Filed under: Bad news, Industry, Scandals, Economic data, Politics, Housing, Recession

The Washington Post reports that the number of bank failures has been surprisingly low. But the crunch count is apt to grow as the problem bank list triples from 90 to 300 over the next three years. Meanwhile, the Federal Deposit Insurance Corporation (FDIC) could run out of money to pay off depositors of future failed banks unless it raises its deposit insurance rates from their current 5.4 cents per $100 deposits.

But the most interesting question is whether the White Home is propping up banks that should fail so that it can push the biggest part of the cleanup into the lap of the next President. It is certainly bringing out all the biggest economic guns to delay the inevitable reckoning from the $8 trillion credit collapse. It spent $29 billion bailing out Bear Stearns, sent $160 billion worth of checks to taxpayers, cut interest rates from 5.25% to 2%, and seems belatedly to be enforcing regulations against manipulation of oil trading.

The Post quotes industry experts who think that the FDIC is propping up many banks. For instance, Bert Ely of Ely & Co., a bank consulting firm in Alexandria, VA, told the Post, “They are dragging their feet in forcing these banks to reserve realistically. Some of these banks could have been shut two or three quarters earlier.” And Ken Thomas, a lecturer in finance at the Wharton School at the University of Pennsylvania, told the Post that the FDIC’s foot dragging would only cost taxpayers more in the long run. Thomas said, “In some of these cases, I believe regulators should act sooner than later to prevent future losses to the fund.”

With record bank losses possible this year, the FDIC’s fund could drain to a dangerously low level. The Post reports that “The failures so far this year will drain the FDIC’s insurance fund by an estimated $9.2 billion.” And this year’s losses could hit the inflation-adjusted record of “$12.8 billion set in 1988.”

The drain on the FDIC’s fund could happen fast. Losses so far this year will cut 17% from its record high balance of $52.8 billion at the end of the first quarter. That could drop the fund below its minimum stipulation of 1.15% of all U.S. insured deposits. The reason? The number of problem banks is apt to rise from 90 to 300 in the next three years according to Gerard Cassidy, an analyst with RBC Capital Markets. The Post reports that historically, regulators end up closing “about 13 percent of the institutions” on the problem bank list.

I spent the summer of 1982 working with the FDIC’s liquidation division which was in charge of selling off the assets from failed banks. And it looks like that division will be very busy in the next few years. It wouldn’t surprise me if that spurt in activity begins after the November elections.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

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Fannie, Freddie shares fall after SEC order ends - San Diego Union-Tribune
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Filed under: Products and services, General Motors (GM), India

According to a Reuter’s report, General Motors (NYSE: GM) is finding “significant interest” in the assets it is trying to sell to raise capital. The biggest asset on the trading block so far is Hummer, the militaristic luxury SUV line that’s variously loved and loathed in different corners of the country.

Whatever your feelings toward Hummer, $4 a gallon gas has made it far less attractive to American consumers. And having lost over $50 billion in the last three years — that’s right, $50 BILLION — GM sure could use the cash it would get from its sale.

At a plant opening in Thailand, GM confirmed that it has been in negotiations with India’s Mahindra & Mahindra Ltd. to sell the Hummer division. Automakers in China and Russia are also reportedly interested.

Mahindra is a large and growing company, one that you’ll hear lot about in the near future. It’s a $150 billion conglomerate that already sells tractors in the U.S., and starting next year it plans to sell a diesel pickup truck here as well. Mahindra got its start making Willys Jeeps in India after World War Two, and now controls most of the utility car market there. Hummer could make sense as a luxury badge for the company, one that it could sell to oligarchs and new capitalist kings throughout Russia, China and the Middle East. The Hummer’s days in the U.S. might be limited, but it might have a future in the more turbulent emerging markets where military looks make more sense and where poor gas mileage is less of a problem.

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Filed under: Products and services, General Motors (GM)

General Motors Corp. (NYSE: GM), which is closing plants as it suffers some of the largest quarterly losses in the history of the company, is going to pour nearly half a billion into a new diesel plant in Thailand.

The Detroit automaker said it will invest $445 million into the Thai plant to ensure it can meet growing demand in the Asian market at the same time the U.S. market is tanking. Putting your eggs in more than one basket is always a good thing — even though GM should have done this years ago to help soften the blow from the currently anemic U.S. economy.

The new Thai plant is scheduled to open in 2010, with an engine building capacity of 100,000 engines per year. The engine types will be 2.5L and 2.8L diesel engines to serve the Southeast Asia market, tiny of which has a need for more massive V6 or V8 engines like you’ll currently find sitting abandoned in more massive trucks and SUVs all over used automobile lots in the U.S.

GM’s move comes as it has made a decent profit in its European, Latin America, African and Middle East regions. Together, those sections of the world gave GM a combined $465 million gain in the most recent quarter, while the automaker lost $9.3 billion in North America. Its growth outside the U.S. can’t come soon enough.

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Hugh Pickens writes “John Tierney poses the question in the New York Times ‘what if we let athletes do whatever they wanted to excel?’ Before you dismiss the notion, consider what we’re stuck with today — a system designed to create a level playing field, protect athletes’ health and set an example for kids, that fails on all counts. The journal Nature, in an editorial in the current issue, complains that ‘antidoping authorities have fostered a sporting culture of suspicion, secrecy and fear’ by relying on unscientifically calibrated tests, like the unreliable test for synthetic testosterone that cost Floyd Landis his 2006 Tour de France victory and even if the authorities manage to correct their tests, they can’t possibly keep up with the accelerating advances in biology.” Read on for more.

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missb writes “Brain tissue cultured from rats has controlled a wheeled robot around a lab, according to New Scientist this week. Researchers in the UK have harnessed signals from thousands of disembodied rat neurons, and manipulated them to get a robot to respond to instructions. The team at the University of Reading in the UK hope their research will help provide treatments for diseases like Alzheimer’s and epilepsy.”

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mknewman writes “Sen. Bill Nelson, one of NASA’s biggest proponents on the Hill, is openly questioning how Russia’s military intervention in Georgia will affect our access to the space station after the Shuttle is retired in 2010. Currently, NASA is able to use Soyuz cars for crew access and lifeboat operations thanks to an exemption from the Iran Non-Proliferation Act. The exemption expires in 2011, only one year after the Shuttle is due to head to the museums.”

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KentuckyFC writes “Astronomers have discovered some 250 planetary systems beyond our own, many of them with curious properties. In particular, our theories of planet formation are challenged by ‘hot Jupiters,’ gas giants that orbit close to their parent stars. Current thinking is that gas giants can only form far away from stars because gas and dust simply gets blown away from the inner regions. Now astronomers have used computer simulations of the way planetary systems form to comprehend what is going on (abstract). It looks as if gas giants often form a long way from stars and then migrate inwards. That has implications for us: a migrating gas giant sweeps away all in its path, including rocky planets in the habitable zone. And that means that solar systems like ours are likely to be rare.”

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paleshadows writes “Three researchers from the University of Leipzig published an interesting paper titled ‘How extroverted is honey.bunny77@hotmail.de? Inferring personality from e-mail addresses’ (PDF). From the abstract: ‘Email addresses represent the thinnest slice of information that people receive from one another. Using 599 e-mail addresses of young adults, their self-reported personality scores and the personality judgments of 100 independent observers, it was shown that personality impressions based solely on e-mail addresses were consensually shared by observers. Moreover, these impressions contained some degree of validity. This was true for neuroticism, openness, agreeableness, conscientiousness, and narcissism but not for extroversion.”‘

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Naturalist writes “For decades, educators and employers have worried that too few Americans are preparing for careers in science. But there’s evidence to support a new, broader concern in this election year: Ordinary Americans might not know enough about science to make informed decisions on key questions.”

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