The Housing Bubble

Wall Street Journal - The Debt Bomb That Taxpayers Won’t See Coming:

“Earlier this month, the Securities and Exchange Commission charged Illinois officials with making misleading statements to bond investors about the state’s pension system. The agency detailed a long list of deceptive practices including failure to tell investors that the system was so underfunded that it risked bankruptcy.

Illinois taxpayers, as well as the holders of its debt, will ultimately bear the burden of the officials’ misdeeds. But there is nothing unique about the Prairie State. For years, elected officials in states and municipalities across the country have been imprudently piling up obligations that are imposing serious strains on budgets, prompting higher taxes and cutbacks in services.

According to studies by the Pew Center on the States, states and the biggest cities have made nearly three-quarters of a trillion dollars in promises to pay for retiree health-care insurance. Yet governments have set aside only about 5% of the money they’ll need to pay for these promises.

A December report by the States Project, a joint venture of Harvard’s Institute of Politics and the University of Pennsylvania’s Fels Institute of Government, estimated that state and local governments now owe in sum a staggering $7.3 trillion. Incredibly, the vast majority of this debt has never been approved by taxpayers, who are often unaware of the extent of their obligations.”

http://online.wsj.com/article/SB10001424127887324077704578362101467799948.html

Washington Post - Beneath the surface, the Beltway crumbles:

“The Capital Beltway, a politically iconic and locally vital highway, is dying beneath your turning wheels.

Under the surface of all but some recently restored segments, fissures are spreading, cracks are widening and the once-solid road bed that carries about a quarter-million cars a day is turning to mush.

In a perfect world, it would be torn up — the asphalt and concrete, and the bed of crushed stone below — right down to the bare earth. From that fresh start a new and stable highway would grow. But this is the Beltway, and closing down whole sections of it would tie one of the most congested regions in the nation into a Gordian knot.

“With the older base layers under the asphalt, the surface is not able to absorb the pounding the way it used to,” said Doug Simmons, deputy highway administrator in Maryland, home to almost two-thirds of the 64-mile Beltway and to the more serious of the highway’s problems. “It is at that 50-year age point, which is too close to [the end of its life]. It’s a good example of the challenges we’re going to be facing not only in Maryland but other places in the country.”

Ultimately, the Beltway will not be allowed to die. It is too central to life in this region and to the national highway system. But it stands as a symbol, one roadway among the tens of thousands at the end of a long and fruitful life span into which 21st century America was born.”

http://www.washingtonpost.com/local/trafficandcommuting/beneath-the-surface-the-beltway-crumbles/2013/03/30/8963232a-8b51-11e2-9f54-f3fdd70acad2_story.html

NAR commercial - Denver’s hot real estate market now seeing quick, 24-hour sales:

“Metro Denver’s housing market has roared back to life with an early spring rush characterized by multiple offers, low inventory and — in some cases — homes going under contract within 24 hours of being listed. “It’s a frenzy out there,” said Ty Dokken, the new board president of Denver-based Metro Brokers Inc.”It’s one of the hottest sellers’ markets I’ve seen in the last 10 years.”

A quick market makes for extremely motivated buyers, he said, adding that they have to say yes quickly or risk losing the deal.

After the housing bubble burst in 2007, the real estate market flat-lined for a period, then finally started picking up steam a year ago. But the sudden rush has nonetheless caught many buyers and sellers off-guard.

“Two years ago, buyers were dictating to sellers,” said Michelle Ackerman, Redfin’s managing broker for the Denver metro area. “Today, it’s the sellers who are dictating terms. We’re seeing multiple bid offerings all over the metro area.”

The most recent S&P/Case-Shiller home-prices index showed that prices in the Denver metro area rose 9.2 percent in January compared with January 2012. Nationally, the year-over-year gain was 8.1 percent — the largest increase since the summer of 2006.

Denver has now experienced 13 straight months of year-over-year gains, following 18 months of declines.

Housing inventory — or, more specifically, a lack of it — is the driving force behind the frenzied market.

Just 6,786 single-family homes and condos were listed for sale in February, down 32.7 percent from a year ago and the lowest since 1985, according to real-estate analyst Gary Bauer.

Demand has gone up as buyers feel more confident both in the housing market and in the overall economy. Mortgage rates, meanwhile, are holding near historic lows, giving buyers an extra jolt of motivation.”

http://www.denverpost.com/realestatenews/ci_22903895/denvers-hot-real-estate-market-now-seeing-quick

I was working on helping my lucky ducky friends with their taxes yesterday. In past years, a lot of their income has been from small businesses so their tax credits have largely gone to pay for the payroll taxes they didn’t pay during the year. They got some money back, but enough to fix the car and maybe cover a property tax payment, but not much else.

This year, all the income is from regular employee wages (4 different jobs between the two of them). They don’t get any paid leave at all and had the death of a parent this year. Plus she got laid off from the best job they had in 2012, though he started one a little better, but only towards the end of the year. Total comp for the year approximately $17,500. They are so scared of owing taxes, they put down 0 for their exemptions, so they had about $1000 of income taxes withheld. I think they are going to get over $8000 from the IRS. Maybe almost another $2000 for DC if I can get them to claim it.

No wonder tax returns have an actual influence on the revenue of places like Walmart.

Cleveland: Low-cost conversions make old houses marketable, avoiding demolition
Buying a house for $500 would be an indisputable bargain in most places, but not necessarily in Cleveland.

So when the owner of the vacant house in the St. Clair-Superior neighborhood made the offer to developer and landlord Charles Scaravelli, he paused.

A traditional rehab would cost at least $30,000, more than he could recoup by renting or selling the house.

That didn’t stop him. “Wow, it’s got a slate roof,” Scaravelli said. “I’ll buy it.”

Scaravelli converted the dwelling into a loft house, a rehab that cost only $10,000. He has had no problem renting the home on Schaefer Avenue for $500 a month. Now the Cuyahoga land bank and the St. Clair Superior nonprofit are engaged in a pilot project to see whether the loft home conversions can be a way of bringing vacant houses, often the wreckage of the foreclosure crisis, back online. Demolition is the typical solution, but if an affordable model can be found to create a viable market for these houses, bulldozing doesn’t have to be their only fate.

Demolishing a house costs between $7,500 and $10,000, depending on the structure. The land bank is making a two-year, low-interest loan to Scaravelli, based on what it would have cost to demolish four houses he is scheduled to convert to loft homes.

There are about 26,000 vacant residential structures in Cuyahoga County, according to the land bank. Roughly 625 are in the land bank’s current monthly inventory; some of those will be demolished and others rehabbed. Frangos said the land bank has programs to sell off the inventory, often with incentives, to responsible homeowners and rehabbers.

“Part of the challenge is that, yes, we find rehabbers, we find homeowners; but there are not enough homeowners and rehabbers to match with every home that is distressed in the city of Cleveland,” he said.

Less than a decade earlier, in the midst of a hot housing market, the home probably would have sold easily. The St. Clair Superior group probably would have considered it an ideal candidate for rehab, putting $30,000 to $50,000 into the property, because it could sell for up to twice that much.

“Right now in the neighborhood, you couldn’t make that argument,” said Michael Fleming, the nonprofit’s executive director. “If you put in $50,000, it would still be worth $40,000.”

Fleming was speaking of a traditional rehab, in which most of the walls and floors of a house would remain intact and the structure would receive a new heating system, kitchen, bathrooms and more. Scaravelli based his alternative on knowing that many houses built in the late 1880s and early 1900s used balloon framing. That means that the studs in the load-bearing walls run uninterrupted from the foundation to the eave line. These two-story-high posts made of old-growth forest wood made it easy to tear out floors and walls, without causing structural damage, to dramatically alter the nearly 125-year-old house for an updated look.

The model is so promising because it is so cost-efficient, said Terry Schwarz, director of Kent State University’s Cleveland Urban Design Collaborative.

“It is not a perfect housing unit, but it is just cool enough that I think it is really a promising idea.”

Loft homes “offer a very low-cost, high-impact design-on-a-dime strategy.”

“I’m wondering what other kinds of tricks you could pull off with $10,000,” Schwarz said.

She said a group of “creative young students” will look for options other than loft homes at the same price point.

The “design on a dime” strategy offers a new twist in the city’s battle to stem population loss. Most of these efforts have focused primarily on higher-end products often aimed at luring suburbanites. This includes downtown apartments and custom homes, like those in Hough or Mill Creek, a subdivision that bills itself as offering “urban living with suburban flair.”

“It is not pristine,” Schwarz said of the loft home. “It is not a perfect housing unit, but it is just cool enough that I think it is really a promising idea.”

Housing Court Judge Raymond Pianka agrees, especially when you consider the probable alternative — vacant lots, which he says can have “a blighting influence” on a neighborhood.

More of those useless jobs gone:

About 153 toll takers, snow plow drivers, mechanics and other workers at the New York State Thruway Authority will be laid off Wednesday, according to union and authority officials.

http://www.syracuse.com/news/index.ssf/2013/03/more_than_200_ny_thruway_and_c.html

will technology replace realtors?

A Tale of Two Londons
Who really lives at One Hyde Park, called the world’s most expensive residential building? Its mostly absentee owners, hiding behind offshore corporations based in tax havens, provide a portrait of the new global super-wealthy.

From the Hyde Park side, One Hyde Park protrudes aggressively into the skyline like a visiting spaceship, a head above its red-brick and gray-stone Victorian surroundings. Inside, on the ground floor, a large, glassy lobby offers what you’d expect from any luxury intercontinental hotel: gleaming steel statues, thick gray carpets, gray marble, and extravagant chandeliers with radiant sprays of glass. Not that the building’s inhabitants need venture into any of these public spaces: they can drive their Maybachs into a glass-and-steel elevator that takes them down to the basement garage, from which they can zip up to their apartments.

The largest of the original 86 apartments (following some mergers, there are now around 80) are pierced by 213-foot-long mirrored corridors of glass, anodized aluminum, and padded silk. The living spaces feature dark European-oak floors, Wenge furniture, bronze and steel statues, ebony, and plenty more marble. For added privacy, slanted vertical slats on the windows prevent outsiders from peering into the apartments.

In fact, the emphasis everywhere is on secrecy and security, provided by advanced-technology panic rooms, bulletproof glass, and bowler-hatted guards trained by British Special Forces. Inhabitants’ mail is X-rayed before being delivered.

The secrecy extends to the media, many of whose members, including myself and the London Sunday Times’s and Vanity Fair’s A. A. Gill, have tried but failed to gain entry to the building. “The vibe is junior Arab dictator,” says Peter York, co-author of The Official Sloane Ranger Handbook, the riotous 1982 style guide documenting the shopping and mating rituals of a certain striving class of Brits, who claimed Knightsbridge’s high-end shopping area, which stretches from Harrods to Sloane Square, as their urban heartland.

http://www.vanityfair.com/society/2013/04/mysterious-residents-one-hyde-park-london

America’s “going to crash big time,” says Paul Craig Roberts. Humanity hopes it’ll happen in time to matter.

http://rense.com/general95/retirement-crisis.html - 13k - Cached - Similar pages
Mar 13, 2013

Crisis They Can’t Avoid-Paul Craig Roberts

18 March 2013

By Greg Hunter’s USAWatchdog.com

http://usawatchdog.com/crisis-they-cant-avoid-paul-craig-roberts/ - 158k - Cached - Similar pages

KEEEEEEEEEEEEEYRAAAAAAAAAAAAAAAAAAAAAAAASH!!!

What was that?!

You know that house you made the mistake of buying? Well the value of it just fell through the floor leaving a smoldering moon-crater.

Beware reading public. Beware.

True confession time:

How many of you are engaging in portfolio management strategies which you KNOW FOR SURE are doomed the moment the Fed stops spiking the quantitative easing punch bowl?

These include:

1. Reaching for yield where there are none to be reached without engaging in high-risk gambles;

2. Going into the poor house to send Junior to college, because you know he needs a degree from a good university to stand a chance in the future globalized economy;

3. Owning your employer’s stock, even though you realize that if the company collapses, you will lose your job and your retirement savings at the same time;

4. Taking Social Security too early, even though you realize it will cost you a fortune in foregone retirement income;

5. Buying long-term bonds, even though you realize that the minute the Fed firms up plans to take away the quantitative easing punch bowl, you stand to lose a fortune in negative capital gains.

6. Buying a house now in competition with an army of hedge funds and all-cash Canadian and Chinese investors, on the misguided assumption that “the bubble is over, and real estate will always go up again from now on.”

‘Fess up: How many of you are currently making some of these stoopid investing decisions out of ignorance or desperation?

Investing success in the present market amounts to anticipating what asset class will next bubble up with quantitatively eased printing press money and parking your money there.

Some obvious possibilities include:

1. Treasurys
2. Mortgage-backed securities
3. U.S. stocks
4. Real estate of all stripes
5. Gold
6. Anything tangible which you can sell later at a higher nominal price, due to Fed-engineered anti-deflationary inflation

Why am I not surprised?

Cyprus President’s Family Transferred Tens of Millions To London Days Before Deposit Haircuts

http://tinyurl.com/d9mdc2g

someone who sees this please repost tomorrow

Not from Drudge:

http://blogs.sacbee.com/capitolalertlatest/2013/03/state-auditor-california-net-worth-at-negative-127-billion.html

Also not from drudge:

Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility
Submitted by Tyler Durden on 03/31/2013 12:46 -0400

Australia Australian Dollar Brazil China Hong Kong India Iran Japan Renminbi Reserve Currency Treasury Department Yuan

A month ago we pointed out that as a result of Australia’s unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.

Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world’s “reserve currency” in its trade dealings with the world’s biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process “slashing costs for thousands of business” and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar’s reserve currency status until one day it no longer is.

That said, this latest development in global currency relations should come as no surprise to those who have followed our series on China’s slow but certain internationalization of its currency over the past two years. To wit: “World’s Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade”, “China, Russia Drop Dollar In Bilateral Trade”, “China And Iran To Bypass Dollar, Plan Oil Barter System”, “India and Japan sign new $15bn currency swap agreement”, “Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says”, “India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees”, and “The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap.”

And while previously the focus was on Chinese currency swap arrangements, the uniqueness of this weekend’s news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia’s footsteps, because while the developed world is far more engaged in diluting its currency as a means to spur “growth”, Asian and developing world nations are still engage in real, actual trade, where China is rapidly and aggressively becoming the world’s hub.

More from The Australian:

Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: “The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs.”

Businesses, like individuals when travelling, have to pay extra to convert currency since there are different rates for buying and selling.

So removing one step also cuts out the cost of paying for such a “spread”.

Australia has undertaken significant lobbying for the deal and the direct conversion of the yuan, also referred to as the renminbi (RMB), is identified as a priority in the government’s Asian century white paper.

“We have held preliminary discussions with the Chinese government to explore how soon direct convertibility can be practicably achieved,” the white paper says.

“We are continuing these discussions, and also exploring other opportunities to work with China to support the internationalisation of the RMB.”
Australia’s banks increasingly arrange trade finance through Hong Kong, which has developed a special role as China’s chief international finance centre.
Needless to say, China is eagerly looking forward to taking yet another bite out of the USD’s reserve status.

New President Xi Jinping, a former Communist Party secretary of Shanghai, is a champion of that city’s development as China’s finance hub, and it is believed that the Prime Minister may fly there to sign the currency conversion deal.

Ms Gillard is expected to go on from Shanghai to Beijing, where she will open the third Australia China Economic and Trade Forum organised primarily by the Australia China Business Council, which will be bringing about 100 people from Australia for the event. Participants are likely to include Andrew Harding, Rio Tinto’s new chief executive for iron ore; Warwick Smith, ANZ Bank’s chairman for NSW and the ACT; Australian Trade Minister Craig Emerson and Financial Services Minister Bill Shorten; Gao Hucheng, China’s Commerce Minister; and Gao Xiqing, the acting head of China Investment Corporation, the country’s vast sovereign wealth fund.

The ANZ Bank has been a strong advocate of direct convertibility between the dollar and the yuan. Gilles Plante, the bank’s chief executive in Asia, said in a recent report that in the last financial year, China accounted for 29 per cent of all exports and 18 per cent of imports, but the value of that trade denominated in yuan was less than 0.3 per cent.

He forecast that cross-border flows of funds would be liberalised “to support Shanghai’s plan to build itself as a global financial centre. At the time the whole world is digging out opportunities from the rise of the yuan, Australia should not lag behind.”

It was significant the liberalising governor of the People’s Bank, Zhou Xiaochuan, kept his job during the reshuffle of China’s leadership. He said last year at a conference: “The next movement related to the yuan is going to be reform of convertibility. We are moving in this direction; we need to go further, we will have some deregulation.”
Most importantly, to China, Australia will serve as the Guniea Pig - should this experiment in FX liberalization work out to China’s satisfaction, expect Beijing to engage many more trade partners in direct currency conversion.

Beijing appears to have chosen Canberra as its partner in this next movement for straightforward economic reasons, as Australia has become China’s fifth-biggest source of imports and thus, the appropriate partner for the march of its currency.

Ms Gillard and President Xi Jinping may also during the visit establish a “strategic partnership” between the countries. This will enable Australia to catch up in status with a large range of nations.
Why is this so very critical? For the simple reason that the free lunch the US has enjoyed ever since the advent of the US dollar as world reserve currency, may be coming to an end as other, more aggressive alternatives - both fiat, and hard-asset based - to the USD appear. And since there is no such thing as a free lunch, all the deferred pain the US Treasury Department has been able to offset thanks to its global currency monopoly status will come crashing down the second the world starts getting doubts about the true nature of just who the real reserve currency will be in the future.

Not from drudge:

http://www.fromthetrenchesworldreport.com/do-not-use-safety-deposit-boxes/39479/

Do not use Safety Deposit Boxes
Posted on March 31, 2013 by Sean Taeschner
Dinarvets – by Don Paul

U.S DEPARTMENT OF HOMELAND SECURITY HAS TOLD BANKS – IN WRITING – IT MAY INSPECT SAFE DEPOSIT BOXES WITHOUT WARRANT AND SIEZE ANY GOLD, SILVER, GUNS OR OTHER VALUABLES IT FINDS INSIDE THOSE BOXES!

According to in-house memos now circulating, the DHS has issued orders to banks across America which announce to them that “under the Patriot Act” the DHS has the absolute right to seize, without any warrant whatsoever, any and all customer bank accounts, to make “periodic and unannounced” visits to any bank to open and inspect the contents of “selected safe deposit boxes.”

Further, the DHS “shall, at the discretion of the agent supervising the search, remove, photograph or seize as evidence” any of the following items “bar gold, gold coins, firearms of any kind unless manufactured prior to 1878, documents such as passports or foreign bank account records, pornography or any material that, in the opinion of the agent, shall be deemed of to be of a contraband nature.”

DHS memos also state that banks are informed that any bank employee, on any level, that releases “improper” “classified DHS Security information” to any member of the public, to include the customers whose boxes have been clandestinely opened and inspected and “any other party, to include members of the media” and further “that the posting of any such information on the internet will be grounds for the immediate termination of the said employee or employees and their prosecution under the Patriot Act.” Safety deposit box holders and depositors are not given advanced notice when failed banks shut their doors.

If people have their emergency money in a safe deposit box or an account in a bank that closes, they will not be allowed into the bank to get it out. They can knock on the door and beg to get in but the sheriff’s department or whoever is handling the closure will simply say “no” because they are just following orders.

Deposit box and account holders are not warned of the hazards of banking when they sign up. It is not until they need to get their cash or valuables out in a hurry that they find themselves in trouble.

Rules governing access to safe deposit boxes and money held in accounts are written into the charter of each bank. The charter is the statement of policy under which the bank is allowed by the government to do business. These rules are subject to change at any time by faceless bureaucrats who are answerable to no one. They can be changed without notice, without the agreement of the people, and against their will. People can complain but no one will care because this is small potatoes compared to the complaints that will be voiced when the executive order that governs national emergencies is enforced.

That order allows the suspension of habeas corpus and all rights guaranteed under the Bill of Rights.

A look at the fine print of the contract signed when a safety deposit box is opened reveals that in essence the signer has given to the bank whatever property he has put into that deposit box. When times are good people will be allowed open access to their safe deposit box and the property that is in it. This also applies to their bank accounts.

But when times get really bad, many may find that the funds they have placed on deposit and the property they thought was secured in the safe deposit box now belong to the bank, not to them. Although this was probably not explained to them when they signed their signature card, this is what they were agreeing to.

During the Great Depression in the early 1930’s people thought that many banks were going to fail. They were afraid they would lose their money so they went in mass to take it out, in what is known as a run on the banks. The government closed the banks to protect them from angry depositors who wanted their money back. Throughout history, governments have acted to protect the interests of banks and the wealthy people who own them, not the interests of depositors or box holders.

In a time of emergency, people will have no recourse if access to their safe deposit box and bank accounts is denied. If they are keeping money in a bank that would be needed in an emergency or in a time when credit is no longer free flowing, they may not be able to get it out of the bank. The emergency may occur at night or on a weekend or holiday when the bank is closed.

The solution is to take emergency cash or valuables out of the safe deposit box or bank account and secure them somewhere else, like in a home safe. An even better idea may be to close the safe deposit box account completely, letting someone else entertain the illusion of safety.

Americans have learned a few things since the Great Depression. They now have the FDIC to liquidate any failed banks.

The FDIC promises to set up a series of dates and times when safe deposit box renters can access their boxes by appointment to remove their property and surrender their keys. The FDIC also promises to mail bank customers an announcement of the dates for such events and include a question and answer page that addresses safe deposit box access.

The people have the FDIC to give them back the money they had on deposit that they were unable to get out of any failed bank that carries FDIC insurance. Sheila Bair, head of the FDIC, promises that depositor`s money will be available in 24 hours or less. But people should remember that the FDIC is just another bureaucracy, and it`s probably best not to rely on a bureaucracy in an emergency.

THE SAME HOLDS TRUE FOR STORAGE FACILITIES

DON’T PUT ANYTHING VALUABLE AND/OR NON-REPLACEABLE IN ANY BANK OR STORAGE FACILITY

Read more: http://dinarvets.com/forums/index.php?/topic/52464-do-not-use-safety-deposit-boxes/#ixzz2P8YE4ocE

How can some banks be too-big-to-fail, while others are supposedly too-big-to-rescue? Makes no sense to me whatsoever…

Cyprus money woes, Italian bank’s $4.1B loss bring new fears about Europe finances
Published March 31, 2013
FoxNews.com

FILE- In this Tuesday, March 26, 2013 file photo, employees of the Bank of Cyprus shout slogans as they holds banners reading in Greek “shame” during a protest at Cyprus central bank in Nicosia, Cyprus. The moment word broke that Cypriot lawmakers in Parliament had voted down a bailout deal that would have raided everyone’s savings to prop up a collapsing banking sector, a huge cheer rose up from hundreds of demonstrators gathered outside that echoed through the building’s corridors. Many relished it as a kind of David-against-Goliath moment a country of barely a million people standing up to the will of Europe’s behemoths who wanted it to swallow a very bitter pill to fix its broken-down economy. (AP Photo/Petros Karadjias, File) (A2013)

Customers of an Italian bank have seen deposits fall by “a few billion euros” after a scandal in February, the bank announced Saturday.

According to Reuters, Monte dei Paschi bank reported a yearly loss of 3.2 billion euros ($4.1 billion) – a higher-than-expected net loss for 2012 – after loss-making derivatives trades at the lender amounting to 730 million euros. Bad loans also contributed to the loss.

The bank’s chief financial officer said after the earnings were released on Thursday that it was “quick in recovering ground in March” on the lost deposits in February.

The figures highlight the scale of the problems at Italy’s third-biggest lender, which received a 4 billion euro ($5.1 billion) state bailout last month, according to Reuters.

The news of Monte dei Paschi comes as a deal to rescue Cyprus banks from financial collapse has renewed fears about Europe’s shaky financial system.

Many banks across Europe have been struggling for more than three years as losses on government bonds and bad loans piled up. Some governments, meanwhile, have taken on more debt trying to prop up their lenders to the point where they have needed bailing out themselves.

In Cyprus’s case, its banking sector became much bigger than the country’s government could afford to rescue — seven times the size of the country’s economy. When the banks were hit by large losses and Cyprus could not afford to bail it out on its own, the country turned to the other 16 European Union countries that use the euro.
…

When in doubt about your economic future, why not gamble on it and hope for the best?

Cyprus bets on casinos to help boost economy after savings raid
President braves wrath of Orthodox church by including plan to lift ban on gambling among his initiatives to rescue economy
Juliette Garside
The Guardian, Sunday 31 March 2013 14.52 EDT

Cyprus is to lift a ban on casinos as part of measures to counter the economic shock of a much larger than expected 60% raid on the savings of the island’s most wealthy depositors.

President Nicos Anastasiades outlined a 12-point plan to rescue the troubled economy before travelling to Athens, where he was reported to be meeting the Greek prime minister to petition for €2bn in aid, despite Greece’s own economic collapse.

The Cypriot bailout is the first eurozone rescue package to punish savers by forcing them to hand over a slice of their savings in broken banks. The sums are far higher than original estimates that Bank of Cyprus depositors would take a 30% or 40% hit. The conditions were imposed when Cyprus was told to find €5.8bn as a condition of a €10bn loan from the International Monetary Fund.

Anastasiades has braved the wrath of the influential Orthodox church by declaring that he will allow casinos to operate in Cyprus. Gambling has until now been legal only on the northern, Turkish side of the island.
…

Small businesses spell big problems for Italy and Spain
A man walks past a closed down business in Madrid March 27, 2013. REUTERS/Susana Vera
By Silvia Aloisi and Sarah White
MILAN/MADRID | Mon Apr 1, 2013 12:04am EDT

(Reuters) - Small companies struggling to repay loans in Italy and Spain signal bigger problems on the horizon for the euro zone after the dust has settled on Cyprus’s last-ditch bailout this week.

Defaults by small and medium-sized enterprises (SMEs), easily the biggest employers in Spain and Italy, are rising at a worrying clip, spelling trouble for the banks and two countries at the heart of Europe’s debt crisis.

“You can be sure that if these companies’ bad debts rise, you’re going to see more bad loans to families, and credit card bills that won’t be paid,” said Javier Santoma, finance professor at Spain’s IESE business school.

The ability of Italy and Spain, which account for 28 percent of the euro zone economy compared with Cyprus’s 0.2 percent, to pull themselves out of crisis and avoid full-blown bailouts depends on the health of their banks; weak banks conserve capital rather than lend to get the economy moving.

Profits at Spain’s top three lenders Santander (SAN.MC), BBVA (BBVA.MC) and Caixabank (CABK.MC) fell an average 60 percent in 2012 due to steep government-enforced provisions for property losses. Writedowns of nearly 24 billion euros at state-owned Bankia (BKIA.MC) led to a record 19.2 billion euro loss.

In Italy, the two biggest banks, Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), set aside a combined 14 billion euros in 2012 to cover bad loans. Smaller lenders also had to increase provisions after the central bank conducted simultaneous audits of around 20 institutions.

Banco Popolare (BAPO.MI), Italy’s fourth biggest, issued a profit warning after the audit prompted 684 million euros of loan loss provisions in the fourth quarter, more than the total it set aside in the first nine months of the year.
…

Just because mortgage debt nearly collapsed Wall Street and the entire global financial system in Fall 2008, doesn’t mean it will necessarily cause any problems north of the Canadian border.

Editorial: Deflate the bubble
Recent reports show Canadians have too much debt
Calgary Herald
March 19, 2013

What goes up, must come down. The more inflated the balloon, the easier it is to pop.

These common sense truths come to mind with Friday’s Statistics Canada report that showed Canadian household debt is at an all-time high. Coupled with average home prices in Calgary bobbing above pre-recession highs, it might be time for Calgarians and all Canadians to remember this simple fact of gravity — nothing stays up in the higher reaches of the atmosphere forever — and that includes the financial atmosphere. Eventually, some event or the cumulative effect of several events will cause a balloon to float back to Earth, or worse, it might pop in mid-air.

Let’s consider some facts. First, the good recent news from Statistics Canada’s report is that national net worth is up as a result of stocks, mutual funds and pension assets increasing.

Now, the bad news. Over the past year, on an annual basis, the level of debt increased by 5.5 per cent.

StatsCan calculates the average household owed a record $164.97 in market debt for every $100 of disposable, after-tax income earned in the fourth quarter of 2012. The previous high was $164.70 in the prior three months.

Meanwhile, another recent Statistics Canada report, on housing, shows that the new housing price index has zoomed ahead in Winnipeg, Calgary, Toronto and Oshawa — consumer demand driving higher new home prices in the latter two cities and labour costs driving higher new home prices in Calgary.

Other reviews of the nation’s housing market are giving off warning signals that Canada’s housing market is perhaps overvalued. Moody’s Investors Services is the most pessimistic, with a warning that home prices could fall as much as 44 per cent. Other predictions are much less dramatic. TD Economics predicts housing prices will rise only with inflation, so about two per cent a year, so flat in real terms.

Defenders of optimistic housing prices and from the “don’t worry” school on debt argue Canadian household debt levels are affordable because of a decent Canadian economy, and low interest rates. Also, mortgage debt is not as bad as other kinds of debt.
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Is David Stockman destined to go down in history as a latter-day financial markets Cassandra, whose prophetic vision of the end game of America’s ginormous debt bubble anticipated what the entire Federal Open Market Committee missed?

P.S. Don’t miss out on the chance to purchase his new book through the Amazon link posted below at a deflationary 40% off list price!

Stockman Warns of Crash Of Fed-Fueled Bubble Economy
By Richard Rubin - Mar 31, 2013 9:01 PM PT

The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years, warned David Stockman, who was budget director for President Ronald Reagan.

In an essay published yesterday in the New York Times (NYT), Stockman wrote that the Fed’s quantitative easing policies in the aftermath of the credit crisis have flooded stock markets with cash even while the “Main Street economy” remains weak. The combination, he wrote, is “unsustainable.”

“When it bursts, there will be no new round of bailouts like the ones the banks got in 2008,” wrote Stockman, a former senior managing director at Blackstone Group LP (BX) and a former Republican congressman from Michigan. “Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”

Stockman, 66, is the author of “The Great Deformation: The Corruption of Capitalism in America,” which will be published April 2.

The Fed, led by Ben S. Bernanke, is purchasing $85 billion in assets every month. The Fed is leaving its key interest rate near zero while it tries to reduce unemployment below 6.5 percent and hold inflation below 2.5 percent.

The Standard & Poor’s 500 Index (SPX) rose to an all-time high last week, closing at 1,569.19 on March 28. That surpassed the previous record of 1,565.15 set in October 2007. U.S. stock markets were closed March 29 for the Good Friday holiday.

Gold Standard

Among the other culprits Stockman blamed for what he termed a “state-wreck” are President Franklin Delano Roosevelt for weakening the gold standard in 1933, President Richard Nixon for removing the convertibility of dollars to gold and “lapsed hero” Alan Greenspan, the former Fed chairman, for keeping interest rates too low for too long.

Investors will sell, Stockman wrote, at any hint that the Fed is starting to remove assets from its balance sheet.

“Notwithstanding Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making,” he wrote, warning of unsustainable fiscal policies as well. “These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen.”
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