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German banks have the largest exposure in Europe to Spain- $139.9 billion in 2012. Of this $45.9 billion is exposure to Spanish banks, according to the Bank for International Settlements. The Landesbanks in Germany have a large exposure in covered bonds to Spain, which are covered by collateral in the form of residential mortgages that have lost value and could lead to losses. At the same time they are not likely to default says Leef Dierks of Morgan Stanley, because they are used as collateral to borrow from the ECB. Some of these cedulas or jumbo covered bonds are trading at 52 cents on the dollar, according to Mr. Dierks. Geman banks have limited loss absorption capacity says Moody's. Moody's has reduced Germany's outlook to "negative" from "stable" for this reason, and warned Germany could lose its triple A credit rating.

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About 680,000 homeowners applied for the Home Affordability Modification Program, or HAMP, and had their loans modified so that their mortgage payments are reduced. This is only one in four of the 2.7 millon homeowners who tried to to join the program. This according to a Wall Street Journal analysis of data released by the Treasury Department. In 2009 the Obama administration launched the program to reverse the rising home foreclosures in the U.S., by reducing the monthly mortgage payments through lower interest rates and extending the term of loans. About $75 billion was estimated as the cost of the program at the time. Only $1 billion of this has been spent by the Obama administration. The program offered payments to 100 mortgage servicers as inducement to complete loan modifications. About half the applicants or 1.3 million were declared ineligible from the beginning, and the program used stricter qualification criteria than loan modification programs offered by individual banks. Applicants were rejected because the necessary paperwork was not submitted or it was lost by the mortgage company- 266,000 falling in this category. An additional 770,000 homeowners who started the program were later disqualified mostly for the paperwork and eligibility problems, with only a small number rejected for failing to make trial payments. Mortgages less than 31% of pretax income were considered affordable and considered ineligible-255,000 were in this category. Over 80% of homeowners in the southern states of Arkansas, Louisiana, Oklahoma, Texas, Alabama, Kentucky, Mississippi, and Tennessee, received no loan modification....

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The unemployment rate declines to 7.8% from 8.1% based on the Labor Department's survey of households. The larger and more reliable survey of businesses of the Labor Department shows 104,000 jobs added in the private sector and a revision of July and August jobs estimates to show 86,000 additional jobs created. About 150,000 jobs a month are needed just to keep up with population growth. Most of the 104,000 jobs added by the private sector in the larger survey of businesses were in health care, fewer public sector jobs were lost. However the survey shows 16,000 jobs lost in manufacturing which means there are problems in manufacturing which creates higher wage jobs and benefits relative to other sectors and which is a vitally important sector.

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David Leonhardt talks to Raghuram Rajan, Mr Obama, and other experts on how the government should act after the stress test results are announced. Has the government toned down the results of the stress tests, and is it paying too much deference to Wall Street. Leonhardt put this question to Obama, why he asked his advisers were key figures of Mr Rubin's inner circle, Mr Geithner and Mr Summers, who like Rubin are inclined to have too much deference to Wall Street. Obama's answer was that he had other advisers outside of Summers and Geithner. Which wasn not convincing for Leonhardt considering the key positions Geithner and Summers hold. Rajan of the University of Chicago who anticipated the crisis, was not too reticent to criticize Greenspan policies and was in turn criticized for that by Summers, told Leonhardt that certain things may be presented as holy cows not to be touched for fear of something bad happening, but until you find out you cannot be sure. This applies to the bank rescue plans. Should the creditors of banks be asked to take haircuts or swap debt for equity. This may be necessary as there just isn't enough money in TARP - $130 billion left in TARP funds versus the $1 trillion that the IMF thinks American banks may need for solvency in the next 2 years- to do the bank rescue operations. Should the administration consider this a holy cow as Wall Street is suggesting, or come to its own conclusions independently of what Wall Street is saying. Wall Street has to look at it from its vantage point out of sheer necessity, not from what is the best option for someone in the administration's position, considering all the facts without any preconceived ideas or notions....

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Rep. Frank is saying he will move slowly on the bill that gives government the powers to put bankholding comapnies, insurance companies, and other large financial comapnies, into receivership. Now he wnats to put in the same bill the creation of a body that would act as systemic risk regulator. So instead of next month, this may take several months. Senators Dodd and Shelby on the Senate banking committe are also inclined to move slowly. Its hard to say why, because the government has been doing this on an adhoc basis for Lehman and AIG, and it ends up costing the economy even more, and creates more uncertainty. Congress would also need to provide funds for this.

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The NYTimes asks whether the administration has the will to take the tough actions necessary for an effective action plan for the banks, including ownership by the government of insolvent banks, new management, haircuts for bondholders.

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The WSJ's different take on the bank rescue plans, raising the issues related to Bank of America's "forced" acquisition of Merrill by Paulson and Bernanke.

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Questions about how Mr Geithner has handled his job at the New York Fed and at Treasury during the bailouts of financial firms. Were there close relationships with bankers, hedge fund managers, and others that compromised the Fed's ability to regulate the financial industry? Why was Geithner advocating loosening standards for the reserves financial institutions have to hold to insure against potential future losses, as late as 2007? Inherent in the design of the job of New York Fed President was a conflict of interest, as the institution is supposed to be a watchdog over the financial industry, but the President of the NY Fed reports to a board that is comprised of the heads of banks and financial instituitons. These financial leaders also participate in the selection of the new President. Geithner was a quick learner and a listener, who asked questions, but he was an outsider coming from work at AID, the IMF and Treasury. He is described by one bank executive Sanford Weill as "a baby face," and lacked experience in dealing with the financial industry. He was brought in by Rubin and Summers, two mentors at Treasury. These two had close ties to the financial industry, and did not question practices of overleveraging and risk taking in the financial industry. Was it too much to ask of Geithner, under the circumstances, that he would rock the boat and ask the tough questions about risk and leveraging. On the other hand did he miss things completely when he was asking for even looser capital standards for banks in 2007, less than a year before the crisis hit, which were never adopted. And was he too close to the financial industry and aggressive in the wrong sort of way when advocating in a meeting as President of the New York Fed, that the government back up all the debt in the financial system. Did he too casually overlook the conditions that could easily be put in place for the government to be able to recover some of the money put into the bailouts. And was he too close to Goldman Sachs, that he brought Goldman in for advice in the AIG bailout, even though there were conflicts of interest and money that would never be recovered from the $182 billion bailout of AIG, some of which went to banks including Goldman. If Geithner had seen some of the problems in risk taking why had he not supported FDIC's Bair in her opposing view for capital reserves, and government conditions on bailouts that enabled some recovery of capital put into failing financial institutions. And did he get too close to Citi, that at one point Sanford Weill tried to bring him in as CEO even when he was already President of the New York Fed. Does it go to show that -the very idea that this was even possible- the design of the New York Fed with the President reporting to the Board of the very same bank presidents that he was supposed keep in check, makes for an incomprehensible position of regulation at odds with the structure of reporting and selection....

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Difficulties facing China from an overheating economy, a property bubble in many cities,, and a 22.5% jump in March in the broadest measure of money supply being the latest signs of trouble. The government announcement will show the economy growth at 12% rate in the 1st quarter of 2010 vs. 8.7% in 2009. The problem is that China may have acted too aggressively when the central bank increased money supply and state-owned banks in China's centralized banking system were ordered to jack up the lending. The $586 billion stimulus sent even more money to construction and energy companies. Without effective steps and fast the Chinese economy could run into serious problems.

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Spain's banking officals at the central bank and at the IMF, Jaime Caruana, Rodrigo Rato, and Jose Vinals, failed to exercize proper oversight over the Spanish banking system and did not draw early attention to the problems that were building up. Each time this came up they insisted that everything was under control and Spain's banks were adequately capitalized. In July 2008 when the issue was raised to Mr Caruana at an IMF news confernece he said: " The financial system in Spain is able to cope with that and is properly capitalized."

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Feldstein's thoughts in April 2009, on Treasury's Public-Private Investment Plan. First, he says this plan will only remove $500 billion of impaired assets. The banks he says now own $3 billion of residential mortgages, $1.5 trillion of corporate real-estate loans, and $1 trillion of consumer debt. Not all of this is impaired but the banks will have to sell much more than $500 billion to regain confidence in their solvency. And with one third of all residential mortgages exceeding the value of the houses, and thie many homeowners under water, likely to default, the negative feedback loop of foreclosures begetting falling prices begetting foreclosures, threatens the whole effort to shore up the defences. If no workable solution is executed quickly to prevent this then even larger pools of mortgage debt will be impaired irretrievably. Feldstein suggests that the Obama administration seriously look at his plan suggested in March 2008 to provide government loans at low rates of interest like 1- 2% for 20% of the principal amount of the mortgage and then reduce the mortgage principal by 20%, thus keeping millions of homeowners above water. But this needs to be done quickly. All voluntary efforts have failed and have become asmokescreen for banks and lobbying groups with support from Congress to make it appear that this problem is being addressed. Thirdly Feldstein says that if banks sell these impaired mortgage assets at a loss- say 40-60 cents on the dollar on the upside with government and the FDIC picking up alot of the risk and financing for private investors under the new plan- they will now have to show the loss whereas they could have previously shown these assets at unrealistic price levels but still not taking losses. This might push banks into insolvency, so banks will need more injection of capital by the government to make this possible. What are the risks in this situation? Without an effective plan to prevent the negative feedback loop of foreclosure waves and falling houseprices, the quantity of impaired assets will simply grow larger. In effect even if some private investors take out some of the impaired assets from the banking system, it is possible that a new set of assets equal to or larger than these assets that are taken out are added to impaired assets in the banking system as house prices fall steeply from new foreclosures. That only means the economy is in the same hole as before, or in a slightly larger one, even with all the well intentioned steps. At some point the private enterprise argument has to be seen in the correct light. It is not that there is any argument that private enterprise can function better or far superior, it is only that the banks as private enterprises are in such an enormously stressed situation that the bank executive's cannot execute a way out of this mess. ...

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The new head of U.S. President Obama's Council of Economic Advisors, is Princeton economics professor, Alan Krueger. Kueger is known as the academic's academic, whose office is located with other labor scholars in the Princeton library. His work has focussed on what he calls "Rockenomics" (research about which bands do well and the reasons for this), on commuting, on studies such as the one with a suggestive title, "Sorting in the Labor Market: Do Gregarious Workers Flock to Interactive Jobs?" His appointment suggests the Obama administration is looking at no new policy initiatives, focussing on an incrementalist approach in policy actions, with the hope that he can get both political parties behind smaller changes. Putting a micro-specialist in charge at a time of huge volatility in financial markets shows an administration that is likely to continue the status quo with small changes till the presidential elections in 2012- the opposite of strong action because the Obama adminstration has no idea how to turn this economy around and only hopes things will change....

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This NYT report on Donald Trump's real estate deals with businessmen from China led to a perception on the part of Chinese partners that Trump found it too easy to file lawsuits.

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People in California did not feel the early blows of the coronavirus like New York. This is now turning into a disadvantage as people in California have now failed to follow the guidelines for social distancing and masks as carefully as they should be. The state reopening  took place as the case numbers were increasing as the economy and unemployment became an issue.  State hospitalizations are up 40% on July 1 from 2 weeks ago. Percentage of tests coming positive are close to 6% but in some counties much higher- in Riverside county has rate positive in tests at 11.7% and bars are only recommended to close. In Los Angeles county it is 8.2%. On June 20 the day after the bars were allowed to open 500,000 people visited bars in Los Angeles County. A big problem is that for lockdown the whole state was asked to lockdown by the governor. For reopening it is done by county and each county is doing this differently. Pressure to reopen has led to counties with increasing and poor metrics for cases still reopening. Some counties felt pressured to open when other counties had reopened. Even when a county such as Riverside or Los Angeles county is doing poorly the governor waits 14 days for it to be on a watch list before acting. This is too long for the extremely contagious virus giving it time to spread quickly. Governor Newson is now facing serious problems tackling the coronavirus. ...

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During the Ozzie and Harriet era of the 1950's Americans saved 8% of their disposable income. Now thrift is becoming popular again. And one estimate is that as Americans go back to saving like this again about 10% of disposable income may be saved. This is also because of the need to pay down debt. And this means consumption will be much lower and businesses slow to add jobs.

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Efforts being made to convince the Spanish government of Mariano Rajoy to accept IMF aid to recapitalize its banks. The IMF released information showing Spanish banks would need to raise at least 37 billion euros or $46 billion to prevent a worsening of the banking crisis. The report was released before the meeting of EU finance ministers on June 9-10 to persuade the Spanish government to accept IMF aid. The eurozone bailout fund was given powers in 2011 to make loans to governments for the purpose of recapitalizing banks, with conditions and terms set for the financial sector not for the government's spending plans. According to people aware of the discussions taking place in the European Commission and the IMF, one option is to have the European Banking Authority and not the IMF oversee the program. This avoids the usual stigma of accepting aid coming from the IMF with strict conditions attached including restrictions on the government's fiscal plans.

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China's Producer prices declined by 3%, Consumer prices flatlined, and imports and exports are both down 6.2% in September 2023. Growth is expected not to exceed 5% in forecasts by IMF and others.