Sunday, October 26, 2008



October 23, 2008
The Bank Capital Mirage
The following more or less supports what some have been saying for a while -– that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over –- but it's still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks' prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won't take much to tip banks over into insolvency again.

[via Bloomberg]

Also from

This is a singularly arresting chart (same as the one posted above):
It’s Bloomberg’s chart of the day and has been reproduced by Paul Kedrosky on his blog, Infectious Greed.

Kedrosky writes:
The following more or less supports what some have been saying for a while — that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over — but it’s still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks’ prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won’t take much to tip banks over into insolvency again.

This is frightening stuff. Not least because the Fed’s own balance sheet is not looking healthy. Via Brad Setser at the CFR, here’s Paul Swartz’s latest graph:

The balance sheet is likely to grow further too. Jan Hatzius, Goldman’s chief economist has pointed out that during the Japanese credit crisis of the 1990s, the Bank of Japan ended up with a balance sheet equivalent to 30 per cent of GDP. The Fed’s is currently 12 per cent. And on Wednesday the Fed made this announcement:

The Federal Reserve Board on Wednesday announced that it will alter the formula used to determine the interest rate paid to depository institutions on excess balances.
Previously, the rate on excess balances had been set as the lowest federal funds rate target established by the Federal Open Market Committee (FOMC) in effect during the reserve maintenance period minus 75 basis points. Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points. This change will become effective for the maintenance periods beginning Thursday, October 23.

Which is an admission, basically, that the Fed lost control of the Federal Funds Rate. And if that needed proving, take a look at the graph from the New York Fed:

Lastly a nice picture courtesy of

I have been harping for a while about insolvency issues. Looks like many others are catching on. The is one of the first issues that needs to be tackled. Unfortunately President Bush has made it clear that Nationalization wont happen on his watch. Volcker mentioned that banks have been "effectively" nationalized either overtly or through other lines by the Fed. But this is lack of clarity as many of these banks have market capitalizations well in excess of their balance sheet worthiness. What we vitally need right now is clarity (read the end of the insolvency issues) and then an INTELLIGENT strategy to combat the simultaneous develeraging of both banking and consumer levels -(regulating derivatives, debt restructuring of consumers, creation more jobs in the creation of tangible goods in the US, simultaneous creation of incentives for savings and increasing money velocity) etc.

Battle for VA: I'm voting for the n***er

Read the first and last paragraphs for the story

On the Road: Big Stone Gap, Virginia

Last week, Julie Hensley made one of her thousands of phone calls on behalf of Barack Obama. A woman answered. As Hensley ran through her short script, the husband impatiently broke in. "Ma'am, we're voting for the n***er." And hung up. Hensley wasn't having it. "I went and made a couple other calls but chafed over this absurdity," she told us, "so I called them back, as I still had a couple questions for the wife." This time the man answered, asked pointedly who she was, and when she replied he hung up again.

We continue to hear stories like these in Appalachia. Big Stone Gap, where Barack Obama's southwesternmost field office in Virginia sits, gave us our latest version.

In Abingdon, where John McCain's Victory Center field office has been open nearly a month, we spoke with Don Carty, one of John McCain's U.S. Naval Academy '58 classmates. He strongly supported his fellow Middie in 2000, only to see "the ultraconservatives in the Republican Party (keep) him off the ticket." Remembering the days when the "Pat Robertson, Jerry Falwell crew" ignored McCain's offer to speak in this part of the state, Carty told us how he'd worked a booth at the county fair for a week prior to the Abingdon office opening where folks stopped in for bumper stickers and yard signs.Noting that this was the most he'd ever seen people express interest in the Republican campaign since he'd moved to the area in 1993, Carty offered that it was precisely because the independent voters in the area identified with McCain's maverick argument. When Sarah Palin was added to the ticket, Carty thought to himself, "John McCain just won the election."Two or three people a day drop in to make phone calls each day, Carty said, and the office was more involved with the state elections.

Another McCain volunteer, David Goldman, a native Englishman and resident of Dallas, Texas, gave us an interesting story. He'd contacted the campaign, asked where he could best volunteer, and on his own dime found his way to Abingdon, where he helps in the office every day. "I have no political experience," Goldman emphasized, "but I was so frustrated, having grown up in socialist England, I just know what Obama's going to bring." Health care, and his view that Americans didn't understand how terrible the situation was in England, was his primary concern. Highlighting the long waits for doctor visits and expensive care in England, Goldman said, "I'm just tired of hearing about how great England's health care system is. People are dying because they're not getting that treatment."Feeling compelled to help in any way he could, the middle-aged software salesman had been working since Sunday making phone calls, preparing canvass sheets, and doing whatever else he could to help. "It's just blocking and tackling.""I don't mind Democrats or Republicans," Goldman said. "This is far left wing socialism." Since he'd been volunteering, more and more folks had dropped by the office, getting involved when they wouldn't normally do so, he observed.

Goldman isn't the only native European to apply sweat labor to the Battle for Virginia. Back in Charlottesville, we encountered Alex Englehard, a German from Heidelberg pursuing his legal degree and on break after his fifth-year exams. Englehard, a dedicated full-time Obama volunteer, said many Americans "don't realize how big an impact this one election has on the rest of the world."He reported getting a few scattered complaints that a foreign citizen would get involved in American elections, but that they all came from people who told him they were supporting McCain. Nobody brought it up the day we tagged along. Though Englehard speaks English fluently and has many direct connections to America, some cultural gaps remain, which one recent incident illustrated. Englehard and a canvass partner approached a door of a house where a racist bumper sticker adorned the car parked there. Englehard had seen the sticker; his partner hadn't. Englehard hadn't understood the bumper sticker's implication, and the two avoided a possible confrontation when the door went unanswered. On the way out, the partner noticed the sticker. "He gave me a good lesson on what to watch for," Englehard chuckled.[UPDATE] Many queries. The bumper sticker said "If I'd known it'd be this much trouble, I'd have picked the cotton myself." You can see why this would go past a foreign citizen.

Mitch Stewart, Virginia State Director of Obama for America and one of the heroes of Iowa, told us in a sit-down interview that the Campaign for Change now boasted 49 offices in Virginia, with an additional 23 Virginia Coordinated Campaign party offices. 40 additional GOTV offices, not including the myriad GOTV staging locations clustered out from those offices, were already up and running.One of the cultural inside baseball games of campaign staffs, especially one as data-driven as the Obama campaign, is that everywhere you go there's a competition for numbers. Regional field directors must beat other regional field directors for doors knocked. One state must beat another for voter contacts. Individual field organizers must beat others in their office for dials. The competition is friendly but fierce. It's a pride thing.So when Stewart heard that his friend Jeremy Bird in Ohio had reported reaching 90% of his state's Neighborhood Team Leader goal, Stewart made sure to tell us that as of last Friday, Virginia's organizers had identified and trained 92% of its NTL goal. Your serve, J.B.[UPDATE] Bird was happy to inform us that Ohio is now at 93% of its NTLs trained and tested. Sorry Stewart.On a more serious note, Stewart talked about the success of the Iowa and the lessons the campaign had learned in developing its field program for the general election. "In Iowa," Stewart said, the question was, "will young voters under 30 and first time voters show up?" The answer was a resounding yes. "If you design a program and actively engage these voters" you can get the turnout you need, he said. Strong Virginia voter files are complemented by Catalist, the sophisticated datamining tool Democrats have begun to use the past two cycles. Catalist fills in holes where the voter file isn't complete. As Chris Schoenewald told us on the Republican side, good localized voter databases are better than a modeling tool, no matter how predictive the tool is. Voter Vault and Catalist predict voter behavior. Voter files are actual records of party-to-voter contact.Stewart told us that what the Obama campaign had done from the beginning of the race was more than traditional door to door and phone calls, more than just social networking, but "an extreme data acquisition" so that downstream the campaign could advertise and educate its potential voters. "It's all about education," said Stewart. Text messages and email addresses the campaign collected, for example, allowed the campaign to much more precisely aim its message as well as technical details like what to bring to the polls when voting, or where an individual's polling location was. Fundraising, of course, and pushing back against smear campaigns are included in this direct contact from the campaign.Virginia saw 438,000 newly registered voters this cycle, in large part due to the same systematic, relentless outreach to under-registered potential Democratic voters. If Virginia goes blue for the first time in 44 years at the presidential level, it shouldn't be forgotten that this race was won upstream with that effort.

By chance, we ran into James Gibbs, National Director of Organizing for the United Mine Workers of America, in Obama's Big Stone Gap office. After President of the UMWA Cecil Roberts endorsed Obama, "the membership went wholeheartedly" for the Democrat. "We want health and safety in these mines," said Gibbs. For the UMWA membership, Gibbs said, Barack Obama was the clear choice, and the membership was actively canvassing and phonebanking in nearby Castlewood and St. Paul.UMWA member Dennis R. Blagg, Sr. told us of his canvassing experiences in Big Stone Gap. Having knocked on at least 250 doors in the last two weeks, Blagg was "puzzled by some of the... slurs" aimed his way as he canvassed for Obama. Referring to the Republican ticket he viewed as responsible for fomenting racially harmful attitudes in his county, "they try to have scare tactics" to gin up division.It was Joe Biden's visit two and a half weeks prior that spurred Blagg into action. Referring to McCain, "They talk about experience... that guy's had 26 years of experience. Why hasn't he used it?"

As for Hensley, her story ended with a twist. A couple hours later during a pause in her dials, her phone rang. She recognized the number. "This is going to be good," she remembers thinking, getting ready to scrap. It was the husband. He was calling for the woman on whom he'd hung up. She then got something she didn't expect -- an apology. Calmly, Hensley told the man she'd accept his apology on one condition -- he had to tell her who he was voting for. "Oh, I don't normally talk about it but I feel like I owe you," the man said. "I am voting for Senator Obama." He asked if Hensley would like to speak to his wife, as he'd interrupted the original call. Hensley mentioned that she had been surprised when he'd called to apologize. Apparently the husband and wife had been talking the entire couple hours since the original call. "Did she get upset with you?" Hensley asked."What do you think?" the man replied.

Eleven days.

Race has been America's San Andreas fault. This historic election may finally give us a President who is neither black nor white but BOTH by parentage. Although Barack Obama identifies himself as a black man and so does most of the country - it is important to note that Barack is a child of both black and white parents. A child of love between a black man from Kenya and a white woman from Kansas. My daughter, in particular, identifies with that as she herself is of mixed heritage. As we draw ever nearer to one of the most historic days we are likely to witness in our lifetime, I am ever more hopeful about the future of this great land.