Clarion-Ledger To Cut 5% of Staff

Hard days for the newspaper business (in addition to so many others). Editor & Publisher's reporting that Jackson's hometown paper will be laying off 20 employees:

The Clarion-Ledger in Jackson, Miss., has to eliminate 20 positions, Publisher Larry Whitaker wrote to staff in a memo posted on Romenseko. Whitaker cites the slowdown in print AND online advertising as the reason for the move.

"While you might have read about staff reductions at other newspapers, we have, up to this point, made tough business decisions to avoid having to take those actions here," wrote Whitaker. "I regret to inform you that we can no longer keep our name off the growing list of newspapers that have reduced staff or are in the process of doing so. The unstable market, higher fuel costs, big spikes in newsprint costs, and a challenging advertising climate have made that impossible."

The cut amounts to 5% of the workforce of the Gannett-owned newspaper. The memo did not address which positions are affected or if those employees will receive severance.

E&P goes on to print the contents of Whitaker's memo, if you're interested.

Krugman Agrees

From his column today:

Home prices are down about 16 percent over the past year, and show no sign of stabilizing. The pain from this bust is widely spread: there are millions of American families who didn’t buy mortgage-backed securities and haven’t lost their houses, but have nonetheless been impoverished by the destruction of much or all of their home equity.

Meanwhile, the job market has deteriorated even more than you’d guess from the jump in the headline unemployment rate. The broadest measure of unemployment, which takes into account the rapidly rising number of workers forced to take cuts in paid hours and wages, has risen from 8.3 percent to 10.3 percent over the past year, roughly matching its high point five years ago.

And there’s no end to the pain in sight...

...Oh, and those tax rebates Congress and the White House agreed to mail out have already done whatever good they’re going to do. Looking forward, it’s hard to see how consumers can keep spending even at their current rate — which means that things will probably get considerably worse before they get better.

What more can policy do? The Fed has pretty much used up its ammunition: nobody thinks that additional interest-rate cuts would accomplish much (and there’s a faction at the Fed that wants to raise rates to fight inflation).

And nothing much can or should be done to support home prices, which are still much too high in inflation-adjusted terms. Nor can Washington prevent a continuing credit crunch: overextended, undercapitalized financial institutions have to rein in their lending, and it’s not realistic to expect the public sector to pick up all the slack — especially when quasipublic institutions like Fannie and Freddie are also in trouble.

There is, however, a case for another, more serious fiscal stimulus package, as a way to sustain employment while the markets work off the aftereffects of the housing bubble. The “emergency economic plan” Barack Obama announced last week is a move in the right direction, although I wish it had been bigger and bolder.

Still, Mr. Obama is offering more than John McCain, whose economic policy mainly amounts to “stay the course.”

After One President in the Pocket of Big Oil...

Obama's new ad:

Like I've Been Saying

The mortgage crisis still has a ways to go before we even begin to feel its full effects. Not the sort of thing you want to realize when you consider how much bloodletting's been going on already, but them's the facts, ma'am. The subprime meltdown was just the beginning. Deterioration in Alt-A mortgages (which fueled so many Americans buying more house than they could afford, but not nearly as much as they felt they deserved) will hit a wider swath of people, and push many traditionally "creditworthy" folks over the brink.

And unfortunately for them, and the wider economic outlook, these folks will be hit in an environment of shrinking home values, higher interest rates, and tighter credit standards. Which means that far fewer will be able to sell their homes, most will be unable to refinance ballooning mortgage payments into a more manageable loan, and more foreclosures and short sales will add more fuel to the fire. It's all going to spiral downward with wider and wider ripples. Sucks. As Atrios often puts it, "We're all subprime now."

From this morning's NY Times:

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.” [...]

...What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.

But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.

Hold on to your hats.

It Was a Very Good Year

Well, at least not everyone's hurting. Sure, your milk prices, your gas prices, your food, electricity and health care prices are doing their best to break your back, and your neighbors' right along with it, but at least some people are doing well in this downward spiral. Guess who?

Profits at oil companies this quarter continued to reflect oil prices that almost doubled in the second quarter from the year earlier.

Exxon Mobil on Thursday reported that second-quarter profit rose 14 percent, to $11.68 billion, the highest-ever profit by an American company. Exxon broke its own record.

Exxon broke its own record. How ducky for them. Doesn't that make you feel better?

I know John McCain's happy about it:

Campaign contributions from oil industry executives to Sen. John McCain rose dramatically in the last half of June, after the senator from Arizona made a high-profile split with environmentalists and reversed his position on the federal ban on offshore drilling.

Oil and gas industry executives and employees donated $1.1 million to McCain last month - three-quarters of which came after his June 16 speech calling for an end to the ban - compared with $116,000 in March, $283,000 in April and $208,000 in May...

...Charting the political donations of oil executives may be the best way to evaluate the industry's level of interest in a presidential candidate, said Robin West, chairman of PFC Energy, an industry adviser. Unlike other businesses, oil and gas companies do not have a large labor force that can provide a candidate an army of volunteers. And oil and gas concerns are geographically confined, largely in states that are not viewed as central to a presidential election strategy.

I guess it's clear: those who are concerned about the well-being of the ridiculously profitable oil companies, who are not - as noted above - even large employers of American workers, should definitely support a McCain candidacy.

For the rest of us who are hurting in this economy, and who also understand that there's just no way to drill our way out of our long-term energy problems (though to do so would surely further stuff the pockets of the oil industry while doing little to nothing with regard to addressing our immediate crisis), luckily there's another choice.

Creative Accounting

In yesterday's post on the credit crunch, I made offhand reference to the fact that deficits encourage inflation, linking to and quoting from, in distress, the news of the Bush administration's record-breaking $490 billion deficit.

Of course, nothing is as it seems, ever. Today via Think Progress, I see that ABC's Good Morning America this...well...this morning had the following news:

Claire Shipman reported that the deficit is actually much higher because “creative White House accounting” didn’t include the war, the unemployment costs, Medicare fees, or the housing bill in its calculations. If those numbers are included, it brings “the grand total to about $600 billion.”

Here's the video:

Creative accounting indeed. But nothing new, really; the Bush administration has always seen its war costs as outside the budget, not to be counted in their drunken night ashore; and we all know that they see laws and regulations as malleable, flexible, and at times invisible. So no big surprise there either.

It's only the number which is so appalling, and, even given the players, almost...almost shocking. And knowing that it will likely be a Democrat who inherits this unmitigated mess, I wouldn't even expect them to try and stay within this projection.

Hell, if they thought they'd be able to leave Obama to pick up the pieces of a trillion dollar deficit, they'd probably find some way to work it out. Maybe in addition to preemptive pardons, they'll start looking at preemptive corporate bailouts too. Maybe Halliburton, KBR, Blackwater, or even the Carlyle Group should be protected against any future potential profit loss?

Krugman Worth a Read Today

Paul Krugman's got a good piece in this morning's NY Times, looking at the housing bill and what it does and does not accomplish. It's worth a read, with Krugman coming down on the part of sanity and calling for tighter regulation of a wider variety of financial services entities:

... I hope nobody thinks that Congress has done all, or even a large fraction, of what needs to be done.

This bill is the latest in a series of temporary fixes to the financial system — attempts to hold the thing together with bungee cords and masking tape — that have, at least so far, succeeded in staving off complete collapse. But those fixes have done nothing to resolve the system’s underlying flaws. In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms.

Before I get to that, let’s be clear about one thing: Even if this bill succeeds in its aims, heading off a severe credit contraction and helping some homeowners avoid foreclosure, it won’t change the fact that this decade’s double bubble, in housing prices and loose lending, has been a disaster for millions of Americans....

...The back story to the current crisis is the way traditional banks — banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players. We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking, and anyway, taxpayer funds weren’t on the line.

And then reality struck.

Far from being disciplined in their risk-taking, lenders went wild. Concerns about the ability of borrowers to repay were waved aside; so were questions about whether soaring house prices made sense....

...The moral of this story seems clear — and it’s what Barney Frank, the chairman of the House Financial Services Committee, has been saying for some time: financial regulation needs to be extended to cover a much wider range of institutions. Basically, the financial framework created in the 1930s, which brought generations of relative stability, needs to be updated to 21st-century conditions.

The desperate rescue efforts of the past year make expanded regulation even more urgent. If the government is going to stand behind financial institutions, those institutions had better be carefully regulated — because otherwise the game of heads I win, tails you lose will be played more furiously than ever, at taxpayers’ expense.

Of course, proponents of expanded regulation, no matter how compelling their arguments, will have to contend with very well-financed opposition from the financial industry. And as Upton Sinclair pointed out, it’s hard to get a man to understand something when his salary — or, we might add, his campaign war chest — depends on his not understanding it.

A Crunchier Credit Crunch

The IMF has released its most recent global financial stability report and the findings aren't all that pretty. Despite the desire and predictions of so many analysts and talking media heads to have reached some sort of bottom to the current crisis (and their likewise willful disbelief in favor of such a rosy outlook), the credit crisis has yet to reach its peak. According to the BBC:

The global credit crunch shows no signs of abating, according to the International Monetary Fund (IMF).

In its latest global financial stability report, the IMF says that falling house prices and slowing economic growth are hitting credit.

It warns that banks are under renewed stress, and further cutbacks in bank lending could deepen the slowdown.

The IMF also says that emerging markets like China may also suffer more pain in the future from the credit crunch....

...In April, the IMF said that banks and other financial institutions could lose $1 trillion (£503bn) from the credit crisis as mortgage-backed assets lost most of their value - and it is still sticking to that estimate.

The current report says that that the banks have now acknowledged these risks and written off nearly $500bn worth of assets.

But it points out that they have only been able to raise new capital to cover about two-thirds of those losses, so the likelihood is that they will have to restrict their lending further.

The IMF warns that "as banks seek to deleverage and economise on capital, assets are being sold and lending conditions tightened, resulting in slower credit growth in the US and the euro area."

In the US, private sector borrowing has dropped to the lowest level since the 2001 recession.

And there is now less scope for central banks to cut interest rates to boost economic growth because of the higher risk of inflation.

We're already seeing the effects of this reality, with skittish banks cutting back big time on making new business loans. From the NY Times:

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.

The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding. “Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.

You don't need a weatherman to know which way the wind blows from here. More job cuts, less expansion, continued depreciation in the housing markets as credit becomes harder and harder to acquire, leading to more homes languishing on the market, spurring further depreciation.....in short, negative momentum.

Plus, when you consider that the Fed and its global counterparts are hamstrung now in their ability to lower interest rates for fear of increasing an already rising inflationary rate, and knowing that deficit spending on the part of the government often leads to accelerated inflation, news like this is not welcome in the least:

A senior administration official said Monday the federal budget deficit for this year will set a record high approaching $490 billion.

The official said the deficit was being driven to record levels by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. A deficit approaching $490 billion would easily surpass the record deficit of $413 billion set in 2004.

Nope. Not welcome at all. Hold on to your hats.

Our long national hangover is just beginning.

Bartender in Chief

By now, most all of y'all have probably seen this bit of video tape of the president at a closed-door fundraiser in Houston, who was unaware he was being filmed, explaining the financial crisis:

As soon as I saw that clip, I thought (or was it screamed? I'll have to ask the wife), "Well yeah, no shit. But who was giving them all the damned booze?" Today, cartoonist Jeff Danziger summed it all up in black and white:

Down, Down, Down

Let me preface this by saying that I'm firmly within the the camp of those that think the ratings agencies are as complicit in the current mortgage industry crisis as any of the other players (particularly when we start talking about the insane securitization practices which extended the reach of the inevitable explosion immensely).

But, with that caveat aside, let's see what Fitch Ratings is saying today about the outlook for the housing market (by way of Calculated Risk):

Fitch Ratings said Thursday that it had enhanced its U.S. residential mortgage loss mode ... Fitch’s revisions suggest ... a very bearish take on housing prices over the next five years: Fitch said in its report that it is expecting home prices to decline by an average of 25 percent in real terms at the national level over the next five years, starting from the second quarter of 2008.

And that’s the base case scenario....

...Fitch will also roll out new 25 MSA-level risk factors influencing frequency of foreclosure and loss severity estimates, the agency said; the 25 MSAs chosen are those that have exhibited strong non-conforming mortgage lending activity in the past.

“Some MSAs such as San Diego and San Francisco, CA are expected to experience home price declines by as much as 47 percent and 33 percent over the next five years, while home prices in MSAs such as San Antonio, TX are expected to appreciate by 7 percent,” [Huxley Somerville, group managing director and head of Fitch’s U.S. RMBS group said].

And, as also noted by the folks at Calculated Risk, understand that the above is referring to real prices, adjusted for inflation. So that's real prices, and note that Fitch is looking at a five year downward trend.

As I've been saying for quite some time now, it's going to get a whole lot worse before it starts to get better. Anyone who tells you otherwise is either lying, willfully deluding themselves, or just simply doesn't have a grasp of how deep the rot really goes.

There is a Class War Going On

And the middle-class, to say nothing of the poor, are losing. Big time.

"I am a single mother with a 9-year-old boy. To stay warm at night my son and I would pull off all the pillows from the couch and pile them on the kitchen floor. I'd hang a blanket from the kitchen doorway and we'd sleep right there on the floor. By February we ran out of wood and I burned my mother's dining room furniture. I have no oil for hot water. We boil our water on the stove and pour it in the tub. I'd like to order one of your flags and hang it upside down at the capital building... we are certainly a country in distress."

— Letter from a single mother in a Vermont city, to Senator Bernie Sanders

And so begins a great (though pretty friggin' depressing) post by Matt Taibbi over at The Smirking Chimp, which a friend alerted me to over the weekend (before the vile illness took hold of me body and soul). We all know the economy is in shambles, and anyone who resides in the reality-based community knows that it's the middle and lower classes which are bearing the full brunt of the collapse. Even with oil prices retreating, gas prices, food prices, and of course, the perennial back-breaker, health care all keep rising. The entire post by Taibi is well worth your time to read, but I wanted to point out a couple of highlights (emphasis my own):

A few weeks back, I got a call from someone in the office of Vermont Senator Bernie Sanders. Sanders wanted to tell me about an effort his office had recently made to solicit information about his constituents' economic problems. He sent out a notice on his e-mail list asking Vermont residents to "tell me what was going on in their lives economically." He expected a few dozen letters at best — but got, instead, more than 700 in the first week alone. Some, like the excerpt posted above, sounded like typical tales of life for struggling single-parent families below the poverty line. More unnerving, however, were the stories Sanders received from people who held one or two or even three jobs, from families in which both spouses held at least one regular job— in other words, from people one would normally describe as middle-class. For example, this letter came from the owner of his own commercial cleaning service:

My 90-year-old father in Connecticut has recently become ill and asked me to visit him. I want to drop everything I am doing and go visit him, however, I am finding it hard to save enough money to add to the extra gas I'll need to get there. I make more than I did a year ago and I don't have enough to pay my property taxes this quarter for the first time in many years. They are due tomorrow.

This single mother buys clothes from thrift stores and unsuccessfully tried to sell her house to pay for her son's schooling:

I don't go to church many Sundays, because the gasoline is too expensive to drive there. Every thought of an activity is dependent on the cost.

Sanders got letters from working people who have been reduced to eating "cereal and toast" for dinner, from a 71-year-old man who has been forced to go back to work to pay for heating oil and property taxes, from a worker in an oncology department of a hospital who reports that clinically ill patients are foregoing cancer treatments because the cost of gas makes it too expensive to reach the hospital. The recurring theme is that employment, even dual employment, is no longer any kind of barrier against poverty. Not economic discomfort, mind you, but actual poverty. Meaning, having less than you need to eat and live in heated shelter — forgetting entirely about health care and dentistry, which has long ceased to be considered an automatic component of American middle-class life. The key factors in almost all of the Sanders letters are exploding gas and heating oil costs, reduced salaries and benefits, and sharply increased property taxes (a phenomenon I hear about all across the country at campaign trail stops, something that seems to me to be directly tied to the Bush tax cuts and the consequent reduced federal aid to states). And it all adds up to one thing.

"The middle class is disappearing," says Sanders. "In real ways we're becoming more like a third-world country."

Here's the thing: nobody needs me or Bernie Sanders to tell them that it sucks out there and that times are tougher economically in this country than perhaps they've been for quite a long time. We've all seen the stats — median income has declined by almost $2,500 over the past seven years, we have a zero personal savings rate in America for the first time since the Great Depression, and 5 million people have slipped below the poverty level since the beginning of the decade. And stats aside, most everyone out there knows what the deal is. If you're reading this and you had to drive to work today or pay a credit card bill in the last few weeks you know better than I do for sure how fucked up things have gotten. I hear talk from people out on the campaign trail about mortgages and bankruptcies and bill collectors that are enough to make your ass clench with 100 percent pure panic.

None of this is a secret. Here, however, is something that is a secret: that this is a class issue that is being intentionally downplayed by a political/media consensus bent on selling the public a version of reality where class resentments, or class distinctions even, do not exist. Our "national debate" is always a thing where we do not talk about things like haves and have-nots, rich and poor, employers versus employees. But we increasingly live in a society where all the political action is happening on one side of the line separating all those groups, to the detriment of the people on the other side....

...Bernie Sanders is one of the few politicians out there smart enough and secure enough to understand that the future of American politics is necessarily going to involve some pretty frank and contentious confrontations. The phony blue-red divide, which has been buoyed for years by some largely incidental geographical disagreements over religion and other social issues, is going to give way eventually to a real debate grounded in a brutal economic reality increasingly common to all states, red and blue....

...The Democratic party that was once the impetus behind much of these changes, that argued so eloquently in the New Deal era that our society would be richer and more powerful overall if the spoils were split up enough to create a strong base of middle class consumers — that party panicked in the years since Nixon and elected to pay for its continued relevance with corporate money.

By all means, do go read the whole thing. It will either open your eyes or confirm what you already know. But then, ask yourself if these absolutely critical issues are getting any kind of real discussion. There's only one answer to that question.

We're in desperate need of a New New Deal, but the only deal the American public is getting is a Raw one.

Mortgage Crisis Hits Home

And it's more bad news for Oxford.

Reliable sources tell me that FNC, Inc., a local company that is tied directly into the mortgage industry, is in the process of laying off roughly 10% (maybe more) of its workforce. Bad news for the job market in Oxford (and elsewhere), but really just par for the current course in the industry.

Sad. For the folks who are now unemployed, for the company, and the town. FNC was one of the "new Oxford" success stories, and became one of the better-paying employers here. With any luck, they'll survive their current troubles, and these will be the last of the layoffs. But that all depends on the mortgage market.

More as it develops.

No Sh*t, Sherlock.

The USA Today runs a piece that suggests that maybe today's current economic woes are the result of America flying high (in both senses of the word) on growth fueled by Americans, American companies and American institutions taking on higher and higher levels of debt. There's only one response for that sort of keen insight at this late point in the game: Well, duh:

If it wasn't clear before Tuesday, it is now: This is no ordinary economic crisis, and it won't be over anytime soon. In fact, problems are multiplying. A year ago, the financial virus seemed confined to subprime mortgages, loans given to those with less-than-perfect credit. Now, much of the banking system appears rickety, and the U.S. economy has slowed to a crawl. But thanks to robust demand from still-growing countries such as China, the prices of commodities from oil to food have soared — hitting Americans from the gas pump to the grocery checkout.

"There's no hope of an early recovery at this point," says economist Kenneth Rogoff of Harvard University. "The best-case scenario is we have a long but mild recession — and that's the best-case scenario."

The root of the economic problem remains the fallout from the imploding housing bubble.

For nearly a decade, consumers grew accustomed to the idea of ever-rising home prices. Housing-related prosperity boosted consumption, as consumers tapped home-equity loans for cash to pay for everything from new cars to college for the kids. As the boom roared on, regulators stood on the sidelines, convinced that the magic of the market would sort out any problems.

"It seemed too good to be true, and it was. Absolutely (today) is payback," says Rogoff, former chief economist of the International Monetary Fund....

...Forecasters at investment bank Morgan Stanley, for example, expect the economy to shrink for six months beginning in the fourth quarter. Gross domestic product will expand by a barely perceptible 1% in the second quarter of 2009 before hitting its stride in the second half of the year, they say.

Between now and then, the business pages won't make for happy reading. The economy is going through what analysts call "deleveraging," a fancy way of saying debt repayment. During the housing boom, Americans and their financial institutions borrowed way too much money. Now the bills are coming due — economywide. And that's what is making things so tough in so many different ways.

"It's not like your standard business cycle recession. … The trouble with this deleveraging recession is it's self-reinforcing. … I don't like to be pessimistic, but the relentless flow of bad news is just something we're going to have to get used to," says George Magnus, senior economic adviser for UBS in London.

How bad might it get? Perennial doomsayer Nouriel Roubini, who calls this "by far the worst financial crisis since the Great Depression," predicts stocks will fall 40% from their peaks. That translates into a Dow of 8568 — a level not seen since 2003.

Others are more sanguine. Habitual bull Abby Joseph Cohen of Goldman Sachs predicts the market will move up by year's end.

Meanwhile, get used to parts of the American patrimony being sold off to foreign investors, who now have the cash that U.S. institutions lack. This week, it was Anheuser-Busch, maker of Budweiser beer, being sold to a Belgian company. Earlier this month, the Chrysler building in New York went to an investment fund based in Abu Dhabi.

But it's the banking sector that likely will see the most significant activity. The housing crisis has left financial institutions with deeply wounded balance sheets, as the mortgage securities they hold have turned out to be worth far less than once believed.

Unfortunately for us, "perennial doomsayer Nouriel Roubini" has been spot on about nearly everything having to do with this crisis for years now.

Life is A Road With Lots of Signs...

...so when you're riding through the ruts, don't you complicate your mind.

- Bob Marley
Wake Up and Live

Good advice, but turns out Bob was a better man than I. The ruts have got my mind so complicated my head hurts. Yesterday, we found out that US producer prices (wholesale costs) had risen year over year by the largest amount in 27 years:

The U.S. producer price index increased 1.8% last month, after seasonal adjustments, with energy prices spurting 6% and food prices growing 1.5%, the Labor Department reported.

Over the past 12 months, the producer price index, which tracks inflation at the wholesale level, gained 9.2% -- the largest year-over-year gain since June 1981.

And, simple economics, on to whom does that increase get passed?

If you picked "the consumer" (and God, but do I hate to hear Americans described that way), you're the winner of a tiny gold star!

Today, we get word that consumer prices have also climbed, by the most in 26 17 years (Bloomberg has corrected the story):

Prices paid by U.S. consumers jumped in June by the most since 1982 on spiraling costs for fuel and food, intensifying the pressure on households struggling with falling home prices and the credit crunch.

Prices paid by U.S. consumers jumped in June by the most since 2005 on spiraling costs for fuel and food, intensifying the pressure on households struggling with falling home prices and the credit crunch.

The cost of living soared 1.1 percent, more than forecast, after a 0.6 percent gain the prior month, the Labor Department said today in Washington. Excluding food and energy, so-called core prices climbed 0.3 percent, also more than anticipated.

The figures underscore why Federal Reserve Chairman Ben S. Bernanke yesterday said inflation risks had ``intensified.'' The surge in energy costs has also trimmed consumer and business spending, hurting growth and making it less likely policy makers will boost interest rates to stem even bigger price increases.

``Inflation has galloped,'' Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said before the report. ``It puts the Fed in a really tricky position. I don't see how they can change rates this year.'' [...]

[...]Americans trimmed purchases of automobiles, furniture and restaurant meals last month as the cost of gasoline soared, a Commerce Department report showed yesterday. Retail sales rose 0.1 percent, less than forecast, a sign the boost from the tax rebate checks is already fading....

...Kimberly-Clark Corp., the maker of Huggies diapers and Scott paper towels, said earnings for this year will trail its previous forecast as expenses rise more than twice as fast as predicted, In May, the company said it would raise prices for a second time this year to counter higher costs for materials such as oil, natural gas and pulp.

UPDATE: Bloomberg has changed this story since it first appeared, softening the language. Yes, consumer prices have jumped by their highest amount since Katrina in 2005, but year-over-year, we're still looking at the largest jump in 17 years:

Prices increased 5 percent in the 12 months to June, the most since May 1991. They were forecast to climb 4.5 percent from a year earlier, according to the survey median.

Not that we needed them to tell us that. Anyone who's gone to the grocery store lately can attest to the fact that stuff just costs a whole lot more these days. Diapers. Paper towels. Food. Have you seen the price of milk? Check your electric bill, add up your monthly gas expenditures, God help you if you've got an ARM fixing to reset.

And then, retreat into your safe place, dim the lights, turn on the Bob Marley and see if you can gain some of that man's chill by sonic osmosis.

Tomorrow Should Be Interesting

After swinging wildly up and down all day, the Dow closed at 10,962.54. Down almost a hundred points and breaking an important psychological threshold (the 11,000 point firewall) for investors.

Tomorrow may be very ugly indeed. But hey, these days, who the hell knows, right?

Car 54, Where Are You?

LAPD called in to quell clashes between irate IndyMac customers at local branches.

(Another) Black Day on Wall Street

Trading day's still got several hours left to it, and much can happen between now and then, but the Dow's been going under and over the 11,000 mark all morning. If we land beneath 11K at the end of the day, the psychological impact will probably open the floodgates even more than they've been.

From Bloomberg, mid-day:

U.S. stocks fell and the dollar dropped to a record low against the euro as investors lost confidence in the government's rescue of Fannie Mae and Freddie Mac and Federal Reserve Chairman Ben S. Bernanke said the risks of an economic slowdown and faster inflation are increasing.

Fannie Mae and Freddie Mac, the largest U.S. mortgage- finance companies, declined more than 20 percent each. Citigroup Inc. plunged to the lowest level since the company was created through a merger in October 1998. The market pared its decline as oil retreated by more than $6 a barrel.

The Standard & Poor's 500 Index lost 14.54 points, or 1.2 percent, to 1,213.76 at 11:41 a.m. in New York. The Dow Jones Industrial Average retreated 111.05, or 1 percent, to 10,944.14. The Nasdaq Composite Index decreased 14.72, or 0.7 percent, to 2,198.15. Three stocks fell for each that rose on the New York Stock Exchange.

``There's a feeling among investors that there's no place to hide,'' said Joseph Quinlan, the New York-based chief market strategist for the global wealth and investment management division of Bank of America Corp., which oversees $607 billion. ``Sentiment has turned sour globally. It's not just in the U.S., it's across the globe.''

OTS Blames Chuck Schumer for IndyMac Failure

Everything was just hunky dory, you see, till mean old Chuck Schumer wrote a letter:

The closure followed a frenzied week during which IndyMac’s executives tried to bolster the ailing bank. IndyMac, based in Pasadena, Calif., stopped making new loans and announced layoffs of more than half of its 7,200 workers. But IndyMac’s customers, afraid their savings might disappear, stampeded tellers and demanded their money....

...The run on the bank came after a critical letter about the bank from Senator Charles E. Schumer, Democrat of New York. Federal regulators said on Friday that Mr. Schumer’s letter had prompted the collapse by causing the run and scaring away potential acquirers.

“The senator made comments in his letter questioning the viability of the institution,” John M. Reich, director of the Office of Thrift Supervision, said in a phone call with reporters. “When a member of the United States Senate makes such a statement, it frightens depositors.”

In the days after Mr. Schumer’s letter was released on June 26, IndyMac customers withdrew an average of $100 million a day from the bank, or a total of $1.3 billion, the government said. Before Mr. Schumer’s letter, the bank had been receiving net inflows of money from depositors, Mr. Reich said.

Mr. Schumer, who has been critical of bank regulators for months, released a statement criticizing Mr. Reich’s agency.

“IndyMac’s troubles, like Countrywide’s were caused by practices that began and persisted over the last several years,” he said. “If O.T.S. had done its job as regulator and not let IndyMac’s poor and loose lending practices continue, we wouldn’t be where we are today.”

For all the write-downs and bad news on Wall Street over the last year, only five local and regional banks have shut their doors. The handful that have failed have been a fraction of the size of IndyMac. IndyMac held $32 billion in assets as of late March, according to the government release.

“It’s the biggest failure in 24 years,” said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. “You haven’t had a lot of failures of that size, yet.”

Hit that nail right on the head there, Chip. Not yet.

Y'know, here's a thought: maybe Chuck was writing letters and saying alarming things about the situation with IndyMac Bank because the situation was, you know, alarming.

And maybe because its ills (and their ramifications) were a perfect example of what the wholly under-regulated Wild West atmosphere of the mortgage industry hath wrought.

And maybe because he saw the bank for what it was: a dead canary...a huge, $32 billion dead canary covered in coal dust.

But yeah. If only he hadn't written that letter, all would still be swell.

IndyMac Siezed By FDIC

Wow. Friend just tipped me to this. IndyMac Bank is toast. According to Bloomberg:

IndyMac Bancorp Inc. became the second-biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.

The Federal Deposit Insurance Corp. will run a successor institution, IndyMac Federal Bank, starting next week, the Office of Thrift Supervision said in an e-mailed statement today. Customers will have access to funds this weekend via automated teller machines. Regulators intend to eventually sell the company....

....IndyMac becomes the largest OTS-regulated savings and loan to fail and second-biggest financial institution to close behind Continental Illinois in 1984, according to the FDIC. Lehman Brothers Holdings Inc. advised the regulator in the transaction....

...The lender racked up almost $900 million in losses as home prices tumbled and foreclosures climbed to a record. California ranked second among U.S. states, with one foreclosure filing for every 192 households in June, 2.6 times the national average.

After peaking at $50.11 on May 8, 2006, IndyMac shares lost 87 percent of their value in 2007 and another 95 percent this year. The stock fell 3 cents to 28 cents at 4 p.m. New York time today.

IndyMac's shutdown may mean regulators will have to raise more money to support the federal deposit insurance program that repays customers when a bank fails, Reich said during a press conference. The failure will cost the fund about $4 billion to $8 billion, the FDIC said in a statement.

Unfortunately, we will probably see more of this in the coming months.

Obama on Our "Mental Recession"

By way of TPM, a great clip of Obama taking on the absurdity of Phil Gramm: