Credit Writedowns is running a piece without comment titled GDP 2.7% Higher if R&D Treated As Investment. Here is the beginning:
Gross Domestic Product (GDP) would have been, on average, 2.7 percent, or $301.5 billion higher between 1998 and 2007 if research and development (R&D) spending was treated as investment in the U.S. national income and product accounts, the Bureau of Economic Analysis (BEA) announced today. The 2010 R&D Satellite Account updates and extends BEA’s estimates of the effect of R&D on economic growth through 2007, and now includes coverage of the most recent business cycle expansion.
This does not make sense to me. R&D is nothing but an expense unless or until it leads to a saleable product, and ideally a profitable product. It is bad enough that production of junk food and drink is given weight in GDP, but leisure time is given no weight. BEA must be desperate.
Copyright (C) Long Lake LLC 2010
Showing posts with label Credit Writedowns. Show all posts
Showing posts with label Credit Writedowns. Show all posts
Thursday, July 1, 2010
Wednesday, September 23, 2009
Out, Out, Damned Debt
There are many "must read" articles referenced in the blogosphere. Courtesy of Ed Harrison's Credit Writedowns, here is a "must view" chart in John Lounsbury's The Hidden Depression of the 2000s.
The article is a great read, but this one chart makes the point. Mr. Lounsbury's point is that it was debt, debt and more debt that produced all the growth in the economy this decade. Clearly that fits with the theme of EBR: "In equity, veritas".
I don't know if blood, sweat and tears is quite the correct phrase to invoke, but America needs to produce more than it consumes for some time to come.
Underconsuming from an economic standpoint is sort of like a successful diet: fun when you get the hang of it, because you know you're helping yourself. First, though, you have to truly want to break the habit. There has been NO leadership from Team Obama in this regard, though. Perhaps they will do better on the obesity and overweight epidemic than on the debt habit.
Hope springs eternal.
Underconsuming from an economic standpoint is sort of like a successful diet: fun when you get the hang of it, because you know you're helping yourself. First, though, you have to truly want to break the habit. There has been NO leadership from Team Obama in this regard, though. Perhaps they will do better on the obesity and overweight epidemic than on the debt habit.
Hope springs eternal.
Copyright (C) Long Lake LLC 2009
Friday, September 18, 2009
Is Wells Unwell?
One of these days, banks will begin making an increased number of bad loans again (and some good ones). Presumably the non-change agents in Washington will be continuing the game of socializing the losses when they are large enough while privatizing all gains (save taxes and campaign contributions). For the nonce, as the damage from the last crop of bad loans and fraudulent practices continues to be counted, it's not clear how severe the damage from the infections has been or will prove to be. Courtesy of Credit Writedowns, here are excerpts from a Bankimplode.com post titled Wells Fargo's Commercial Portfolio is a ticking time bomb:
In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.
Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few years of its existence that it underwrote loans with extremely shoddy standards and paid traders to take them off their books.
According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large. . .
Both Whitney and Paul Miller of FBR Capital Markets both have gone on-air and written in notes to clients that Wells’ loan loss reserves are not enough to handle coming impairments to residential loans. Miller has a recommended stock price of $15 while WFC is currently trading around $29.
When as good an analyst as Mr. Miller project a stock price that is half the current one, fuggedabout owning the stock. I recall that when Citi was, say, a $20 stock and Meredith Whitney projected (say) a $9 stock price, gasps were heard (at least mentally). Citi of course was headed really toward zero and even after its monster rally this year remains at about half that $9 target.
Where would the stock indices be if Wells became a $7.50 stock?
Copyright (C) Long Lake LLC 2009
In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.
Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few years of its existence that it underwrote loans with extremely shoddy standards and paid traders to take them off their books.
According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large. . .
Both Whitney and Paul Miller of FBR Capital Markets both have gone on-air and written in notes to clients that Wells’ loan loss reserves are not enough to handle coming impairments to residential loans. Miller has a recommended stock price of $15 while WFC is currently trading around $29.
When as good an analyst as Mr. Miller project a stock price that is half the current one, fuggedabout owning the stock. I recall that when Citi was, say, a $20 stock and Meredith Whitney projected (say) a $9 stock price, gasps were heard (at least mentally). Citi of course was headed really toward zero and even after its monster rally this year remains at about half that $9 target.
Where would the stock indices be if Wells became a $7.50 stock?
Copyright (C) Long Lake LLC 2009
Thursday, July 2, 2009
Feds Implementing 125% Loan to Value Mortgages
From Dr. Ed Harrison at Credit Writedowns comes Can I borrow the full amount and an extra 25% too?
From his blog quoting CNBC:
"Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.
The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.
Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth."
Dr. Harrison explains:
Addendum: just in case it isn’t clear, this measure is intended to keep banks from taking writedowns. A homeowner now 20% underwater can borrow the full amount of the original loan even though the house is worth 20% less than that amount. The home ‘owner’ stays in the house. The bank gets its regular payments (and a nice re-financing fee to goose earnings in Q3). And no one defaults. It’s all good, right?
Also, Yves Smith has a nice writeup with some additional points on Naked Capitalism on this very topic.
My comment: things have to be in a real mess to be at this stage.
Copyright (C) Long Lake LLC 2009
From his blog quoting CNBC:
"Homeowners refinancing their mortgages through loans backed by government agencies will be able to borrow up to 125 percent of their homes’ value under new regulations enacted Wednesday.
The rule changes, part of the government’s attempts to restore housing affordability and stem the foreclosure crisis, apply to loans backed up by Fannie Mae and Freddie Mac.
Previously, homeowners could borrow up to 105 percent of their home’s value. The new loan-to-value ratio is set up at 125 percent in a further effort to address those mortgage holders who owe more than their homes are worth."
Dr. Harrison explains:
Addendum: just in case it isn’t clear, this measure is intended to keep banks from taking writedowns. A homeowner now 20% underwater can borrow the full amount of the original loan even though the house is worth 20% less than that amount. The home ‘owner’ stays in the house. The bank gets its regular payments (and a nice re-financing fee to goose earnings in Q3). And no one defaults. It’s all good, right?
Also, Yves Smith has a nice writeup with some additional points on Naked Capitalism on this very topic.
My comment: things have to be in a real mess to be at this stage.
Copyright (C) Long Lake LLC 2009
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