Nine More Banks Fail with CIT a Packaged Bankruptcy While Gold Shines in a Jobless Recovery

There was tension-driven selling in the markets today despite the 'good news' in the headline economic numbers. The markets are on edge ahead of the ADP and BLS jobs numbers next week. The much touted theory of a 'jobless recovery' is started to show some big holes in credibility, as well it should.

Jobless Recovery

A jobless recovery is nothing more than a euphemism for a monetary asset bubble presenting an ongoing systemic moral hazard.

Yes, jobs growth lags GDP in the early stages, everyone knows this. A second year econ student might cite Okun's Law, although it is better called Okun's observation, to show that lag, but it is not relevant to this topic. Beyond early stage lags in the typical postwar recession, a business cycle contraction, what is meant by the jobless recovery is the post tech bubble recovery of 2001-5 wherein jobs growth lagged economic growth in a way we have not seen after any postwar recession, with the median wage never recovering. "Jobless recovery" is a relatively recent phenomenon in the economic lexicon, much younger than 'stagflation' which was thought highly unlikely if not impossible by economists based on their theories, until it happened.

It was the housing bubble and an explosion in unproductive financial activity crafted by the Fed and the Wall Street banks that provided the appearance of economic vitality in 2001-7. It was no genuine recovery despite the nominal GDP growth. It indicates a need to deflate the growth numbers more intelligently, if not more honestly, and future economists are likely to 'discover' this, although John Williams of Shadowstats has done a good job of demonstrating the distortions that have crept into US economic statistics. The tech bubble was perhaps an unfortunate response to the Asian currency crisis and fears of Y2K. What was done to promote recovery from the tech collapse and create the housing and derivatives credit bubble was pre-meditated and criminal.

The current state of economics is most remarkable for its arrogant complacency in the face of two failed bubbles, a near systemic failure, a pseudo-scientific perversion of mathematics exposed, and an incredible capacity for spin and self-delusion. The people wish to believe, and Wall Street and the government economists are all too willing to tell them whatever they wish to hear, for a variety of motives. And there is an army of salesmen and lobbyists and econo-whores touting this fraud around the clock.



The Failure of Financial Engineering

The next bubble should provide the coup de grâce when it fails, although the fraudsters might try and spin ten years of a stagflationary economy as 'the new normal.'

There are good reasons for this failure of American "monetary capitalism," and it has to do with an oversized financial sector and a surplus of white collar crime that both distort and drain the productive economy. The current approach is to pump money into a failed system without attempting to reform it, to fix its fundamental flaws, to make an honest accounting of the results. The result are serial bubbles and the foundation for long duration zombie economy with a grinding stagflation that may morph into a currency crisis and the fall and reissuance of the dollar, as we saw with the Russian rouble. It will stretch the political fabric of the US to the breaking point. This is how oligarchies and their empires fall.

CIT Staggers Into Bankruptcy

Trader confidence was shaken by more indications that business lender CIT will declare a preplanned bankruptcy next week.

Approaching Crash in Commercial Real Estate

Also roiling the markets was a shocking warning by billionaire Wilbur Ross of an approaching meltdown in the Commercial Real Estate market which has been anticipated and warned about by non-shill market analysts.

Gold Holds Steady

Gold showed a remarkable resilience today against determined short selling in the paper Comex markets. Here is a decent summary of the case that the gold bulls have been making, in addition to the standard observations about dollar weakness. Gold Bullion Market Reaching the Breaking Point

Bank Failures Hit 115

Meanwhile, nine more commercial banks rolled over this week. Calculated Risk reports that the unofficial FDIC list of problem US banks now numbers 500.

Here is the list from FDIC of all Official US Bank Failures since 2000.

All of the nine banks were taken over by the US Bank National Association (US Bancorp), and were part of the FBOP company in Oak Park, Illinois, one of the largest privately held bank holding companies in the US. It is reported that all nine were heavily invested in real estate lending.

California National is the fourth largest bank failure this year. It lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, in addition to overwhelming losses in California real estate.

North Houston Bank, Houston, TX, with approximately $326.2 million in assets and approximately $308.0 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Madisonville State Bank, Madisonville, TX, with approximately $256.7 million in assets and approximately $225.2 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Citizens National Bank, Teague, TX, with approximately $118.2 million in assets and approximately $97.7 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Park National Bank, Chicago, IL, with approximately $4.7 billion in assets and approximately $3.7 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Pacific National Bank, San Francisco, CA, with approximately $2.3 billion in assets and approximately $1.8 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

California National Bank, Los Angeles, CA, with approximately $7.8 billion in assets and approximately $6.2 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

San Diego National Bank, San Diego, CA, with approximately $3.6 billion in assets and approximately $2.9 billion in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Community Bank of Lemont, Lemont, IL, with approximately $81.8 million in assets and approximately $81.2 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

Bank USA, National Association, Phoenix, AZ, with approximately $212.8 million in assets and approximately $117.1 million in deposits was closed. U.S. Bank National Association, Minneapolis, MN has agreed to assume all deposits. (PR-195-2009)

ADP Jobs Report Shows Deep Jobs Losses Across the Economy

This report does not include government employment.

It is considered an indicator of the national Non-Farm Payrolls Report which will be released on Friday morning.

ADP
ADP National Employment Report
Wednesday, January 7, 2009, 8:15 A.M. ET

Nonfarm private employment decreased 693,000 from November to December 2008 on a seasonally adjusted basis, according to the ADP National Employment Report®. This month’s ADP Report incorporates methodological improvements intended to improve the correspondence between the nonfarm private employment estimates shown in the ADP Report and estimates published in the Bureau of Labor Statistics’ Employment Situation Report.

December’s ADP Report estimates nonfarm private employment in the service-providing sector fell by 473,000. Employment in the goods-producing sector declined 220,000, the twenty-third consecutive monthly decline. Employment in the manufacturing sector declined 120,000, marking its twenty seventh decline over the last twenty eight months.

Large businesses, defined as those with 500 or more workers, saw employment decline 91,000, while medium-size businesses with between 50 and 499 workers declined 321,000. Employment among small-size businesses, defined as those with fewer than 50 workers, declined 281,000. (Notice the big hit taken by the smaller businesses, where most jobs had been created in the prior recovery. This is not good, and bodes ill for safe haven aspect of the broader stock equity indices. - Jesse)

Sharply falling employment at medium- and small-size businesses clearly indicates that the recession has now spread well beyond manufacturing and housing-related activities.

In December, construction employment dropped 102,000. This was its twenty-first consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 809,000.

ADP Report Shows Worse Jobs Losses Ahead of Friday's Non-Farm Payrolls Report

We are at the end of the beginning, with much more to follow.

Bloomberg
ADP Says U.S. Companies Reduced Payrolls by 157,000
By Bob Willis

Nov. 5 -- Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed today.

The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said. The decline in employment was the biggest since November 2002, when the U.S. was emerging from a recession... (Unemployment tends to peak near the end of a recession. Does this imply that we might be near the end of this recession? Dream on. The recession of 2002 was a thunderstorm compared to this deluge. - Jesse)

The ADP report was forecast to show a decline of 102,000 jobs, after an originally reported drop of 8,000 in September, according to the median estimate of 28 economists in a Bloomberg News survey. Projections ranged from decreases of 245,000 to 70,000.

ADP includes only private employment and does not take into account hiring by government agencies, which is included in the monthly payroll report. Macroeconomic Advisers LLC in St. Louis produces the report jointly with ADP.

Payroll Forecast

The government's Nov. 7 report may show total payrolls fell by 200,000 last month, and the unemployment rate rose to a five- year high of 6.3 percent, according to the Bloomberg survey median. The economy has lost 760,000 jobs in the first nine months of the year.

Private payrolls dropped by an average 108,000 a month from January through September, according to the Labor Department. The ADP estimate shows average private employment gains of 2,300 in the first nine months of the year.

Job cuts announced by U.S. employers jumped 79 percent in October from a year earlier as the credit crunch rippled through the economy, a report from Chicago-based Challenger, Gray & Christmas Inc. said today. Firing announcements rose to 112,884, the highest level in almost five years, from 63,114 in October 2007.

Today's ADP report showed a decrease of 126,000 jobs in goods-producing industries including manufacturers and construction companies. Service providers cut 31,000 workers. Employment in construction fell by 45,000.

Declines Throughout

Companies employing more than 499 workers shrank their workforce by 41,000 jobs. Medium-sized businesses, with 50 to 499 employees, down 91,000 jobs and small companies decreased payrolls by 25,000.

The report did not reflect the strike by about 27,000 machinists at Boeing Co. that was resolved earlier this month, ADP said.

The ADP report is based on data from 399,000 businesses with about 24 million workers on payrolls....