NewGeography.com blogs

Banks in Connecticut, once interested in accepting funds from the Trouble Asset Relief Program, are now “questioning whether it’s worth participating in the program.”

Concerns over the undefined terms and changing conditions imposed on those accessing TARP money has made the banks uneasy about such long-term commitments.

President and CEO of Connecticut River Community Bank, William Attridge, said that the fundamental problem with the program is its open-endedness and the reliance on total-compliance from the banks regardless of any future changes.

President Obama and members of Congress “are under public pressure to toughen conditions on the TARP money in order to improve the poor public image.”

The TARP program was originally created with the intent to “revive bank lending” according to Treasury officials. However, with the obscure terms and conditions currently associated with the program, some argue we’ve lost sight of TARP’s original purpose.

With approximately $293.7 billion in TARP funds distributed as of Jan. 23, undefined regulation doesn’t have all banks protesting.

Some smaller bank feel that increased capital will help the banks “continue to steal market shares from larger banks and help offset inevitable weaknesses among borrowers due to the recession.”

It remains to be seen whether or not the Connecticut bankers will take TARP money, but too many unknowns and perceived risks will certainly be factors in its approval.

Don’t worry about China taking over the US economy. Despite what all the talking heads on TV and the radio talk shows are saying, there isn’t another country out there that hasn’t been hammered at least as badly as we have by the financial meltdown. The problem with any other country attacking the US dollar, for example, is that they are all holding a lot of US dollars. You probably remember last year they were worried about the fact that we import so many goods that we have big “trade imbalances” – meaning that we buy more of their goods than they buy of ours.

Now remember this: we pay for those imports with dollars. So, again, if the dollar is worth less (or worthless) then they are not going to be getting as much for their imports. Raising the price of their goods, that is, simply charging more dollars won’t do them any good either. We’re in a recession, and Americans are tightening their belts. Demand for imported goods, like demand for all goods except luxury goods, is price sensitive. The more they charge, the less we buy. According to an article on CNN.com, our belt tightening has ended the “Road to riches for 20 million Chinese poor.”

Furthermore, it’s in the best interest of countries around the world that the US dollar stays strong. The door does swing both ways. According to Jack Willoughby at Barrons.com, “European banks provided three-quarters of the $4.7 trillion in cross-border loans to the Baltic countries, Eastern Europe, Latin America and emerging Asia. Their emerging-markets exposure exceeds that of U.S lenders to all subprime loans.”

To support all of that exposure, the European Central Bank has been obtaining dollars from the U.S. Federal Reserve in currency swaps. The value of these swaps, where dollars are exchanged for other currency at a fixed and renewable exchange rate, went from $0 to $560 billion this year.

And the Federal Reserve printing presses keep rolling along.

S&P released the December Case-Shiller Housing Price Index data this morning: no market has been spared from the free fall. Steep price declines continue in ultra-bubble regions Las Vegas, Miami, San Diego, Phoenix, and Las Vegas. Even the relatively healthy markets of Charlotte, Dallas, and Atlanta have been sliding since mid-2008. Here's the line chart:

Cleveland is seeing the slowest decline, but that isn't saying much. My pick for healthiest markets? Denver, where prices are still up 25% from the 2000 baseline but still down 5.2% from the most recent upswing in July 2008. And Dallas, down 6.1% from the July 2008 peak and down 8.6% from June 2007. Dallas is up 22.9% since the Jan 2000 baseline.

Follow this link for a bigger version of the chart.

In the ten-year stretch from Sept. 1929 to Sept. 1939, spanning the worst years of the Great Depression, the stock market dropped a full 50%, adjusted for inflation. Look out, the current decade (Feb. 17, 1999 to Feb. 17, 2009) appears to yield the same decrease: the Standard & Poor’s 500 stock index is down roughly 50%, also adjusted for inflation.

But this difficult period has not been all skull and cross-bones: six-month certificates of deposit “have yielded a real total return of roughly 12%” and the value of residential homes in large cities has increased 30% over the same period, according to Business Week’s Michael Mandel.

With many investors' savings sitting in once-promising equities, the question of whether to stay in stocks or bail out is on many people’s minds.

Staying in stocks could decrease the value of your investments to the point that they “may never reach their original value, much less show a profit.”

On the flipside, bailing out and going into safer assets says “you are giving up on any potential of an upside” if the market has a big rebound.

The market will always fluctuate and whether your glass is half-empty or half-full, and long term history says more growth is ahead. But as they say on TV, “past returns are no guarantee for future performance.” How much are you willing to bet on the long-term future of the US economy?

Nicholas Stern, a former World Bank economist and author of the seminal “Stern Report,” injected a rare bit of reason into the discussions about global climate change in Cape Town recently. Stern said that if nations acted responsibly they would achieve zero-carbon electricity production and zero-carbon road transport by 2050 - by replacing coal power plants with wind, solar or other energy sources that emit no carbon dioxide, and fossil fuel-burning vehicles with cars running on electric or other clean energy.

What a welcome vision. No hint of social engineering, no litany of activities and lifestyles to be abandoned, but rather a clear implication that technology offers the solution. (And, by the way, it does.). So let’s put an end to all of this talk about behavior modification and instead set about developing the technology that allows people to live as they prefer.