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A jobs sign hangs above the entrance to the US Chamber of Commerce building in Washington, DC.
As I reported this morning, ADP, a private payrolls processor, said that 201,000 jobs were added to the U.S. economy in August. This contrasts with the 90,000-170,000 that economists surveyed by Bloomberg are expecting and would be a decent jump from July's 163,000 figure (that number beat expectations, by the way).
Regardless of who's number you think is most plausible, the unemployment rate, currently at 8.3 percent, isn't likely to move much, even if we're closer to ADP's figure than we are to the lower end of the Bloomberg survey.
That doesn't make tomorrow's report sound very exciting. But, actually, it is.
The Washington Post summarizes rather neatly why this report is such a big deal:
Friday’s Labor Department report is more eagerly anticipated than most. It is one of only three jobs reports remaining before the Nov. 6 presidential election. And it will come just hours after President Obama claims his party’s nomination at the Democratic National Convention, capping a meeting where Democrats have argued before the nation that the economy , while struggling, is on the right track.
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The JP Morgan Chase building in New York City. These guys invented financial risk management and have a stake in the future of the "shadow banking" system.
You may have heard the term "shadow banking" or "shadow banking system" in the years since the financial crisis. If you're like most people, it's unclear what it is. It might even be completely incomprehensible and possible sound sort of menacing. It sounds like something out of "Babylon 5." Science-fiction banking.
Now Bryan J. Noeth and Rajdeep Sengupta of the Federal Reserve Bank of St. Louis have produced an essay that doesn't just explain shadow banking — it questions whether it should exist and answers that question. The essay contains this fairly succinct breakdown of the different between the old-school traditional banking system and shadow banking:
Financial intermediation has moved from an originate-to-hold model of traditional banking to an originate-to-distribute model of modern securitized banking. Economist Gary Gorton argued in a book last year that deregulation and increased competition in banking rendered the traditional model of banking unprofitable. In modern banking, origination of loans is done mostly with a view to convert the loan into securities—a practice called securitization, whereby the transaction, processing and servicing fees are the intermediaries' principal source of revenue.
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Ron Paul speaks during a campaign event. He plans to go to the Republican National Convention in Tampa and be placed on the nominating ballot.
Mitt Romney may be the presumptive GOP presidential nominee, but Texas congressman Ron Paul never planned to go away quietly before the Republican National Convention in Tampa in August — and neither did one of his staunchest supporters, L.A. hedge fund investor Mark Spitznagel.
It’s partly Spitznagel’s doing that Paul held out for delegates at one of the campaign's final acts, the Nebraska state Republican Party Convention, which took place a week and half ago, more than a month after the state's primary. (Paul failed to gain a plurality, dooming his chances at speaking in Tampa.) All along, the hedge funder helped keep Paul in the race, both by raising money and by providing the campaign with intellectual oomph.
Spitznagel, who runs Universa Investments, which he founded in 2007, lives in Bel Air and operates out of an office in Santa Monica. Why is the Michigan native so far out west, anyway? After all, hedge funds are supposed to be in Connecticut. Or at the very least, Manhattan. That wasn't Spitznagel's scene. "I wanted to get out of that groupthink of Wall Street," he said on the phone recently. "Everyone there is crammed into a handful of blocks." But it's perhaps more than just the non-NYC quality of L.A. that has made it a comfortable place for Spitznagel.
The Federal Reserve has released it most recent Beige Book, an analysis of economic activity across the nation.
The Federal Reserve has two main jobs: seek price stability in the economy; and engender conditions that lead to full employment, which it defines at something in the 5-6 percent unemployment range. The Fed has other roles, related to it position as the nation's central bank and its control over interest rates. But at its core, the Fed is supposed to keep inflation and unemployment low.
According to the latest Beige Book — national economics research that the Fed puts out eight times a year — the central bank has inflation under control but it isn't seeing unemployment decline significantly. Here's how the Beige Book summary starts out:
Reports from most of the twelve Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in June and early July.
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The JP Morgan Chase building in New York City. This is one of the big banks that's filing a "living will" with federal regulators — and dealing with a potentially $9-billion trading loss.
The biggest U.S. banks are delivering their so-called "living wills" to the Federal Reserve and the FDIC today. This is all part of the implementation of the Dodd-Frank financial reform legislation, and it follows the stress tests that the big banks were all subjected to several months back — and that they all passed, some more auspiciously than others.
Today's plans are part one of the living-will process: banks will explain how they intend to enter bankruptcy, if they get in trouble. Obviously, a big bank could enter restructuring and emerge as a new bank, with reduced debts. Part two is more menacing: big banks are being asked to detail how they would work with the FDIC to be taken down, their assets merged with more stable institutions. That's the nightmare scenario.
It's critical that the big banks deal with both possibilities because even though we had a bunch of too-big-to-fail banks before the financial crisis, we have what I call too-bigger-to-fail banks now. The crisis forced the consolidation of failing banks into stronger ones. Additionally, big banks have been buying up weaker smaller banks. So we have a less diverse financial ecosystem now than we did before the Great Recession. This is why a big trading loss at JP Morgan, initially reported at around $2 billion but now climbing to $9 billion according to some reports, is cause for alarm.