TMFDeej (99.46)

Why is the FDIC involved in P-PIMP? & The Real Unemployment Rate Soars to 15.6%

April 07, 2009 – Comments (2)

Here are a couple of odds and ends that I have been thinking about this afternoon.

First, why in the heck is the FDIC involved in the P-PIMP government toxic asset auction program?  Isn't the FDIC only supposed to be insuring citizens' deposits to prevent panic and runs on the bank? 

For some reason, the FDIC is being tapped to insure 85% of the up to 4 trillion in debt that the Treasury is issuing to private investors in an effort to coax them into overpaying for the toxic assets that banks have their balance sheets.  This is happening despite the fact that the FDIC's charter forbids it from borrowing, guaranteeing, or taking on obligations of more than $30 billion.

I'll tell you why, it so the non-elected officials at the Treasury can throw billions and billions more dollars at the banking problem without having to get Congressional approval because they know that they would never get it if they had to go through the proper channels. 

I don't know if the FDIC is going to experience massive losses from its involvement in this program or the increase in the government guarantee of bank deposits from $100,000 to $250,000 per account without any corresponding increase in reserves, but it would not shock me in the least if Sheila Bair and friends were forced to look for a bailout of their own in the future.  Such an event would be very troubling and it has the potential to hurt citizens' confidence in the banking system.

For all of our sakes I hope that P-PIMP is a roaring success, but I'm not holding my breath.  Even if it doesn't blow up, there's no guarantee that banks will be willing to sell their toxic "assets" for the prices that savvy investors will be willing to pay for them.

‘No-Risk’ Insurance at F.D.I.C.

----------------------------------------------------------------------------------------------------

Everyone knows that the U.S. unemployment rate rose from 8.1% in February to 8.5% in March when the BLS reported the official numbers last week.  All I keep hearing the talking heads on television saying since the recent rally started is something like this "Yes, the unemployment numbers were bad, but who cares...90% of Americans are still doing great, blah, blah, blah."

Not so fast.  A better reading of the labor market is the U6 statistic, one that includes unemployed workers, those who have actively looked for a job during the past month but have given up, and those who are working part-time but would rather be working full-time.  In March, the U6 unemployment rate rose to 15.6%, from 14.8% in February.  This is a new record.  It is even higher than the largest reported unemployment rate using a similar data series that the BLS discontinued years ago, which hit 15% in late 1982.

This is not a pretty picture and it's certainly a bigger drag on consumer spending than many of the talking heads on the TeeVee would like everyone to believe.

----------------------------------------------------------------------------------------------------

Having said all of this negative news, I figured that I would balance things out with a little positive news.  I am hearing from my contacts in the auto industry that sales at the end of March and the first week of April have been fairly strong.  It's still very early in the month, and the majority of auto sales tend to occur towards the end of the month, but so far April is looking a lot better than February and March were.  Let's all cross our fingers and hope that this holds up.

Deej