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Paper trail

by henrycopeland
Thursday, October 9th, 2008

Sitting in DCA waiting for my delayed plane back to RDU, I picked up a copy of yesterday’s Wall Street Journal. I was struck by a few things:

* Of the 18 stories the paper’s first six pages, only three weren’t detailing some new aspect of the financial maelstorm. One of these was the paper’s traditionally off-beat/ironic front page stories, this time titled “Abandoned Houses Used to Shelter Troops Often Prove Deadly in Iraq.”

* The commercial paper market has contracted 10% since July, to $1.6 trillion.

* “AT&T, which had $8.5 billion in commercial paper outstanding at the end of June, said that for a two-day period around Sept. 18, just after the bankruptcy-court filing of Lehman Brothers, it only issued overnight commercial paper. Currently, the telecommunications company says it has access to a range of maturities as long as 30 days.”

* “Fed data indicate that more than 80% of U.S. commercial paper outstanding in early October was due to mature in one to four days. In normal times, that proportion is between 40% and 50%.”

* “In limited action Tuesday the [Icelandic] krona traded well below the peg, swinging between 180.49 131.01 kronur per euro before closing at 150.16 kronur, down 22.234 kronur, or 12.9%.”

* “At the end of July, Japan held Treasury securities valued at $593 billion, slightly more than $519 billion of such securities held by China, according to Treasury Department data.”

* “About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm’s chief economist, Mark Zandi, who adds that “it is very possible that there will ultimately be more homeowners under water in this period than any time in our history.” Among people who bought within the past five years, it’s worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site

* “Among mortgages on one- to four-family homes, 9.16% were a month or more overdue or were in foreclosure in the second quarter, according to the Mortgage Bankers Association. That compared with 6.52% a year before and was the highest level since the association began such surveys 39 years ago.”

* “Falling values have contributed to a sharp pullback in mortgage lending. In the third quarter, mortgage lending fell to the lowest level in eight years — down 44% in a year — says the publication Inside Mortgage Finance.”

* “In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them.”

* “The Federal Reserve said total consumer borrowing contracted at a 3.7% seasonally adjusted annual rate during August to $2.577 trillion. Consumer credit, which includes most consumer loans except for real estate, had increased 2.4% in July.”

* “In the Fed’s latest data, total consumer credit declined 0.3% in August from July, or about $7.9 billion, marking the largest decline ever in dollar terms. Nonrevolving credit — such as loans for cars, vacations and education — declined at an annual rate of 5.4% to $1.61 trillion. Revolving credit — largely credit-card borrowing — declined at a 0.8% annual rate to $969 billion. Except for a sudden 4.3% annualized decline in January 1998, which partially offset a strong month before it, consumer borrowing hasn’t seen sustained declines since the period around the 1990-91 recession. At the worst point during that recession, in December 1990, consumer credit declined at an annual rate of 8%.”

* “The outlook has dimmed so quickly that economists are having a hard time keeping their projections current.”

* “Consider guitar strings. D’Addario & Co., based in Farmingdale, N.Y., is a major producer, selling strings both in retail stores across the U.S. and overseas, as well as to factories, mostly in Asia, which make guitars sold by U.S. retailers. James D’Addario, the company’s chief executive, said string exports to Asian factories surged 40% earlier this year, in part, he believes, to ramp up for the Christmas season, which had been expected to be strong for guitars. A big part of that demand is due to the latest version of the Guitar Hero videogame. But as U.S. consumers, nervous about their jobs and savings accounts, slash spending, the chances of strong holiday sales have dimmed. “I’m expecting there’ll be warehouses full of guitars at the end of this year,” said Mr. D’Addario.”

* “The events in New York have slammed the budgets of neighboring states. In Connecticut, home to many Wall Street employees, the state budget hole has more than doubled in a month to $300 million, the governor’s office announced in late September. New Jersey Gov. Jon Corzine is convening lawmakers to sift through ideas for stimulating the state’s economy and to close a $1.7 billion budget shortfall. In Wall Street’s home state, Mr. Paterson has called for lawmakers to return to the capitol for a special session Nov. 18 to close a deepening budget deficit, projected at $1.2 billion for the current year. The state’s 2008-2009 budget totals $120.9 billion.”

* “New York’s budget relies on the financial sector for 20% of overall state revenue. Wall Street bonuses and capital-gains tax revenue from the sale of stock or other assets have kept coffers flush. But the state’s budget division now projects a 43% decline in bonuses and a 35% drop in capital gains.”

* Finally, some comic relief from a VP candidate: “The [television] pundit was saying, ‘The only reason she’d be going there is ’cause they’re scared, so they gotta go there and shore up votes,'” she said. “I so wanted to reach into that TV and say, ‘No, I’m going to Nebraska because I want to go to Nebraska.'”

* “No bank is solvent in a run. No bank is solvent on a mark-to-market basis when there is little or no resale market for most loans at anything but firesale prices.”

Timothy Aeppel, the guy who penned the “consider guitar strings” line, deserves a Pulitzer in the one-line-summary-of-a-global-crisis award category.

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