Misery Economic Theater 2011

[xilman]

Greek debt crisis: Straw says euro facing 'slow death'


Former Foreign Secretary Jack Straw has said the euro is facing a "slow death" as the Greek debt crisis worsens. The Labour MP said the eurozone "cannot last" in its current form and the UK government should prepare for its potential collapse. He was speaking as MPs discussed the prospect of a fresh bailout of the Greek economy.

Treasury Minister Mark Hoban said it was in the UK's interest to "ensure the continuing stability" of the eurozone. However, he insisted the UK would not be participating directly in any bailout and UK exposure to the Greek economy was "relatively small".

...

"What the government should do instead of sheltering behind the complacent language, weasel words that 'it is not appropriate, we should not speculate' is recognise that this eurozone cannot last," he said.

"And it is the responsibility of the British government to be open with the British people now about the alternative prospects. And since the euro, in its current form, is going to collapse is it not better that this happens quickly rather than a slow death."

...

Treasury minister Mark Hoban said Greece needed to get its economy "back on track" and that its inability to raise funding from financial markets meant that a further bailout might be required.

However, he stressed that the UK would not be participating "directly" in any rescue - although it could be liable for any further support via the International Monetary Fund.

Asked about the wider impact of Greece defaulting on its debts, he said the Treasury, Bank of England and Financial Services Authority was closely monitoring the financial system but that UK banks had an exposure of just $4bn to Greece - much smaller than either France or Germany.

He said that the UK had a "big interest in ensuring the continuing stability of the eurozone." But he added: "Clearly this crisis demonstrates the huge strain the eurozone is under - that is why it was right for us to stay out of the eurozone."

Full story at http://www.bbc.co.uk/news/uk-politics-13839381

Looks like the vultures are circling rather higher up than had previously been notices.

Note for our US readers, "Foreign Secretary" is the officer which you call "Secretary of State" so Jack Straw is in some sense the analog of Condoleeza Rice.

Paul

[ewmayer]

Originally Posted by xilman

Full story at http://www.bbc.co.uk/news/uk-politics-13839381

Looks like the vultures are circling rather higher up than had previously been notices.

Not sure I take your meaning. You mean in the sense of an increasing number of high-ranking European officials coming out and saying that the EMU - at least as presently constituted - is finished?

Note for our US readers, "Foreign Secretary" is the officer which you call "Secretary of State" so Jack Straw is in some sense the analog of Condoleeza Rice.

Hillary Clinton will be surely quite interested to hear that. :)

[Fusion_power]

Jack Straw is the "former" foreign secretary just as Codolezza Rice is the "former" secretary of state. The inference is that Britain is pretty much thankful that they are not a single currency Euro nation.

I would point out one significant omission in the above article. Credit default swaps taken out by France would transfer liability for about $8 billion to British entities. A similar liability would be transferred to the U.S.

The market reactions from today were more of a holding pattern than anything substantial to latch onto. Indications over the last 3 months point to an especially vulnerable period in the third quarter of this year.

DarJones

[xilman]

Originally Posted by ewmayer

Not sure I take your meaning. You mean in the sense of an increasing number of high-ranking European officials coming out and saying that the EMU - at least as presently constituted - is finished?

Hillary Clinton will be surely quite interested to hear that. :)

Yes, higher in the sense of high-flyers. Straw's intervention is the first time I've ever seen anyone at that rank break ranks with the "it will all turn out fine in the end" party line.

Fusion_power has already addressed what is actually the latter issue, despite it concerning "the former".

Paul

[ewmayer]

Originally Posted by xilman

Yes, higher in the sense of high-flyers. Straw's intervention is the first time I've ever seen anyone at that rank break ranks with the "it will all turn out fine in the end" party line.

One sees this so often - in the U.S. we now see former Fed chair Greenspan correctly diagnosing (in hindsight) the housing bubble and assorted maladies related to our national decades-long credit binge - although he denies being in any way complicit in any of the madness. What we need is more folks like these to have the courage to speak up and listen to other voices than those in their coteries of paid-to-groupthink subordinates, while they are still in power and best-positioned to effect change. That so few do apparently speaks to the dire career-limiting potential of such heterodoxy.

Fusion_power has already addressed what is actually the latter issue, despite it concerning "the former".

Paul

Aha - my eyes must have conflated 'former' and 'foreign' when I glanced at the article excerpt. Although if one wanted to be truly precise in terms of (backward-looking) positioning, Straw's counterpart would be Madeleine Albright. But who's counting counterparts (or counterpanes, or counterparties)?

Looks like "markets rally on hopes for a Greek solution" is an apt blurb-o-matic bullish headline of the day.

[ewmayer]

Couple of NYT Op-Eds for your reading pleasure today:

Roger Cohen | The Great Greek Illusion: Greece was never ready to join the euro zone. But Europe’s union required an Athenian imprimatur, so everyone turned a blind eye.

LONDON — Greece has long held emotional sway over Europe. All the cradle-of-Western-civilization talk earned it leniency, even indulgence. The European Union was not ready to go mano-a-mano with the birthplace of democracy.

Past glory is a wonderful thing — and a lousy guide for present policy. That’s true in the Holy Land, in Kosovo and in Athens. Greece should not have been allowed into the euro. It failed to join in 1999 because it did not meet fiscal criteria. When it did meet them in 2001, the fix came through phony budget numbers.

But Europe’s bold monetary union required an Athenian imprimatur to be fully European. So everyone turned a blind eye....

Joe Nocera | Banking’s Moment of Truth: Why banks shouldn’t win the fight over capital requirements

Capital matters. Let me put that another way. The current fight over additional capital requirements for the banking industry, eye-glazing though it is, also happens to be the most important reform moment since the financial crisis broke out three years ago. More important than the wrangling over Dodd-Frank. More important than the ongoing effort to regulate derivatives. More important even than the jousting over the new Consumer Financial Protection Bureau.

If investment banks like Merrill Lynch had had adequate capital requirements, they would not have been able to pile on so much disastrous debt. If A.I.G. had been required to put up enough capital against its credit default swaps, it’s quite likely that the government would not have had to take over the company. If the big banks had not been able to so easily game their capital requirements, they might not have needed taxpayer bailouts. A real capital cushion would have allowed the banks to absorb the losses instead of the taxpayers. That’s the role capital serves.

Adequate capital hides a plethora of sins. And because, by definition, it forces banks to use less debt, it can also prevent sins from being committed in the first place. “There is no credible way to get rid of bailouts except with capital,” says Anat Admati, a finance professor at Stanford Business School and a leading voice for higher capital requirements. “The only cure is capital,” says Daniel Alpert, a founding managing partner of Westwood Capital. A few days ago, The Wall Street Journal wrote an editorial applauding the recent suggestion by Daniel Tarullo, a Federal Reserve governor, that the biggest banks hold as much as 14 percent of assets in capital. I couldn’t agree more.

Which is why a hearing held last week by the House Financial Services Committee was such a sorry sight. Under the guise of examining whether the new financial regulations — including proposed capital requirements — were making American banks less competitive, the Republican majority peppered U.S. regulators, including Tarullo, with skeptical questions about the need for increased capital requirements. It was pathetic.

[Fusion_power]

The few, the rotten, the Fraudsters!

There have been very few convictions in mortgagegate so far. Here is one that is long overdue.

http://www.abc3340.com/story/1497202...aud-mastermind

ALEXANDRIA, Va. (AP) - Federal prosecutors are seeking a life sentence for the man convicted of orchestrating a $3 billion fraud while running what had been one of the nation's largest private mortgage companies.

Fifty-eight-year-old Lee Farkas of Ocala, Fla., was majority owner of Florida-based Taylor Bean & Whitaker, which collapsed in 2009 when the scheme unraveled. The fraud also contributed to the failure of Alabama-based Colonial bank, which had been one of the country's 25 largest banks.

Sentencing guidelines call for a term of 385 years. In court papers filed Thursday, prosecutors say Farkas should receive the maximum sentence when he is sentenced next week. They say he lived a life of opulence while running one of the largest fraud schemes in U.S. history.

Farkas' lawyer, Bill Cummings, called the government's recommendation excessive.

For every conviction, there are thousands who walk free after skirting the edges and dipping toes into illegality.

DarJones

[cheesehead]

"Federal Agency Sues Banks For Credit Union Failures"

http://moneyland.time.com/2011/06/22...nion-failures/

One of the most frustrating things about the 2008 financial crisis was the sense that the people who got us into this mess weren’t going to face any kind of repercussions. For ordinary Americans watching their nest eggs tank while reading about bailouts and golden parachutes, there was a widespread feeling that somebody needed to be held accountable. Now, David’s winding up his slingshot.

The National Credit Union Administration — it basically does for credit unions what the FDIC does for banks — filed a lawsuit against J.P. Morgan Chase & Co., and Royal Bank of Scotland PLC in a bid to claim $800 million in compensation. The suits allege that the respective banks took terrible mortgages, bundled them into securities and then sold them to five credit unions, omitting pertinent information or flat-out lying about the poor quality of the underlying assets. When the credit unions failed, NCUA had to take custody of these bonds and pay hundreds of millions of dollars to make the credit unions’ customers whole.

The agency has indicated that this is only the first in a string of lawsuits it intends to bring against financial firms that sold what was essentially fool’s gold to credit unions that then collapsed as a result. “We expect to file additional actions and seek a total amount of damages in the billions of dollars. Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions,” NCUA’s board chairman said in a statement.

. . .

[ewmayer]

Ron Paul’s Anti-Fed Message Gains Respect for White House Bid

When Ron Paul announced four years ago that he was running for president, the congressman from Texas had a tough time attracting attention.

Paul -- known for his calls for a significantly limited government, opposition to the Iraq, Afghan and Libyan conflicts and his drive to get rid of the Federal Reserve -- stayed in Washington to declare his candidacy for the 2008 Republican nomination on C-Span, the cable television station devoted to government proceedings. His entry earned a one-sentence mention near the end of a Washington Post political story, and little notice elsewhere.

Last month, his venue for announcing another presidential bid was an appearance on ABC’s “Good Morning America” -- a program with more than 4.5 million viewers. He spoke from a rally in New Hampshire, where hundreds of backers drawn to Paul’s message of shrinking government and limiting its reach cheered the 75-year-old great-grandfather.

My Comment: Saw a long, thoughtful interview with Rep. Paul last night on C-SPAN. I find his string support among college students to be especially interesting. Back in 2008 one could dismiss it as a "Berkeley hippie" effect - college kids` knee-jerk support for whichever candidate wanted to legalized drugs - but I think it runs deeper. Paul mentioned last night that many of the college kids he speaks with have a keen sense of to what extent the baby-boomer "entitlement generation" has bankrupted the country and that the nation desperately needs to be steered onto a new course.

I`m a bit concerned about the "keep the Federal government out of education" angle as possibly concealing a creationist agenda, but OTOH, a dyed-in-the-wool libertarian like Paul might simply be thinking along similar lines as he expresses about abortion, namely that such decisions should be made by the voters, legislators and judiciary of each state:

Paul advocates states' rights to decide how to regulate social matters not directly found in the Constitution. Paul calls himself "strongly pro-life",[188] "an unshakable foe of abortion",[189] and believes regulation or ban[190] on medical decisions about maternal or fetal health is "best handled at the state level".[191][192] He says his years as an obstetrician led him to believe life begins at conception;[193] his abortion-related legislation, like the Sanctity of Life Act, is intended to negate Roe v. Wade and to get "the federal government completely out of the business of regulating state matters."

Again, normally being a staunch anti-abortionist would be a buzz-killer among age groups like the college set, but Paul is not as easy to pigeonhole here, because such positions are consistent with his longstanding libertarianism and states-rights advocacy: He himself may be pro-life, but his fundamental position is that neither he nor any federal bureaucrat or agency should be interfering with states` rights to decide such issues for themselves. He argues that his agenda only seems radical because it`s been so long since the federal government usurped those rights.

Another unusual thing I've noted before about RP: Normally when the paterfamilias is such a free-thinker, it's his kids who manage to tone down the message enough to make it palatable to get elected. In the Paul family, the elder Paul is the thoughtful, "OK, I may disagree with his stance here but I can see how he arrived at it" one, whereas the son, Rand, a.k.a. senator Paul, strikes me as a bit of a nut.

[ewmayer]

Big news of the past 24 hours is a multibillion-dollar settlement by BofA of a mortgage-securitization-fraud suit by some big-name investment funds:

Bank of America Settles Claims Stemming From Mortgage Crisis: The charge, which will drive the company to a multibillion-dollar loss in the second quarter, is the biggest single settlement tied to the subprime mortgage boom.

Bank of America announced Wednesday that it would take a whopping $20 billion hit to put the fallout from the subprime bust behind it and satisfy claims from angry investors. But for its peers, the settlements may just be starting.

Heavyweight investors that forced Bank of America to hand over billions to cover the cost of home loans that later defaulted are now setting their sights on companies like JPMorgan Chase, Citigroup and Wells Fargo, raising the prospect of more multibillion-dollar deals.

“Bank of America has charted a path that our clients expect other banks will follow,” said Kathy D. Patrick, the lawyer who represented BlackRock, Pimco, the Federal Reserve Bank of New York and 19 other investors who hold the soured mortgage securities assembled by the Bank of America.

Ms. Patrick’s clients are seeking $8.5 billion from Bank of America — a settlement that needs a judge’s approval and could still face objections from investors seeking a better deal. A date to review the blueprint has been set for Nov. 17 with Justice Barbara R. Kapnick in New York Supreme Court.

All told, analysts say the financial services industry faces potential losses of tens of billions from future claims — real money even by the eye-popping standards of the nation’s biggest banks. Indeed, even that $20 billion announced Wednesday will not be enough to completely stanch the bleeding at Bank of America — it says litigation over troubled mortgages could cost it another $5 billion in the future.

My Comment: Given that BofA set aside a paltry $1 Billion at the start of this year as reserves for such losses, I would its "another $5 billion in the future" claim with a grain of salt the size of a binocular-visible asteroid. But perhaps this is good in the sense that even if the government continues to "aggressively non-pursue" criminal charges in the great mortgage fraud epidemic of the past decade, there is still some monetary-damages recourse for victims to pursue in the civil courts.


And, markets enjoying a nice week-long rally first on expectations and now on news that "The Greek Debt Crisis Is Solved!", meaning Greece did just enough to get itself another bailout cheque and avoid immediate default. Yeah, this 'strategy' by EMU members to can-kick the problem is gonna continue to work really well when Spain and Italy`s debt issues get to the blow-up phase:

German Banks and Government Agree to Roll Over Greek Debt: The agreement is based on a similar agreement between France and its banks, and is seen as crucial to securing more aid for Greece.

The banks and insurance companies will commit to providing financing for a Greek aid package, Mr. Schäuble told a news conference in Berlin, according to Reuters.

The agency quoted him saying that as a minimum, the Greek debt held by German groups that matures by 2014 would be rolled over, or extended. He also said that 55 percent of Greek bonds held by German institutions would mature after 2020.

At the same event, the Deutsche Bank chief executive, Josef Ackermann, said a French proposal was being used as a basis for the German agreement, although modifications would be built into that plan.

German and French lenders are the biggest foreign holders of Greek debt. And the involvement of private creditors is seen as crucial in international agreement on a second bailout for the crippled Greek economy.

A separate hurdle was passed Wednesday after Prime Minister George A. Papandreou of Greece won the passage of a bill setting new government spending cuts and revenue-raising steps.

My Comment: Now let`s see what the ratings agencies think of the rollover ploy.

-------------------------

Obama and the IEA (Intl Energy Agency) made a big show late last week of releasing perhaps 1 U.S.-consumption-day's worth of oil of their respective strategic reserves in order to 'counteract the effects of the recent rise in oil prices on the economic recovery' or some such nonsense attempting to justify such 'emergency measures'. The NY Times editorial board, um, gushed at this stroke of genius:

We have never been enthusiastic about quick fixes. But the Obama administration’s decision to release 30 million barrels of oil from the Strategic Petroleum Reserve — the nation’s emergency stockpiles — makes sense.

It should provide a modest boost to the American economy. It will help consumers at the pump as they head into the summer vacation season. And it sends an important message to the Organization of the Petroleum Exporting Countries that the United States is capable of protecting its domestic market, at least in the short term, even when those countries refuse to increase production.

The initiative is part of a joint effort with the International Energy Agency, whose other members will release an additional 30 million barrels. The total amount, 60 million barrels over 30 days, is aimed at making up the loss of nearly two million barrels a day in exports caused by unrest in Libya and, to a lesser extent, Yemen.

The two million barrels is a tiny fraction of the 89 million barrels consumed daily around the globe. Even so, there should be some relief for consumers. According to the Center for American Progress, a research and advocacy group, past oil sales from the reserve — most recently President George W. Bush’s release of 21 million barrels after Hurricane Katrina — reduced prices by 10 to 15 percent within a month. That would translate today into savings of 25 to 35 cents per gallon of gas at the pump.

My Comment: Interestingly, gas prices had already been dropping steadily for most of June - At the local station whose self-serve-regular price I check every day on my way to work, the price is down about 35 cents (nearly 10%) from its early-May highs - but are still roughly 20% higher than a year ago.

Anyway, the release from the strategic reserve was wildly successful at effecting a durable drop in oil and gasoline prices (this chart is gasoline futures), clearly those "evil global oil speculators" have learnt their lesson and gone back to looking for honest work.

A popular US editorial cartoonist, Lisa Benson, more aptly describes the real emergency:

[R.D. Silverman]

Originally Posted by ewmayer

Big news of the past 24 hours is a multibillion-dollar settlement by BofA of a mortgage-securitization-fraud suit by some big-name investment funds:

<snip>

http://www.huffingtonpost.com/2011/0..._n_887717.html