June 2012 archive

The heads of state of the EuroZone countries met in Brussels today for a two day summit to  try to come to an agreement on how to bail out two of its biggest members, Italy and Spain:

The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.

“I’ve come for very rapid solutions to support countries in difficulty on the markets,” French President Francois Hollande told reporters as he arrived in Brussels. Without specifying Spain or Italy, he said they “have made considerable efforts to deal with their public accounts.”

Leaders will consider short-term measures to stem the sovereign debt turmoil as EU President Herman Van Rompuy’s road map to strengthen the bloc’s common currency and financial oversight ran into immediate opposition from Germany. German Chancellor Angela Merkel has become increasingly isolated as Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy unite to push for quicker action to ease the crisis that emerged in Greece in late 2009.

Apparently all did not go German Chancellor Merkel’s way as she canceled her scheduled evening press conference. Or maybe she was watching her country’s football team get trounced by the Italians.

Euro 2012 Live Blogging: Italy 2 Germany 0

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Follow us on Twitter @StarsHollowGzt

E. J. Dionne: Scalia Should Resign from the Supreme Court

Justice Antonin Scalia needs to resign from the Supreme Court.

He’d have a lot of things to do. He’s a fine public speaker and teacher. He’d be a heck of a columnist and blogger. But he really seems to aspire to being a politician – and that’s the problem.

So often, Scalia has chosen to ignore the obligation of a Supreme Court justice to be, and appear to be, impartial. He’s turned “judicial restraint” into an oxymoronic phrase. But what he did this week, when the court announced its decision on the Arizona immigration law, should be the end of the line.

Katrina vanden Heuvel: Women Who Don’t Have Anything Close to ‘Having It All’

Anne-Marie Slaughter, the first women to head policy planning in the State Department, has set the punditry buzzing with her Atlantic cover story, ” Why Women Still Can’t Have it All,” on the pressures felt by successful professional women.

Women with high-powered careers competing for leadership roles while raising a family face harsh and conflicting pressures, as Slaughter details. But the stark reality is that most working mothers face far more daunting obstacles simply trying to keep their families afloat. And with advertisers geared to young affluents, celebrating a lifestyle that few can afford, the reality of most working mothers is too seldom discussed in the media.

JP Morgan Managers Being Told Trade Loss is $9 Billion

Posted by Teri Buhl

Tue 26 Jun 2012

This morning the New York Times Dealbook rewrote my scoop about a possible $9bn loss for JPM and didn’t credit me for reporting this first. They’ve done journalism theft like this before when I was scooping them at the New York Post during the financial crisis. Times reporters like Andrew Ross Sorkin led the scoop stealing behavior during 08 and this morning I see him doing the same thing on CNBC. Scoops are assets for journalist and I don’t appreciate the New York Times taking my hard-earned research and sourcing and using it as their own without a mention or link to my original reporting. If you think this is wrong- write them, comment on their sites or tweet about it. Only together we can hold other journalist accountable and demand accuracy.

(h/t Dashiell Bennett @ Atlantic Wire)

JPMorgan Trading Loss May Reach $9 Billion

By JESSICA SILVER-GREENBERG and SUSANNE CRAIG, The New York Times

June 28, 2012, 2:30 am

To put the size of the loss in perspective, JPMorgan logged a first-quarter profit of $5.4 billion.

…

The chief investment office – which invests excess deposits for the bank and was created to hedge interest rate risk – brought in more than $4 billion in profits in the last three years, accounting for roughly 10 percent of the bank’s profit during that period.

…

More than profits are at stake. The growing fallout from the bank’s bad bet threatens to undercut the credibility of Mr. Dimon, who has been fighting major regulatory changes that could curtail the kind of risk-taking that led to the trading losses. The bank chief was considered a deft manager of risk after steering JPMorgan through the financial crisis in far better shape than its rivals.

“Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner.

Up Date: SCOTUS has ruled the individual mandate unconstitutional constitutional but redefined as a tax.

Up Date: As per MSNBC, the mandate was upheld but redefined as a tax. There is some confusion as to whether that means it is unconstitutional or not.

Up Date: Roberts votes with the four “liberal” justices.

Quotes from SCOTUS Blog:

The money quote from the section on the mandate: Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it.

On the Medicaid issue, a majority of the Court holds that the Medicaid expansion is constitutional but that it w/b unconstitutional for the federal government to withhold Medicaid funds for non-compliance with the expansion provisions.

Another way to think about Medicaid: the Constitution requires that states have a choice about whether to participate in the expansion of eligibility; if they decide not to, they can continue to receive funds for the rest of the program.

In other words, states can opt out of ACA without losing federal funding for Medicaid.

Rejection of mandatory Medicaid expansion –at time of slashing of safety nets–could be devastating to most vulnerable.

— Katrina vandenHeuvel (@KatrinaNation) June 28, 2012

Up Date: More from SCOTUSBlog:

In Plain English: The Affordable Care Act, including its individual mandate that virtually all Americans buy health insurance, is constitutional. There were not five votes to uphold it on the ground that Congress could use its power to regulate commerce between the states to require everyone to buy health insurance. However, five Justices agreed that the penalty that someone must pay if he refuses to buy insurance is a kind of tax that Congress can impose using its taxing power. That is all that matters. Because the mandate survives, the Court did not need to decide what other parts of the statute were constitutional, except for a provision that required states to comply with new eligibility requirements for Medicaid or risk losing their funding. On that question, the Court held that the provision is constitutional as long as states would only lose new funds if they didn’t comply with the new requirements, rather than all of their funding.

Essentially, the individual mandate of the ACA was upheld under the right of the government to tax individuals. Chief Justice Roberts agreed with that and voted with Ginzburg, Breyer, Kagan, Sotomayor.

The court also ruled if individual states opt out of the ACA, they cannot lose current Medicaid funding. They will only lose new funding.

Up Date: From Lyle Denniston at SCOTUSBlog:

The rejection of the Commerce Clause and Nec. and Proper Clause should be understood as a major blow to Congress’s authority to pass social welfare laws. Using the tax code – especially in the current political environment – to promote social welfare is going to be a very chancy proposition.” This is a big deal. Congress in the future may have to use far more of the taxing power than they are comfortable with. This is still a conservative ruling in many respects.

National Federation of Independent Business v. Sebelius (pdf)

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge.

June 28 is the 179th day of the year (180th in leap years) in the Gregorian calendar. There are 186 days remaining until the end of the year.

In common years it is always in ISO week 26.

This date is the only date each year where both the month and day are different perfect numbers, June 6 being the only date where the month and day are the same perfect number.

On this day in 1919, Keynes predicts economic chaos

At the Palace of Versailles outside Paris, Germany signs the Treaty of Versailles with the Allies, officially ending World War I. The English economist John Maynard Keynes, who had attended the peace conference but then left in protest of the treaty, was one of the most outspoken critics of the punitive agreement. In his The Economic Consequences of the Peace, published in December 1919, Keynes predicted that the stiff war reparations and other harsh terms imposed on Germany by the treaty would lead to the financial collapse of the country, which in turn would have serious economic and political repercussions on Europe and the world.

snip

A decade later, Hitler would exploit this continuing bitterness among Germans to seize control of the German state. In the 1930s, the Treaty of Versailles was significantly revised and altered in Germany’s favor, but this belated amendment could not stop the rise of German militarism and the subsequent outbreak of World War II.

In the late 1930s, John Maynard Keynes gained a reputation as the world’s foremost economist by advocating large-scale government economic planning to keep unemployment low and markets healthy. Today, all major capitalist nations adhere to the key principles of Keynesian economics. He died in 1946.

Governments ignore Keynes at their own peril.

This is an Open Thread

Author’s note:  this piece was originally posted Wednesday past.  Tonight Jace is settling in well.  He stays at my house most of the time because The Girl’s parents really do not want a cat inside and it has been in excess of 100 degrees F the past four days.  I take him over often so that she and The Little Girl can play with him.  He sleeps with me every night.

I normally do not write about current events in this series, but this is actually related to experiences that I had when I was little.  Many of you who read this regular series are familiar with the people to whom I refer to as The Girl and The Little Girl, two people extremely dear to me.

The Girl is 19, and her beautiful daughter is three.  Their family had two cats, Bella (whom I call Lal after the Star Trek: The Next Generation episode “The Offspring” where Data named the android that he created that from the Hindi word for “beloved”), and Jace.  Jace was a tom Tabby (actually more likely a Maine Coon Cat) who both girls lived dearly.

The girls were out of town Friday when I got a call from The Girl’s mum asking me to come and pick up Jace’s body from the street in front of their house.  He had been run over by a car, and by the looks of things died instantly because of massive head trauma.  I do not think that he was even aware that his demise was in progress.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Wednesday is Ladies’ Day

Follow us on Twitter @StarsHollowGzt

Kristina vanden Heuvel: The Robin Hood Tax: A Powerful Antidote to Austerity

Last week, nurses rallied, bank staff marched, conservatives coalesced and finance professionals petitioned-all in support of a global tax on Wall Street speculation. You wouldn’t know it from the headlines (Financial Times: “Push for EU-wide ‘Robin Hood Tax’ ends”), but by week’s end, that elusive goal was closer than ever.

“We don’t just advocate for people when they’re ill, and we don’t just advocate for them when they’re in the hospital,” says Jean Ross, a registered nurse and co-president of National Nurses United, the country’s largest nursing union. “We have to have a society where they can get well and stay well.”

As I’ve written before, the financial transaction tax (FTT) is a good idea whose time has come. By assessing a modest fee on transactions, we can raise revenue from those who can afford it while discouraging the unproductive speculation that puts our economy at risk. And frankly, Wall Street owes us. The tax offers an antidote to austerity and a rallying cry that hard-core occupiers, Democratic senators, and reality-based conservatives can all get behind.

Wenonah Hauter: Secrecy + Haste = Farm Bill Status Quo

Late last week, the Senate passed its version of the Farm Bill – the sprawling legislation that dictates what and how we eat. From the perspective of consumer protection and leveling the playing field for small and midsized family farmers, the Senate bill does little to address the problems of consolidation and anti-competitive business practices that plague our food system.

Although the Senate bill made changes to commodity policy that will be touted as reform, the bill reinforced prior farm policies that favor large industrial-scale agriculture and overproduction of commodity crops like corn and soybeans. Only a few companies sell what farmers need (like seeds, fertilizer and tractors) and only a few firms buy what farmers raise, which means they pay more for supplies and get less for their crops and livestock. The four largest companies in each industry slaughter nearly all the beef, process two-thirds of the pork, sell half the groceries and process about half the milk in the United States.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge.

June 27 is the 178th day of the year (179th in leap years) in the Gregorian calendar. There are 187 days remaining until the end of the year.

On this day in 1950, Truman orders U.S. forces to Korea.

On June 27, 1950, President Harry S. Truman announces that he is ordering U.S. air and naval forces to South Korea to aid the democratic nation in repulsing an invasion by communist North Korea. The United States was undertaking the major military operation, he explained, to enforce a United Nations resolution calling for an end to hostilities, and to stem the spread of communism in Asia. In addition to ordering U.S. forces to Korea, Truman also deployed the U.S. 7th Fleet to Formosa (Taiwan) to guard against invasion by communist China and ordered an acceleration of military aid to French forces fighting communist guerrillas in Vietnam.

Factors in US intervention

The Truman Administration was caught at a crossroads. Before the invasion, Korea was not included in the strategic Asian Defense Perimeter outlined by Secretary of State Acheson. Military strategists were more concerned with the security of Europe against the Soviet Union than East Asia. At the same time, the Administration was worried that a war in Korea could quickly widen into another world war should the Chinese or Soviets decide to get involved as well.

One facet of the changing attitude toward Korea and whether to get involved was Japan. Especially after the fall of China to the Communists, “…Japan itself increasingly appeared as the major East Asian prize to be protected”. US East Asian experts saw Japan as the critical counterweight to the Soviet Union and China in the region. While there was no United States policy that dealt with South Korea directly as a national interest, its proximity to Japan pushed South Korea to the fore. “The recognition that the security of Japan required a non-hostile Korea led directly to President Truman’s decision to intervene… The essential point… is that the American response to the North Korean attack stemmed from considerations of US policy toward Japan.” The United States wanted to shore up Japan to make it a viable counterweight against the Soviet Union and China, and Korea was seen as integral to that end.

The other important part of committing to intervention lay in speculation about Soviet action in the event that the United States intervene. The Truman administration was fretful that a war in Korea was a diversionary assault that would escalate to a general war in Europe once the US committed in Korea. At the same time, “[t]here was no suggestion from anyone that the United Nations or the United States could back away from (the conflict)”. In Truman’s mind, this aggression, if left unchecked, would start a chain reaction that would destroy the United Nations and give the go ahead to further Communist aggression elsewhere. Korea was where a stand had to be made, the difficult part was how. The UN Security council approved the use of force to help the South Koreans and the US immediately began using air and naval forces in the area to that end. The Administration still refrained from committing on the ground because some advisors believed the North Koreans could be stopped by air and naval power alone. Also, it was still uncertain if this was a clever ploy by the Soviet Union to catch the US unawares or just a test of US resolve. The decision to commit ground troops and to intervene eventually became viable when a communiqué was received on June 27 from the Soviet Union that alluded it would not move against US forces in Korea. “This opened the way for the sending of American ground forces, for it now seemed less likely that a general war-with Korea as a preliminary diversion-was imminent”. With the Soviet Union’s tacit agreement that this would not cause an escalation, the United States now could intervene with confidence that other commitments would not be jeopardized.

“Irrational exuberance”, “unrealistic expectations” accurately describe some of the reports about the alleged rebound in the housing market, such as this report on the increase in housing prices:

Home prices rose in nearly all major U.S. cities in April from March, further evidence that the housing market is slowly improving even while the job market slumps.

The Standard & Poor’s/Case-Shiller home price index shows increases in 19 of the 20 cities tracked. That’s the second straight month that prices have risen in a majority of U.S. cities.

And a measure of national prices rose 1.3 per cent in April from March, the first increase in seven months.

San Francisco, Washington and Phoenix posted the biggest increases. Prices fell 3.6 per cent in Detroit, the only city to record a drop.

The month-to-month prices aren’t adjusted for seasonal factors. Still, prices in half of the cities are up over the past 12 months.

Then there was this news in Bloomberg about the increase in demand for new homes:

Demand for new U.S. homes rose more than forecast in May as mortgage rates dropped, bolstering the residential real-estate market while other parts of the world’s largest economy cool.

Purchases climbed to a 369,000 annual rate, the most since April 2010 and up 7.6 percent from the prior month, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 67 economists was 347,000. The number of houses on the market held near a record low.

The problem with this rise in housing prices and an increase in new home sales is that its a poor indicator of the real “health” of the housing market. Even Yale Prof. Robert Shiller, co-creator of the quoted Case-Shiller house price index, takes a cautious view of these optimistic predictions of a housing recovery:

MUCH hope has been pinned on the recovery in home prices that began about a year ago. A long-lasting housing recovery might provide a balm to households, mortgage lenders and the entire United States economy. But will the recovery be sustained? [..]

The most obvious reason for hope is that, unlike stock prices, home prices tend to show a great deal of momentum. Correcting for seasonal effects, home prices as measured by the S.&P./Case-Shiller 10-City Home Price Index increased each month from June 1995 to April 2006, then decreased almost every month to May 2009. Since then, they have risen through January, the latest month for which data is available.

So, because home prices have been climbing of late, isn’t it plausible that they’ll keep doing so?

If only it were that simple.

Home price booms and busts do end, sometimes quite suddenly, as was the case for the boom of 1995 to 2006 and the bust of 2006 to 2009. Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.

Michael Olenick explains at naked capitalism:

Yale Prof. Robert Shiller, co-creator of the well-known Case-Shiller house price index, takes a more sober approach. Shiller argues in the New York Times until meaningful principal reductions are put in place that house prices are hosed. Pricing may bump up on artificial scarcity caused by the relatively low number of foreclosures after the robo-signing scandal, but in the long run underwater borrowers are likely to drown. Further, because of sky-high loss severities in foreclosures – my own data shows it is not at all uncommon for investors to lose the entire face value of a mortgage in a foreclosure – principal reductions make good business sense.

Shiller embraces an idea being floated about lately; having municipalities use eminent domain to “take” mortgages at fair market value. Databases like the one I’ve been compiling clearly show the loss severity of similar mortgages in similar ZIP codes, allowing municipalities to ascertain fair market value of the mortgages, as opposed to the houses. In bubble-states, where negative equity issues are most pronounced, fair market value of most mortgage would be no more than 20-percent of the face value of the first mortgages – and oftentimes far less; no more than a few cents on the dollar – while second liens would be worthless.

Assuming this approach is only used with the consent of the homeowner, I’d suspect that one last call the servicer before implementation would magically result in an almost immediate modification: no lost paperwork, no transfers to the offshore call center, no capitalized interest.

That’s too rational for anyone to heed.