It’s Official: Worst Recession in Five Decades

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May 272009
 

This recession is now the worst since at least 1958, which is as far back as the index of coincident indicators stretches back.

The Conference Board reported today that the index, which is intended to measure how the economy is doing on an overall basis, slipped a little in April. The decline was smaller than in previous months, and two of the four indicators edged up, which could be taken as a sign that the economy is at least getting worse at a slower pace.

As I noted last month, the index was nearing the 5.6 percent decline that it experienced in the 1973-1975 recession. Now it is down 5.7 percent.

One way to put that into perspective is that the decline so far in this recession is more than the maximum falls combined in the two previous recessions, in the early 1990s and then in 2001.

“..the decline so far in this recession is more than the maximum falls combined in the two previous receptions, in the early 1990s and then in 2001.” (Floyd Norris)

Posted by Brian Schuettler at 8:11 am  

Let the PBGC bailout talk commence

 Pension Crisis, Who Guarantees the Guarantor?-You Do!  No Responses »
May 272009
 

From Eric Lipton at the NY Times: Bankruptcies Swell Deficit at Pension Agency to $33.5 Billion

The deficit at the federal agency that guarantees pensions for 44 million Americans more than doubled in the last six months to a record high, reaching $33.5 billion …

The Pension Benefit Guaranty Corporation, as of October, had faced a shortfall of $11 billion. But the combined effect of lower interest rates, losses on its investment portfolio and the increase in the number of companies filing for bankruptcy protection resulted in a deepening of its estimated deficit, officials said Wednesday.
…
With the bankruptcy of Chrysler and a possible similar move by General Motors, the agency is facing a record surge in demand. The new deficit estimate takes into account both pensions it has taken over in the last six months, and others it believes it will have to assume control of soon.

Here is the PBGC statement: PBGC Deficit Climbs to $33.5 Billion at Mid-Year, Snowbarger to Tell Senate Panel

The $22.5 billion deficit increase was due primarily to about $11 billion in completed and probable pension plan terminations; about $7 billion resulting from a decrease in the interest factor used to value liabilities; about $3 billion in investment losses; and about $2 billion in actuarial charges.

Snowbarger notes that as of April 30, the PBGC’s investment portfolio consisted of 30 percent equities, 68 percent bonds, and less than 2 percent alternatives, such as private equity and real estate. All the agency’s alternative investments have been inherited from failed pension plans.

Let the PBGC bailout talk commence. (Calculated Risk)

Posted by Brian Schuettler at 8:05 am  

Mean Street: The Sorry State of Our Sorriest State, California

 A State of Distress, Even the Terminator Can't Help California  No Responses »
May 272009
 

You live, you learn. Right?

Well, not in America. Here we live, screw up and then go back to doing the same stupid things we did before.

Apparently, it is just too hard for us to make the tough, necessary choices.

Look at the sorry state of our sorriest state, California. It may be the sixth or eighth largest economy in the world, but it isn’t just broke, it’s broken.

California is “broken” due in large part to its inability to make “tough necessary choices.” (Deal Journal)

Posted by Brian Schuettler at 8:01 am  

ARMs Away!

 Lending Crisis, Mortgages, Negative Cash Flow, Our phony middle class, Residential Market, Sub-Prime anytime  No Responses »
May 272009
 

Subprime is done. All the teaser rates are over, the interest rates have reset and the writing is on the wall.

But in the coming quarters, the scenario will play out with other exotic mortgages, Option ARM (pick-a-pay), Alt-A, etc. The homebuyers may have had better credit, but they had the same strategy: Get a low interest rate upfront, and then deal with the reset down the road, by either refinancing or selling the home. But, whoops, home values are way lower and the economy sucks. Plan derailed.

The subprime mortgage issue is largely past, here comes the Option ARM and Alt-A mess. (Clusterstock)

Posted by Brian Schuettler at 7:58 am  
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