Bloomberg - “The number of contracts to buy previously owned U.S. homes was little changed in December after a record plunge, indicating a renewed tax credit will take time to revive sales.
The index of purchase agreements, or pending home sales, rose 1 percent after a 16 percent drop in November that was the largest since records began in 2001, the National Association of Realtors announced in Washington. Compared with a year earlier, pending sales rose 11 percent.”
WSJ - ”President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.
The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year’s $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.”
WSJ - ” The U.S. economy surged at the end of 2009, a bigger-than-expected gain driven more by slower inventory liquidation than by consumer spending.
Gross domestic product rose a seasonally adjusted 5.7% annual rate October through December, the Commerce Department said Friday in its first estimate of fourth-quarter GDP.
Economists surveyed by Dow Jones Newswires had forecast 4.8% GDP growth during the fall.”
RealClearMarkets – Steven Malanga – “If there is something else investors have learned the hard way, it is that protections, including “insurance,” are only as good as the entity or entities backing them. As part of their assurances to investors, California’s officials argue that there are protections in the state’s constitutions and covenants which make bondholders among the first to be paid in any financial crisis. The cynic in me wonders if these covenants are as solid as, say, the senior position that General Motors’ bondholders thought they had before the federal government sent them to the back of the line when it bailed out the giant auto maker and in one fell swoop upset decades of bankruptcy precedents.”
FT - “President Barack Obama was on Tuesday facing a growing backlash from his liberal base in advance of Wednesday night’s State of the Union address in which he will make fiscal deficit reduction a top priority for his administration.
This shift, which appeared to be aimed at appeasing voters concerned about government spending following his party’s stinging defeat in last week’s Massachusetts Senate race, includes plans for a three-year partial domestic spending freeze.”
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“Bailing-in” large banks?
by Ben Klutsey on February 4, 2010
in Economic Commentary, Financial Crisis & Regulatory Actions, Proposed Solutions, Regulatory Overhaul, Systemic Risk
Economics Focus (The Economist)- Paul Callelo and Wilson Ervin argue that a better way to resolve large failing banks is to do a bail-in:
“A “bail-in” process for bank resolution is a potentially powerful “third option” that confronts this problem head-on. It would give officials the authority to force banks to recapitalise from within, using private capital, not public money. The concept builds on time-tested procedures that have been used to keep airlines flying and industrial firms going even as their capital structures were being reorganised. It accelerates those procedures to address the unique circumstances of financial firms operating in today’s fast-moving markets. If done correctly it should strengthen market discipline on banks and reduce the potential for systemic risk…
…The details will vary from case to case, but for Lehman, officials could have proceeded as follows. First, the concerns over valuation could have been addressed by writing assets down by $25 billion, roughly wiping out existing shareholders. Second, to recapitalise the bank, preferred-stock and subordinated-debt investors would have converted their approximately $25 billion of existing holdings in return for 50% of the equity in the new Lehman. Holders of Lehman’s $120 billion of senior unsecured debt would have converted 15% of their positions, and received the other 50% of the new equity.”
Another name for this is speed bankruptcy or debt-to-equity conversions, which has been written about here as well.