Yesterday was one of the nastiest days for the stock market in a while. And the market as a whole is on track for
its worst June since the Great Depression, according to Bloomberg. That’s not
exactly the kind of news you want to read while you’re drinking your coffee and munching on your bagel. But it is what
it is.
What else has caught my eye this morning?
First, the regulators are trying to do anything they can to encourage the funneling of capital into the banking system.
Why? Banks need all the help they can get to shore up their balance sheets amid billions and billions of writedowns and
loan and securities losses. Now, it looks like the Fed may allow bigger infusions of capital from private equity firms.
Per the Wall Street
Journal:
“The Federal Reserve may soon make it easier for private-equity firms and others to invest in the nation’s ailing
banks, according to people familiar with the matter.
“With bank stocks crumbling and the second quarter drawing to a close Monday, the changes could offer a lifeline to
cash-strapped lenders desperate to secure capital.
“This would be a bit of a sea change for the Fed,” said Gregory Lyons, head of the financial-services practice at law
firm Goodwin Procter LLP. “A number of banks would love to access the private-equity pool. It’s a clean slug of
money.”
“The move comes as regulators grow increasingly worried about the ability of many banks to replenish capital amid the
worst banking crisis in decades. Small and regional lenders are expected to have a tougher time lining up new
investors, particularly since some recent capital infusions have stuck banks’ new shareholders with big losses.”
Second, we continue to see elevated loss and writedown forecasts for the country’s major financial institutions. One
example: Lehman Brothers is forecasting that
Merrill Lynch will end up taking another $5.4 billion in writedowns in the second quarter.
Third, personal income and spending wasn’t so bad in May. Income jumped 1.9%, more than four times the 0.4% increase
economists were expecting. Disposable income jumped 5.7% in the month, the biggest increase since May 1975. Spending
rose 0.8%, slightly higher than the 0.7% rise that was expected. The personal consumption expenditures “core” index
gained just 0.1%, below the 0.2% forecast (meanwhile, the headline PCE deflator jumped 0.4%, the biggest rise since
November).
One problem: The tax rebates were the driving force behind the surge in incomes. As the Bureau of Economic Analysis
notes:
“The May and April changes in disposable personal income (DPI) — personal income less personal current taxes — were
boosted as a result of provisions of the Economic Stimulus Act of 2008. The federal government issued rebate payments
of $48.1 billion in May ($577.1 billion at an annual rate) and $1.9 billion in April ($23.3 billion at an annual rate).
These payments reduced personal current taxes and increased government social benefit payments. As a result, disposable
personal income increased substantially. Excluding these special factors, which are discussed more fully below,
disposable personal income increased $46.4 billion or 0.4 percent in May, after increasing $16.6 billion, or 0.2
percent, in April.”
{ 1 comment… read it below or add one }
I wonder why the schools have failed to install any understanding of the use of credit. Evidence: about half the population have zero to very large net worth! Some of us understand that plastic card debt is toxic to ones financial
well being. Needless to say our family has never bought on credit when we did not know where the money to pay the bill by due date would come from. Obviously the federal government has failed this test.