Posts filed under “Think Tank”

Is Big Really Beautiful?

Bill Dunkelberg is currently a professor of economics at Temple University where he served as dean of the School of Business from 1987-95. Prior appointments were at Purdue, Stanford and the University of Michigan. He has served as the Chief Economist for the National Federation of Independent Business for 35 years, is the Chairman of Liberty Bell Bank (NJ) and Economic Strategist for Boenning & Scattergood (1914, Philadelphia).


In a recent Financial Times editorial (July 30), Josef Ackermann of Deutsche Bank made his case for larger banks, arguing that they are beneficial and only the “interconnectedness” of banks caused our massive financial market failure. “Big , beautiful banks” may have nice, expensive buildings (if you happen to be in one) but little else to recommend them. Small banks may not have ornate, expensive buildings, but they get the job done with far less risk and cost to consumers and shareholders. Research undertaken by the Board of Governors of the Federal Reserve found few if any benefits to scale beyond $5 or $10 billion in asset size. So, for customers and shareholders, big is not obviously better, although for executives, life is good, pay is great.

The ultimate in “interconnectedness” is one bank with thousands of branches. So with one bad decision at headquarters, the entire system goes down. Credit standards are set by one officer for the entire economy, there is no “competition” for innovation in lending technologies or risk-taking. Mr. Ackermann is correct about the risk of interconnectedness as was illustrated by news headlines last fall: “Credit markets frozen – banks wont led to each other.” I thought banks were supposed to lend to consumers and businesses, not to each other. That was indeed the start of our troubles.

In a globalized market, “trapped pools of liquidity and capital” would not occur, capital flows easily where returns call. But with many independent suppliers of capital, there is more scrutiny, less chance that one big pool of capital will be poorly allocated or put at risk by risk-taking adventures or bad decision making.

Studies of the National Federation of Independent Business’ (U.S.) hundreds of thousands of members revealed that SMEs were best served in the U.S. in unit banking states (banks were allowed only one branch) and least well served in states allowing state-wide branching. Loan terms and satisfaction were always highest in states permitting only one bank branch. Big banks do not serve this vital economic community well. The 8,000 independent banks in the U.S. buffered the financial shock for SME’s, and now are unfortunately being required to pay for the losses to depositors generated by “large” banks. FDIC insurance costs are typically 500% higher than just two years ago, seriously impairing the earnings of these smaller banks.

Maybe we wouldn’t need “internationally coordinated crisis management” if we didn’t have mega banks lending to each other into markets that they are unfamiliar with, taking risks they should not take with our money. Large banks may be useful for large firms, but they need not be nearly as large as those we have today or that we had last year before they brought down our financial system.

Category: Credit, Markets, Think Tank

Chicago manufacturing PMI

The July Chicago PMI was 43.4, about in line with expectations of 43 and up from 39.9 in June and it’s the highest level since the Sept ’08 reading of 55.9. New Orders remained below 50 but jumped 6.4 points to 48. Backlogs however fell 5.5 points to 32.1. Inventories remained extremely lean, falling to…Read More

Category: MacroNotes

King Report: Reasons to Rally?

> Initial Jobless Claims were 9k more than expected. But Continuing Claims were 103k less than expected. As we have regularly noted, Street spinmeisters ignore Continuing Claims when they are worse than expected but herald the rebound in the job market when they are better than expected. We noted almost two months ago that Continuing…Read More

Category: Think Tank

Q2 GDP, thanks for the deflator

Q2 GDP fell 1%, .5% better than expected but the breakdown was very mixed as NOMINAL GDP fell more than expected as the deflator rose just .2% vs expectations of a gain of 1%. If the deflator was in line, REAL GDP would have fallen 1.8%. Personal consumption dropped 1.2%, .7% more than the consensus…Read More

Category: MacroNotes

morning note/Q2 GDP

Today we’ll quantify to what extent the US economy is one step closer to ending the recession when Q2 GDP is expected out with a decline of 1.5%, the 4th Q in a row of contraction. Trade and inventories are the two components that will lead the slowing rate of decline as personal consumption, 70%…Read More

Category: MacroNotes

New Classifications for Personal Consumption Expenditures (Wonky)

Today, we get the Bureau of Economic Analysis (BEA)  comprehen­sive, or benchmark, revision of the national income and product accounts (NIPAs). The last such revision was released in December 2003. ture components of gross domestic product (GDP) and some of the income components. For those of you who want more info, consider the following sources:…Read More

Category: Economy, Think Tank

Backbone Not Likely in Fed’s Exit Strategy Toolkit

Good Evening: Just when market participants had grown used to the stock market’s recent pattern of falling in the morning and rising in the afternoon, U.S. share prices pulled a George Costanza and did the opposite today (if you are unsure what this “Seinfeld” reference means, click here). Higher markets overseas, some decent earnings reports,…Read More

Category: Markets, Think Tank

7 year note auction

The 7 year note auction was good as the yield was about 3 bps less than expected. The bid to cover of 2.63 was above the average seen in the previous 5 of 2.4 but below the June auction of 2.82. The level of indirect bidders totaled 62.5%, below the 67.2% seen in June which…Read More

Category: MacroNotes

RSI in the NDX, highest since Jan 2000

With another run today higher, the 14 day RSI (relative strength index) in the NDX is now at the highest level since Jan 2000. Momentum such as this that brings us overbought can keep us overbought for a continued period of time so it’s never a one stop timing measurement but it at least brings…Read More

Category: MacroNotes

Has the housing market hit bottom?

Tim Iacono is a retired software engineer and writes the financial blog “The Mess That Greenspan Made” which chronicles the many and varied after-effects of the Greenspan term at the Federal Reserve. Tim is also the founder of the investment website “Iacono Research” that provides weekly updates to subscribers on the economy, natural resources, and financial markets.

Today, he looks at the question of whether the Housing market has bottomed or not  yet . . .


Now that a number of recent housing reports are generating some incredibly positive headlines and the global economy appears to be slowly digging its way out of an enormous hole that was created last fall when the world nearly came to an end, the burning question on the minds of millions of people is … Has the housing market hit bottom?

There is no shortage of answers.

Unfortunately, most of them are far too simple and, in most cases, the individual or organization providing the answer has a bias of some sort.

I’m no exception.

We sold our house about five years ago and have been renting ever since.

We plan to buy again, but not until at least next year and we hope to get a lot more house for our money than we could today.

That’s the soonest that I think the bottom in home prices is likely to occur around here in the price range we’re looking, though a bottom in home sales may already be behind us, and this is what makes the recent discussion of a housing bottom so complicated – “hitting bottom” means different things to different people living in different parts of the country.

The discourse on this subject is full of misinformation and deception from parties with vested interests that will inevitably lead people to make horrendously bad decisions that they’ll regret in another year or two while others may postpone decisions that would be best made today.

With my biases out of the way, a few thoughts on a housing market bottom are offered here. In this article, regional differences will largely be set aside and the focus will be on three sets of national housing data – new home sales, existing home sales, and existing home prices.

New Home Sales Have Bottomed

First, let’s look at the home building industry, which, up until a couple years ago had accounted for about 10 to 15 percent of all home sales. Then, the homebuilders’ share gradually sank to about half that amount as waves of foreclosures started hitting the market at much lower prices, cutting into their business dramatically.

Ironically, many of these foreclosure sales were homes that the builders had built and sold a couple years prior. Disgruntled home buyers who, in 2006 and 2007, complained about how builders were slashing prices on Phase III after they bought in Phase II ultimately had the last laugh in 2008 and 2009 when they walked away from their almost-brand-new home and the bank sold it at a 40 percent discount to the going prices for Phase III.

Don’t feel too sorry for the homebuilders – they had a few very good years.

Read More

Category: Real Estate, Think Tank