Wednesday, January 21, 2009

Obama may face banking emergency right away

The New York Times has a most sobering article this morning by Edmund L. Andrews, reproduced on CNBC, “Obama Has No Quick Fix for Banks,” link here.

The talk of nationalization is feeding on itself, driving investors into pre-emptive selling quickly. Bank losses seem much worse than even imagined a few weeks ago. Yet, Mr. Obama still believes that putting a floor under home prices may well help protect the banks from further steep losses.

Dutch bank ING fell 25% Tuesday, after major European losses Monday while US markets were closed and rumors that ING was negotiating a further deal with the Dutch government (see this story by Miles Johnson. ING USA has laid off 7% of its US work force recently. I was laid off, but with ample severance and early retirement (at age 58, it wasn’t exactly a buyout but had the same effect as one), at the end of 2001 in the previous downturn brought on by the 2001 recession and 9/11. It would be possible for ING to spin off the US operations as a separately traded and capitalized company, with the major operations in Minneapolis, Atlanta and Hartford as the nucleus of the company.

While much is written about the financial condition of Bank of America after taking over Merrill Lynch, and of Wells Fargo after taking over Wachovia (both companies seem to be asking for more Tarp money), the overall impression from many financial pages is that the “virus” is much worse in Europe (particularly Britain, Germany, Belgium, the Netherlands, and Spain) than even in the United States. Only a coordinate, consistent policy among all affected countries will work. It seems that Mr. Obama and the Senate need to get the confirmations done today and get to work immediately. The financial emergency will be a major distraction and keep Obama from getting to other issues quickly. He must deal with these right now, even today.

Jack Guttentag ("The Mortgage Professor") does have an interesting perspective "The Foreclosure Crisis" on Yahoo! here and gives the details of his own "Pickens Plan for Mortgages", (that is, "Breaking the Back of the Financial Crisis") dated Dec 2008, on his own site here.

In the longer run, Mr. Obama must deal with the idea that huge debts will turn away foreign investors (China) and cause them to demand repayments. That’s why he talks so much about entitlements, but their problems are farther down the road, and it does not make sense to mix up the problems in social security and Medicare with the immediate problems with the banks.

Also, oil prices are slowly coming back, now to $41.

Smart Money has an article "Get Paid While You Wait for the Rebound" of some bizarre investments, here.

Post Script:

Anybody notice this morning (Jan. 21) that The Washington Post and The Washington Times coincidentally have the same headline banner in print, "Obama Takes Charge"?

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