California Controller John Chiang's monthly summary of the state's cash situation starts on a happy note. (Found via Calculated Risk.) Unexpectedly, General Fund revenues for October beat budget estimates, mainly because of a boost from corporate taxes.
Chiang, whose monthly missives warning of impending bankruptcy have been a staple of California life for the last year, becomes positively ebullient:
October's numbers may contain some signs that California's economy is gradually beginning to heal. Both personal income and corporate taxes beat monthly estimates, while corporate and sales taxes also came in higher than October 2008.
As California goes, so goes the nation? If we're talking budget paralysis and dysfunctional politics, that might not be a good thing. But if we're talking economic recovery, a return to health out West would be a welcome prospect for the entire country.
However, after lulling our fears with his happy talk, Chiang appends a "guest article": "Overview of the Commercial Property and Capital Markets with Implications for the State of California," by Dr. Randall Zisler.
The message from Dr. Zisler is quite different. Nationally, the commercial real estate market is in big, big trouble.
A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults). Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50 percent of par, or less.
Stated baldly: Banks are on the hook for loans to commercial real estate developers that will never be paid back and can't be refinanced. Zisler doesn't break down the figures to tell us how much of that $3 trillion in outstanding mortgage debt is California's, but one can guess that it is a significant fraction.
California's faltering steps forward, in terms of rising tax revenue for October, could just be the calm before the commercial real estate storm finally hits. Double-dip recession, with a California topping, anyone?
The economic crash and its aftermath are affecting all sectors of the economy, real estate being no exception. Real estate, especially in the transactional sub-sectors (e.g., brokers, etc.), accounts for a significant share of the California labor force. The downturn has created a vicious negative feedback, a symptom of which is still ongoing property deflation and tenant defaults. Attendant symptoms are reduced property tax revenues, failing businesses, decimated transactions volume, and reduced income and sales tax revenues. The extent to which the recovery is delayed will depend on a number of factors, not least of which is the extent and timing of loss recognition by owners and financial institutions.
A Coke a day, keeps the family doctors in pay.
Outrage of the week alert: Via a tweet from Steve Silberman, we are directed to this story from the Cleveland Plain Dealer reporting that the American Academy of Family Physicians has "a six-figure grant from the Coca-Cola Co. to create content about beverages and sweeteners for the academy's consumer Web site, FamilyDoctor.org."
Kaye Spector reports the obvious:
Soda and other sweetened beverages are the No. 1 source of added sugars in the U.S. diet, the American Heart Association says, and many health experts blame the drinks, at least in part, for the soaring U.S. obesity rate. A 12-ounce can of soda can contain up to 10 teaspoons of sugar.
The Consumer Alliance program is a way of working with interested companies to develop educational materials to help consumers make informed decisions so they can include the products they love in a balanced diet and healthy lifestyle," said AAFP President-elect Lori Heim, M.D., of Vass, N.C.
The American Academy of Family Physicians -- working hard to help you incorporate "the products you love but that aren't at all good for you" into your unhealthy lifestyle.
But hey, there is a silver lining. From the press release again:
The Consumer Alliance program also will create a new source of funding for AAFP, which, in recent years, has broadened its search for funding outside the pharmaceutical industry.
Fantastic! Have a Coke with your Ativan.
Two former Bear Stearns hedge fund managers who made very, very bad bets on subprime mortgages, Ralph Cioffi and Matthew Tannin, were found not guilty of securities fraud in Brooklyn federal court on Tuesday. The verdict invites a look back at how the history of the financial crisis is being written in real time.
William D. Cohan's riveting account of the fall of Bear Stearns, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" was one of the first books published on the financial crisis to hit the market. It also held pride of place as one of the best, at least until the publication of Andrew Ross Sorkin's "Too Big To Fail." Full of detail from numerous interviews and copious access to company e-mails, Cohan's account is noteworthy not least for the compelling and lengthy circumstantial case that it makes against Cioffi and Tannin. If you were judging from "House of Cards" then Cioffi and Tannin seemed obviously guilty of telling investors in their funds one thing while doing another.
Just one example of how Cohan tells the story;
The problem was that none of it was true. Cioffi had not been avoiding residential mortgage-backed securities, as he had suggested to his investors on their monthly statements. Actually, he had done precisely the opposite and had started to load up on these toxic securities at exactly the wrong moment.
The indictment of both men on charges of conspiracy, securities fraud, and wire fraud is part of the last chapter of "House of Cards." The case against them, from Cohan's telling, seems airtight.
Two months after the publication of "House of Cards," Wall Street Journal reporter Kate Kelly's book on Bear Stearns, "Street Fighters: The Last 72 Hours of Bear Stearns, The Toughest Firm on Wall Street," finally made it to stores. Although Kelly broke some important stories for the Journal on Bear Stearns, "Street Fighters" -- about half as long as "House of Cards" and much less comprehensive -- suffered in comparison. The saga of Cioffi and Tannin only occupied two pages near the beginning of her story, and the fact that they had been indicted for securities fraud in federal court wasn't even mentioned, a point I noted with several exclamation points written in the margins of my reviewer's copy.
At the time, I thought this was a pretty serious flaw in "Street Fighters." But now, after seeing Cioffi and Tannin acquitted in a court of law, I wonder. Maybe it was Cohan who gave their misadventures too much attention, while Kelly got it just right.
From the waiting-for-China's-sleeping-consumer-giant-to-wake-up department we bring you this quote from a CNET news story reporting that shipments of computer processors worldwide set new records in growth and volume in the third quarter of 2009. (Italics mine.)
"The story about 3Q09 leads with Atom processors being sold in mini-notebooks (a.k.a. netbooks) manufactured and sold in China," said Shane Rau, IDC's director of semiconductors for personal computing research
Low-cost netbooks have been selling at a rate of 200,000 to 300,000 a month all year in China, according to China Daily, although one analyst predicted that the "euphoria" would peter out toward the end of the year, as consumers start "to realize the limits of the products."
It's a tough market to get rich in -- netbooks use cheap, underpowered processors that don't allow for much profit per device, and the competition to bring new products to market is extraordinarily intense. Yesterday's netbook is today's paperweight. So while the sheer total of computer processors being shipped may be setting records, revenue is not. Still, while we wait and watch in the U.S. for indisputable signs that an economic recovery is under way, taking meager hope in such indicators as a slight uptick in temp hiring, the reports of the fast-growing Chinese consumer computer market are intriguing. If the netbook is an entry-level computing device, then there are millions of Chinese ready for an upgrade. That's good news for the semiconductor industry, the global economy and, naturally, Intel.
What does it mean for American jobs? Well, Intel is still building state-of-the-art semiconductor fabrication facilities in the U.S. So as long as Chinese computers continue to incorporate Intel CPUs, there should be a trickle-down benefit to to American workers from a booming domestic Chinese computer market. But we'll see how long that lasts.
In the annals of bogus Digital Millennium Copyright Act (DMCA) takedown notices, the directive from HarperCollins ordering Berkeley economist Brad DeLong to remove from the Web the PDF of Chapter 5 of "SuperFreakonomics" that he posted a few weeks ago is not actually an out-of-bounds request. There's little doubt that DeLong actively wanted to embarrass "SuperFreakonomics" authors Steven Levitt and Stephen Dubner by exposing their "global warming" chapter to public scrutiny. Even bad publicity is usually welcomed by publishing companies, but in this case, the storm of ridicule showered upon "SuperFreakonomics" may ultimately be too much of a bad thing.
So? The DMCA takedown is just as embarrassing for Levitt, Dubner and HarperCollins as the content of the chapter; demanding its removal is a tacit admission that this particular excerpt does not work as advertising for the entire book. It may even be achieving exactly the opposite.
"SuperFreakonomics" has attracted so many withering critical takedowns that keeping track of them deserves a blog of its own (although ClimateProgress' Joe Romm has that job pretty much covered), but the award for the best written annihilation must go to the New Yorker's Elizabeth Kolbert.
Best paragraph:
Given their emphasis on cold, hard numbers, it's noteworthy that Levitt and Dubner ignore what are, by now, whole libraries' worth of data on global warming. Indeed, just about everything they have to say on the topic is, factually speaking, wrong. Among the many matters they misrepresent are: the significance of carbon emissions as a climate-forcing agent, the mechanics of climate modelling, the temperature record of the past decade, and the climate history of the past several hundred thousand years.
Best single line (in reference to large-scale geoengineering technologies):
To be skeptical of climate models and credulous about things like carbon-eating trees and cloudmaking machinery and hoses that shoot sulfur into the sky is to replace a faith in science with a belief in science fiction.
Best word:
Horseshit.
Casey Mulligan, the Chicago school economist who writes a regular column for the New York Times and maintains a blog, is nothing if not consistent. But he's moved on from arguing that financial crises rarely cause woe to Main Street, or predicting that the commercial real estate sector wouldn't crash. Now he's staking an even more ambitious claim: The disastrous year we've just lived through wasn't really a disaster.
Lehman failed in September 2008, and that started the panic that got the world's attention.
So a year later, in September 2009, after living through a year of "disaster," how did real consumption expenditure ... compare to what it was in September 2008?
What about real disposable personal incomes: the amount of income households have on hand to spend?
Both of these are HIGHER in September 2009 than they were a year earlier.
University of Wisconsin economist Menzie Chinn crunches the numbers and observes that if you break the data down down per capita "consumption [in the third quarter of 2009] is 0.3 percent (in log terms) below the level in 2008Q3." Maybe not quite a "disaster." But he asks the reasonable question, "But one wonders how much lower per capita consumption would have been in the absence of the actions undertaken by fiscal and monetary authorities around the world."
I have a different question to ask. How isolated must one be not to acknowledge, deep down in your bones, that for millions and millions of Americans the last year has been a disaster? My own state of California, which stands alone as one of the largest economies of the world, has an unemployment rate over 12 percent. I see this every day, even in the relatively insulated enclave of Berkeley. A neighbor is getting foreclosed out of a house he lived in for decades. The nearest pizza parlor just closed down. Restaurants almost always have open tables. The job market is tight or nonexistent for nearly everyone I know and that has resulted in a clampdown on spending, on a purely anecdotal basis, that is near universal. I've lived through a couple of decent-size recessions. This is undoubtedly the worst. Why argue with that?
To try to pick and choose statistics that deny this reality betrays a fundamental lack of connection with real lives in America. It's an impressive achievement.
A conversation about globalization.
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