What The End Of The Game Looks Like
Readers suggested a topic on housing bubble fallout. “So, what inning is it? Per MSNBC, it is the half-way point of the foreclosure boom, which will go on for four more years.”
A reply, “You can’t know what inning it is unless you define when the game started and what the end of the game looks like.”
To which was was said. “A simple chartists view shows on big leg down and a stall/weak rise in response. Poised for second leg down. I believe there will be a series of stair-steps. Describe the end of the game? LOL.”
Another said, “The word from economists is that housing won’t bottom out until 2015. Not recovery, bottoming out. This is part of an excellent (as always) story on PBS Tuesday about the Fannie and Freddie bonuses. Fannie and Freddie control the market because banks aren’t securitizing anything on their own. Housing won’t bottom until 2015. Fannie and Freddie are being blamed for everything, but they can’t do much for another year.”
“And yet, there they are with the ‘modifications’ again, with no details on what they will modify to.”
One had this, “Did the article mention longstanding plans to disconnect the zombie GSEs’ feeding tubes?”
One looked at Europe, “I believe it is the top of the third inning. The Greek default (that cannot be called a default) is the first line drive.”
And finally, “Don’t call it a default — it’s just a haircut. Is this euro breakup by Thanksgiving scenario unduly pessimistic, or am I just an eternal optimist?”
From NASDAQ.com. “Think Tank Exclusive Analysis just released a grim set of predictions in which they believe there is a 65% chance of a banking crisis between November 23-26 that involves a Greek default and Euro exit, as well as a run on the Italian banking system. Under their most likely outcome (via CNBC), the governments of Greece and Portugal will both soon collapse because of inability to handle the debt crisis. Germany will become opposed to handing out more funds to the EFSF and parliament will actually reduce the money available to the fund.”
“As a result, China and the other BRICs will signal that they won’t support the bailout fund. The US and the UK will refuse to provide funding via the IMF. The EFSF will then turn to the ECB to print the necessary bailout money, which they’ll refuse to do. This failure will cause European banks to refuse the 50% haircut on Greek debt. The IMF and ECB will suspend payments to Greece.”
“Depositors in Spain and Italy will create bank runs in fear of banking crises in their own countries, causing ‘a collapse of the interbank credit market as banks know that most of their counterparts are at risk.’ At which point Greece defaults.”
From Foreign Affairs. “For Europe, it turns out that November is the cruelest month: The debt crisis will claim at least three eurozone governments before it is over. Yet, unlike in Greece and in Italy, the political crisis upending Spain is toppling the government in slow motion. Facing dwindling public support, an unemployment rate of more than 20 percent, and the increasing cost of Spanish debt, the country’s Socialist Prime Minister José Luis Rodríguez Zapatero threw in the towel last July and called for early elections to be held on November 20, four months ahead of schedule.”
“This is a so-called punishment vote against the ruling PSOE for presiding over Spain’s decade-long boom and, now, its bust. Those punished, however, will actually be the Spanish people and, more so, the rest of the eurozone. Due to huge private debt, a less than fully deflated real estate bubble, and astonishingly high unemployment, Spain’s financial crisis is as bad, if not worse, than Italy’s. So despite the PP’s good intentions, implementing severe austerity measures in the name of ‘fiscal responsibility’ and ‘restoring market confidence’ — as Germany, the European Central Bank (ECB), and global investors are urging — would sink the Spanish economy and push Europe’s experiment with a common currency closer to its end.”
“The problem, however, is not public debt. The problem is Spain’s private debt. Years of historically low interest rates allowed individuals and corporations to borrow too much and invest it poorly. The average level of Spanish household debt tripled in less than a decade. Corporate borrowing has soared as well. Its private debt is close to 200 percent of GDP, whereas Italy’s and Greece’s are around 110 percent. According to a 2010 report from the McKinsey Global Institute, among the 20 most developed countries in the world, Spain has the third-highest level of total debt (government, business, and household), after Japan and the United Kingdom. In total, Spain’s debt-to-GDP ratio is 366 percent.”
“Where exactly did all that money go? Much of the money was ill spent on construction and real estate. Spain’s property bubble has become almost as famous as its sunny beaches. According to the Spanish Ministry of Housing, the country saw real estate prices rise 201 percent from 1985 to 2007, with the vast majority of those gains occurring in the last decade. At the beginning of 2008, the construction industry represented 16 percent of GDP and 12 percent of employment.”
“The building craze and ensuing housing bubble pushed home ownership above 80 percent; it has left more than $820 billion in mortgages outstanding. Real estate prices in Madrid and other major cities still remain high: On average, prices have dropped 18 percent since 2007, compared to 40 percent in Ireland and 32 percent in the United States. Defaults on construction loans and mortgages are likely to rise as prices continue to fall. Oversupply is almost guaranteed for years to come, with approximately one million vacant properties (30 percent of the housing supply) spread out across the country.”
“More than 90 percent of all Spanish mortgages have variable-interest rates and are pegged to the one-year Euribor money-market rate, which has been on the rise this year. But unlike in the United States, laws in Spain prevent mortgage holders from walking away from their homes if they hold other assets. In Spain, the deleveraging process has only just begun.”
“A European bailout of the Spanish economy is an impossibility. Spain’s debt is simply too big, especially given the ECB’s other obligations, not to mention its unwillingness so far to step in even as a lender of last resort. Nor can Spain’s current private-debt problem be solved by any rescue package from the outside. In fact, it is arguably more difficult to save individual mortgage holders and corporate borrowers than it is to rescue a single government.”
“In the end, Spain’s massive total debt will have to be either written down or inflated away. Investors, both foreign and domestic, are loathe to do the former, and the German government will do everything it can to prevent the latter. Within the confines of Europe’s current monetary system, someone has to lose. In this context of conflicting interests, resurgent national chauvinism will eventually win out. But that means the only endgame is the end of the euro.”
‘Spain has the third-highest level of total debt (government, business, and household), after Japan and the United Kingdom. In total, Spain’s debt-to-GDP ratio is 366 percent.’
Here we have Spain and the UK, with recent manias, and Japan with decades old manias, highlighting the consequences of post-bubble policy. What our governments are doing right now will affect the rest of our lives.
‘More than 90 percent of all Spanish mortgages have variable-interest rates and are pegged to the one-year Euribor money-market rate, which has been on the rise this year.’
One often hears about interest rates being manipulated to stay low for this reason or that. Sounds harmless doesn’t it? But distorting economic factors like the price of money can create huge mal-investments. Then these bad bets have to be dealt with.
‘Possible solutions to the housing blockage range from the radical to the necessary. A group called Remortgage America is calling for the government to loan Americans mortgages at 1 percent to finance a new or existing residence. Others would like to see Fannie Mae and Freddie Mac take the foreclosed homes they own and either auction them off or offer them in a huge fire sale.’
‘The seized mortgage agencies account for up to one-third of foreclosed homes — about 250,000. American taxpayers are pouring tens of billions into propping up these two wards of the state, which were taken over by the U.S. Treasury in late 2008. The Obama Administration has yet to announce what it wants to do with the companies. Will they be restructured, liquidated or privatized? A third option, which may have the least impact on a battered market, is to offer foreclosed homes in rent-to-own deals.’
‘It’s estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year. As regulators, banks, mortgage companies and state attorneys general move sheepishly to unblock mortgage modifications, refinancings and resales, only one certainty prevails: The open market will not be able to properly price every property until all government restrictions are lifted on their sales and re-financing.’
This is how things are framed:
‘from the radical to the necessary’
Radical and necessary. Here Reuters is basically telling you what to think. What will seem radical or necessary if we’ve been in a depression for 20 years like Japan?
‘A third option, which may have the least impact on a battered market’
The press likes things like ‘least impact’. It sounds so nice and simple. IMO, the steps we take now will have a major impact on the economy, no matter which we chose. So please stop sugar coating the choices here media.
How ugly could this get?
Let’s look at Europe again; three govts have been toppled in debt crisis. And then the unelected EU puts unelected bankers in charge. I’d say that’s pretty ugly.
See the govts and corporate media would like to set this up like they are innocent bystanders, who are now here to help, if we just give them more power.
It’s been said repeatedly that the bubbles were encouraged (or ignored) by the PTB because the fake wealth effect masked underlying flaws in the economies. IMO, one of these flaws was globalism. And the EU is the crown jewel in the globalist crown. The break up of these flaws is inevitable, and in the long run good for the people of these countries. But even now, the ‘technocrats’ (code for unelected corporate elitists and their political toadies) in Europe are trying to use this ‘crisis’ to further strengthen their control.
Sounds messed up, right? How about when the Federal Reserve was given MORE power in recent years? With all the criminal behaviour, look at the lack of prosecutions, even with both Democrats and Republicans in power! Hell, we not only don’t put anyone in jail, we give them hundreds of billion$!
IMO, kicking over this sh@t cart is long over due.
“Let’s look at Europe again; three govts have been toppled in debt crisis. And then the unelected EU puts unelected bankers in charge. I’d say that’s pretty ugly… Sounds messed up, right? How about when the Federal Reserve was given MORE power in recent years? With all the criminal behaviour, look at the lack of prosecutions, even with both Democrats and Republicans in power! Hell, we not only don’t put anyone in jail, we give them hundreds of billion$!”
This is what sickens me most about the situation. The very people responsible for driving the economy into the ditch have been put in charge of extricating it. They should be in jail, but instead have been given even more authority, leeway, and money. It’s despicable.
“They should be in jail, but instead have been given even more authority, leeway, and money. It’s despicable.”
I think the answer Mr. Jones gave…
“IMO, kicking over this sh@t cart is long over due.”
Is what is in the process of happening. I am just starting to wonder how this is all going to play out and what kicking over this sh@t cart will look like. World wide riots? Shortages? Does everybody stop paying everything? I don`t know but these sure are interesting times.
I prefer the phrase “unfair trade” over “globalism.” Nothing wrong with free trade as long as there is parity in tariffs. For too many decades, the U.S. refused to counteract the tariffs other nations put on our exports. For example, Japan protects its farmers by forcing high duties on American produce.
The real villain in this world economic crisis is the printing press. For decades up until perhaps five years ago it was easy to bail out socialist blunders by other nations doing the bailouts. Now all the socialist European economies (western Europe) ran out of people to ask for bailouts. The world is running out of “other people” so the world is running out of other people’s money. Socialism is on its deathbed. It will take a decade or more of austerity to get people used to being responsible for their own retirement, thoughts, and actions. Worldwide, we will see the beginning of libertarianism, not because the world wants it, but because it has to have it.
I use the word globalism because IMO it more accurately describes what these people are after. At it’s root globalism is pursuing one world government. They’ve just used trade agreements/currency consolidation to push the agenda. The destruction of the nation state is what they work towards. All of this has been published in their own magazines for decades.
If their multinational corporations make a few trillion along the way, all the better for them.
At it’s root globalism is pursuing one world government.
Globalism = dictatorship of the proletariat by the 1% financial elite
Yes, and now you begin to see the world “envisioned” by Karl Marx. Or, at least all his Fellow Kinsmen in the money world.
The FED is a tool of the socialist/fascist development process.
The government can make massive wealth transfers via money printing and very few people see they are being robbed. Even the OWS gang doesn’t understand what is going on, they just realize they’ve been screwed. But they need to be Marching on the Whitehouse, not Wall street. Wall street would have gotten their comeuppance with the collapse of the Banking houses had not the FED and the CONgress taken the advice of Goldman Sachs and their minions. As i recently heard in an interview, Capitalism without failure and bankruptcy is like Christianity without Hell. A good analogy.
People who gamble deserve to profit if they win. They deserve to LOSE when they are on the wrong side of the bet.
Instead, the US taxpayer has been put on the hook for all the bad bets. The same in Europe. The Greeks and Italians want the Germans to pay for their decade long party, and continue to pay. Since the North won the war here in 1865, the rest of the States can’t back away from DEBTS made by Socialist dreams of the Federalist Government.
Let’s see if Germany can “secede” from the “Union”? Good luck.
As an aside, though, note where is our “leadership”? Remember that “CHANGE HAS COME TO AMERIKA”. Ha. ha. ha.
All Obama does is point his finger at Congress and everyone else and says they are not doing their job.
What is his job? Travelling around the world on our money and saying everyone else is to blame? His proposed budgets were rejected by 100% of the Congress. Since then he just sits back and lambasts the active participants in the government for their “failure to act”.
The “press” goes along with this scam. He is, after all, their annointed leader for the Money-Changers take-over of this Country and the World. His only goal is looking good for a re-election bid. You see Michelle hiding behind the “military support” B.S. and trying to align herself as “mainstream” by attending a NASCAR event. What a scam! I am glad the fans saw it for what it was….a political ploy.
ALL Hail Goldman Sachs!
November 18, 2011
Far Right Poised to Take Advantage of Eurozone Crisis
Lisa Bryant | Paris
The eurozone crisis is feeding far-right, nationalist parties in Europe which have long criticized the single European currency - and the broader idea of a “European project” of closer economic and political unity. But will that translate into more votes?
Far right presidential candidate Marine Le Pen has long been calling for France to get out of the euro currency union.
And as the eurozone crisis grows and the French economy shrinks, Le Pen’s message at rallies of her National Front party appears to be gaining new resonance among mainstream voters. A pair of recent surveys finds nearly one in five supports her. Many of those polled expressed concern about the eurozone turmoil.
Less than six months from French presidential elections, Le Pen’s anti-European Union message is also getting plenty of media attention - like during this interview a few days ago on French public television.
Le Pen says she believes the euro’s demise is inevitable. France should get out of the eurozone now to escape the consequences.
Thomas Klau heads the Paris office of the European Council on Foreign Relations.
“The eurozone crisis and the fact that eurozone governments have not been so far able to bring it under control gives Marine Le Pen a fantastic opportunity to attack the disfunctionality of the eurozone’s existing leadership, but also as she would say the disfunctionality of the eurozone - and the EU as a whole,” said Klau.
…
‘The eurozone crisis is feeding far-right, nationalist parties in Europe’
This guy has been warning about this all along:
http://www.youtube.com/watch?v=b7VVea-174I&feature=related
‘parties…which have long criticized the single European currency - and the broader idea of a ‘European project’ of closer economic and political unity’
Out comes the spin. Anybody against the single currency is ‘far right’. They gloss over things like when the Greek PM suggested the austerity measures be put to a vote, he was gone in days, replaced by an unelected banker/technocrat. What do you call that? Left, right, crazy? You have to hand it to them, they are good at the problem-reaction-solution thing.
I’ve seen a video on “AtheistLibertarian” web site of a Swiss guy who just recently established a new political party in Europe against the Muslim infiltration of European culture. I have mixed feelings on this, since I had a Muslim (Muslim-lite, like Bud Lite) girlfriend who would not hurt a fly. She was the sweetest woman I ever met.
So is it the new xenophobia or is it frustration that the European white culture is of declining births while the Middle Eastern non-jewish culture is still experiencing a high birth rate?
Hard to say. But we white people have a lot of dirty laundry. Drunken family men who abuse kids, for example. Toothless aging hippies who morphed from young “kewl” 60s leftists to scraggly Wal-Mart shoppers and have delayed stress syndrome from their drug experiments of the 60s/70s. That type of thing.
I am not saying modern Muslim culture is better than ours. But there was a period where they had their age of reason while the white culture was in the dark ages.
The final puzzle is why a culture based on reason can go retrograde for several hundred years?
Tampax,
Follow the money.
“Swiss guy who just recently established a new political party in Europe against the Muslim infiltration of European culture.”
Recall that this was Anders Behring Breivik’s motivation.
There are 2 outcomes:
1. 1000 years from now there are some small alligators around
2. 1000 years from there is a small group of survivors that resemble Tiger Woods
Reynold’s wrap alert!
The One World Plan, imo, is to eventually convert Fiat debt into hard assets via sovereignty dilution/elimination. If you care to look you can see Trojan horses all around. And I’m not talking about a USC football game.
The only way I can see out of this mess via the normal channel is to vote in somebody who will pound a silver stake into the heart of the Fed. You know who.
I don’t think I need to spell out the alternative remedy to the normal channel. Not good. But I have zero desire to perpetuate this POS onto my descendants.
To do nothing will lead to a life of servitude to your Fiat master.
How ugly could this get?
Judging by some of the nasty pieces of work the globalist oligarchs are installing, ugly indeed.
http://www.nakedcapitalism.com/2011/11/mark-ames-austerity-fascism-in-greece-%e2%80%93-the-real-1-doctrine.html
re: “plans to disconnect the zombie GSEs’ feeding tubes?”
Can anyone explain how this 10%/year divestiture would work? Are the mortgages to be repackaged into new bonds or re-insurers?
Is it simply a 10% per year reduction on new loan guarantees until attrition?
I haven’t heard anything that even hints at phasing out the Fannie/Freddie backstop on existing bonds. They would have to pay someone a pretty penny to take that responsibility over. Never happen. I think the phase out must refer only to purchase and packaging of new loans. Exactly how the phase out would work would have to be defined. I sincerely doubt they could do it on a straight line 10% drop of max loan amount purchased per year. Matter of fact, trying to keep the phase out “fair” across the country could kill this even if a majority of the House and Senate did want it. No one would want their district/state to be unevenly impacted by having their loans go ineligible first.
Like a lot of things, it’ll probably happen when the congress is forced to do it.
I read in the Economist that Berlusconi tried to back off austerity as soon as Italian bond yields dropped.
The current system keeps politicians in power and it keeps their big contributors wealthy. They will not voluntarily change it until they are dragged to it, kicking and screaming, and then only to try and keep their jobs, when it becomes the lesser of two evils.
It’s never going to end until us/we/everyone realize a polling booth is merely a cheap counterfeit and ineffective substitute to unrepentant, glaring, unapologetic, unconventional public rejection of the Crime Syndicate. It’s going to take some risk. Just a little, by each and everyone one of us. They’ve got everyone afraid. Scared.
They work to keep us afraid, then use that fear to keep us compliant. We’ve nothing to lose but our chains.
Better watch out- they’ll shut your blog down!! OoooooooohhhhhhhhH!
We should probably be keeping an eye on this SOPA bill which I believe is being debated now in Congress. Looks like they could possibly use copyright infringement as a way of blocking websites. Youtube and Twitter are the websites they’re currently framing as the issue. But I’ve heard a reference to the bloggers on some discussions. Looks like in the end, a written attribution of the source may no longer be enough. Gee I wonder who’s going to have ownership rights of all this intellectual property. Probably not even the person who originally said it but his multinational employer.
Supporters of a controversial copyright protection bill recently introduced in the U.S. House of Representatives are firing back after several digital rights groups have suggested the legislation could lead to law enforcement officials targeting sites like YouTube and Twitter.
The Stop Online Piracy Act (SOPA), introduced Oct. 26, would allow U.S. law enforcement officials to shut down websites alleged to enable or facilitate copyright infringement, leading some critics to say the bill would amount to government censorship of the Internet.
On Friday, the Directors Guild of America, a supporter of SOPA, distributed copies of letters exchanged between SOPA co-sponsor Representative Howard Berman, a California Democrat, and U.S. Secretary of State Hillary Clinton. Berman, in a Sept. 8 letter, asked Clinton if the State Department’s focus on pushing Internet freedoms worldwide is consistent with a policy of protecting intellectual property (IP) rights.
http://itgovernment.computerworld.com/e-commerce/38840/debate-new-copyright-enforcement-bill-heats
IEEE (Institute of Electrical and Electronics Engineers) article on stopping SOPA:
Copyright law is back in the news. Back in May, the U.S. Senate’s Judiciary Committee approved a bill that would give the Department of Justice sweeping powers to go after not just alleged copyright infringers on the Internet but the infrastructure of the Internet itself. The government would be able to get court orders that would force search engines and other Internet service providers to shut down websites or disconnect them from the Internet even before the infringement was proved.
http://spectrum.ieee.org/podcast/at-work/innovation/stopping-sopa
Carrie:
I am in favor of this if they equally sue black people….Just like the RIAA its only whites they are after. Just look into it… as a dj its always been obvious to me.
The Stop Online Piracy Act (SOPA), introduced Oct. 26, would allow U.S. law enforcement officials to shut down websites alleged to enable or facilitate copyright infringement
You may recall that the Black attorney general refused to prosecute Black panthers who had violated the civil rights of white folks. The “people” put a black man in the white house and the entire executive branch is working to promote black folks…….it’s been going on a long time.
expect a double standard in enforcement. I see it everyday at ALL levels of government.
The local cops will seldom arrest Mexicans here for infringements that would get me thrown in jail. they turn a blind eye.
Over at least one dead body, Griz….
Better watch out- they’ll shut your blog down!! OoooooooohhhhhhhhH!
After the obligatory shot of pepper spray to the face.
“They work to keep us afraid”
I heard that somewhere yesterday. Who ever said it was talking about different viruses or whatever to keep people from paying attention to what gov. and banks were doing.
Our unswerving faith in the economic safety net is so strong that most of the population can see little reason to save even a couple of months expenses. Compliant? Absolutely.
Small contributions. Anything. Shutdown pandering conversations, directly confront those who excuse the status quo, encourage others to speak out, stop discussing personalities(left/right political crap), abandon your petty politically driven issues(try it. It works), befriend a ____(t-partier, OWS) at work/church/school, passive intimidation of a known apologist(women can do this too).
Debating and discussing purity tests, ideological points and personalities is a intentional diversionary tactic. Don’t be sucked into it.
“Debating and discussing purity tests, ideological points and personalities is a intentional diversionary tactic. Don’t be sucked into it.”
I recently heard someone else say that too.
Yesterday I was watching video online where an OWS guy said they weren’t gonna fall for the two party dictatorship. Best news I’ve heard in a long time.
Carrie Anne scolded me yesterday for blaming voters for the two-party system - as if the voters didn’t have the option of opting out of Wall Street’s Republicrat puppet show.
Today I think I’ll blame the trees waving for making the wind blow.
Spot on, Ex.
I’ve had my BS exterminator flame thrower set on high for some years now. Not confrontational but factual.
And somewhat persuasive to an open mind.
Lately my mind has been so open you’d think my brains fell out but I’ve come to my own personal conclusion that:
1) the spending is unsustainable.
2) Elections and parties are a farce
3) The US Congress is *completely* bought and paid for by interests that are completely opposed to mine.
4) The federal reserve is the FatherShip of the global banking crime syndicate.
I don’t want to pay anymore. I pay taxes to a system that doesn’t represent me or my beliefs. I pay the same amount to SS and medicare as Bill Gates, Warren Buffet and now there is a real chance that it’s not going to be there for me. Fine. I keep all future earnings. They can keep what the stole. Not a bad deal for a thief right?
Do you hear that? I opt out. Let SS flatline. It’s over. Did you hear me?
My fed taxes are used to pay the corrupt US Congress salaries, corrupt military industrial complex, corrupt housing finance system, etc. Congress doesn’t represent me, I’ve never believed in organized offensive violence(war), and I’d still have to spend at least 40% of my small life savings to buy a SFR.
I just cut a check for $7,000 for property taxes on a house I don’t even own. For what? I have my own well, septic, no street lights, limited police coverage and a volunteer fire department.
I’m getting robbed in broad daylight from all directions and what am I getting? I’ve already conceded to the fact that when my layoff occurs in the next 12-24 months, I’ll join the ranks of the chronically underemployed and there will be no “retirement” for me. Fine. I’ve come to accept the fact that I will work until I drop. You all might better accept that fact too but hope for something better.
Do I sound like a “liberal” to you? Do I sound like a “conservative”? How about wiping your @ss with the media driven labels and accept that I’ve had enough of the false promises of corrupt elected office holders, the treasury robbing biggest of big business, and the truly evil global banking crime syndicate.
If I’m going to sacrifice, it’s going to be for something I believe in. I’m done voluntarily sacrificing and contributing money for a system that once represented a dumb grunt like me but no longer does.
I do believe your analysis has changed in the last four years, a lot. The puppet masters didn’t want this to happen. Ok with me though!
Talk to the utterly selfish self-entitled retired social security welfare crowd and you’ll have a catharsis too.
yeah they don’t give an inch, once they’re over the line into entitled status. You probably won’t either, when you get there.
Funny how the objectivity disappears.
Amazing post, RAL.
“I just cut a check for $7,000 for property taxes on a house I don’t even own.”
Help me understand this…
Good to see you finally woke up, exeter.
Agree… no logical explanation of such apparently insane voluntary contribution. Mescal?
Muggy…. we live in a house that’s part of the in-laws trust. We only pay the taxes and utilities.
PS-Piss off Bronco.
You are experiencing what I call the Housing Ownership concept: TAX BOX. A house is a tax box. And the government doesn’t see it as Your house. They often talk, when making plans for more “housing” as the City or Counties “housing inventory”. You are just part of their inventory.
Governments all around the Country use your ownership as a basis for robbing you of your hard work and taking the money to support themselves and their buddies/beneficiaries.
You pay tax. They give for “entitlements” and “benefits”.
Where are your benefits?
fuggidaboutit. Just pay the taxes. good boy.
“The corporate propagandists do a good job of managing the American people. As one of the more pre-eminent of the pigmen once privately told me: ‘Old people are the easiest to handle. You just scare them.’
Greed draws people in, and fear keeps them in line. Its a well-worn script. It is the basis for most ponzi schemes and financial frauds. It is the well-spring of a credibility trap.”
Jesse over at Jesse’s Cafe Americain
US Corporate Taxes as a Percentage of Corporate Profits
This fits my theory about the prevailing Zombie craze. Zombies are abject Fear wrapped within morbid flesh, and guess what?, you kill Fear by shooting ‘em in the head. So darn uncomplicated, unlike the real world.
Zombies represent the mindless majority. They cannot be reasoned with and are brutally unresponsive to any appeals to a sense of justice or righteousness - all they want is to “get what’s theirs.” They are the embodiment of the 95% of the American electorate that complains about the status quo, then turns around and votes for Republicrat creatures who will perpetuate the status quo.
well, not exactly. I voted for Ron Paul in the last primary. so, i did not have a choice in the main election but to pull a lever for who the majority decided would be the “candidates”.
But, Most always say they are going to do things differently. we expected the Republicans under Bush to hold the line in spending, get rid of the Dept of education, STOP the illegal alien invasion, not provide comprehensive forgiveness and a free lunch. When they FAILED miserably, holding Both the Congress and whitehouse, we booted them and got worse………..Nancy Pelosi and the Democrats who made the Republicans look like amateurs when sending the Republican president spending measures. And, Bush, a “conservative republican” joined hands with the opposition for the good of the Nation.
The last election, we had a LANDSLIDE to vote out the democrats and the Republicans got the House back with a no-nothing socialist for president.
So, we are always looking for “hope and change”, but there is just too much to be gained by feeding the political machine.
Notice yesterday the Congress was passing around the idea of raising taxes on people, and eliminating some deductions if you make 168,400 or more. If you a Congressman, your salary is 168,000. So, once again, congress exempted themselves. That’s called “shared sacrifice”.
“Did the article mention longstanding plans to disconnect the zombie GSEs’ feeding tubes?”
I think this is the money quote. I can’t see how we can reach a true bottom until the artificial supports are removed and the market is left to its unfettered period of price discovery. At least not if we plan to return to a market based economy.
If we plan to go the route of China with a permenent central planning structure, I suppose all bets are off. But even China’s PTB are releasing their grip w/their own housing monster and prices are falling.
“I think this is the money quote.”
Thank you.
You’re welcome.
And now for the pessimistic interpretation of the reinstatement of FHA conforming loan limit to $729,750: When the PTB finally get around to winding down the GSEs, the FHA will serve to replace them, except the FHA will serve an even worse purpose, as it will be run by Congressional decree.
November 15, 2011
Europeans Have Deep Doubts About Euro
As Europe grapples with its financial crisis, ambivalence is growing among many Europeans about the region’s common currency.
After choosing a common anthem - Beethoven’s “Ode to Joy” - the European Union introduced another symbol to draw its members closer - a common currency. Launched a decade ago, the euro is now used by 17 European nations, making banking and travel easier for many of their citizens.
Today, though, the euro is a symbol of division. Sovereign debt and banking problems that began in Greece have spread to other eurozone countries, sparking protests and bringing down several governments - most recently Italy’s.
Even in Brussels, the administrative heart of the European Union, citizens like George Missikos are thinking twice about the European currency.
Missikos believes life was cheaper before the euro. With the old Belgian franc, Belgians could spend and still have money in their pockets. Today, he said, they spend, and their pockets are empty.
In neighboring Netherlands, 49-year-old Amsterdam native Ans van Hilten has mixed feelings about the euro.
“It’s easy when you go on holidays - Spain, Germany - we pay with the same money. Then we know how much it costs. We had the Dutch money, the florin. This is more expensive, the euro. Most people want to go back [to the florin]. But I think when we go back, it’s not the same.”
But for some countries - notably Greece - the euro’s days may be limited. Polls show many Greeks still support the euro. Eurozone leaders argue it is essential the eurozone remain intact. But arguments are also growing that exiting the eurozone might be the best option for Athens.
Analyst Simon Tilford, chief economist for the Center for European Reform, said such a scenario cannot be ruled out.
“If a country were to opt to leave the eurozone, the rest of the eurozone would have to make sure that process was a relatively controlled one… the problem with that is the smoother the transition into non-euro status, the greater the attractiveness of that option for other eurozone economies. And therefore, it risks a sort of knock-on effect, a chain effect,” said Tilford.
…
Deficit ’super committee’ will probably pass the buck to voters
The bipartisan congressional panel is not expected to meet its deadline next week to reduce the nation’s debt, meaning the issue will be propelling into the 2012 election season.
Sen. Max Baucus, he Democratic chairman of the Senate Finance Committee, leaves a meeting of the Âsuper committee. The bipartisan congressional panel plans to keep working over the weekend. (Chip Somodevilla / Getty Images / November 18, 2011)
By Lisa Mascaro, Washington Bureau
November 18, 2011, 5:53 p.m.
Reporting from Washington—
If the congressional “super committee” fails in these final days, it will be up to American voters next year to decide how to tackle rising deficits: higher taxes or deep cuts in spending on Medicare.
The bipartisan panel plans to keep meeting over the weekend as it searches for a deal, but its 14-week effort to negotiate a long-term plan to reduce deficits by $1.5 trillion increasingly seems headed toward a fizzle.
That would mark another setback in Congress’ ability to take control of the country’s deficit problem. But indications from Wall Street are that markets would not be seriously rattled by the lack of a deal, and absent that immediate danger, neither side has enough motivation to yield to the other’s demands.
Instead, the stalemate raises the stakes of next year’s election. The choice voters will face over tax and spending issues is the same one that has stymied budget talks all year. Whichever party emerges on top after November’s election will almost certainly assert a mandate for its preferred economic approach.
“The election looks like it’s going to be about taxes, spending, entitlements — the rich versus the middle class,” said Stuart Rothenberg, a political analyst in Washington.
…
Medicare would be easy to fix if Generation Greed didn’t insist on tax cuts and no limit on spending for itself.
Freeze the cost of the program, adjusted for inflation, and provide three options:
1) Medicare basic, with a government panel deciding how to allocate the pie. If you are denied a service or procedure you think will work, pay for it yourself, but we won’t.
2) Medicare no death panels, the same as it is today but instead of cost controls and limits on health care growth you charge the beneficiaries more and more to stay in, even if it means they starve to death. The public cost is the same as Medicare basic.
3) Medicare corporate, today’s Medicare managed care. The government gives corporations the same money as Medicare basic, and they can charge more if they want while denying any services they can get away with. Don’t think of switching from this to one of the other options if you get real sick.
Your choice. Problem solved. I’ll take Medicare basic, and die when it’s my time.
Basic:
Agree 100%, WT.
Would also add a 5% co-pay on all claims for EVERYONE (drugs and devices included,) limit per-year emergency room admissions, and offer no-charge end-of-life hospice care.
AH and a fraction of the cost of a depressing nursing home…
and offer no-charge end-of-life hospice care.
WT speaking from 3 personal experiences….we need to seriously look into paying for in home care providers at a fraction of the cost of a nursing home.
The internet station i’ve worked at, their 95 year old mom just died Wednesday she was being taken care of by a live in attendant, and it cost them a lot out of pocket, not only the care giver but the loss of rental income, and yet the state would have gladly paid for a nursing home at 3-4 times the cost…..
same with my father and grandmother seriously how long can you live if you are bedridden?, and why shouldn’t medicare just pay to let you die in your own home??? seems so humane…
Irony is they sold the house and the closing was Thursday….I guess she didn’t want to move upstate to a farm that bought 30 years ago.and burden then any longer…the funeral was yesterday and she was a remarkable cuban woman before she got sick…she owned her own businesses 60 years ago, when women didn’t do such things.
“The election looks like it’s going to be about taxes, spending, entitlements — the rich versus the middle class,”
BS. The election at this point is just circus. Both parties put forward facades. They play more to sex and scandal than to issues of finances and policy. Underneath, it’s the same beast, who intends to devour the middle and the bottom in the same tasty dish.
I’m ambivalent about the super committee.
I wish with all my heart that they will compromise.
I am thoroughly convinced this will never happen.
Congress is the 99% = NOT!
The supercommittee is just political theater. If the entire Congress can’t get it done, why would a yet more politicized subset of that group be able to?
The core issue is that no one wants to make any hard decisions which might harm their re-election chances. Life is good for politicians and they don’t want to give it up.
http://market-ticker.org/akcs-www?post=197835
Yep. One big Kabuki theater. The people who created the problem (successive Republicrat administrations and our entrenched political class) are incapable of solving the problem. Only when the wheels fall off the bus will the sheeple finally get angry enough to vote for REAL hope ‘n change.
Nothing will ever get fixed and less we vote the current members of Congress out of office. They can’t do the job. or won’t do the job because they only care about geting re-elected. It’s time for term limits, ONE TERM!
Right arm, RAL.
Stay above it and stay on it. People ARE starting to get it.
Wonderful new Shepard Fairy poster at: http://obeygiant.com/headlines/occupy-hope
What a brilliant plan to fight inflation - Issue debt instead of currency.
The experts that I’ve seen who are now spouting off what the housing recovery will look like are the same ones who were noting a “permanently high plateau” in home prices.
Is there anyone with credibility with recovery projections (i.e. people who saw the mess coming in the first place)?
Yeah me.
Prices will fall to construction costs plus a 10-15% margin. And the deluded violently reject it.
“…(i.e. people who saw the mess coming in the first place)?…”
Yup.
Future Predictions: Robert Shiller’s Bleak Housing Outlook For 2011 – 2014 Drop In Prices of 10% to 25% Predicted
June 13, 2011
Robert Shiller, the economist who co- founded the S&P/Case-Shiller index of U.S. home prices, said a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”
House Prices Have Further To Fall
November 20, 2011
Next week we will see the National Association of Realtors (NAR) data on existing home sales. The report should show a seasonally adjusted improvement in volume of home purchases – while home prices continue to contract – compared to volumes and prices one year ago.
…
One might argue that low interest rates allowed prices to leave the historical range – as one could now “buy” a mortgaged home and pay less per month. But mortgages only work when home prices are stable or increasing – so low interest rates are no longer part of the equation for home affordability. Mortgages are NOT affordable if home prices fall.
This past week, Calculated Risk posted a portion of a HUD report on the Mutual Mortgage Insurance Fund for FY 2011. Cutting to the chase, the fund’s net worth had declined more than anticipated due to several causes. But the interesting part of this report was a graph on the effects of home prices if a new recession occurred.
[GRAPH TO DEMONSTRATE HOW REAL ESTATE WILL SOON ALWAYS GO UP AGAIN]
Note that even the base scenario in the above graph does not have home prices bottoming until 2012. IMO, the recovery curve projected in the above graph is overly optimistic – but I have no basis to project my own recovery curve.
There is no dynamic to put a floor under home prices – home price decline begets home price decline. 99% of the population is not enjoying increased ability to consume. If consumption is needed, either consumers need more disposable income or prices need to contract. Real (inflation adjusted) per capita disposable income is flat – therefore home prices must continue to fall to increase “consumption” of homes.
…
U.S. Focuses Too Much on Housing, Shiller Says
Oct. 25 (Bloomberg) — Robert Shiller, co-creator of the S&P/Case-Shiller index of property values, talks about the U.S. economy and housing market. Home prices in 20 U.S. cities dropped more than forecast in August, highlighting one of the obstacles facing the economic recovery in its third year. Shiller talks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)
This is a great interview with Robert Shiller. He clarifies that his statement about a “10 to 25 percent further decline” in housing prices is a “scenario,” not a “forecast.” Nicely struck!
I predict governmental instability in the eurozone for the foreseeable future.
Spain expected to join other euro nations by replacing its government at a time of crisis
By Harold Heckle, The Associated Press | November 20, 2011
MADRID - Spain held a national election on Sunday, and it was expected to become the third eurozone country in as many weeks to throw out its governing party in an attempt to dig itself out of an economic crisis.
Spanish opposition leader Mariano Rajoy and his conservative Popular Party were expected to win control of Parliament in a landslide, even though Rajoy has said little about what his party would do to fight Spain’s sky-high unemployment, painful austerity measures and piles of debt.
…
‘has said little about what his party would do to fight Spain’s sky-high unemployment, painful austerity measures and piles of debt’
Bring in the tanks, of course:
‘The police department’s Tactical Response Team (TRP) rolled out a tank at the Occupy Tampa protest today at Curtis Hixon Park in downtown. The purpose of the vehicle was unclear and its presence immediately sparked wide speculation among the protestors. I have to admit that when I first saw the tank, it felt ominous and an extreme measure.’
‘But then I took a closer look. The tank, it turns out, was actually a rescue vehicle…I’m really surprised that so many of the protestors are making such silly conjectures, implying that the tank might be used violently against the protestors, or that the TPD are so afraid of them they need to hide behind a tank. I was under the impression that Occupy protestors have developed a reputation for being well-informed. Apparently, a large number of the Occupy Tampa’s supporters can’t be bothered to do a little research when they see something they don’t understand..’
‘Unfortunately, I was unable to get any comments from any TPD officers on the “Rescue 2″ and why they felt the need to bring out to the protest.’
http://news.yahoo.com/police-tank-spurs-wild-speculation-occupy-tampa-rally-165800157.html
‘The chancellor of UC Davis has refused to step down following the emergence of shocking video footage of police drenching a line of student protesters in pepper spray. Linda Katehi called the ‘footage of the forceful attack on passive demonstrators ‘chilling’, but said she would not resign.
‘I do not think that I have violated the policies of the institution. I have worked personally very hard to make this campus a safe campus for all,’ she said.’
http://www.dailymail.co.uk/news/article-2063706/UC-Davis-pepper-spray-video-Chancellor-Linda-Katehi-refuses-quit-police-attack.html
‘has said little about what his party would do to fight Spain’s sky-high unemployment, painful austerity measures and piles of debt’
Here is something I find especially irritating about political animals:
They love to sell themselves to the populace as all about “change,” under the presumption that whatever they do will naturally improve on the incumbent’s policies. Never mind that the crisis du juor likely is due to factors that predate the incumbent’s tenure, or that the putative candidate’s policies will probably only serve to exacerbate an already-bad situation.
While the sheeple slumber on.
Megabank, Inc is unloading eurozone sovereign debt like rats jumping off a sinking ship.
Europe Banks Selling Sovereign Bonds May Worsen Debt Crisis
November 17, 2011, 1:00 PM EST
By Aaron Kirchfeld and Fabio Benedetti-Valentini
BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year.
Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy, while generating larger writedowns and capital shortfalls.
“European regulators and leaders are shooting themselves in the foot because a big investor group for sovereign bonds has been taken out of the market,” said Otto Dichtl, a London-based credit analyst for financial companies at Knight Capital Europe Ltd. “The downward spiral will continue until policy makers find a back-up solution for the sovereigns.”
…
“The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values.”
It’s good to know that there is a banking regulator out there that actually cares about a bank’s books reflecting reality.
Contrast that with our Fed-encouraged Level 3 mark-to-fantasy accounting, which makes our bank’s real fiscal health impossible to ascertain.
Want a12% nominal return …wink?
We don’t discuss actual.
That risk vs. return thingy is a little complicated for us.
U.S. Banks Face Contagion Risk From Europe Debt, Fitch Says
November 18, 2011, 9:13 AM EST
By Dakin Campbell
Nov. 17 (Bloomberg) — U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said.
“Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” Fitch said, without explaining what it meant by contagion.
The “exposures” of U.S. lenders to major European banks and the stressed nations of Greece, Ireland, Italy, Portugal and Spain, known as the GIIPS, are smaller than those to some of the continent’s larger countries, Fitch said.
The six biggest U.S. banks — JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley — had $50 billion in risk tied to the GIIPS on Sept. 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively.
Europe’s debt crisis has toppled four elected governments, with the last two, in Greece and Italy, falling last week. Italian bond yields remained at about 7 percent — the threshold that led Greece, Portugal and Ireland to seek bailouts — and shares of French banks, including BNP Paribas SA and Societe Generale SA, dropped amid concern they’ll need more capital.
Stocks Slump
U.S. stocks slumped after the Fitch report. The Standard & Poor’s 500 Index slid 1.7 percent and the 24-company KBW Bank Index declined 1.9 percent.
Investor demand for the relative safety of Treasuries during the European debt crisis has sent the difference between U.S. short-term yields and bank rates surging to levels not seen in more than two years.
The gap between the London interbank offered rate and the overnight index swap, or what traders expect the Federal Reserve’s benchmark to be over the term of the contract, widened to 38 basis points today. It was the highest level since June 2009.
…
GIIPS? I liked PIIGS better.
The GYPPED nations.
Euro Rescue Plan Falling Short Renews Franco-German ECB Spat
November 20, 2011, 7:34 AM EST
By Tony Czuczka and Mark Deen
Nov. 18 (Bloomberg) — The failure of European leaders to end the debt crisis with their broadest effort yet has revived a Franco-German dispute over the European Central Bank’s role and fueled investor concerns over policy makers’ economic impotence.
ECB chief Mario Draghi today slammed governments for failing to implement policy commitments as holders of Greek debt began talks in Athens on structuring a 50 percent writeoff that was the cornerstone of a deal pieced together last month at an all-night summit. Officials in Berlin and Paris yesterday swapped barbs and European borrowing costs outside of Germany rose to euro-era records.
The discord highlighted markets’ brushoff of a package that included a scaled-up rescue fund, proposed guarantees of sovereign debt and a bid to attract more international loans. The accord, which finance ministers aim to implement next month, was at least the fourth plan billed as a comprehensive strategy to end the crisis born in Greece in 2009, none of which provided a lasting fix.
“Where is the implementation of these long-standing decisions?” Draghi said in a speech in Frankfurt today. “We should not be waiting any longer.”
Stocks slid, dragging the MSCI All Country World Index to a six-week low. The Stoxx Europe 600 Index decreased 0.7 percent. The premium France pays over Germany to borrow for 10 years jumped to a record 200 basis points yesterday, as yields on bonds of countries from Portugal to Finland, the Netherlands to Austria also rose relative to Germany.
‘Clearly Broadening’
“The crisis is clearly broadening,” Riccardo Barbieri, London-based chief European economist at Mizuho International Plc, told Bloomberg Radio’s Ken Prewitt yesterday. “Only Germany, and to some extent the Netherlands, are immune from the crisis at the moment.”
…
Problem, reaction, solution:
‘As EU politicians desperately try to save euro, plans emerge to deepen the union, widening Brussels regulatory powers. ‘
http://www.guardian.co.uk/business/2011/nov/20/eurozone-crisis-european-union-plans
‘Is the Rehn-style approach to getting the eurozone’s finances in order, backed up by the threat of fines and other sanctions, compatible with democratic government? In besieged Brussels, there is little sympathy for this kind of question.’
“What’s the alternative?” asks one senior EU official. “We have seen democracies outstripped by the markets, which have forced decisions on elected governments. So that democratic freedom has been curtailed. How do you respond? Do you let that continue, or do you move towards stronger economic governance? And which is more legitimate, the rule of the markets or economic governance by representative institutions in which governments have a say?’
‘Jean-Claude Juncker, the prime minister of Luxembourg and current president of the Euro-Group, once joked: “We all know what to do, but we don’t know how to get re-elected once we have done it.”
‘Democratic accountability has become a secondary virtue, desirable but expendable. In Italy and Greece, the former Goldman Sachs bankers Mario Monti and Lucas Papademos, having been parachuted into highest political office, are set to raise retirement ages and cut state spending without having to canvass for a single vote.’
‘The new “police force”, Verhofstadt believes, will be the European commission itself. Following the embarrassments of the French and Dutch referendums in 2005, the EU’s executive arm, which functions as a kind of ministry for further integration, entered a quiet period. But led by the newly impassioned Barroso, it is determined not to let this crisis go to waste.’
‘The buzzwords in the corridors of the commission’s Berlaymont building in Brussels are “discipline, surveillance and enforcement”. Countries that fail to follow the austerity writ from Berlin and Brussels are liable to be subject to harsh sanctions…’
How about we let this sink in a bit:
‘the former Goldman Sachs bankers Mario Monti and Lucas Papademos, having been parachuted into highest political office, are set to raise retirement ages and cut state spending without having to canvass for a single vote…’
“Too-big-to-fail” seems to be alive and well in the eurozone.
“We have seen democracies outstripped by the markets, which have forced decisions on elected governments.”
No, we have seen deocracies outstripped by the oligarchs. Witness the replacement of an elected government with an entirely unelected prime minister and cabinet in Italy.
They are doing a fine job of not letting this crisis go to waste, and are using it to push their pre-existing agenda.
Coming to a US city near you!
The euro crisis
Rule by technocracy
Nov 17th 2011, 16:28 by R.A. | WASHINGTON
MY COLLEAGUE writes that the European Central Bank’s bond-market tactics—choosing to intervene in markets on some occasions and not on others—are proving useful:
The Peterson Institute’s Jacob Funk Kirkegaard expresses a similar view:
Such is the extraordinary power of the ECB, a supranational and wholly independent central bank, that it can orchestrate the fall of elected leaders through its power to intervene and support highly indebted euro area sovereigns.
…
It’s Spring 1989
http://www.mygen.com/images/tiananmen-square-tank.sm.jpg
You still think that authoritarian law and order BS is a good idea? You chain’em to the ground and lock’em up types types will soon reap the rewards of your own sick ideology and find yourself on the wrong end of the barrel.
From the wikipedia article about TS:
‘live television coverage showed many people wearing black armbands in protest against the government’
Hmmmmm.
It’s almost time now to start backpedaling on the automatic spending cut provisions. Congressional lobbyists, start your engines!
Lawmakers Concede Budget Talks Are Close to Failure
By ERIC LIPTON
Published: November 20, 2011
WASHINGTON — Conceding that talks on a grand budget deal are near failure, Congressional leaders on Sunday pointed fingers at each other as they tried to deflect blame for their inability to figure out a way to lower the federal deficit without having to rely on automated cuts.
The testy exchanges — which dominated the Sunday talk shows — made clear that leaders in both parties now see the so-called sequester — a term meaning an automatic spending cut — as the most likely solution to reduce the federal deficit by $1.2 trillion over 10 years, instead of a negotiated package of spending reductions and tax increases, something they have been unable to achieve over the last 10 weeks.
Democrats blamed the Republicans for their unwillingness to walk away from a no-new-taxes pact they signed at the request of a conservative, antitax group, arguing that the American public realizes that no grand deal could be reached without a combination of spending cuts and new tax revenues.
“As long as we have some Republican lawmakers who feel more enthralled with a pledge they took to a Republican lobbyist than they do to a pledge to the country to solve the problems, this is going to be hard to do,” Senator Patty Murray, Democrat of Washington, the co-chairwoman of the 12-member special Congressional committee on deficit reduction, said on CNN’s “State of the Union.”
…
$100 billion per year cuts from the proposed increases. Big Deal. The debt is still going to escalate.
The MSN, despite their efforts to pretend Ron Paul is nothing but a “fringe” candidate, is finally forced by his growing popularity to interview him. I’d say he acquited himself very well - what a stark contrast to the Establishment GOP’s stable of Wall Street errand boys (Romney, Perry, Cain, Newt - hell, they’re all the same guy).
http://www.youtube.com/watch?v=-pf5eJlDupo&feature=youtu.be
The bankers will always come out of things OK because they control the money and everyone needs it. Go to jail? You must be kidding. I don’t disagree that that is where they should be, it’s just that it will never happen.
http://news.yahoo.com/time-come-act-iran-israel-says-184620637.html
Neo-cons have just been given their marching orders.
Occupy Bloomberg
Occupy protesters bang drums at NY mayor’s home
(AFP) – 1 hour ago
NEW YORK — A few dozen protesters from Occupy Wall Street banged their drums outside the residence of New York Mayor Michael Bloomberg on Sunday to protest the removal of an encampment in lower Manhattan.
Police cordoned off the street near Central Park, so protesters gathered on the edge of the park, beating on drums, buckets and pans.
“He paid us a visit, now we are paying him a visit,” said demonstrator Aaron Black, in reference to the November 15 night raid evicting the camping protesters from Zuccotti Park, the birthplace of the Occupy movement.
…
Not cool. Even politicians should have the right to privacy and security in their own homes.
Editorial Board Opinion
Housing hypocrisy
By Editorial, Published: November 19
BEFORE THE housing market meltdown, the Federal Housing Administration was a pokey little agency with a limited mission — insuring mortgages with low down payments for a limited segment of humble but relatively creditworthy home buyers. The idea was to encourage homeownership by directing capital to a low-income market segment that could not attract it otherwise.
Since the crisis, Congress and the last two administrations have used the FHA to prop up housing more broadly, so much so that the agency’s portfolio exceeds $1 trillion and it backs about one of every three purchases of new homes.
Expanding the FHA poses long-term dangers. The agency’s latest independent audit reports it has only $2.6 billion in cash reserves, creating a near-50 percent chance that it will need a bailout if housing prices plunge again next year.
Now is the time to begin unwinding the FHA’s role in the market and “crowd in” private capital. The administration’s white paper on housing finance reform last February backed such a strategy, including a return of the FHA “to its pre-crisis role.” The first step would be legislation that permitted the FHA to insure loans on houses costing up to $729,750 to lapse Oct. 1 as scheduled. Ditto for the temporary hike in the maximum loan eligible for securitization by Fannie Mae and Freddie Mac, which Congress also set at $729,750.
So why did Congress pass a law that extends the higher FHA loan limits, and why did President Obama sign it Friday morning? Well, there’s real estate, and people who sell it, in every congressional district. The real estate lobby, and its supporters in both parties on Capitol Hill, tucked this profoundly unwise measure into a must-pass appropriations bill that included funds to keep the government running through Dec. 16. Administration officials protested, but given the bill’s importance, Mr. Obama did not go to the mat.
Congress did allow the Fannie Mae-Freddie Mac loan limit to revert to $625,500, probably because it would have looked bad to extend it amid all the publicity lately over the entities’ seven-figure executive bonuses. But this is not the concession it may seem. By combining a higher FHA limit with a lower Fannie and Freddie limit, Congress has distorted the market in a new and troubling way. For the first time, the FHA can actually back more expensive loans than Fannie and Freddie can. Those loans will also be riskier than they would have been if done by Fannie and Freddie, since the FHA’s underwriting standards — such as a 3.5 percent minimum down payment — are looser.
“Hypocrisy,” says Sen. Bob Corker (R-Tenn.), who has filed legislation to phase out much of the government’s housing finance role. But that strikes us as a mild description of what’s happening. Congress has turned an agency that used to offer lower-income Americans a helping hand into a subsidy machine for expensive home sales.
This step was not only upside down in terms of distributive justice. It was probably unnecessary, because ultra-low interest rates were slowly drawing creditworthy buyers, and private capital, back into the upper end of the market, according to Guy Cecala, chief executive and publisher of Inside Mortgage Finance. In short, private capital will be crowded out, not in. If Congress can’t wean housing off subsidies now, can it ever?
Hair-of-the-dog housing market stimulus measures noted across the pond…
Cameron says eurozone crisis has “chilling effect”
By Keith Weir
LONDON | Mon Nov 21, 2011 12:05am GMT
(Reuters) - The crisis in the eurozone is having a “chilling effect” on the British economy, Prime Minister David Cameron said on Monday, as he set out a 400 million pound ($630 million) plan to help boost the housebuilding sector.
The initiative is likely to be one of a series of measures announced over the next week as the Conservative-led government aims to breathe life into an economy which risks returning to recession as activity dries up in the crisis-hit eurozone.
“Paralysis in the euro zone is causing alarm in the markets and having a chilling effect on economies in many countries - including our own,” Cameron said in advance excerpts of a speech to the CBI business lobby.
“When the nightly news is about rising interest rates in Europe and uncertainty about the future, it is not surprising that that affects business and consumer confidence,” he added.
“I am absolutely clear about the right answer for the UK economy. It can be summed up in one sentence. We need to deal with our debts and go for growth.”
…
The Financial Times
November 20, 2011 9:49 pm
Austerity alone can’t save the euro
By Wolfgang Münchau
On Friday, Mario Draghi said “no”. The president of the European Central Bank declared that the eurozone crisis was a crisis in need of a political solution and the ECB would not bail out anybody. To underline the message, the ECB’s governing council had earlier in the day put up a ceiling of €20bn on its weekly bond purchases.
The consequence of these statements and decisions is that the eurozone crisis could well get worse in the short term. There is no political solution in sight. Angela Merkel, the German chancellor, rejects a eurozone bond. The European financial stability facility is too small to handle countries the size of Italy or Spain, let alone both. Even a fully operational, leveraged EFSF would not be in a position to give a “whatever it takes” bond purchasing guarantee.
…
Rajoy Has Little Time to Savor Victory as Debt Crisis Flares
November 20, 2011, 7:46 PM EST
By Angeline Benoit
Nov. 21 (Bloomberg) — Mariano Rajoy, who spent eight years trying to become Spain’s prime minister, will have little time to savor his landslide as near record bond yields threaten to make the country the next victim of the region’s debt crisis.
“Time is running out and by the time a new government comes in, it will have run out,” said Fernando Eguidazu, president of the economic policy committee of the pro- entrepreneur lobby Circulo de Empresarios. “The new government will have to implement measures extremely quickly because the markets will not give us any grace period.”
…
Fears that eurozone may break up are spreading
Alan Clendenning, Associated Press
Friday, November 18, 2011
Madrid –
Fear, that contagious emotion, spread from country to country in Europe on Thursday as panicky investors worried that the euro currency union could be heading toward an ugly breakup.
Spain and even France, one of the continent’s core economic engines, were forced to pay sharply higher interest rates to raise cash to fund government spending.
While the European Central Bank was suspected of intervening in bond markets to fight the rise in the borrowing rates, many analysts say it needs to act more aggressively to contain the crisis. But Germany, Europe’s paymaster, once again blocked any such move on concerns it would let profligate governments off the hook.
Uncertainty is now eroding the appeal even of top triple-A government bonds from countries like France as investors prepare for worst-case scenarios like the deconstruction of the eurozone.
“Basically, if you look at any country that is not Germany, the contagion effect is major,” said Oscar Moreno of Madrid brokerage house Renta4.
In Spain, an auction of 10-year government bonds left the country paying interest rates of nearly 7 percent. That’s the highest rate since 1997 and a level that economists see as unsustainable. Greece and Ireland received rescue loans from the European Union after their bond yields jumped above the same level.
…
FTSE flounders as ‘widespread collapse’ fears linger over Europe
ECB chief Mario Draghi called on governments to act fast. Picture: Getty Images
Published on Friday 18 November 2011 16:00
Britain’s top share index suffered its fifth losing session in a row yesterday amid a lack of political agreement over the eurozone debt crisis.
The benchmark FTSE 100 index closed 1.1 per cent lower at 5,362.94, taking its losses for the week to 3.3 per cent. Trading was light but volatile.
In Berlin, Prime Minister David Cameron and his German counterpart Angela Merkel could not mask differences over the handling of the eurozone crisis. Cameron called for “decisive action” to stabilise the area, while Merkel said she favoured a “step-by-step” approach.
Lothar Mentel, chief investment officer at Octopus Investments, warned that the dithering among politicians had left a 20-30 per cent chance of bankruptcy for several peripheral EU nations and the potential collapse of the eurozone.
“While the political classes are invariably happy to use investment markets as scapegoats, they simply have not done enough to remove this tail risk and put the threat of widespread collapse off the table,” he said.
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Eurozone break-up by 2014 is a possibility, says Dr Doom
17 November 2011 | By Gary Jackson
Nouriel Roubini is not ruling out a break-up of the eurozone in the coming two years, after claiming the spread of the region’s debt crisis is approaching an unsustainable point.
The Roubini Global Economics co-founder - dubbed “Dr Doom” for predicting the causes of the credit crisis - also suggested the eurozone debt crisis has already spread across the Atlantic.
Roubini argues that there are three options open to policymakers looking to solve the crisis, saying they can avoid putting in place an official source of financing for troubled nations, establish the European Central Bank (ECB) as a lender of last resort or create a ‘big bazooka’ from pots of money drawn from the international community.
Earlier today, German chancellor Angela Merkel reasserted her opposition to the ECB becoming a lender of last resort as a quick resolution to the debt crisis.
“If politicians think the ECB can resolve the problem of the euro’s weaknesses, then I think they are convincing themselves of something that won’t happen,” she told an economic conference.
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18 November 2011, 1.22pm AEST
Heart of darkness – entering the Eurozone’s end game
Harald Sander
Professor of Economics and International Economics at Cologne University of Applied Sciences (CUAS)
Harald Sander does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
Early this week, sovereign bonds spreads for France and other Euro-core countries peaked.
Around noon on Tuesday the spreads on French and Austrian 10-year government bonds exceeded the German bund rate by some 1.9 percentage points.
This was higher than the spread for Italian bonds in July 2011. It goes almost without saying that the spreads for the southern countries, in particular Spain (4.57%) and Italy (5.32%), soared despite the fact that (according to market participants) the ECB intervened and bought Spanish and Italian government bonds.
Will the ECB start to buy Belgium, Austrian, and French bonds any time soon?
Politicians and analysts who still think that the crisis is just caused by some spendthrift countries at the European periphery and that it can be solved by imposing austerity programs on the sinners should take note: the crisis has arrived in the heart of Europe. And eventually the rescuers will themselves have to be rescued.
Italy’s new technocrat leader, Mario Monti. AAP
But the markets are not simply betting against countries, they are betting on a break-up of the Eurozone. We are facing a deep crisis of Eurozone governance. Without serious steps to revamp this governance structure they will win that bet and the euro endgame will be on – unless Eurozone governments, and especially Germany, get ready to take the necessary, though extremely unpopular, decisions.
The most important and most controversial step would be to allow the ECB to perform as a normal central bank by assuming the role of a lender of last resort. Only the ECB has enough firepower to backstop sovereign debts.
Backing the debts could be sufficient to restore confidence and would thus allow spreads to fall. Rather than monetising the debt by printing money, interventions in bond markets could eventually even be terminated – unlike today.
German politicians, when voting in favor of leveraging the European Financial Stability Fund (EFSF) in late October, did so with the deliberate intention to keep the ECB out. However, the alternative, the leveraging of the EFSF, is at best a surrogate of a solution and at worst it makes things worse.
In fact, things are already getting very nasty. The EFSF intends to guarantee the first 20% of the debt in case of a sovereign debt default. There are three problems with this construction:
- Why should an investor buy government bonds from distressed Eurozone countries? If they would really go into default, the losses would be much higher than 20% – just look at the proposed “voluntary” debt reduction of 50% for Greece. Consequently, rather than joining in and thus leveraging the EFSF, banks and other institutional investors have started selling their sovereign debt holdings and are clearly unwilling to buy. The developments of interest rate spreads after the October summit clearly signal increasing (perceived) default risks.
- Given the problems that Belgium, France and Austria already have with their banks, which are heavily exposed to sovereign bonds risk, this could easily intensify their own sovereign debt problems. Again look at the recent developments of their sovereign bond spreads.
- If defaults really happen for countries bigger than Greece, what are now only a guarantees can easily become high realised losses for the countries that back the EFSF. Hence their state finances are in jeopardy, too, regardless whether domestic banks are exposed to problem debtors or not.
More than one and a half years of a muddling-through approach have helped to bring down four governments, increased the debt burden of all countries involved, increased the interest bill for almost all countries, except Germany, and sent many countries into severe recession.
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REVIEW & OUTLOOK
NOVEMBER 21, 2011
Bailout of First Resort
Europe’s central bank can’t save spendthrift governments.
Mario Draghi must wonder what he’s signed up for. Only weeks into his new job as president of the European Central Bank, the Italian is being portrayed along with German Chancellor Angela Merkel as the main—the only—obstacle to saving the euro zone. If only the ECB would print a few trillion euros to buy the debt of spendthrift European countries, all will be well.
Hang in there, Mr. Draghi, and you too, Chancellor. Don’t let the French, the British and the Yanks, the euro-pundits and the other blabbering bullies for bailouts get you down. Someone needs to defend the principle of central bank independence and price stability. The ECB has been by far the most effective part of the euro system since its founding. It shouldn’t squander that legacy now by taking on the debts of spendthrift governments that are the real cause of this crisis.
It’s true that the ECB has already become a little bit pregnant in buying sovereign bonds, first taking on Greek, Irish and Portuguese debt, and this summer Spanish and Italian bonds. A week ago Friday, the ECB held €187 billion worth of country bonds.
Jean-Claude Trichet, Mr. Draghi’s predecessor, made this concession amid earlier rounds of political brow-beating. This was supposed to scare the sovereign-bond vigilantes and reduce soaring national bond yields. But how well has that worked? Greece is still a wreck and Italian bond yields reached 7% last week.
The ECB bailout brigade now says this is because the bank simply hasn’t bought enough bonds. Like Keynesian spending stimulus, if bond-buying doesn’t work the buy must have been too small. It can never have been the wrong idea. So the ECB must do like the Federal Reserve, buy four trillion euros or so, and the sheer financial firepower will crush bond spreads and end the crisis.
This assumes that the Fed’s experiment has been successful, though it’s more accurate to say the verdict is still out. The U.S. housing market still hasn’t recovered, despite nearly $1 trillion in Fed mortgage-backed securities purchases, and the economy remains in low gear despite nearly three years of near-zero interest rates. Rather than slowly extricating itself from its crisis programs, the Fed has felt obliged to sustain or expand many of them, including MBS purchases. Whether the Fed emerges from its frantic crisis-management with its monetary credibility intact is an open question.
At least the Fed has statutory power granted by Congress as a lender of last resort, while the ECB has no such legal authority. The ECB was established with a sole mandate of maintaining price stability, not as a fiscal savior. This was done deliberately to shield the bank from political influence and to maintain the credibility of the euro as a currency that would retain its value over time.
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“Someone needs to defend the principle of central bank independence and price stability.”
I know the Fed has bought lots of MBS in a futile effort to prop up the housing market. Have they conducted any other credit market interventions with distributional implications? I suppose one could cite the “No Banker Left Behind” bailouts of late 2008 / early 2009 as another example.
Central bank intervention in credit markets threatens independence, says Fed’s Lacker
Author: Central Banking Newsdesk
Source: Central Banking | 17 Nov 2011
Categories: Governance, Monetary Policy
Jeffrey Lacker, president of the Richmond Federal Reserve, on Wednesday warned measures by the Federal Reserve to provide assistance to dysfunctional segments of credit markets may jeopardise the central bank’s independence.
At the CATO Institute’s 29th Annual Monetary Conference in Washington, DC, Lacker said: “The ability of a central bank to intervene in credit markets using the asset side of its balance sheet creates an inevitable tension. The desire of the executive and legislative branches to provide governmental assistance to particular credit market participants can rise dramatically in times of financial market stress. The resulting political entanglements, as we have seen, create risks for the independence of monetary policy.”
Lacker said the Federal Reserve’s credit policy was motivated by a sincere belief that central banks have a civic duty to alleviate significant ex-post inefficiencies in credit markets. However, he said credit allocation can redirect resources from taxpayers to financial market investors and, over time, can expand moral hazard and distort the allocation of capital. He said no matter how the net benefits are assessed, central bank intervention in credit markets will have distributional consequences. “Contentious disputes about which credit market segments receive support, and which do not, can entangle the central bank in political conflicts that threaten the independence of monetary policy-making,” he said.
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Pols play blame game as debt supercommittee teeters on the brink of failure
Panel members blame each other for failure
BY Alison Gendar
NEW YORK DAILY NEWS
Sunday, November 20 2011, 10:45 PM
WASHINGTON — A new round of partisan bickering erupted in Congress Sunday as the deficit-cutting supercommittee teetered on the brink of failure.
Panel members blamed each other for what appears to be a failure to find ways to cut $1.2 trillion from the nation’s deficit, but offered few solutions on what to do next. The committee has until Wednesday, but members conceded the real deadline was Monday night, when any proposal would have to go to the Congressional Budget Office for a financial vetting and price tag.
If the supercommittee doesn’t come up with a plan for Congress to vote on, automatic across-the-board spending cuts of more than $1.2 trillion, evenly split between defense and domestic budgets, will start in January 2013.
When the committee was created this summer, lawmakers called these automatic cuts so severe they would force the 12-member panel to compromise.
Defense Secretary Leon Panetta has said the automatic defense cuts — on top of existing belt tightening — would mean civilian furloughs of a month or more.
Social Security, Medicare and Medicaid payments would not be touched, but payments to doctors and health care providers would be on the chopping block, threatening hospitals and local municipal budgets.
With failure on the horizon, lawmakers are already scrambling for ways to blunt the pain, noting they won’t take place until after the 2012 election.
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Can anyone who gets it please explain how a budget impasse favors U.S. Treasurys over other asset classes? ‘Tis a puzzlement.
Asia Stocks, U.S. Futures Fall as Yen Gains
By Shiyin Chen and Yoshiaki Nohara - Nov 20, 2011 7:36 PM PT .
Asian stocks fell, extending three weeks of losses, Standard & Poor’s 500 Index futures declined and the yen and dollar gained as U.S. lawmakers approached an impasse on budget cuts, Singapore said economic growth may slow and Spain replaced its government.
The MSCI Asia Pacific Index sank 1 percent at 12:33 p.m. in Tokyo, set for its first five-day slump since August. S&P 500 futures declined 0.7 percent and Treasuries advanced. The yen strengthened against 14 of its 16 major peers, the dollar traded at $1.3531 per euro and Malaysia’s ringgit lost 0.4 percent. The Markit iTraxx Asia index of debt-default risk headed for its highest close in almost six weeks. Copper retreated 0.8 percent.
The U.S.’s deficit-cutting congressional supercommittee is expected to announce today it has failed to reach agreement on at least $1.2 trillion in federal budget savings, a Democratic aide said. Japan’s exports fell the first time in three months and Singapore said growth will probably slow from 5 percent this year. Spain’s Mariano Rajoy told the country to brace for difficult times after the debt crisis helped sweep his People’s Party to the biggest parliamentary majority in almost 30 years.
“There’s likely to be a continuing impasse and people will focus on the stability of the U.S. politically,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “People will probably sit on the sideline and wait for clarity.”
About three shares declined for every two that gained on MSCI’s Asia Pacific Index, which was set for its lowest close since Oct. 7. Japan’s Nikkei 225 Stock Average retreated 0.2 percent, Taiwan’s Taiex index lost 2.2 percent and Hong Kong’s Hang Seng Index sank 1.9 percent.
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The Financial Times online
Last updated: November 20, 2011 11:25 pm
China fears lasting worldwide recession
By Jamil Anderlini in Beijing
Wang Qishan, the Chinese vice-premier responsible for overseeing the financial sector, has predicted the global economy will slump into long-term recession and warned that China will need to deepen financial reforms to cope with the fallout.
“Right now the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time,” state media reported Mr Wang as saying over the weekend.
His unusually bearish comments could set the stage for domestic monetary loosening as Beijing frets about a deflating property bubble at home and chronic economic woes in China’s two largest export markets – Europe and the US.
They also reflect growing concern among policymakers that the country’s underdeveloped financial sector is facing heightened risks from a gathering economic slowdown.
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http://www.youtube.com/watch?v=a4lJ9vsZjMU
Meanwhile, Hitler erupts in a fury as he learns that Americans are calling each other Nazis.
“What the End of the Game Looks Like”
Back to the future:
No Banker Left Behind
Posted on Feb 23, 2010
Treasury Department
AP / Evan Vucci
The statue of Alexander Hamilton, the first treasury secretary, stands in front of the Treasury Department in Washington.
By Robert Scheer
They do have a license to steal. There is no other way to read Tuesday’s report from the New York state comptroller that bonuses for Wall Street financiers rose 17 percent to $20.3 billion in 2009. Of course that is less than the $32.9 billion for bonus rewards back in 2007, when those hotshots could still pretend that they were running sound businesses.
The economy is anything but sound, but you would hardly know that from looking at the balance sheets of the big investment banks. The broker-dealer firms on Wall Street made a record profit, estimated at greater than $55 billion by the comptroller, and the only thing holding back even more grotesque bonuses was concern over criticism from a public that was hardly doing as well.
The enormous rewards last year come not from their having righted the ship of finance by lowering the rate of mortgage foreclosures for ordinary folks, one of four who are now “underwater” on their loans. Consumer confidence this month is the lowest in 27 years, and unemployment is expected to hover near 10 percent for the next two years. No, they get bonuses because the Federal Reserve, backed by the Treasury, bought the toxic mortgage securitization packages that Wall Street banks were left holding. They, and they alone, were made whole.
The way the scam worked is that the Treasury deposited taxpayer dollars with the Federal Reserve, which in turn purchased a whopping $1.25 trillion in toxic mortgages. That’s the figure after the Treasury on Tuesday committed to depositing $200 billion more with the Fed to increase spending on this program—one that was ostensibly designed to increase credit availability to small businesses and others but has hardly accomplished that goal. Credit is still very tight because the big financiers have used the low-cost cash they received from those charitable government programs to solidify their own positions through acquisitions and the like.
Call it the “no banker left behind” program. While this plan didn’t keep people in their homes, it did wonders for Wall Street profits. To be accurate, it’s mostly the big bankers who reaped the rewards, for, as the FDIC reported Tuesday, the list of smaller banks throughout the country faced with default is growing longer. The big financial conglomerates, which have come to be covered by the FDIC under questionable circumstances, benefit from that arrangement, but they are hardly the ones hurting. The victims are primarily the smaller traditional banks that played by the rules but were overwhelmed after the housing market became dreadfully corrupted.
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Nov. 21, 2011, 12:01 a.m. EST
The euro must be split up
Commentary: Only way to rebalance economies of North & South
By David Marsh, MarketWatch
LONDON (MarketWatch) — The world’s greatest macroeconomic imbalances are not between the U.S. and China, as many believe, but within the not-so-united states of Europe.
This is just one result of the currency and competitive distortions caused by what German Chancellor Angela Merkel calls the “common destiny” of economic and monetary union. Destabilizing European current-account imbalances will need to be eliminated, sooner or later, by splitting up the euro area into a creditor and a debtor group.
The euro creditors formed around Germany would need to accept a trade-weighted appreciation of 20%. In the export sector, this might trigger wailing and gnashing of teeth, but consumers and importers would profit greatly through a marked improvement in the terms of trade. This would be a constructive European contribution to alleviating one of the largest sources of global economic uncertainty.
Europe’s sovereign debt crisis will remain in focus for investors next week, with attention turning to initial moves by the new government in Italy to cut debt and boost growth. Spain, which holds a national election on Sunday, will also be in the spotlight.
The solution of splitting up the euro into weaker and stronger constituents has been put forward by many people (including me) over the past year or so, but has always been rejected as unworkable and unworldly. Now, realization seems to be drawing nearer — a conclusion of the grotesque turmoil in the international bond markets.
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What does the end of the game look like. Very interesting question. My approach involves trying to understand the driving forces here and see how they interact.
1) So - the cause of this mess was generating bad mortgages. Caused by separating lenders from repayment risk. There are tentative motions to try and limit this, but it’s all very tentative. Why? Because changes will eat into FIRE sector profits and thus political contributions. It won’t be done unless it HAS to be done. What would make it HAVE to be done? Any budget decrease could include some budget item for funding bad loans (not with that wording of course - it would be some sort of housing support program). How could something like this be in the budget? See 3 below.
2) Government debt is growing when they take on these bad loans. Some say the debt is unsustainable. Others (Krugman) say it’s not a problem. Only when the bond market says it’s a problem, by demanding higher interest rates to hold government debt, will it be a problem. That requires other places to invest the money with better prospects. The stock market? I don’t think so. Other bond locations? Sovereign debt? No. Corporate debt? No. Interesting quandry - when the economy gets better, the debt may quickly become unsustainable due to higher bond rates. Interesting quandry. What then? The big inside players have thought of this. This might put a pre-disaster cap on spending, knowing what’s coming. But the jump in interest rates will be determined by how good the prospects are in other investments. Net result: increased rates that will have to be paid on government debt.
3) There are powerful forces pushing for the continuation of the status quo: The FIRE sector and homeowners who want to keep the value of their properties high. A large and highly moneyed group. They have votes and money.
4) European debt crisis: How will this play into the US governments ability to take on more debt through the purchase of bad loans? Probably reduce its ability to take on more debt. US TBTF banks will likely incur gambling/derivative losses. More junk loans will then be taken off of US bank ledgers, but limited by debt concerns.
5) What about inflation? One of the Fed’s mandates is to prevent high inflation and the other is to keep up employment. Are they contradictory mandates? What would they do in a high inflation environment? Would they pull a Volcker and raise interest raise and boost unemployment? I’ve read in The Economist about how inflation is a very attractive option for central bankers in terms of reducing debt load. I think they will try to nudge up inflation without letting the inflation genie out of the bottle. High inflation helps banks and the policy makers have a bank-centric viewpoint. Net result: more comfort with higher inflation levels.
6) What happens if US TBTF banks start stressing from the European debt crisis? More government bad debt purchasing. Government is the de facto bad bank. But see item 2 - some easing of the pain (i.e. increased government debt) now for cataclysm later? In the face of unsustainable debt, will they really crank up the inflation?
7) November 2012: Politicians will be promising if they are elected, they will fix the economy. How? And in response to what factors at Nov 2012? What happens if government spending actually declines? Higher unemployment with the reduction in deficit spending. Lower economic activity. Deficit spending is like caffeine addiction - lethargy and monster headaches if you go off of it. If unemployment is still high, I see a big flush out of congress, replaced with what? I think there will be more of the same. Unless there is a big boost to the economy, which would favor incumbents. I do see politicians wanting to inject more stimulus early next year, in time for the election. Europeans are accepting austerity because it’s being presented as the lesser of two evils. Net result - a slightly more (only slightly) debt-averse Congress.
9) The FIRE sector wants house prices as high as possible. Price X Quantity = revenue. Will they conclude that lower prices will result in more quantity sold, and thus a higher revenue? Are they currently maximizing revenue? Or could it be higher for them with higher quantity and lower prices? Homeowners will still support bad lending to support their home prices. Unknown quantity: has the NAR/NAHB/FI sector done this calculation? If so, what is their conclusion?
Have I included all the salient factors? Stir them together and see what the end result is.
Conclusion: Ultimately, I think there will be a slow reduction in house prices as government loses its ability to generate and purchase bad loans due to spending constraints. It will bottom above market clearing levels because the government will continue to generate and purchase bad loans within its debt-constrained ability, encouraged by the FIRE sector and home owners. How long will this go on? Until the unemployment picture improves. Once the economy gains traction and government spending start increasing significantly, then house prices will start rising again as this structure will not be removed. Timeframe for this: Who knows when the economy will regain traction.
The one factor I did not foresee in the housing collapse was how committed the government was to keep the FIRE sector and homeowners happy, and the lengths to which they would intervene in markets to keep house prices high. I don’t see that going away. I think it’s like any other subsidy to a powerful interest group. Like farm subsidies, ethanol subsidies or defense spending.
What I didn’t appreciate was the power of the FIRE sector to dictate government and Fed policy.
This financial crisis reminds me of a quote from Star Wars, when Imperial forces decide to blow up Leia’s home planet with the Death Star:
“I think it is time we demonstrated the full power of this station.”
This debt crisis demonstrated the full power of the FIRE sector.
There are rebels organizing and fighting against the No Banker Left Behind policies, but it will be November 2012 before the assault on the Death Star begins. Like the original, it is unclear how this one will fare. Victory or defeat will be determined first by the incumbency rate, then by more just economic policies.