on the rise?

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(Update 31March09) Wells Fargo is saying they may cut foreign staff (source: marketWatch).

(Original) I was expecting Coca Cola’s proposed Huiyuan Juice acquistion go through, but obviously things did not turn out as I expected. While the free trade people in the US are upset by this, they should remember in 2005, the US congress shut down China CNOOC proposed buy of US oil company Unocal. Signs of more protectionism in the US (besides the anti-free trade measures in the stimulus bill, recent trade dispute with Mexico).

Debate on H-1B
On the other side of the pacific.

(Financial Times) BofA withdraws job offers to foreign MBAs; (Forbes) Chuck Grassley hurts America.

Durbin-Grassley anti H-1B bill; (Economy Times) Microsoft reply to the bill; (Seattle Times) Proportion of H-1B workers at Microsoft won’t change after layoffs.

A twist
Interestingly (on the other hand), I read from WSJ, that some people proposed encouraging the immigrants to buy houses in the US to prop up the slumping housing market. Seriously I do think this country could use more money/investments from the world.

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Economy

Greenspan: not my fault

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Alan Greenspan, the former Fed chairman wrote an article The Fed Didn’t Cause the Housing Bubble on WSJ to defend himself. He was saying his low fed rate from 2003 to 2005 is NOT the cause for the housing bubble, and current financial crisis. Interesting stuff. I remember Oct. Anderson Cooper (CNN) did a series of 10 most wanted culprit for (financial) collapse, and Mr. Greenspan was No. 6. The English article on CNN360 is not easy to get, here is Chinese translation.

greenspan pic

Anyway, I don’t want to get into those political stuff. My point is, probably he has his share of mistakes. Of course, he is not alone in all this. It takes a meltdown of the whole system for us to get here, from regulators including the broader goverment (democrats and republican; congress and presidents), from business to consumser, from wall street to main street, from US to China,…each made some convenient choice without thinking the long term.

But the human nature when we hear the blame, we will say: no, not my fault.

Psychology 101: denial is the first response we hear bad news.

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Economy Investing

Bank nationalization: II

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This is the second part of my thoughts on bank nationalization, I hope President Obama and his finance team can read my blog, as they are thinking through the “bank rescue”, the No. 1 issue facing this country, and the world economy for that matter.

As I said in my previous post, bank nationalization appears bad for the existing shareholders of bank common stocks, in the sense they will get wiped out or diluted. But I also said this is merely “mark to market” for them, whether they want to face it or not, the day of reckoning will come soon or later. In the mean time, when we are waiting for the eventual take over of some of the nation’s largest banks, consumers and business get scared, they either withdraw money and put under their mattress (consumers), or stopped investing and started hiring freeze/travel freeze/lay off (business). This will have spill over effect on the world, as we are living in a increasingly globalized economy. When the rumor of China new stimulus started, the US stock market started to rally. You got the idea.

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Economy

Dow 5,000?

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I remember years ago (in dot com era) there is a book named Dow 36,000. Obviously that predication was a laughing stock becaue Dow crashed in year 2000. No I am not trying to make a fool of myself, my title Dow 5,000 is merely to reflect today the Dow and S&P dropped to 12 year low again (source: bloomberg).

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Economy Stocks

Bank nationalization may not as bad as it sounds: I

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What is nationalization
This is my understanding. Usually a company has 3 types of capital: debt, preferred stock, common stock. In terms of ownership the equity holders (common stock holders) own the company. We say they borrow from the debt holders: in return they pay interest and principle to the debt holders down the road.

In the case of bankrupcy, debt holders have priority over preferred holders, preferred have priority over common, etc. (note all debt are not euqal too, some are senior than others, some are secured, some are not).

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Economy Life Tips

Buying books from Borders

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I have been a Borders customer for a long time, most times buying coffees while studying (reading books) there, from time to time I also bought some computer or finance related books, such as Effective C++, My Life as a Quant, etc. One benefit of buying books at Borders (compared to Amazon) is getting the book right away, vs. waiting and waiting (I normally use Amazon free shipping option which typically takes a week). We know time is money in many cases.

Recently I bought two books from Borders, one is Cocoa Programming on Mac OS X, another one os Pro C#, both with 40% discount (available to Borders members only, free to join). With the 40% discount, the books are about the same price at Amazon. For instance, the list price of Pro C# 2008 is $59.99, it’s $36 after 40% off (before tax). Amazon price is $37.79.

borders book store
(Source: NPR Market Place)

Inventory

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Economy Stocks

The end of rampant consumerism

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(Update May 2020) I found from this website, it seems the US consumer saving rate went up a bit in last 5 years, from 6%, 8% to most recent 13% . I can understand the last part due to pandemic. In fact our restaurant eat out (to go, take out) shrunk a lot. My wife is stocking up groceries and cooking much more.

(Original Feb 2009) From Yahoo Tech-ticker.

I am sure car companies don’t like this, so as the jewery makers, Nieman Marcus, Saks 5th Ave. etc etc.

The most interesing point I heard from this clip is American consumers recently shift from overspent 6% (negative saving rate of 6%) to a saving rate of 3%.

Categories
Economy Travel

Visit Shanghai

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Amid all these financial crisis, I will fly to Shanghai tomorrow: not to rescue the economy but I will get first hand glimpse on China economy. Shanghai is the economy center of China, just like New York is the financial center of the US.

The mood in the US is not good. The Big 3 car makers are still waiting for the emergency fund from the White House and Treasury. The governor of Illinois is allegedly involved in “selling the president elect’s senate seat”, things we usually heard from developing democracy. This incident also put some clouds on the president elect’s leadership. Leadership? Did we ever see any leadership in this country lately, except bailout the Wall Street guys (Bear, Fannie/Freddie, AIG, TARP, Citi,…).

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