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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 1, 2009 at 10:01 AM

Banks get a sweet deal while staggering pace of layoffs continues

Top of the News: A stunner of a layoff report came out this morning but the Dow bolted out of the gate led by financials. Yes, it’s another example of how the market indices don’t necessarily reflect reality on Main Street. But I suspect the bullish sentiment — if it lasts today — has much to do with an expected change in an obscure accounting rule.

Now hang with me — don’t jump to the Coffee City blog just yet. Imagine if someone could wave a wand so you could bank the value of your house in, say, late 2006 or 2007 before the subprime roof fell in. Pretty sweet, huh? Well, that’s pretty much what the Financial Accounting Standards Board is planning to do tomorrow for banks.

It will relax the “mark to market” rule, which has demanded that bank assets be valued at what they would actually fetch on the market. (I’m not as CPA but I used to date one). The rule change will allow the banks to set a higher “value” on what they consider undervalued assets — i.e., junk they made bad loans on. The Wall Street Journal wonders if the change will subvert the Obama bank plan by giving the financial institutions incentives to keep these “toxic assets” on their books. Long-term, no one will be fooled, especially investors, because many of these billions in “assets” will never regain their bubble-era value.

Wednesday Bits: March saw 742,000 layoffs, according to the widely watched private survey by ADP. The number is worse than expected, and shows that the recession’s sharp and swift unemployment trajectory is not getting better. Meanwhile, the Labor Department has released its metro area unemployment numbers for February. Seattle-Tacoma-Bellevue: 8.7 percent, vs. 4.3 percent in February 2008; Spokane, 9.6 percent vs. 6.2 percent; Yakima, 10.4 vs. 7.9; Portland, 10.7 vs. 5.3. Detroit comes in at 13.6 percent.

As the London G-20 summit opens with its own version of the Battle in Seattle, the world economic outlook grows more grim. The OECD expects economic activity to drop 4.9 percent this year among the 30 advanced member nations, while international trade is seen as plummeting 13 percent. Unemployment in the advanced countries should reach double digits, 25 million people, the worst of the post-World War II era. The slowdown will also badly maul the large emerging economies.

More skepticism about the Geithner bailout plan comes from Nobel laureate Joseph Stiglitz in the New York Times, as well as accurate bear Nassim Taleb. NYU economist Nouriel Roubini is more nuanced in giving credit and offering concerns. Essential reading: It’s your money.

Today’s Econ Haiku:

Anglo-Saxon style

Capitalism on trial.

A ‘hold’ or a ‘sell’?

Comments | More in Banking, Jobs/Unemployment

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