From the Wall Street Journal
Since our whole economy is based on borrowed money....

Lending Declines as Bank Jitters Persist

By DAMIAN PALETTA

U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.

Total loan balances fell by $210.4 billion, or 3%, in the third quarter, the biggest decline since data collection began in 1984, according to a report released Tuesday by the Federal Deposit Insurance Corp. The FDIC also said its fund to backstop deposits fell into negative territory for just the second time in its history, pushed down by a wave of bank failures.

The decline in total loans showed how banks remain reluctant to lend, despite the hundreds of billions of dollars the government has spent to prop up ailing banks and jump-start lending. The issue has taken on greater urgency with the U.S. unemployment rate hitting 10.2% in October, even as the economy appears to be stabilizing.
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* Real Time Econ: Takeaways from the FDIC Report

"There is no question that credit availability is an important issue for the economic recovery," FDIC Chairman Sheila Bair told reporters Tuesday. "We need to see banks making more loans to their business customers."

She said large banks -- which account for 56% of industry assets and received a large share of the government's bailout funds -- accounted for 75% of the decline.

James Chessen, chief economist at the American Bankers Association, an industry trade group, said, "It's a very risky time for any lender because the probability of loss is greater, and they are being prudent in their approach to lending. Their regulators are demanding it."

The FDIC's quarterly banking profile, which analyzed data from 8,099 federally insured banks, reported that 552 financial institutions, with combined assets of $345.9 billion, were on the government's problem list at the end of September, up from 416 with $299.8 billion of assets at the end of June. That means roughly 7% of all U.S. banks are on the list and face a higher probability of failure.

FDIC officials don't disclose the names of banks on the list, in part because it could lead to bank runs.

Many banks on the problem list are expected to return to health, but the FDIC is seeing a jump in the number of failures. Fifty banks failed in the third quarter, the most in a single quarter since the fourth quarter of 1992. Three new banks were chartered in the third quarter, the lowest quarterly number since World War II.

The FDIC said its deposit-insurance fund, which backstops trillions of dollars in deposit accounts, fell to a negative $8.2 billion at the end of September, an $18.6 billion drop from the end of June. The FDIC said one reason for the decrease was that the agency shifted $21.7 billion from the fund into reserves for bank failures over the next 12 months.

Even though the FDIC's fund balance was negative, it still had reserves of cash. The FDIC said it had $23.3 billion in cash at the end of September to help resolve future bank failures.

FDIC officials recently agreed to require banks to prepay three years' worth of government insurance fees, which is expected to bring in an additional $45 billion by the end of the year.

The decrease in loan balances reported Tuesday likely reflects a decline in demand for loans among economically anxious businesses and consumers, as well as a reduced willingness by banks to lend.

The total of commercial and industrial loans, a category that includes business loans, fell to $1.28 trillion at the end of September, from $1.36 trillion at the end of June. The outstanding total of construction loans, credit cards and mortgages also fell.

Government officials have stepped up pressure on banks to make more loans in recent weeks.

The banking industry recorded a net profit of $2.8 billion for the third quarter, compared with a $4.3 billion loss in the second quarter, according to the FDIC report. Banks wrote off $50.8 billion in bad loans in the third quarter, $22.6 billion more than they did in the third quarter of 2008.

Ms. Bair said the industry wasn't likely to be profitable in the fourth quarter, in part because banks are expected to write off more bad loans before year-end.

The 'Real' Jobless Rate: 17.5% Of Workers Are Unemployed
EMPLOYMENT, UNEMPLOYMENT, JOBLESS RATE, U-6, U-3, RECOVERY, STOCK MARKET NEWS
Posted By: Jeff Cox | CNBC.com
CNBC.com
| 19 Nov 2009 | 04:55 PM ET

As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.

According to the government's broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.

The number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2 percent for October, the highest it has been since June 1983.

The difference is that what is traditionally referred to as the "unemployment rate" only measures those out of work who are still looking for jobs. Discouraged workers who have quit trying to find a job, as well as those working part-time but looking for full-time work or who are otherwise underemployed, count in the U-6 rate.

With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.

"To me there's no easy solution here," says Michael Pento, chief economist at Delta Global Advisors. "Unless you create another bubble in which the economy can create jobs, then you're not going to have growth. That's the sad truth."

Pento warns that forecasts of a double-dip ("W") or a straight up ("V") recovery both could be too optimistic given the jobs situation.

Instead, he believes the economy could flatline (or "L") for an extended period as small businesses struggle to grow and consequently rehire the workers that have been furloughed as the U-3 unemployment rate has doubled since March 2008.

As that trend has happened, the U-6 rate has expanded at an even more dramatic pace. Economists cite several reasons for the phenomenon.

For one, more workers are becoming discouraged as real estate—the focal point for the expansion in the earlier part of the decade—has collapsed and taken millions of directly related and ancillary jobs with it.

Many workers believe those jobs aren't coming back, and have thus quit looking and added themselves to the broader unemployment count.

"In the earlier part of this decade, 40 percent of all new jobs created were in real estate. Attorneys, mortgage brokers, agents, construction—they were all circled around housing," Pento says. "We've had a jobless recovery in the last two recessions. This is going to be the third jobless recovery in a row."

Another factor that may be leading people onto the rolls of those no longer looking for jobs is the government's accommodative extensions of jobless benefits.

"Workers are unemployed for a much longer span than we've seen historically," says David Resler, chief economist at Nomura Securities International in New York. "Part of that may be affected by the longer availability of benefits. It reduces the incentives for an urgent job search."

The U-6 rate debuted in January of 1994 at 11.8 percent, while the U-3 was at 6.6 percent. The measure hit a low of 6.9 percent in April 2000 while U-3 sat at 3.8 percent.

While the current methodology only dates back 15 years, a former U-6 gauge was in existence previously and peaked at 14.3 percent in 1982. Economists predict the current measure would fall just below that number using the same methodology.

"We're in the process of discovering how severe this recession and the long-run impact on certain industries will be and what that will do to overall employment," Resler says. The U-6 rate "portends a very slow, sluggish recovery."

If that holds and the US economy stays weak, that presents challenges for investors.

"People focus too much on that 10 percent number and not on the larger number," says Kevin Mahn, chief investment officer at Hennion & Walsh in Parsippany, N.J. "There's a humongous inventory of people out there looking for work and have been looking for work for a long time. Where are those jobs going to come from?"

High unemployment and the resulting pressure on consumers is driving many investors to look for opportunities overseas and in other assets.

Walsh says that trend is going to continue, with clients going to foreign markets, real estate investment trusts, certain bonds—anywhere that can offer profits above the slow-growth mire of US-based investments.

"If full employment is 4 percent, people are wondering how we're going to get from 10 (percent) to 4. Well, try getting from 17 to 4. We may not get back to full employment for a decade," Mahn says. "As an investor, that causes me to look for different places now. Maybe you can't just put money in US large caps and ride out this recovery."

perhaps they should to change the engine...

MYT engine inventor Raphial Morgado
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=58287049

Thanks for that! I did wonder what happened to the truck.