Daily Investment Interpretations

April 22, 2009

2009-4-22:   The Dow and the S&P 500 fell a little, while the NASDAQ Composite closed up a skosh. The NASDAQ wafted up 2.27 points (0.14%) to end the day at 1,646; while the Dow dwindled 82.99 points (-1.04%) to close at 7,887; and the S&P 500 slipped 6.53 points (-0.77%)  to 844. Oil jumped to $48.48, while gold rose $9.80 to finish at $892.50. The VIX climbed to 38.10.
   Treasury Secretary Geithner reassured the country yesterday when he said that the "vast majority" of banks are well capitalized. Paul Krugman last night (in Permanent Link to Vast majorities) observed that the vast majority of the Fed’s list of 1,722 “large commercial banks” probably are in fine shape. "
But," he says, "the big guys are where the money is. The top 10 institutions on that list have 58 percent of the assets. (If we looked at bank holding companies rather than only commercial banks, assets would be even more concentrated.) So it’s perfectly possible that the “vast majority” of US banks are well-capitalized, but that banks with, say, a third of the system’s assets are insolvent.
   
"What Geithner said, then, was true but useless. If anything, his wording was cause for concern: Treasury knows the difference between raw numbers of banks and asset holdings, even if the press seemed to miss the distinction, and if he’d meant to say that the vast majority of assets are held by sound banks, he would have."
   
In an update, Dr. Krugman adds,
    "Brad DeLong had the same reaction. 

    "'The failure to assure us that the vast majority of bank assets are in well-capitalized institutions seemed to me to speak volumes. Nobody ever thought that the vast majority of banks are not well capitalized–it’s the highly leveraged New York high flyers.'
"

    Marketwatch's Dr. Irwin Kellner sees cogent indications that the economy has bottomed: Dr. Kellner looks at stress-test optimism.
    The Treasury Secretary followed yesterday's remark that the vast majority of banks are well-capitalized, with a statement today that, "
the proper corrective measures have been and are being taken to put global crisis in the past.
    The International Monetary Fund announced yesterday that there is, "
No quick end in sight for the worldwide recession." Paul Krugman commented upon this yesterday: Permanent Link to Imformation.