Zombie Banks

Zach Carter:

BofA and its predecessors Countrywide and Merrill Lynch accessed the Fed's Primary Dealer Credit Facility 416 times, for a total of $2.783 trillion. A full $476 billion in junk bonds were pledged as collateral for the loans, or roughly 17 percent. The PDCF is an overnight facility, so a lot of these loans are simply being rolled over day-to-day. Nevertheless, it's a staggering amount of money, with an enormous degree of totally worthless collateral being pledged to justify it.

The Fed and Treasury had to do something in 2008 to keep the financial system from falling off a cliff. But by treating the problem as a liquidity issue with no strings attached, they didn't solve the underlying problem: lots of very big banks were simply insolvent.

Now, over two years after TARP, it's clear that many of our largest banks are only "solvent" due to accounting irregularities being approved by regulators that are terrified of letting big banks go under. As a result of this fear, we aren't really regulating our banks.

So Paul Krugman's prediction of zombie banks creating a drag on the economy has not come true. The reality is, in fact, much worse. Krugman foresaw zombie banks that didn't lend due to capital concerns, preventing the recovery from getting off the ground. We're seeing plenty of that, but we're also seeing zombie banks actively prey on the economy through the foreclosure process in an effort to repair their balance sheets. The zombie banks aren't just failing to boost the economy, they're actively sabotaging it.

This post is probably pretty technical for most of you, but it's very interesting as providing insight into what economists are saying about our current mess.

Jobs - a Broader Perspective

I came across an article today that got me thinking about this, so I thought it would be useful give a general idea of where we are as an economy at the moment.  From the Bureau of Labor Statistics, in thousands:

                                                               Nov. ’11         July ‘05

1.  Total Population:                                   310,827         295,753

2.  Civilian Non-Institutional Population:         238,530         226,153

3.  Work Force:                                         153,904         151,122

4.  Employed:                                           139,061         143,283

         Full-Time                                         111,696         118,938

         Part-Time                                         27,365           24,351

Line 2 equals line 1 minus people under the age of 16, people in nursing homes and prisons and other institutions, and people in the armed forces (why they are subtracted out here – or treated as anything other than employed persons, is something I don’t understand).

Line 3 equals line 2 minus retirees, homemakers and others not working for personal reasons, students not currently seeking a job, and discouraged workers (workers who have not actively sought a job in the past 4 weeks).

Line 4 equals line 3 minus unemployed persons.  It includes part-time and full-time employees, which I have shown.

A couple of things to note.  The percentage of line 2 that is in the workforce has declined a lot over the last five years.  If the percentage stayed the same, the number would be almost 160 million.  Why this difference exists is not so clear - it is possible that a higher pecentage of people are retiring now than in the past, any insight on this would be appreciated.

But assuming workforce participation should be the same as before, to bring our economy today to the same place it was 5 years ago, we would need numbers like this (again in thousands):

2.  Civilian Non-Institutional Population:         238,530

3.  Work Force:                                         159,393

4.  Employed:                                           151,125

         Full-Time                                         125,440

         Part-Time                                          25,684

In other words, we would need over 12 million new full time jobs, and also to have nearly 2 million jobs that are currently part time become full-time, in order for us to be where we were five years ago.

The stock market rallied today because the number of private sector jobs last month grew by 93,000.  We won't know for sure whether these are full or part time jobs until Friday.

It’s all a matter of perspective I guess.