Stocks fell hard in morning trade on little significant news and enter the final hour with large losses. The Philly Fed Index plunged 12.8 points in August to –7.7, its first reading below zero since July 2009, bucking expectations for a 7-point gain. The internal numbers also featured large declines particularly New Orders, Inventories and the Average Work Week.
Initial claims for unemployment hit 500,000 last week, the highest since November 2009. The 4-week moving average increased to 483,000, while continuing claims slipped to 4,478,000. A volatile series to be sure, nonetheless it indicates that the labor market is deteriorating further and is consistent with a return of the recession, actually it never ended despite extensive commentary to the contrary.
Compass Point Research and Trading LLC is out with a report that figures the large national banks are facing losses of between 55.3 billion in a best case scenario, up to 179.2 billion in a worst case situation due to the forced buy back of syndicated mortgage loan portfolio’s because they were sold using false and or misleading data, these figure are in addition to the 28 billion already demanded by Fannie Mae and Freddie Mac. Part of the seemingly forgotten “toxic assets” story these figures represent more than 10% of tangible book value at 8 of the banks. Anecdotal reports on real estate sales post tax credit show large declines, the latest being the SF Bay Area at –22.8% in July from a year ago as per Dataquick. So it’s a fairly safe bet that the losses will be closer to the upper end than the lower end. Additionally the banks are saddled with large amounts of paper and impaired real assets, primarily foreclosed real estate. That through various officially sanctioned and encouraged accounting gimmicks, values them on the banks books at original value, not reflecting the price haircuts caused by defaults and foreclosures, which leaves said assets worth considerably less than original value, extend and pretend.
As an aside we criticized the Japanese extensively for this, after their bubble burst in 1990 and produced 2-lost decades. Yet here we are hiding bank losses, promoting the use of accounting gimmicks that make them “zombie” institutions and doing our level best to pretend that debt, both too much and a lot of it just plain bad, isn’t a problem. I may not have the benefit of a Stanford MBA or degree in economics. But when a balance sheet is stuffed to the gills with substantially impaired assets, features extensive accounting hanky-panky legal or not and the customer base is choking on debt its hard to envision an outcome that doesn’t feature a lost decade or two, perhaps even worse.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. 
