Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1360.7 | -14.5 | -1.05% |
| Eurostoxx Index | 2254.9 | -56.4 | -2.44% |
| Oil (WTI) | 102.8 | -1.1 | -1.07% |
| LIBOR | 0.466 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 79.52 | 0.321 | 0.41% |
| 10 Year Govt Bond Yield | 1.92% | -0.04% | |
| RPX Composite Real Estate Index | 173.4 | 0.5 |
Kind of a soggy tape this morning to go along with our soggy weekend in the Northeast. Political woes in Europe seem to be the main culprit. A split in the Netherlands over austerity measures is causing Dutch credit default swaps to richen. Purchasing Manager Indices in France, Germany, and the Netherlands all came in below expectations. While there have been some worries over Spanish banks, EURIBOR / OIS (a measure of stress in the banking system) is still falling after peaking in early December. So at least one indicator is telling us these fears are overblown.
In the US, stock index futures are down about a percent and bonds are stronger. Bonds have had a remarkable turnaround in the last month, as the 10-year bond futures broke down and fell out of their range in mid-March, only to rally again on euro fears. The contract is now challenging resistance at 144. Incredible turnaround. MBS are up small.
In US earnings, Chevron and Kellogg both disappointed. So far, earnings have been strong overall. Homebuilder DR Horton reported better than expected sales, the question will be whether this was weather-related.
Merger Monday is back, with a couple big deals in the pharma space and a couple of old British titans – Vodafone and Cable and Wireless – are partying like it is 1999.
Speaking of Prince’s apocalyptic party song, a venerable investment bank from that era is re-launching. Smith Barney manager Frank Campanale is bringing back E.F. Hutton. Given that E.F. Hutton is a recognizable name and was not involved in the financial crisis, it makes some sense to resurrect it. One possible way to break up the big banks would be to have them spin out their non-commercial banking units – Citi could spin Smith Barney and Travelers, Chase and JP Morgan could split again, and you would basically re-establish the money center bank. Maybe the foreign banks could get involved, with Credit Suisse spinning out First Boston and DLJ, UBS spinning out PaineWebber, and Deutsche Bank spinning Bankers Trust.
Filed under: Morning Report |
All Things in Moderation 
I’m not sure I see the efficacy of resurrecting EF Hutton since the people who still recognize it are more likely to be pulling money out of the market at this stage of life than putting it in.
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” the people who still recognize it are more likely to be pulling money out of the market at this stage of life than putting it in.”
No argument with that logic, but won’t the people in the workforce who are earning money from retirees need a place to establish a nest egg?
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Maybe we could resurrect some other venerable names from the 80s
Drexel Burnham Lambert
Shearson
Shearson-Lehman
Shearson-Lehman-American Express (SLAMEX)
Kidder Peabody
Salomon Brothers
Jackson Steinham
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One possible way to break up the big banks would be to have them spin out their non-commercial banking units – Citi could spin Smith Barney and Travelers, Chase and JP Morgan could split again, and you would basically re-establish the money center bank. Maybe the foreign banks could get involved, with Credit Suisse spinning out First Boston and DLJ, UBS spinning out PaineWebber, and Deutsche Bank spinning Bankers Trust.
Sounds good to me. When do we get started and how do we keep them separate without – uh – reviving a fine old statute?
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“Sounds good to me. When do we get started and how do we keep them separate without – uh – reviving a fine old statute?”
Simple. Make them hold excess capital against these businesses. Then, they’ll have a financial incentive to distribute them to shareholders. The big banks would see their multiples expand as expensive book value is jettisoned, and the new investment banks would be free of Dodd-Frank.
The issue is probably joint liability issues stemming from the mortgage mess. Would Bank of America be allowed to spin off Merrill Lynch?
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Thanks, Brent. As usual, you have a sensible answer that seems obvious to me after I hear it [as in “duh, why didn’t I think of that?”].
Bartlett explores small biz and job creation at Economix.
I thought it was very interesting.
http://economix.blogs.nytimes.com/2012/04/17/do-small-businesses-create-jobs/?pagemode=print
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Also, I do believe Glass Steagall is a facile explanation of what went wrong, and am highly skeptical that GS would have prevented the real estate bubble.
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Brent:
Also, I do believe Glass Steagall is a facile explanation of what went wrong, and am highly skeptical that GS would have prevented the real estate bubble.
Agreed. This was discussed extensively in the past here at ATiM. Unfortunately the repeal of GS as the seminal event of our economic turmoil is a notion that just won’t die.
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Greg just brought up one of the all time great non-sequiturs from Elizabeth Warren:
“Today, Washington lets big corporations like GE pay nothing. Zero in taxes. While kids are left drowning in debt to get an education. This isn’t about economics. It’s about our values.”
Yet nobody seems to understand how bizarrely absurd that is.
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John, it is a non-sequitur, of course. But it could reflect two values decisions, if not a relevant choice of values. No?
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Re small biz job creation, I wonder how many of those newly created small businesses are the result of someone putting up a shingle after losing their job.
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mark:
I would say that it reflects the reluctance of a university professor to blame high levels of student debt on the universities that take the money.
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john, I was thinking more tongue-in-cheek than even you.
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mark:
Now in an associated topic, the subsidiziing of tuition loan interest rates, It’s a good thing we learned from the housing crisis that the more money you make avaiable on easy terms at low cost, the more prices go down. Otherwise, this would seem crazy!
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So Brent, its not that small businesses create jobs, but that lack of jobs creates small businesses?
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Speaking of student loans, looks like Romney agrees with the extension of the low interest rates that Republicans in Congress are fighting. This quote from Romney is via Greg Sargent.
“I fully support the effort to extend the low interest rate on student loans. There was some concern that would expire halfway through the year. I support extending the temporarily relief on interest rates…in part because of the extraordinarily poor conditions in the job market.”
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in part because of the extraordinarily poor conditions in the job market.”
Good chance for him to get a dig in about the economy. I heard a portion of a pretty effective stump speech by Romney on NPR the other day. The part they used was Romney talking about the poor state of the economy while speaking in some town in Ohio where several plants have been closed over the last several decades. Anyway, NPR did note that unemployment in Ohio is a fair amount better than the nation as a whole, but there was plenty of applause anyway. It will be interesting to see how Obama counters what will obviously be Romney’s message over and over again about how our economy stinks. I do wonder if that message will wear thin at all over the course of the election and at what point (if any) that Romney talks about hwo he will improve the economy. I haven’t paid that much attention to this point, but it seems he is talking a lot about cutting government rather than how he will create more jobs and improve the economy.
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It’s pandering time is it not?
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if you want more of something, subsidize it. Unfortunately, we’re subsiding the loans and not actual education. I’ve no answer for how to make college affordable, but cheap loans only contributes to an increasing cost. Of course prices have gone up — colleges have no incentive to control costs when the buyer basically comes in with an “I’ll pay whatever it costs” attitude and the government-backed means to do so. The arms race in student housing amenities probably has something to do with it too.
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Of course prices have gone up — colleges have no incentive to control costs when the buyer basically comes in with an “I’ll pay whatever it costs” attitude and the government-backed means to do so.
Isn’t some of the increase in tuition cost due to the loss in tax revenue states have experienced? Obviously, what nova points out is also true, but I feel like we are missing part of the explanation. It would be interesting to see what would happen if the government just stopped loaning out the money.
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ashot:
That’s well said, Scott.
Thanks.
Isn’t some of the increase in tuition cost due to the loss in tax revenue states have experienced?
Perhaps somewhat, at public universities, but since private universities have seen pretty much the same inflation, that seems unlikely to be a major source.
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nova:
Stop it, you’ll upset the apple cart.
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Apples are probably subsidized too. plenty to go around!
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Only student loans don’t really subsidize the cost. If anything they make it more expensive in the long run.
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Exactly why didn’t you say so over there?
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banned,
I’m not sure we are really that far apart on this issue. My son graduates in two weeks, largely financed with un-subsidized federal loans. My opinions on the drivers for the high cost of education don’t fit well in the format over there.
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ok, but of course your sons loans are subsidized. Aren’t they thourgh Sallie mae?
sorry for losing my temper btw
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“Isn’t some of the increase in tuition cost due to the loss in tax revenue states have experienced?”
Is that just shifting? from taxpayer to student?
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Sallie Mae isn’t even in the picture anymore. My loans are Direct (unsubsidized) PLUS loans made through the Department of Education. Here is a link explaining the different varieties.
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ashot:
Isn’t some of the increase in tuition cost due to the loss in tax revenue states have experienced?
“The difference is less than a percentage point, but it ushers in a new era in higher education in Florida.
For the first time, University of South Florida students will pay more than half of the cost of their college education next year as tuition rises and the state’s contribution continues to decline.”
My local experience.
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Here’s the best explanation I could find of the difference between subsidized and unsubsidized Federal loans.
Federal Direct Subsidized student loan details
A subsidized loan is one in which a borrower is not responsible for paying the interest while they’re still in school, or during a period in which they have earned a grace period or a deferment. Subsidized loans are awarded to those students that demonstrate a financial need, meaning not all students are eligible. Your eligibility for a Federal Direct Subsidized Stafford Loan is determined by your Free Application for Federal Student Aid (FAFSA) results and is awarded to you by the school’s financial aid office.
Federal Direct Unsubsidized student loan details
Unsubsidized loans apply interest to the loan amount from the start. Interest on unsubsidized loans begins accruing upon disbursement (or upon enrollment in school), and continues through the full life of the loan. Unsubsidized loans can include Federal Direct Unsubsidized Stafford Loans and Federal Direct PLUS Loans. To apply for these loans you must first complete the FASFA form.
All students are eligible for the Federal Direct Unsubsidized Stafford Loans. To apply for this loan you must first complete the FASFA form.
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IMO, it is econ 101. When the demand for your product is inelastic, you raise prices. The classic example of a price inelastic good is insulin – you will pay whatever price is charged. Unless parents plain just can’t afford what the college is charging, price is not as big of an issue as prestige.
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lms:
Yes we are using terms inartfully, I was referring to the fact that the loans are subsidized in that they are not at a market rate, but the explanation you provided is about loans in which the interest is not paid during school. It was my error clearly
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Banned, lots of loans aren’t at a market rate, why should that factor into it?
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Banned, are you saying it’s the lower interest rate on the loans that is raising tuition costs? I thought it was the easy access and prevalence of large amounts of money being handed to people who have no idea whether they’ll be able to pay the loans back or not. I understand that low interest rates create a certain climate but isn’t it much more than just the interest rates that are creating the demand? There are victims here, just as there were in the housing collapse, and I just don’t believe it all started just with interest rates. Haven’t student loans always had a lower interest rate? What else changed?
Sorry for the million questions.
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anything that goes through the DOE is lower than market rate.
Good to chat again btw.
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oh yes it is more than the lower interest rates. but keeping them low will ensure that things stay that way. It’s the same reason that car dealers always want to talk about monthly payments not price.
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Good to chat again btw.
Thanks, I’m trying to check in periodically anyway. I tried going back to PL but couldn’t do it.
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Since these loans are set by the government there is no such thing as a market rate. I assume since the key phrase is ‘unsubsidized’ that the interest charged covers all the administrative costs of the program including a certain level of expected defaults and the cost of the underlying government borrowing, which if payments are recirculated as new loans, should be fairly minimal.
I really don’t know how much loans themselves (versus other forms of financial aid) affect the actual cost colleges set. It would seem tha endowment bases, state support and overall expenses would be much larger factors.
Any endeavor which requires fixed personal contact with skilled personnel (medicine, live theater, law) has costs which rise faster than general inflation. Here is a WaPo story about how Virginia Tech is addressing that.
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