Tag: Economy

All of us the left who have witnessed Rep. Alan Grayson’s interviews and speeches on the Floor of the House will miss him. Mr. Grayson, despited his defeat in this last election, is not going quietly into that good night. I expect that we will hear from him.

Alan Grayson: Five Things The Rich Can Do With Their Tax Cuts

WASHINGTON — Alan Grayson (D-Florida) wants everyone to know that he is not in favor of extending the Bush cuts for the wealthy, which would average out to about $83,347 a year for each person in the top 1 percent of the U.S. income bracket. To drive his point home, he made a list for lawmakers on the House floor Wednesday night of the many ways those “high and mighty” individuals making an average of $1.4 million a year will be able to use that extra cash.

Economics 101

The time has come, the Walrus said, to talk of many things.  Of shoes and ships and sealing wax, of cabbages and kings.

I want to focus here on Credit Default Swaps.  Since the abbreviation (CDS) is close to the abbreviation for Collateralized Debt Obligations (CDO), which includes as a subset Mortgage Backed Securities (MBS) there is a tendency to confuse them all together.

A Credit Default Swap is an insurance policy on a debtor paying their debt.

For a fee someone with deep pockets agrees to make good the debt if the debtor doesn’t pay.

Now as long as the debtor pays this is easy money, but what we are finding is that when they actually do default, the people who sold these insurance policies don’t actually have such deep pockets after all.

And since they’re “Too Big To Fail” financial institutions who owe other “Too Big To Fail” financial institutions the money is coming out of Taxpayer pockets instead.

As I might have mentioned before (but am too lazy to look up at the moment) it is Insurance Fraud not to keep sufficient reserves to pay off your policies.

What makes this even worse is that you don’t actually have to own the debt to buy the policy.  It’s like letting random people take out life insurance on you and not counting on them coming up with some brilliant Strangers on a Train scheme to bump you off.

It is fundamentally no different from going into a Casino and betting it all on Black.

The Debt Problems of the European Periphery

By Anders Åslund, Peter Boone and Simon Johnson, The Baseline Scenario

November 17, 2010 at 12:18 am

Last week’s renewed anxiety over bond market collapse in Europe’s periphery should come as no surprise.  Greece’s EU/IMF program heaps more public debt onto a nation that is already insolvent, and Ireland is now on the same track. Despite massive fiscal cuts and several years of deep recession Greece and Ireland will accumulate 150% of GNP in debt by 2014.   A new road is necessary: The burden of financial failure should be shared with the culprits and not only born by the victims.

The fundamental flaw in these programs is the morally dubious decision to bail out the bank creditors while foisting the burden of adjustment on taxpayers.  Especially the Irish government has, for no good reason, nationalized the debts of its failing private banks, passing on the burden to its increasingly poor citizens.  On the donor side, German and French taxpayers are angry at the thought of having to pay for the bonanza of Irish banks and their irresponsible creditors.

Such lopsided burden-sharing is rightly angering both donors and recipients.  Rising public resentment is testing German and French willingness to promise more taxpayer funds.  German Chancellor Angela Merkel’s hasty and ill thought out plan to demand private sector burden sharing, but only “after mid-2013”, marks a first response to these popular demands.  We should expect more.

Financial crises are actually not rare, and the rules for their resolution are clear. The fundamental insight is that huge amounts of financial losses, of seemingly real value, need to be distributed across creditors, debtors, equity holders and taxpayers.

My emphasis.

Ireland: How much punishment for British and international banks?

Robert Peston, BBC

09:09 UK time, Wednesday, 17 November 2010

Are haircuts in or out for Ireland? Will the putative experts at the IMF, European Commission and European Central Bank, who will spend the next few days examining Ireland’s intertwined banking and fiscal challenges, recommend that there should be losses imposed on the providers of tens of billions of euros of wholesale debt to banks.

…

It is that phrase “restructuring of the banking sector” which may alarm the banks and financial institutions which are wholesale creditors of Ireland’s banks, the providers of more senior debt which is supposed to be least at risk of non-repayment. The implication is that consideration is being given to forcing losses on them, such that they would share in the costs of rehabilitating Ireland’s banks.

…

(I)t would be a bit odd if the ECB, in the shape of all its senior movers and shakers, were opposed to such haircuts: there is a powerful moral argument, of the sort that normally appeals to central bankers, to the effect that overseas banks and institutions in the UK, Germany and so on should have known better than to encourage Ireland’s banks to lend recklessly and pump up a completely unsustainable property bubble – and that they therefore deserve a bit of a spanking.

What’s more, if Ireland is fundamentally incapable of paying off all it owes – which is equivalent to an oppressive 700% of GDP when banking, public sector and private sector debts are added together -some will say it is grotesquely unfair that the cost should fall entirely on taxpayers in Ireland, the European Union and (if IMF money is drawn) the rest of the world.

…

What would then be triggered would be enormous payments by underwriters of credit default swaps (CDSs), the debt insurance contracts taken out by lenders and speculators. These payments would generate enormous losses for the financial institutions, including banks, which provided the CDS cover.

…

Even without the CDS loss multiplier, the impact of debt haircuts would be painful for British and international banks. According to the Bank for International Settlements, total lending of non-Irish banks to Irish banks is around $170bn, of which British banks provided $42bn, German banks provided $46bn, US banks $25bn and French banks $21bn.

…

What’s more, if there are haircuts imposed on Irish bank debt, it’s very difficult to see how haircuts could be avoided for Greek and Portuguese bank debt too, and also for plain vanilla Irish, Portuguese and Greek government borrowings.

If you add all that together, it comes to $435bn of exposure for international banks to the banking and public sectors of the eurozone’s three weakest economies. If, say, a third of that were written off (enough to make the residual debt almost bearable) that would trigger not far off $150bn of losses for banks alone.

Not much detail yet, but breaking after the bell on CNBC, Ireland has said it will only accept a bank bailout and not a government bailout.

Meetings expected to continue tomorrow.

Update:

Irish rebuff bailout call in euro zone crisis

By Jan Strupczewski and Julien Toyer, Reuters

1 hr 1 min ago

BRUSSELS (Reuters) – Ireland said it was discussing stabilization measures with its European partners on Tuesday and ways to cut its heavily indebted banks’ funding costs in what a top EU official called a “survival crisis” for the euro zone.

A euro zone source said finance ministers of the 16-nation currency area meeting in Brussels would declare support for Dublin’s austerity measures and express readiness to help financially, if it asks for aid, but would not announce any practical measures.

In Dublin, Prime Minister Brian Cowen rebuffed calls to request a bailout, saying the government was fully funded until mid-2011, and insisted that only the banks may need help.

In other news, kiss goodbye any Stock Market gains in November.  As Atrios says is seems that only when the Market goes down do our “leaders” in Washington pay attention, so, more days like this please.

In about half an hour (2:30 pm ET) the Senate Banking Committee will be holding hearings on Title Fraud.  You can watch it here @ senate.gov (h/t dday).  It’s not on C-Span unfortunately.

Among the scheduled witnesses are- Barbara Desoer, president of Bank of America Home Loans, and David Lowman, chief executive of Chase Home Lending.  Also Tom Miller, Attorney General of Iowa, Adam J. Levitin of Georgetown University Law, and Diane E. Thompson with the National Consumer Law Center.

There may be fireworks but attentive readers will remember I’ve been outlining many of the myriad problems for a long time and once again as recently as yesterday so I’m not really expecting any surprises.

The good news is that finally at least some of our brain dead political class seems to be waking up to the facts which have been apparent for months and years now.  emptywheel highlights a newly released study from the TARP Congressional Oversight Panel that’s worth taking a look at.

It’s Title Fraud Damnit!

Of the 10 diaries I’ve posted in the last 2 weeks about economics, fully 5 of them have been on bank fraud.

• The Morality of the Market Mon Nov 01, 2010 at 09:12:22 AM EDT
• BoA: Feeling The Heat? Fri Nov 05, 2010 at 06:14:02 AM EDT
• BoA: The Heat Is On Sat Nov 06, 2010 at 07:34:48 AM EDT
• Allonge! Thu Nov 11, 2010 at 11:21:45 AM EST
• Just a scrap of paper Sat Nov 13, 2010 at 10:06:40 AM EST

The latest develoment is rumors that Washington and Wall Street are conspiring to retroctively “legalize” the MERS records under the general Versailles Villager principle of looking foward and never punishing anyone important no matter how badly they fuck up.

I mean, if it works for torture, war crimes, anonymous indefinite detetion, and targeted assassination, what’s $1.4 Trillion between friends?

So I duly reported this on Saturday and today dday has a piece that is not quite as sanguine that this is a problem that can be solved by brute force-

This Week’s Developments in Foreclosure Fraud

By: David Dayen Monday November 15, 2010 8:18 am

Finally, a word on the "MERS Whitewash bill" floated by John Carney last week. Carney has been bloviating about this for well over a month, based mainly on speculation. He may have the history of Congress making mischief on behalf of the banks on his side, but he really doesn’t have a clue on this issue. Foreclosure operations are state issues governed by state laws, and lawmakers know they would have a difficult go of trying to adjudicate a constitutionally viable solution that would indemnify the banks in this case. They’d have to stick out their necks quite far, and it would almost certainly be challenged all the way up the legal ladder. The outcry that would ensue during that time would be tremendous. I’m not sure it’s something that risk-averse politicians would want to put up with. And Carney certainly has no evidence one way or the other. I’m happy to fight something that exists, but nothing does at the moment.

I am quite happy to fight potential problems, because the Vacuity, Vanity, and Venality of our Versailles Villagers shouldn’t ever be underestimated.

And there are other problems-

One Mess That Can’t Be Papered Over

By GRETCHEN MORGENSON, The New York Times

Published: October 23, 2010

O(n) the other hand, resolving paperwork woes in the world of mortgage-backed securities may be trickier. Experts say that any parties involved in the creation, sale and oversight of the trusts holding the securities may be held responsible for any failings – and if the rules weren’t followed, investors may be able to sue the sponsors to recover their original investments.

Mind you, the market for mortgage-backed securities is huge – some $1.4 trillion of private-label residential mortgage securities were outstanding at the end of June, according to the Securities Industry and Financial Markets Association.

…

All of this suggests that while a paperwork cure may eventually exist for foreclosures, higher hurdles exist when it comes to remedying flaws in mortgage-backed securities. The only way to wrestle with the latter, some analysts say, is in a courtroom.

“The whole essence of this crisis is fraud and unless we restore the rule of law and transparency of disclosure, we are not going to fix this,” said Laurence J. Kotlikoff, an economics professor at Boston University.

These are groups like PIMCO, Blackrock, and the Federal Reserve Bank of New York.  So far.

Then there’s also the problem pointed out by bmaz on Friday originally, these banks and real estate trusts owe a lot of money in filing fees in States hard hit by the Bank Induced Financial Collapse and Depression.

Are Obama and Congress Set To Screw American Counties, Homeowners and Give Wall Street Mortgage Banksters a Retroactive Immunity Bailout?

By: bmaz Friday November 12, 2010 7:40 pm

There are rapidly emerging signs the Obama Administration and Congress may be actively, quickly and covertly working furiously on a plan to retroactively legitimize and ratify the shoddy, fraudulent and non-conforming conduct by MERS on literally millions of mortgages.

…

As quoted above, even the most conservative estimate (and that estimate is based on only a single recording fee per mortgage, when in reality there are almost certainly multiple recordings legally required for most all mortgages due to the slicing, dicing and tranching necessary to accomplish the securitization that has occurred) for the state of California alone is $60 billion dollars. That is $60,000,000,000.00. California alone is actually likely several times that.

And there are those pesky Sections 9 and 10 of Article I.

There are at least 11 criminal frauds going on and the charitable and optimistic part of me thinks that they cain’t git all them thar’ worms back in the bait can.

Monday Business Edition

One of the emergent stories this weekend has been the question of whether Ireland is going to accept a bailout from the EU or the IMF.  The proximate problem is that interest rates on Irish debt (bonds) and the price of insuring it against defaults (Credit Default Swaps) rose quite sharply on Thursday and Friday.

No holding back the tide

By David Clerkin, Markets Correspondent, The Sunday Business Post

14 November 2010

The rate attached to Irish ten-year bonds, which days earlier had touched the already eye-watering level of 7.8 per cent, quickly eclipsed 8 per cent on Monday and smashed through 9 per cent on Thursday.

…

To put this spiral into context, it is worth noting that the rate stood at 6.8 per cent less than two weeks ago. It was 6.5 per cent a month ago. It was 4.7 per cent a year ago.

…

Some bond traders zeroed in on the market for credit default swaps (CDSs) – the insurance policies on offer to protect investors from a borrower becoming unable to repay their money. The CDS market, though thinner than the market in government bonds, exhibited equally grim characteristics last week. The CDS premiums on AIB debt – insurance against AIB defaulting – exceeded 10 per cent, and those on debt issued by other Irish banks continued their unwelcome rise.

As the market fate of the Irish government has been intertwined with those of the banks it guaranteed since September 2008, some traders spoke of a vicious circle. As Irish banks fell increasingly out of favour, fears over the Irish government’s creditworthiness intensified.

Andrea Merkel made some remarks at the G20 Summit (which was so unproductive for Obama, but that’s another story) about using the European Financial Stability Fund for another bailout that the Irish government is objecting to strenuously.

The Irish people?  Maybe not so much.

German solution seems irresistible to Irish people but not to the State

JOHN McMANUS, The Irish Times

Monday, November 15, 2010

Why is the Government against accessing the European Financial Stability Fund?

(Ireland, we) are led to believe, is a source of endless fascination, no little bafflement and some affection for the Germans. Right now they must be wondering why their chancellor, Angela Merkel, is being blamed for our latest crisis by the Taoiseach when she appears far more in tune with the Irish national mood than he does.

At a very fundamental level, all the German chancellor wants to do is change the rules of global finance so that the investors who lend money to feckless governments and banks must share the cost when things go wrong and thus be incentivised to act more responsibly. It’s a sentiment that pretty much everyone in Ireland would support.

Her proposals have an added populist attraction in Ireland as, inter alia, they would involve the burning of bank bondholders, the cause célèbre of much of the economic commentariat. This is because it is hard to see how Ireland could restructure its own debt – the nub of Merkel’s plan – without also restructuring the debts of the almost completely nationalised banking system.

…

From this point of view, the European Financial Stability Fund is starting to look irresistible. Not only do you get to burn the bond holders, you may even be able to help people out of negative equity! “What’s not for these Irish to like?” Merkel can legitimately ask. “Nothing” is the answer most of us would give.

So why is it then that we have a situation where the German chancellor and most Irish people seem to want one thing and our Government and the financial establishment want the other?

The answer is that, unfortunately, we must live with the immediate consequences of what is a laudable effort to reverse the balance of power between the financial system and sovereign governments. It is admirable – and indeed necessary – because the overriding lesson of the global financial crisis has been that governments have found themselves servants of the financial markets rather than the other way around. But while we would all like to get to the sun-lit uplands envisioned by Merkel, Ireland unfortunately might not survive the journey.

What does Merkel get out of it?  The Euro is teetering on the brink and a lot of people are heavily invested in it, financially and politically.

Ireland and Greece should ditch the euro

By Peter Oborne, The Daily Telegraph

November 15th, 2010

This is what the Spanish prime minister, Jose Zapetero, declared in an interview with the Wall Street Journal as recently as September 22: “I believe that the debt crisis affecting Spain, and the eurozone in general, has passed.”

Or let’s listen to Patrick Honohan , governor of the Central Bank of Ireland, who soberly informed the markets last week that surging yields on Irish government debt would soon be back to normal levels. Both men are deluding themselves – and us. From time to time, events take a turn which is too grave, unsettling and unfathomable for politicians to cope with. They enter a state of denial. We are now living through one of those times.

The European Single Currency cannot be saved. Yet the euro elite are unable to bring themselves to acknowledge the magnitude of this disaster. They have convinced themselves that all is well. The pattern is familiar and indeed we in Britain experienced something very similar in the months leading up to Black Wednesday and the eviction of sterling from the Exchange Rate Mechanism in September 1992.

…

The euro elite is utterly ruthless. In its mission to save the euro, it is ready to throw tens of millions out of work and in the process destroy businesses, lives and whole economies. Consider the terrifying facts. The Irish economy has gone through recession and entered what economists call a depression. Its output contracted by an extraordinary 10 per cent last year, and may well do so again over the next 12 months.

In Spain, unemployment stands at 20 per cent, and youth unemployment a horrifying and tragic 40 per cent. The depths of misery lying behind these statistics cannot be exaggerated. A friend of mine who lives in the Spanish province of Andalusia tells me that some children in his village cannot go to school. This is because their parents cannot afford to buy them shoes. Effectively large parts of Europe are de-industrialising. In Greece, the economy may contract by 15 per cent over the next two years as a result of massive cuts in state spending.

For Greece and Ireland, there is an absurdly easy way back to economic growth: return to the drachma and the punt. Such a move would enable national currencies to fall back to levels where they can be internationally competitive – which in the case of hapless Greece would be approximately one third of where it stands today.

Assertions by the big bankers and eurocrats that such a move is technically impossible are self-serving and false. It would of course be very messy in the short term, but there are many examples of countries pulling out of currency unions with no lasting ill-effect.

The peripheral eurozone nations are being prevented from taking this sensible move by a cynical alliance between the big banks and the Brussels elite. The banks cannot countenance any contraction of the eurozone because once Greece, Ireland, Portugal and Spain pull out, they will have no choice but to default on their debts. Such a move would bankrupt almost all European banks. Between them these four countries have a combined sovereign debt of well over £1 trillion. A very large part of this debt is owned by the major European banks. The Bank of International Settlements estimates, for example, that French financial institutions have lent the equivalent of 37 per cent of total French GDP to these failing countries.

However there are also hugely powerful political considerations. The collapse of the euro project will come as a shattering blow from which the European project cannot recover. That is why key members of the Euro elite are so determined to use this moment to press forward with their plans for political and economic integration.

More about Ireland-

• How’s that austerity thing working out for you? Mon Nov 08, 2010 at 10:04:33 AM EST
• Again- How’s that austerity thing working out for you? Tue Nov 09, 2010 at 09:50:46 AM EST

Business News below.  Now with 51 Stories.

Crossposted at Daily Kos and Docudharma

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Property rights, and their transfer, are governed by laws with factually thousands of years of precedent.  The earliest records are in hieroglyphics and cuneiform.

Are Obama and Congress Set To Screw American Counties, Homeowners and Give Wall Street Mortgage Banksters a Retroactive Immunity Bailout?

By: bmaz Friday November 12, 2010 7:40 pm

Why would the Obama Administration and Congress be doing this? Because the foreclosure fraud suits and other challenges to the mass production slice, dice and securitize lifestyle on the American finance sector, the very same activity that wrecked the economy and put the nation in the depression it is either still in, or barely recovering from, depending on your point of view, have left the root balance sheets and stability of the largest financial institutions on the wrong side of the credibility and, likely, the legal auditory line. And that affects not only our economy, but that of the world who is all chips in on the American real estate and financial products markets.

What does that mean to you? Everything. As quoted above, even the most conservative estimate (and that estimate is based on only a single recording fee per mortgage, when in reality there are almost certainly multiple recordings legally required for most all mortgages due to the slicing, dicing and tranching necessary to accomplish the securitization that has occurred) for the state of California alone is $60 billion dollars. That is $60,000,000,000.00. California alone is actually likely several times that. Your county is in the loss column heavy from this too.

…

This is a death knell to the real property system as we have always known it and the county structure of American society as we have known it. And millions of people will have lost the ability to benefit from the established rule and process of law that they understood and relied on. After the fact. Retroactively. So Obama and Congress can once again give a handout and bailout to the very banks and financial malefactors that put us here.

I don’t weep for the counties, they’re not much more than lines on a map in Connecticut, but I do for the rule of law.  If you don’t give a rat’s ass about the 5th Amendment, you might about ex post facto.

We can only hope.  Or changiness, I forget which.

In my piece yesterday, Democratic Party Death Wish, TheMomCat added a chart by Kevin Drum of Mother Jones that illustrates the “deficit” problem.  It’s kind of small so I’m blowing it up (I apologize for the sacrifice in resolution).

In case you can’t see it so well there are 3 blue colored areas and one thick blue line.

• The light blue area at the bottom is labeled Other Federal Noninterest Spending
• The dark blue area in the middle is labeled Social Security
• The medium blue area at the top is labeled Medicare and Medicaid
• The thick blue line is labeled Revenues

The thick blue line cuts through the big Medicare and Medicaid area and makes it look like there are two of them, but it’s really just the one.

Is the Deficit Commission Serious?

By Kevin Drum, Mother Jones

Wed Nov. 10, 2010 8:46 PM PST

Here’s what the chart means:

• Discretionary spending (the light blue bottom chunk) isn’t a long-term deficit problem. It takes up about 10% of GDP forever. What’s more, pretending that it can be capped is just game playing: anything one Congress can do, another can undo. So if you want to recommend a few discretionary cuts, that’s fine. Beyond that, though, the discretionary budget should be left to Congress since it can be cut or expanded easily via the ordinary political process. That’s why it’s called “discretionary.”
• Social Security (the dark blue middle chunk) isn’t a long-term deficit problem. It goes up very slightly between now and 2030 and then flattens out forever. If Republicans were willing to get serious and knock off their puerile anti-tax jihad, it could be fixed easily with a combination of tiny tax increases and tiny benefit cuts phased in over 20 years that the public would barely notice. It deserves about a week of deliberation.
• Medicare, and healthcare in general, is a huge problem. It is, in fact, our only real long-term spending problem.

…

Bottom line: this document isn’t really aimed at deficit reduction. It’s aimed at keeping government small. There’s nothing wrong with that if you’re a conservative think tank and that’s what you’re dedicated to selling. But it should be called by its right name. This document is a paean to cutting the federal government, not cutting the federal deficit.

Now consider Krugman-

The Hijacked Commission

By PAUL KRUGMAN, The New York Times

Published: November 11, 2010

We’ve known for a long time, then, that nothing good would come from the commission. But on Wednesday, when the co-chairmen released a PowerPoint outlining their proposal, it was even worse than the cynics expected.

Start with the declaration of “Our Guiding Principles and Values.” Among them is, “Cap revenue at or below 21% of G.D.P.” This is a guiding principle? And why is a commission charged with finding every possible route to a balanced budget setting an upper (but not lower) limit on revenue?

Matters become clearer once you reach the section on tax reform. The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. “Lower Rates” is the first point; “Reduce the Deficit” is the seventh.

…

(W)hat the co-chairmen are proposing is a mixture of tax cuts and tax increases – tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans – the deductibility of health benefits and mortgage interest – and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.

…

It’s no mystery what has happened on the deficit commission: as so often happens in modern Washington, a process meant to deal with real problems has been hijacked on behalf of an ideological agenda. Under the guise of facing our fiscal problems, Mr. Bowles and Mr. Simpson are trying to smuggle in the same old, same old – tax cuts for the rich and erosion of the social safety net.

My emphasis.

The truth is that the Catfood Commission wasn’t hijacked at all.  It was set up by Barack Hussein Obama and his Administration to produce exactly the results it did-

(T)his document isn’t really aimed at deficit reduction. It’s aimed at keeping government small. There’s nothing wrong with that if you’re a conservative think tank and that’s what you’re dedicated to selling. But it should be called by its right name. This document is a paean to cutting the federal government, not cutting the federal deficit.

To her credit here is Nancy Pelosi’s official take–

This proposal is simply unacceptable. Any final proposal from the Commission should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare. And it must strengthen America’s middle class families-under siege for the last decade, and unable to withstand further encroachment on their economic security.