All Blog Posts from Econwatch

After 18 months of covering this "Great Recession," one of the biggest challenges a journalist can face is finding new metrics to chart the progress of something as immense and complicated as the US economy.

Luckily Clint Binley of Fort Edward, New York returned our phone call this week. The soft-spoken, neatly bearded businessman may be the oracle of upstate New York.

Binley is the President of Pallets Incorporated, a manufacturer and distributor of wooden pallets. His grandfather founded the company in 1942, just as the U.S. military was revolutionizing the way goods were transported to meet its needs for World War Two.

The solution was a wooden platform that could be easily maneuvered by the newly invented forklift. The simple wooden pallet is now indispensible to global commerce. Binley's business also happens to be a terrific barometer of economic activity.

"When we are shipping, our customers are shipping," Binley said as he offered a tour of the mill and yard where at peak production his workers can crank out as many as 6,000 pallets a day. Those pallets make their way around the world.

"Hey, if we are doing well and shipping a lot of products, that means the economy is shipping a lot of products to their customers," he said.

Binley's business is down about 24 percent compared to last year. He actually saw the slowdown coming months before almost anyone else. Now the storage sheds on his lot are stacked to the brim with freshly cut pallets.

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A remarkable game of chicken is being played in Washington that has the potential to set a new precedent for banks pushed to the brink in this year old financial crisis. It may also cause some serious headaches for nearly a million small businesses.

On one side are federal regulators - specifically FDIC chairwoman Sheila Bair. On the other, CIT Group - the country's largest lender to small business.

CIT may declare bankruptcy as soon as tomorrow unless federal regulators allow it to shift around $9 billion of its own assets it needs to reassure the credit markets it has the money it needs to meet its obligations.

CIT specialty is providing cash to businesses waiting to get paid by customers. One way CIT does this is by basically buying pending invoices. In the trade this is called "factoring" and it is popular solution to a business owner's cash flow problems.

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In many ways the regulatory reform being proposed by the Obama Administration will reshape the American financial industry as we know it. It is historic and worthy of all the effort and time thousands of people will put into making them the law of the land.

But it's also important to understand what these new rules can and cannot do.

What these regulations may do is prevent a crisis just like the one we are living through right now.

Make no mistake -- this has been a hugely expensive crisis for family balance sheets digging out of debt and the U.S. Treasury shoveling money into the economy.

The International Monetary Fund warns that U.S. Government debt may rise to 75 percent of gross domestic product by 2011, nearly twice what it was in 2008. By September 1 out of 10 Americans will be out of work.

Preventing a systemic failure due to over leverage based on real estate and credit is absolutely needed. The idea of a consumer protection for financial products is also long overdue.

Anybody who has spent time reading the small print in credit card offers or an exotic mortgage agreement can see the minefields sown around consumers.

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CBS News has learned that regulators now expect to release the results of the bank stress tests to the public on the afternoon of May 7th. It will probably happen after the closing bell.

The results where scheduled to have been released on May 4th.

Guy Campanile is a CBS Evening News business producer.

The Federal Reserve has just put out its explanation of how it is conducting the stress test of the country’s biggest banks.

The headline is that the 19 banks being tested have been given the preliminary results of their exams. The Fed also revealed that the worst case economic scenario it’s using to test the banks is an unemployment rate of 10.3 percent by 2010. The results will be made public on May 4th.

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Bank of America CEO Kenneth Lewis told New York State regulators in February that he was ordered by Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson not to discuss the deep problems emerging in its deal to acquire Merrill Lynch.

According to documents obtained by CBS News, Lewis told investigators Paulson and Bernanke threatened to have the Bank of America CEO and fellow management removed if they did not move forward with the troubled acquisition at the height of the financial crisis. Lewis was beginning to have second thoughts about the risk Merrill Lynch’s balance sheet might pose to Bank of America.

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A federal regulatory official tells CBS News that the parameters and results of the “stress tests” of the 19 major banks will be released over the next two weeks.

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Forget AIG. Focus on B-B-B or Bernanke's Big Bet.

The news that matters this week is the remarkable move by the Federal Reserve to purchase an additional $750 billion in mortgage-backed securities and another $300 billion of long-term U.S. Treasury bills.

It is a daring move that signals just how committed Federal Reserve Chairman Ben Bernanke is to kicking the housing market in the pants.

The Fed's commitment to buy massive amounts of mortgage-backed securities (a total of $1.25 trillion to date) is a huge step towards getting credit flowing in the real estate sector by creating a market for mortgage debt.

Make no mistake, the Fed's action will result in more mortgage and commercial real estate loans. Today, tomorrow and possibly for years to come.

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Gary Varvel is the brilliant political cartoonist for the Indianapolis Star. His depiction of Treasury Secretary Timothy Geithner as an airline pilot trying to reassure terrified passengers about his improvisational flying skills is delicious. It gets to the point that there simply is no textbook response to the global financial crisis. This is especially true when it comes to disposing of those "toxic assets" President Obama, business leaders and reporters keep talking about.

"Toxic asset" has become economic shorthand for the bad loans at the center of this entire mess. The most damaging of the assets are mortgage-backed investments that have threatened the very survival of the world's biggest banks. Basically they are bundles of thousands of individual mortgages. At the height of the housing boom, selling these bundles of mortgages freed banks to loan even more money. Banks, Wall Street firms and hedge funds also bought these securities as investments. But the assets have lost their value as homeowners defaulted on the mortgages, foreclosures increased and home prices dropped.

The plummeting value of the mortgage-backed investments, and other securities built around loans, has forced banks to dramatically cut back on their lending to each other, businesses and consumers. The recession will only deepen unless the banks can eventually get rid of the "toxic assets" still on their books.

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Investors should expect another heart pounding Monday. American International Group (AIG), once the most powerful insurance company in the world, will announce earnings for the last quarter of 2008. It's expected AIG will reveal it lost as much as $60 billion in the last three months of 2008.

If that is true, AIG will account for the biggest quarterly loss in the history of American business. It would dwarf the old record set by Time Warner's $54 billion single-quarter loss in 2002. AIG posted a $24.5 billion loss last fall. This is a company that's already received $150 billion in emergency taxpayer funding. Physicians near Capitol Hill should expect to see a spike in the cases of senators and congressmen suffering from high blood pressure.

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