Chrysler files for Chapter 11

One of the "Big Three" automakers -- Chrysler LLC -- has now filed for Chapter 11 bankruptcy. Here is an excerpt from a Bloomberg story on the filing:

"Chrysler LLC, the smallest of the Big Three U.S. automakers, filed today for bankruptcy protection in New York to streamline operations and shed debt in a reorganization that includes Italy’s Fiat SpA as a partner.

"The iconic automaker, which survived a near-death experience in 1979, missed a U.S. government deadline to come up with a restructuring plan by today that was rigorous enough to avoid bankruptcy and qualify for more bailout aid. The carmaker tried to negotiate an alliance with Fiat, reduce $6.9 billion in secured loans and cut $10.6 billion owed to a pension fund. Some lenders refused to slash the debt to $2.25 billion.

"The carmaker and the government plan to use the bankruptcy process to revitalize Chrysler by putting its best assets, such as its Jeep and Dodge Ram brands, in a new company that wouldn’t be burdened by current costs and debt. A slimmed-down version of Chrysler, armed with Fiat’s small-car technology, would emerge from such a process, giving the carmaker a “new lease on life,” U.S. President Barack Obama said today.

“Bankruptcy could do a lot of good for Chrysler” by allowing it to “shrink down to the size it needs” quickly, said Stephen Lubben, who teaches bankruptcy-law at Seton Hall University School of Law in Newark, New Jersey. “Fiat has shown that it knows how to turn around a troubled business.”

"Bankruptcy can involve uncertainty and delay. Dissident creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart President Barack Obama’s goal of a “surgical” bankruptcy that would put a viable carmaker quickly into the market."

Now the question becomes: "What happens with GM." Various plans are under consideration there.

Fed keeps rates stable, MBS/Treasury buying targets unchanged; Bonds crushed

The Federal Open Market Committee just wrapped up its latest policy meeting. Noteworthy: The Fed left its mortgage backed security (MBS) and Treasury buying targets unchanged. The complete FOMC statement follows:

"Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

"In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

"In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of financial and economic developments.

"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen."

Bonds are taking it on the chin in the wake of this news, with the long bond futures down about 29/32 as I write. Ten-year yields are blowing through the 3% "line in the sand" the market was monitoring, most recently up 8 bps to 3.09%.

U.S. Treasury market blitzed with selling

There's some interesting market action in the Treasury arena today. The long bond futures are getting blitzed, with a price decline of 1 2/32 at last check. Moreover, the yield on the 10-year note is once again testing the 3% area (a gain of about 10 basis points on the day).

The immediate catalyst appears to be the slightly worse-than-expected auction of a record $35 billion in 5-year Treasury Notes. They went off at a yield of 1.94%, compared with pre-auction expectations for a reading of 1.92%, according to Bloomberg. But the bigger-picture issues (in my humble opinion) remain the flood of supply hitting the market, the exploding budget deficit, and the trashing of the Fed's balance sheet, among other things.

S&P/Case-Shiller: Home prices down 18.6% YOY in February

The latest figures from S&P/Case-Shiller continue to show home prices falling, though the rate of decline has stabilized a bit. The 20-city index dropped at an 18.6% year-over-year rate in February, compared with 19% in the prior month. On a monthly basis, the index fell 2.2%. That compared with a decline of 2.8% a month earlier.

All metropolitan areas in the index dropped on both monthly and annual bases. From a year earlier, the biggest declines were in Phoenix (-35.2%), Las Vegas (31.7%), and San Francisco (-31%). Dallas (-4.5%) and Denver (-5.7%) held up the best.

Feds to BofA, Citi: Raise Money

The official results of the banking sector stress test have not yet been released. But the Wall Street Journal is reporting today that two potential casualties will be Citigroup and Bank of America. Specifically, the Journal says the feds want both institutions to raise billions of dollars more in capital, though the banks are reportedly disputing the findings. More below ...

"Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests of lenders, according to people familiar with the situation.

"The capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said.

"Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions. The two banks are planning to respond with detailed rebuttals, these people said, with Bank of America's appeal expected by Tuesday.

"The findings suggest that government officials are using the stress tests to send a tough message to struggling banks. Bank of America and Citigroup have been the highest-profile problem children in recent months, but it is unlikely that they are the only banks the Federal Reserve has determined might need more capital.

"Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital. Wells Fargo declined to comment. Representatives of Regions and Fifth Third didn't respond to requests for comment made late in the day."

New home sales a better-than-expected 356,000

The new home sales report for March was just released. Here's what the data showed:

* New home sales declined 0.6% to a seasonally adjusted annual rate of 356,000 from 358,000 in February. These numbers were better than expected -- the market was looking for sales of 337,000. Figures for December, January and February were also revised higher by a net 31,000 units.

* The raw number of homes for sale continued to decline, falling to 311,000 from 328,000 in February. The months supply at current sales pace indicator of inventory declined to 10.7 from 11.2.

* The median price of a new home dropped 3.5% to $201,400 from $208,700 in February. That was also a decline of 12.2% from $229,300 in the year-earlier period. New home prices are now at the lowest level since December 2003 ($196,000).

Lower home prices are starting to bring out buyers. That's the story here in a nutshell. We've seen new home sales activity stabilize for a few months, even as prices have slumped to the lowest level in more than five years. Rising unemployment is still a problem, and a big enough one to ensure that any housing rebound remains muted. But all signs point to a stabilization in market conditions, something I haven't been able to say for a long time.

For a good laugh ...

Check out this Mark Gilbert column at Bloomberg. It'll take some of the "stress" out of the stress test jitters.

March existing home sales slump 3%

March existing home sales figures were released this morning. Here's what the data showed:

* Existing home sales fell 3% to a seasonally adjusted annual rate of 4.57 million units from 4.71 million in February. That was slightly below the forecast for a reading of 4.65 million. Single-family sales dipped 2.8%, while condo and cooperative sales dropped 4.1%. Sales fell in three out of four regions (South -1.7%, West -4.2%, Northeast -8%), with only the Midwest showing an unchanged reading.

* The raw number of homes for sale fell 1.6% to 3.737 million units from 3.798 million in February. That was down 9.2% from 4.118 million a year earlier. The months supply at current sales pace indicator of inventory climbed to 9.8 from 9.7, with single family inventory rising to 9.3 from 9.1 and condo inventory holding steady at an extremely elevated 14.7.

* The median price of an existing home rose 4.2% to $175,200 from $168,200 in February. That was down 12.4% from $200,100 in the year-ago period.

Home sales continue to flop and chop around at relatively low levels. We're seeing increased activity in some of the hardest-hit markets where prices have plunged, but tamer activity elsewhere in the country. Distressed inventory is where it's at -- with bidding strong for deeply discounted foreclosed and short sales, but weaker for homes put on the market by traditional sellers.

As for housing inventory, it has clearly peaked in the new home market. There are tentative signs it COULD be peaking on the existing side of the ledger. But it's unclear how much of an impact temporary moratoriums on foreclosures have had there. Those stopgap measures are now expiring, which could lead to a fresh surge of foreclosed property hitting the market.

Add it all up and you have a housing market that is still struggling and still oversupplied, but that may have moved from the ICU to the long-term care wing of the hospital.

Continuing jobless claims keep ramping up

The latest initial jobless claims figures showed a 27,000 rise to 640,000 in the week of April 18. That reversed some of the previous week's big decline, which appears to have been impacted by the Easter holiday. The bigger story is that continuing claims continue to rise inexorably. This is a sign that people who lose their jobs are having a tough time finding new work. That figure rose to 6.137 million from 6.044 million a week earlier. This is yet another all-time record high (chart above).

No avoiding the CRE elephant in the room

While there have been some "green shoots" emerging in the residential real estate market in select areas, there is nothing of the sort happening in the commercial real estate (CRE) market. Commercial lags residential during declines and recoveries, and I believe we are still deeply mired in a CRE cesspool. Of course, some of us were warning well in advance that this debacle was coming (see here, here, and here) so this shouldn't come as a surprise.

More from the New York Times today ...

"Though it came as no surprise to investors, the collapse of General Growth Properties, the nation’s second-largest mall owner, has stirred new fears about a coming debacle in commercial real estate, The New York Times’s Terry Pristin writes. The company, which owns 200 shopping centers encompassing 200 million square feet and 24,000 tenants, filed for bankruptcy protection last week.

"With the credit markets virtually shut down, General Growth said it was unable to refinance the $3.3 billion in debt that had already matured or would be due this year. These included loans totaling $900 million on two malls in Las Vegas — Fashion Show and the Shoppes at the Palazzo — that were due to be repaid in November. An additional $6.4 billion in debt matures next year.

"The global credit crisis, weakening retail demand and rising unemployment have taken a toll on commercial property around the world. At least $153 billion worth of property is already in distress, according to Real Capital Analytics, a New York research company. Of this, $87.1 billion represents defaulted mortgages, while the rest is outstanding debt from about 40 commercial-property and investment companies that have failed, most of them outside the United States."

IMF: Credit losses to hit $4.1 trillion worldwide through 2010

The International Monetary Fund just released its latest Global Financial Stability Report. You can download the entire, mammoth 237-page PDF here if you're so inclined. But the headline is that the IMF has increased its estimate of the ultimate cost of the credit crisis. The organization now says the crisis could ultimately cost $4.1 trillion through the end of 2010; U.S. losses alone were estimated at $2.7 trillion -- up from a $2.2 trillion estimate in January and a $1.4 trillion estimate in October. Those figures include losses to be shouldered by all manner of financial entities, from banks and insurers to pension funds and other investors.

Home foreclosure filings hit record 341,180 in March

The combination of the expiration of temporary foreclosure moratoriums, rising unemployment, and falling home prices all combined to drive foreclosure filings to a record high in March, according to RealtyTrac (see chart above). Filings surged 17.4% from 290,631 in February to 341,180 in March. On a year-over-year basis, filings are up a hefty 46.4%.

Housing starts drop 10.8% in March

We just got the latest figures on home construction. Here's what they showed ...

* Total housing starts dropped 10.8% to a seasonally adjusted annual rate of 510,000 from a downwardly revised 572,000 in February. Building permits dropped 9% to a fresh all-time low of 513,000 from an upwardly revised 564,000. Economists were expecting 540,000 starts and 549,000 permits.

* By property type, single family starts were flat, while multifamily starts dropped 29%. Single family permits dropped 7.4%, while multifamily permits fell 12.6%.

* Regionally speaking, it was a mixed bag. Starts rose 6.3% in the Northeast and 15.9% in the Midwest. But they fell 16.8% in the South and 26.3% in the West. The regional breakdown of building permits was grimmer. Permit activity was flat in the West, but down 2.3% in the Midwest, down 10.3% in the South, and down 24.3% in the Northeast.

The volatility in the construction figures continues. We had a huge surge in starts in February, driven by a large gain in multifamily activity. Now, we're seeing some give back in March, again driven by multifamily.

When you sort through the monthly noise, however, the bigger-picture trends become clearer. Tighter funding conditions for construction projects, the large overhang of housing inventory, and the broad economic weakness we're seeing are all conspiring to dampen building activity. Any future recovery will come in fits and starts, and will take time. Nothing in the latest data -- especially the weak permitting figures -- suggests an imminent rebound.

Initial jobless claims fall, but continuing claims top 6 million

Some mixed news on the jobs front this morning to report. Initial jobless claims dropped sharply to 610,000 in the week of April 11 from an upwardly revised 663,000 in the prior week. That's the "good." The "bad?" Continuing claims surged to a whopping 6.022 million from 5.85 million in the prior week. That is a record high, and the first time we've topped 6 million claims in U.S. history.

General Growth goes broke; largest commercial real estate bankruptcy ever

I highlighted General Growth Properties as a company that was in serious debt trouble a little while back. This morning, GGP filed for bankruptcy protection. The firm is entering Chapter 11 with $27 billion in debt, making this the biggest commercial real estate bankruptcy ever. More from the Wall Street Journal below:

"Mall owner General Growth Properties Inc. sought bankruptcy protection early Thursday in one of the largest real-estate failures in U.S. history, capping a precarious, months-long effort to juggle the crushing $27 billion debt load it shouldered in past acquisition sprees.

"The long-anticipated Chapter 11 filing might wipe out what remains of the Chicago company's stock, but it won't result in mall closures. Many analysts suspect General Growth will survive a lengthy bankruptcy intact, but perhaps smaller after selling properties, without resorting to liquidation. General Growth, which owns and manages more than 200 malls, is the second-largest U.S. mall owner by number of properties behind Simon Property Group Inc.

"General Growth's board opted Wednesday to make the filing in U.S. Bankruptcy Court in New York after efforts to piece together a plan for an out-of-court restructuring with a growing list of creditors failed to gain traction, according to people familiar with the talks. The filing includes General Growth, its Rouse Co. subsidiary and most of its malls. It doesn't include General Growth's management company or joint-venture holdings. All told, the filing covers roughly $24 billion of debt, these people say.

"A General Growth spokesman didn't immediately return messages seeking comment. Trading of the company's stock closed Wednesday at $1.05, down 1 cent, in 4 p.m. composite trading on the New York Stock Exchange. The stock has declined by more than 97% in the past year.

"Finally forcing the bankruptcy filing after months of payment-deadline extensions was General Growth's failure to secure a deal with holders of $2.25 billion of its bonds to abstain from demanding immediate payment while the company tried to restructure its balance sheet outside of bankruptcy. Several holders of past-due bonds notified the company last Monday that they intended to sue for immediate payment. Meanwhile, additional debts came due on an almost weekly basis, making an out-of-court deal more challenging to reach."

The Journal story also highlights a key fact: That we're likely to see even more pressure on commercial property owners and investors in coming quarters thanks to crushing debt loads and falling property values. An excerpt:

"The collapse points to an underlying concern for the commercial real estate industry, too. Developers and property owners that loaded up on debt during the past real-estate boom now face mountains of that debt coming due. But some of those borrowers, like General Growth, lack the cash or the borrowing capacity to refinance or pay those debts. Many lenders are granting cash-strapped borrowers extensions of their payment deadlines, but that only postpones rather than resolves the issue. This year alone, an estimated $248 billion of commercial mortgages will come due, up from $230 billion in 2008, according to real-estate research company Foresight Analytics LLC.

"Meanwhile, commercial-property values have sunk, hampering the ability of owners to refinance or sell their properties. Real estate research company Green Street Advisors predicts a 40% overall decline in U.S. commercial property values in this recession."

NAHB index climbs sharply in April

The National Association of Home Builders just released its latest builder optimism index. Here's what the numbers showed:

* The overall index jumped to 14 in April from 9 in March. That was above forecasts for a reading of 10 and the highest since October.

* All three subindices rose. The index that tracks present single family sales climbed to 13 from 8. The index that tracks expectations about future sales jumped to 25 from 15. And the index that measures buyer traffic rose to 14 from 9.

* Regionally speaking, there was good news as well. The index doubled to 16 from 8 in the Northeast, rose to 14 from 8 in the Midwest, climbed to 17 from 12 in the South, and rose to 9 from 5 in the West.

So much for April showers. Housing industry players are in a positively sunny mood, according to the latest figures. Builders polled by the NAHB said they feel better about the state of current sales, the outlook for future sales, and trends in buyer traffic. Moreover, we saw improvement across all geographies.

For a long time, lower mortgage rates have been spurring a major uptick in refinances. But they haven't done much for home sales. That may be starting to change. The industry is still oversupplied, and it still faces a major unemployment headwind. But this is genuinely decent news in an industry that's been starved for it for some time.

This isn't Lake Woebegon. Not all banks are above average!

The attitude of the administration toward the results of the so-called "stress test" of the country's 19 biggest banks seems to change every day. Will the results be kept secret? Will we just get aggregate data, or will we get an institution-by-institution breakdown? How much data will the public be given? Those are questions that policymakers have been wrestling with.

The latest thinking, according to stories in the New York Times and Wall Street Journal, appears to be that more information -- rather than less -- will come out. Per the Times:

"The Obama administration is drawing up plans to disclose the conditions of the 19 biggest banks in the country, according to senior administration officials, as it tries to restore confidence in the financial system without unnerving investors.

"The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.

"While all of the banks are expected to pass the tests, some are expected to be graded more highly than others. Officials have deliberately left murky just how much they intend to reveal — or to encourage the banks to reveal — about how well they would weather difficult economic conditions over the next two years.

"As a result, indicating which banks are most vulnerable still runs some risk of doing what officials hope to avoid."

The Times article also adds a bit more detail on a critical point I'll discuss in a minute (my emphasis added):

"In ordinary times, regulators do not reveal the results of bank exams or disclose the names of troubled banks for fear of instigating bank runs or market stampedes out of a stock. But as top officials at the Treasury and the Federal Reserve Bank focused on the intensity with which the markets would look for signals about the nation’s biggest banks at the conclusion of the stress tests, the administration reconsidered its earlier decision to say little.

“The purpose of this program is to prevent panics, not cause them,” said one senior official involved in the stress tests who declined to speak on the record because the extent of the disclosures were still being debated. “And it’s becoming clearer that we and the banks are going to have to explain clearly where each bank falls in the spectrum.”

"Two senior government officials said on Tuesday that they were now likely to encourage the banks to reveal a range of information, perhaps including the size of losses the banks could suffer under each of the stress assumptions. Critics of the testing system, however, have questioned whether the hypothetical cases are extreme enough."

The Wall Street Journal article also deals with this key point, saying:

"The move to stop treating banks equally is sparking concern about the effect on specific institutions seen as weaker than peers. "You can create a run on a bank pretty quickly," said Eugene Ludwig, chief executive of consulting firm Promontory Financial Group and a former Comptroller of the Currency.

"Wayne Abernathy, executive vice president of financial institutions policy and regulator affairs at the American Bankers Association, said the government needs to provide information about the results but also protect examination data.

"I don't think they can ignore the appetite they have created for this information," Mr. Abernathy said. Having the government publicize some information would allow policy makers to control the message. "It's what can we say that is meaningful while still protecting the quality of that exam data," he said.

"Mr. Ludwig cautioned that any information could give rise to mischief. "Bank exams are confidential for good reason," he said. "Given the kind of confidential information they contain, there is always the possibility of misuse or misinterpretation."

Personally, I see absolutely NOTHING wrong with making as much information public as possible. And I have absolutely no problem if people "run" from crummy banks. The current policy of giving TARP money to any and all comers, and pretending the banking industry lives in a Lake Woebegon world -- where all institutions are above average -- makes no sense.

We should want to have a system that's based on merit. We should want to know who is weak AND who is strong. We should want the weak institutions to be killed off, allowing the strong to survive and thrive. Indeeed, making "public" how weak and strong various institutions are will act as a deterrent against future dumb behavior by bankers. Bankers will know they'll be branded with a scarlet letter if they take on too much risk and lose too much money, so they'll be more careful.

Several private companies (TheStreet.com Ratings, Bauer Financial, Bankrate.com, etc.) already publish bank ratings that are based on proprietary models and formulas that measure capital adequacy, earnings, loan losses, and so on to come up with "grades." Consumers should use that information to stop doing business with crummy banks and start doing business with good ones. We should even consider going a step further -- making the CAMELS rankings that regulators use public. And if the bad banks don't like it because it puts them out of business? Tough. Stop doing dumb things and you won't get a bad rating.

CPI falls, Empire index improves, Mortgage apps drop

We just got another batch of economic data, which I'd call decidedly mixed. A quick roundup:

* The Consumer Price Index dropped 0.1% in March, compared with forecasts for a rise of 0.1%. That pegs the year-over-year change in CPI at -0.4%, down from +0.2% in February. That's the biggest decline going all the way back to August 1955. The core CPI, which excludes food and energy, rose 0.2%, above forecasts for a monthly gain of 0.1%. That gives us a +1.8% rate of change in core CPI from a year earlier.

* The Empire manufacturing index measures activity in the New York area. It improved to minus-14.7 in April from -38.2 in March. That was much better than expectations for a reading of -35. The new orders index improved substantially to -3.9 from -44.8, while the employment index rose more modestly to -28.1 from -38.2.

* Meanwhile, the big spike in mortgage applications from the week of April 3 cooled somewhat. The overall index declined 11% on the week, with refinance activity down 10.9% and purchase applications off 11.3%.

Producer prices, retail sales tank in March

Not the brightest bunch of economic data this morning -- at least if you're looking for a "reflation" courtesy of the Federal Reserve's massive money-pumping efforts. Let's get straight to the numbers ...

* The Producer Price Index dropped 1.2% in the month of March, compared with expectations for an unchanged reading and a February rise of 0.1%. The year-over-year PPI is now running at MINUS 3.5%, much weaker than the -1.3% reading in February and below expectations for a reading of -2.2%. This is the deepest rate of PPI deflation since January 1950. Meanwhile, the "core" PPI was unchanged last month, compared with a gain of 0.2% in February and expectations for a 0.1% rise. The YOY core PPI is still higher -- up 3.8% as of March compared with a 4% gain in February.

* More importantly, retail sales tanked 1.1% in March. That compared with a gain of 0.3% in February and failed to match the 0.3% gain that was expected. If you strip out autos, you get a 0.9% decline in sales, compared with a 1% gain a month prior. And if you want to strip out both autos and gas, you get a -0.8% reading, the biggest drop since December.

Bond prices are off their intraday lows on the news, while stock futures have given up some of their pre-number gains.

Can Washington figure out what it wants the banks to do?

There's an interesting article in the Wall Street Journal this morning. It talks about how banks that have received TARP funds are raising rates on various loan products and continuing to push loans that consumer advocates view as toxic. Other recent stories have highlighted how many borrowers continue to be cut off by their banks.

These articles highlight the dilemma in Washington. Policymakers want to ensure the banking system overall returns to health as quickly as possible. But they can't be seen encouraging -- or sitting idly by -- while consumers and businesses get the shaft by TARP-supported institutions (to say nothing of those institutions paying obscene salaries to their executives). It'll be interesting to see how this push-pull situation plays out. Now, more from the Journal ...

"Elizabeth Warren, chairwoman of the Congressional Oversight Panel, the body named by Congress to oversee the federal bailout, said the panel is working on a report examining instances of potentially inappropriate lending by banks that got taxpayer capital. "The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Ms. Warren said in an interview. "In a sense, we're asking taxpayers to pay twice."

"Last month, a Senate committee narrowly approved a bill that would rein in many credit-card marketing and pricing policies, including ballooning interest rates. Proponents of the legislation say many of the largest card issuers have received government aid and so should be subject to greater scrutiny.

"Banks say that raising fees and rates, even on low-risk customers, is a legitimate way to recoup some of the costs of the bad loans still on their books. They also say taxpayers have a financial interest in seeing the industry quickly return to profitability. Any revolt over price hikes could intensify the crisis by depriving institutions of a key income source, say banks. New restrictions on these lending practices "may truly have an impact on profitability," said Gerard Cassidy, a bank analyst with RBC Capital Markets.

"The controversy underscores the quandaries of Washington's dual role as owner and overseer of U.S. banks. While shoring up the banking system is a goal of federal regulators and the White House, what is good for the bottom line of banks isn't necessarily good for their customers.

"So far, regulators are focusing mostly on nursing banks back to health. "To my knowledge, the TARP funds weren't supposed to change consumer-protection requirements that apply to all institutions," Comptroller of the Currency John Dugan said in an interview. Mr. Dugan's office oversees most of the nation's biggest banks."

The endless bailout line gets longer -- and why we're going about this the wrong way

The seemingly endless line of companies looking for taxpayer-funded bailouts just keeps getting longer, and the folks in Washington show no sign of forcing anyone out of it. This morning, we've learned that life insurance firms will receive aid from the TARP.

From the Wall Street Journal:

"The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a lynchpin of the U.S. financial system, people familiar with the matter said.

"The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said.

"The news will come as a relief to a number of iconic American companies that have suffered big losses made worse by generous promises to buyers of some investment products. Shares of life insurers have fallen more than 40% this year. Their troubles led to a string of rating-agency downgrades that, in a vicious cycle, made it more difficult for some insurers to raise funds.

"The life-insurance industry is an important piece of the U.S. financial system. Millions of Americans have entrusted their families' financial safety to these companies, so keeping them on solid footing is crucial to maintaining confidence. If massive numbers of customers sought to redeem their policies, it could cause a cash crunch for some companies. And because insurers invest the premiums they receive from customers into bonds, real estate and other investments, they are major holders of securities. If they needed to sell off holdings to raise cash, it could cause markets to tumble.

"The decision by the Treasury Department adds a third industry to the banks and auto companies that have already received bailouts from the government. While American International Group Inc. is a major insurer and is the biggest recipient of government money, its problems weren't caused by its life-insurance operations, but derivative bets that went bad."

You know what my biggest problem with all these bailouts is? No one seems to be denied! Money is given to almost anyone and everyone. What we SHOULD be doing is what nurses and doctors do in the ER -- triage. Figure out which institutions are too weak to survive and euthanize them. Deny them bailout money. Let them fail. Then let their stronger competitors pick over their carcasses. Bolster those stronger companies with aid if need be.

Washington isn't doing that, though. Take the banking industry "stress test." Policymakers have already said that if any institution fails the test, they'll get time to raise money or will be injected with government capital. Huh? What's the sense in that? Why aren't we weeding out the weak, allowing them to fail and parcelling up their businesses to their stronger, surviving brethren?

It's like having two people showing up to get their driver's license -- one of whom gets a 100% on the computer-based test and passes the driving portion with flying colors ... and another who shows up drunk, crashes into the curb twice, and spends the rest of the time hitting on his instructor. Should both people really be given a license? Wouldn't it make more sense to pass the good guy and fail the other -- or send him off to jail? I just don't get this Lake Woebegon attitude, where every institution is above average (or treated that way).

IMF drives up the credit loss bidding to $4 trillion

It seems like every so often, the "bidding" on the level of total global credit losses goes higher. Some economist somewhere re-runs his or her models and throws out a gigantic number -- which is then topped by yet another astronomical number published by someone else a few weeks or months later. Only this time, it's the International Monetary Fund that's doing the talking (or that will do so shortly, according to a report in the Times of London).

The Times says the IMF is set to jack up its estimate of losses from the credit crisis to $4 trillion globally, in a report due out April 21. That compares to the IMF's January estimate of $2.2 trillion. The kicker? Financial firms have only acknowledged $1.29 trillion in losses to date, implying that we are not even a third of the way through the loss-recognizing process. Sobering stuff to be sure, if the IMF figures eventually prove accurate.

Jobless claims rise to highest since 1982

The market is in a good mood this morning amid optimism about the global economy and the fact that FASB agreed to revise its mark-to-market accounting rules at its meeting today in Connecticut. Indeed, several "risk appetite" indicators are performing well (stock futures up, dollar down, and so on).

The one real fly in the ointment? The job market continues to deteriorate. Initial jobless claims jumped to 669,000 in the week of March 28 from an upwardly revised 657,000 a week earlier. That is the highest since the week of October 1, 1982 (That week was the all-time high here in the U.S. at 695,000). Continuing claims vaulted to 5.728 million from 5.567 million. This is yet another fresh all-time high (the data goes back to 1967).

Pending home sales rise 2.1% in February

We just got the latest pending home sales figures from the National Association of Realtors. Here's what they showed:

* Pending sales gained 2.1% in February. That compared with forecasts for an unchanged reading and it comes on the heels of a 7.7% plunge in January.

* The pending sales index, at 82.1, is at its second-lowest level on record. The data goes back to 2001; January was the lowest reading ever at 80.4.

* Regionally, pending sales rose in three out of four areas. They gained 10.6% in the Northeast, 14.5% in the Midwest and 4.4% in the South. Sales declined 13.5% in the West.

The latest pending sales figures mirror other housing market reports, which have all shown an uptick in transactions. At the same time, overall activity remains extremely depressed versus both recent and long-term history. Pricing also continues to be a major problem. You can sell a house in this environment, but only if you're willing to discount it heavily. I continue to foresee a rather tepid recovery in the market, with inventory levels gradually coming down, sales slowly stabilizing, but pricing continuing to decline through 2010.

The latest on employment

It's "jobs" week again in econo-land. The biggest report is the Labor Department's employment situation release on Friday. But we're already getting an early peek at how the labor market is doing, courtesy of outplacement firm Challenger, Gray & Christmas and ADP.

Challenger's report showed a month-over-month decline in job cut announcements of 35,939 between February and March. Total cuts came in at 150,411, the lowest since October. But it's difficult to know if that's a seasonal thing or not, since Challenger's figures are not adjusted for seasonal variations. On a year-over-year basis, job cuts surged 180.7%, up from February's 158.5% increase but below the massive 274.5% rise in December.

On the other hand, the ADP report was a disaster. The firm said the economy shed 742,000 jobs in March. That's the biggest decline in the history of the data series (my data goes back to January 2001). It was also worse than February's 706,000 drop and worse than forecasts for a reading of -663,000.