21:14, 6/18/12

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I have spent the day in a search for hope.
The former Greek governments painted Greece into a financial corner.
The escape is to pay the price of default and a new currency.


http://www.nytimes.com/2012/06/19/world/europe/samaras-begins-effort-to-form-a-government-in-greece.html?ref=world

Just happy talk.  Growth and austerity are polar opposites.

http://www.bloomberg.com/news/2012-06-17/greece-races-as-cash-dwindles-with-europe-seeking-return-to-cuts.html

Greece’s two traditional political rivals are in a race to forge a coalition as the state’s cash dwindles, bank deposits flee and Europe demands renewed austerity pledges before releasing more emergency aid. The euro erased an initial advance, stocks fell and borrowing costs in Spain and Italy surged on concern an election win by Greece’s biggest pro-bailout party would provide only a brief respite from Europe’s financial crisis.
Greece will run out of money in mid-July, the Syriza party, which placed second in yesterday’s election, said on June 13 after being briefed by Acting Finance Minister Giorgios Zanias. Caretaker Labor and Social Security Minister Antonis Roupakiotis refused to offer assurances pensions will be paid in August, Athens News Agency reported the same day.
“There’s no time to lose or leeway for small party games,” Antonis Samaras, leader of New Democracy, said in Athens yesterday after placing first in a rerun vote that leaves him needing the support of third-place Pasok party to rule. “The country must be governed.”
The political limbo of a two-month campaign season threaten to cut off the quarterly disbursement of euro-area and International Monetary Fund loans that have kept the country afloat since 2010. Greece, in its fifth year of recession, would face having to abandon the 17-nation euro and reintroduce the drachma were the flow of rescue funds to stop.
Political leaders in Europe insist Greece enact spending cuts promised in return for 240 billion euros ($305 billion) in rescue packages since 2010 while holding out the possibility of granting extra time to meet targets for narrowing the budget deficit.

‘Stand by Greece’

“We will continue to stand by Greece,” European Union President Herman Van Rompuy said in a statement following the vote. The Group of Seven industrialized nations said in a statement that it’s in “all our interests for Greece to remain in the euro area while respecting its commitments.”
After an inconclusive May 6 election that led to the June 17 rerun, European and IMF budget experts canceled a mission to review Greece’s eligibility for the next aid installment and now intend to carry out the assessment around the end of June. That plan assumes a new Greek government is in place by then.
“There’s not even a day to lose,” said Evangelos Venizelos, leader of the Socialist Pasok party.
The euro erased an advance of as much as 0.9 percent and was trading at $1.2648 at 10:30 a.m. in London. The Euro Stoxx 50 fell 0.1 percent and Spain’s 10-year bond yield climbed to a euro-era high.

Coalition Majority

New Democracy won 129 seats in the 300-seat parliament, according to Interior Ministry projections with 99 percent of the vote counted. Pasok, which has alternated in power with New Democracy over the past four decades, won 33 seats, enough for the two of them to forge a coalition that backs the creditors’ austerity demands.
Syriza matched its second-place ranking of last month by stepping up demands to abandon the fiscal-tightening program.
Alexis Tsipras, the head of eight-year-old Syriza, had vowed to keep Greece in the euro while winning concessions on the rescue terms from European leaders including German Chancellor Angela Merkel. He said New Democracy and Pasok, which united last year to back further fiscal tightening by a caretaker government, had “lowered the Greek flag and surrendered it to Angela Merkel.”

Syriza Opposition

Tsipras signaled yesterday that Syriza won’t join a government with New Democracy and Pasok, saying his faction “will be present in all developments as the main voice of the anti-bailout vote in Greece.”
Euro-area finance ministers said Greece’s economic recovery requires “continued fiscal and structural reforms.” In a statement yesterday, the European ministers urged the “swift formation of a new Greek government that will take ownership of the adjustment program.”
Greece must pursue budget cuts with “determination” to win the release of further aid, the European Commission said on May 30. The country faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the commission, the 27-nation EU’s executive arm.
A lack of progress in bolstering tax collection, improving public procurement and selling state-owned assets has left Greece struggling to meet targets for narrowing a budget deficit that in 2009 was more than five times the EU limit.

Rescuer Demands

European and IMF demands for an economic overhaul underpin an initial 110 billion-euro rescue in May 2010 and a second 130 billion-euro loan package that, along with the world’s biggest writedown of privately held debt, followed this year. The latest package is due to last through 2014.
The Greek budget-policy shortcomings have increased skepticism in euro nations such as Germany, the Netherlands and Finland about offering aid, while the worst recession in Greece during peacetime has made domestic voters critical of the fiscal-austerity demands. Syriza’s electoral success last month sparked concerns across Europe about a possible Greek exit from the euro area.
Greek deposit outflows accelerated before the June 17 election, two bankers familiar with the situation said, on concern the nation may move closer to abandoning the euro. Daily withdrawals had increased to as much as 500 million euros this month, one banker said, asking not to be identified because the figures aren’t public.

Budget Deficit

Greece narrowed its deficit from more than 15 percent of GDP in 2009 to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year.
With Greece’s financial troubles still festering more than two years after sparking Europe’s debt crisis, Italy at risk of joining the Greek, Irish, Portuguese and Spanish governments in seeking emergency aid and European leaders split over deeper fiscal integration, the onus to calm any renewed volatility on financial markets may fall on central banks.
Central banks “are the only actors who can react swiftly,” Joachim Fels, chief economist at Morgan Stanley (MS) in London, said in a June 17 report.
To contact the reporter on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net"

Take heed.  Abrogating Maastricht will not be easy.

http://brucekrasting.blogspot.com/2012/06/another-surprising-conversation-with.html

"Monday, June 18, 2012

Another Surprising Conversation With "Athens"

I wrote about a conversation I had with a Greeks shipper living in Athens on May 15. In that article I conveyed the thoughts of my friend who was convinced that the June 17 Greek elections would produce a different result than the May 26 effort to form a government. At the time he said:

When the next election comes, Greeks will not vote in anger and they will not vote for the idiots on the fringes. The centrist parties will rebound. A National Salvation Government will be formed.

He was proven correct and I called him this morning to get his thoughts. It went like this:

BK: 
Good call on the election. What happens next?

Athens:
New Democracy (ND) and PASOK (P) will form a new government. Of significance is that another socialist party, The Democratic Left (DL), will join in with ND & P. This makes the coalition more credible as Fotis Kourelis runs DL. Fotis is well liked and respected in Greece. Syriza and the Communist parties will form the opposition. I have no idea what the far right parties will do.

BK:
Can this work?

Athens:
For a time, maybe. The DL party is in favor of rewriting the deal reached with Germany. I think that talk of this will happen in the coming days.

BK:
Are you pleased with the voting results?

Athens:
It's not possible to be pleased with anything that happens in Greece these days. I have taken my family to London for a few months. We will go the Olympics and try not to think about life in Athens. I fear that social unrest is going to spring up again. This is the real reason I took my family out of the country.

BK:
That is a shocking statement. What will bring back the demonstrations?

Athens:
The country is flat broke. In a few weeks the government will not be able to pay workers. When this happens, the strikes will resume.

BK:
What are the chances of another bailout package from Brussels?

Athens:
Screw Brussels. The decision on more aid for Greece comes from Berlin. I think the Germans will say, “No.”

BK:
So you think that Greece will be forced out of the Euro?

Athens:
Yes, this is a possibility. Greece is not competitive at all. It is 40% less competitive than even Spain. So ultimately some form of devaluation must happen.


BK:
What’s your sense of timing for Grexit?

Athens:
Where will the money come from that Greece needs to stay alive? I tell you again that it must come from Germany. We may hear that Germany is willing to renegotiate parts of the bailout, but significant new money from Germany is not in the cards. There will be another crisis in less than three-months.

BK:
If Greece goes, does Spain follow? What about Italy?

Athens:
If Greece leaves the Euro there will be tremendous hardships for all of the countries involved. Spain would be very hard hit, Italy as well. The economies and commercial banks of the southern European countries would implode. The costs would be staggering. These facts are understood, so I think they will not let the Euro collapse.

BK:
But what is Plan B?

Athens:
Simple. Germany will leave the Euro. It will reestablish the old Deutche Mark (DM). The Euro, without Germany in it, would fall against all currencies. The necessary adjustments to restore competitiveness will have been achieved. The DM will be very strong against the Euro. This will hurt Germany, but not for long. In the end this is the only solution that I can see.

BK:
What about France?

Athens:
The most important election this weekend for Europe was not in Greece. It was in France. The election results were very clear. France is going in a very different direction than Germany. The cooperation between France and Germany over the past few years is finished.

BK:
Wow! So what do you do? Do you sell the Euro and buy dollars?


Athens:
I already own dollars. I don’t like them either. Recently I have been converting Euro holdings into German corporate paper that pays in DM if the Euro is no longer the official currency of Germany.

++

Notes:

The idea that it is Germany that will leave the Euro is not new, but I have always considered it to be far fetched. Not any longer. This fellow has been spot on regarding developments in Greece. He is well connected in Germany. That he is putting money on the table to back up his views is important to me.

The EUR rate against the major crosses this morning does not reflect the views of my friend. The current EURUSD 1.2570 rate reflects the market thinking that there is no immediate crisis. It certainly is not a price that contemplates a Euro without Germany. Should  “Athens” thinking on the outcome gain some traction, then the Euro is headed much lower.

The Bonds that have DM protection clauses are new to me. The following link is to a prospective of the securities issued by VW on June 12, 2012.  (Link - PDF)

The language regarding “Successor Currency” is here:

References herein to a "Specified Currency" shall include any successor currency provided for by the laws in force in the jurisdiction where the Specified Currency is issued or pursuant to intergovernmental agreement or treaty (a "Successor Currency") to the extent that payment in the predecessor currency is no longer a legal means of payment by the Issuer on the Notes.

A number of “DM protected” bonds have been issued in the last month. If someone has a full list, I would appreciate it. The timing of this issuance is interesting. I understand the bonds were lapped up by the market.

I’m tempted to short the EURUSD on this information. But FX markets are not at all predictable, and there is no assurance that things go in the way this article suggests. One thing that I am pretty sure of is that volatility in FX markets is going to take a very big leap.

Seat belts on. Impact imminent."

If Germany bails from the euro Scandinavia will go.

Effects of capital controls on Greece John Dizard, Financial Times
Pay wall.

Rescue Me Edward Hugh, Economonitor. A compelling, grim analysis on Spain. Bottom line: its bailout has only begun.
Not even that. 
Spain needs to clear the bad debt and replace the expended money.

http://www.telegraph.co.uk/finance/financialcrisis/

Spain pleads for ECB rescue as bond markets slam shut

 

Europe's leaders have vowed to mobilise all possible means to counter the region's escalating crisis after Spain's borrowing costs threatened to spiral out of control.

18 Jun 2012

| 1 Comment

Barroso: EU not at G20 to take lessons on economy

 

Europe did not come to the G20 summit to take lessons in "how to handle the economy," the president of the European Commission insisted on Monday, as the Continent's debt crisis dominated a tense first day at the Mexican resort of Los Cabos.

18 Jun 2012

| 13 Comments

Greek government will be forced to seek third bail-out

 

Greece is expected to ask for a third international bail-out agreement as soon as a government is formed, ramping up the pressure on Germany and Brussels to back the eurozone or break it.

18 Jun 2012

| 10 Comments
What happens if Angela Merkel does get her way Wolfgang Munchau, Financial Times. Wow, this is a ballsy piece. Munchau pretty much predicts a Spanish and Italian exit from the eurozone. 

I do not deal with the Financial Times.

This will be excerpted.

http://www.bbc.co.uk/blogs/adamcurtis/2012/06/how_to_kill_a_rational_peasant.html
Not shocking.  Insanity was the policy to deal with Marxism.

http://neweconomicperspectives.org/2012/06/mmp-blog-51-the-efficiency-fairy-and-inflation-goblins.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+neweconomicperspectives%2FyMfv+%28New+Economic+Perspectives%29
Reenacting old economic battles in different uniforms.

http://mattweidnerlaw.com/blog/2012/06/the-federal-government-throwing-families-into-the-street-to-make-billionaires-out-of-millionaires/

June 17th, 2012 | Author: Matthew D. Weidner, Esq.

“The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors — vulture funds.”
So warned Roger Arnold, chief economist for ALM Advisors of Pasadena, California, in a column for RealMoney on August 11, 2011, that first lifted the lid on this latest colossal scandal to come out of the 2008-2009 financial crisis.
“These homes,” wrote Arnold, “which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value. You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs (GS) and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.”
Warren Buffett, one of the richest men in the world, obviously, would have no trouble qualifying for the privilege of bidding in this fire sale for the super-rich. And the “Oracle of Omaha” appears to be more than casually interested in getting in on the game.
The Wall Street Journal reported on March 20, 2012: “Warren Buffett, considered a sage investor and chief executive of Berkshire Hathaway Inc., said in an interview with CNBC-TV last month that he would buy up ‘a couple hundred thousand’ single-family homes if he could do so easily, given the high yields on rental investments.”
FOR BILLIONIARES ONLY
And More Depth and background on the fusion of government and the businesses that own our government: (This forms part of the pretext for seizing properties from a private person and transferring them to government/corporate fused entities.)
An Enterprise’s failure to effectively manage its contractors’ implementation of basic REO responsibilities, i.e., securing, maintaining, repairing, and marketing properties, would place it at considerable financial risk. It could also endanger the stability of the communities in which the properties are located. For example, if a contractor fails to secure properties for which it is contractually responsible, then the properties may be broken into, looted, and used for illegal activities. Similarly, a contractor’s failure to maintain a property, e.g., remove debris, cut lawns, fix broken windows, etc., can reduce its value and detract from its marketability, as well as the marketability of near-by homes. The deteriorated condition of an REO property may cause it to remain on the market and in an Enterprise’s inventory for an extended period, thereby increasing the Enterprise’s total carrying costs. This, in turn, will reduce the Enterprise’s returns on the sale of such properties and, ultimately, increase the taxpayer costs associated with the conservatorships.
AND HERE’S A BIG TELL THAT DEMONSTRATES HOW WE’RE ALL GETTING HOSED HERE BY CONTRACTORS RIPPING US ALL OFF:
Finally, there is also the risk of considerable fraud and abuse associated with the failure to manage Enterprise REO contractors effectively. Under the best of circumstances it may be challenging for the Enterprises to verify that certain types of maintenance and repairs, such as interior painting and plumbing, are being completed in accordance with quality standards and within established timeframes for thousands of foreclosed properties across the nation. Therefore, it is important for the Enterprises to establish effective property inspection procedures and controls to prevent fraudulent contractor reimbursements.
FHFA REPORT
FANNIE MAE SERVICING GUIDELINES
On September 6, 2008, well over three years ago, FHFA exercised that authority, placing the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises) into conservatorships. FHFA has since overseen the largest, most complex conservatorships in history.
Two years ago, FHFA sent Congress a letter setting forth the agency’s understanding of its conservatorship obligations and how it planned to fulfill those obligations. It is time to update and extend that plan in view of the status of the Enterprises and the country’s housing system today.
The two companies have received more than $180 billion in taxpayer support. The benefit to the country from maintaining their operations has been to ensure the secondary mortgage market continues to function. During this time, the Enterprises have completed more than 2 million foreclosure prevention actions, including more than 1 million loan modifications and they have refinanced more than 10 million mortgages. Together they are guaranteeing roughly $100 billion per month in new mortgage production, representing about 3 of every 4 mortgages being originated. But the Enterprises’ ongoing operations are entirely dependent on taxpayer support provided through the Senior Preferred Stock Purchase Agreements with the U.S. Department of the Treasury.
FANNIE POLICY

http://www.ritholtz.com/blog/2012/06/fascinating-mortgage-housing-data-points/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

My Washington Post column got rolled over until next week (caused by a few snafus on my side and theirs). There are some fascinating details within the column, and since it won’t be published for a few days, I wanted to share them with you. Here is an early look:

Foreclosure Details
-There have been an average of 1.6 million nationwide foreclosure starts per year for the past five years.
-Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.
-Bank repossessions are still down 18% year over year. Voluntary foreclosure freezes and increasing pre-foreclosure sales are the primary factors.
-Distressed home sales, which include both foreclosures and short sales, had fallen substantially. They were down to 28% for April 2012 – significantly less than the 37% in April 2011.
-Distressed sales tend to be about 20% less than non-distressed sales.

With that as a background, I spoke with ace housing analyst Laurie Goodman of Amherst Securities. Goodman dazzled me with several astonishing statistics.
Let’s briefly look at two of these:

1) 2.8 million Americans are 12 months or more behind on their mortgages.

This truly amazing data point represents a very sad fact of the housing market. Once a homeowner falls that far behind in their mortgage, the odds are that they will never catch up. (Mortgage mods are likely to fail at an exceedingly high rate as well). Nearly all of these 2.8 million homes are likely to be some sort of distressed sale — short sale, auction, walkaway or foreclosure.
The bottom line is it means we are looking at a minimum of another 3 million homes going into foreclosure (or some variant) over the next few years.
Beyond the coming wave of foreclosures, credit availability is another factor holding housing activity down:

2) “Since 2007, 19% of all borrowers (~9 million borrowers) have gone >90 days delinquent on their mortgages, or have had their mortgage liquidated.

In other words, one in five people who held or qualified for a mortgage not too long ago would not today. The 90 days delinquency on their credit reports prevents them from qualifying for a new mortgage.
This is a very significant data point to the idea of a housing turnaround. Why? Based on this delinquency alone, nearly all of these borrowers — about 9 million current homeowners — would be unable to qualify for bank loan today. That is 9 million potential home buyers who are effectively barred from the market due to their credit scores. Removing that many people as potential home buyers amounts to a a huge reduction in demand.
Its not a surprise that Goodman is not expecting a quick housing recovery. She notes an “L” shaped recovery is the most likely outcome. In hr opinion, Home prices have 3-5% more price downside. The, and are likely to stay flat for another 3-5 years to come.

.