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The Greek indigents huffed and puffed, broke a couple of marble plates from Syntagma square, striked for a few days (or is that stroke?), and achieved nothing. In the meantime, their government just sold off the country to European banking interests. …
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It was just a matter of time before wholesale debt-forgiveness became the primary source of wealth in the US. The time is now. The NYT reports that “big banks are going to borrowers who are not even in default and cutting their debt or easing the mort…
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The very critical, and very insufficient 5th bailout tranche to Greece, has now been approved. From Reuters: “Euro zone finance ministers agreed on Saturday to disburse a further 12 billion euros to Greece and said the details of a second aid package …
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From www.thetrader.seJuly 1st marked the 90 years anniversary of the Communist Party of China (CPC). China has undergone huge changes and will be the next super power. If we all end up working for the Chinese or not is to be seen, meanwhile we p…
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The Greek indigents huffed and puffed, broke a couple of marble plates from Syntagma square, striked for a few days (or is that stroke?), and achieved nothing. In the meantime, their government just sold off the country to European banking interests. But don't take our word for it. Take the word (on those very rare occasions when it is actually telling the truth) of Eurogroup chairman Jean-Claude Juncker who just told Focus magazine that "The sovereignty of Greece will be massively limited." And just like DSK's innocence was effectively granted 2 days after Christine Lagarde was made new head of the IMF (we still are waiting for the IMF to have a statement on the recent DSK developments), so Juncker's stunning disclosure comes not even 12 hours after the 5th Greek bailout package has been released. Per the Guardian: "Juncker's interview appeared just hours after Eurozone ministers signed off the fifth tranche of last year's bailout, worth €12bn. The payment must now be rubber-stamped by the International Monetary Fund (IMF) and pushed through by 15 July in time to meet several bond repayment deadlines. Agreeing the latest IMF payout, on 8 July, will be an early task for Christine Lagarde, the new IMF boss, who starts work in Washington on Wednesday." One wonders how different, it at all, DSK's probanker stance would have been had he still been the IMF head. Per the Guardian: Juncker said Greece needed to adopt a process similar to the Treuhand agency, used by Germany to sell off 14,000 former East German firms between 1990 and 1994 – even though Treuhand failed to deliver any profit, oversaw huge job losses and eventually closed its books with a deficit.
But he did appear to acknowledge that the Greeks were hostile to foreign officials appearing to take charge: "One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the eurozone."
Athens, together with European leaders and the IMF, must now start work on a second €110bn bailout for Greece, which must be finalised by September and is likely to include private-sector involvement. In the meantime, and in the purest definition of insanity, Greece is now "fighting" record debt with even more record debt: The European commission conceded on Saturday, after the two-hour Eurogroup teleconference agreed the fifth tranche payout, that any plan to cut Greece's debt of 160% of economic output would be at risk of being derailed by internal unrest or external economic conditions. Growth just one percentage point below expectations, it said, would push Greece's debt to 170% of GDP, and rising, past 2020.
For the first time, the commission's report also discusses debt restructuring, including a possible 40% "haircut" – a forced reduction in the value of Greek bonds – which would devastate Greek banks and, the report warns, could reverberate on Ireland, Portugal and Spain. Which means that European bankers will only have a few months in which to pick Greek bones dry and buy up various islands, before the charade ends. For their sake, however, we hope they realize that buying "assets" or even islands in a nation, that now loathes everything to do with a "united" Europe, a "united" currency, and the banker klepto-oligarchy, will need substantial fortifications and firepower, for when the tide inevitably turns and Europe realizes it was it that has been fooled and has been throwing ever more good money after bad, as the locals seek to reclaim not only what is rightfully theirs but determines that Greek Odious Debt is about 100% of total debt outstanding.
It was just a matter of time before wholesale debt-forgiveness became the primary source of wealth in the US. The time is now. The NYT reports that " big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked. Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk." To be deemed in "special risk" one needs to simply have an Option ARM mortgage, and be underwater, even if still current on mortgage payments. End result: an up to 50% cut in the actual mortgage obligation. To wit: "Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it. Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure." Whether this is a strategic step by the banks who wish to avoid tens if not hundreds of billions in fraudclosure and putback related legal costs, charges and reserves is for now unclear, although all signs point to yes. Next up: everyone in America stops paying their mortgage, or demands a 50% haircut on existing debt, now that the example has been made. And in the meantime, banks will somehow continue to keep the mortgages, which they have now cut by up to half, at par on their books following some brand new, thoroughly senseless announcement by the FASB which says banks can mark anything to whatever price they chose in perpetuity. Because otherwise, the TBTF lenders will suddenly find themselves in a massive deficiency on their Tier 1 capital, also known as completely insolvent. More from the NYT: “I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ” said Ms. Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.”
Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.
Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash.
Chase, which declined to comment on its program, got $50 billion in option ARM loans when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 option ARM loans with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.
Bank of America acquired a portfolio of 550,000 option ARMs from its purchase of Countrywide Financial in 2008. The lender said more than 200,000 had been converted to more stable mortgages. More details on the example that prompted the NYT article: Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.
Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”
The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.
A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.” And so America is now well en route to another spike in class warfare tensions, as has been the default case for the past two years between those who act in a prudent financial way, and everyone else, who are now getting bail outs from the same banks that were bailed out by those stupid enough to pay US taxes in the first place: The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”
Having an option ARM loan, however, apparently qualifies the borrower for special help. The loans, with their low initial payments and “teaser” interest rates, were immediately popular with buyers who could not afford or did not want to pay the soaring prices on houses. The problem was, eventually the rate would reset or the loan balance would have to be paid in full. “Nightmare Mortgages” they were called in a 2006 BusinessWeek cover piece. Lastly, to all those who were predicting an Option ARM housing market collapse once loans go from Adjustable rate to fixed, the banks now have an answer.
The very critical, and very insufficient 5th bailout tranche to Greece, has now been approved. From Reuters: "Euro zone finance ministers agreed on Saturday to disburse a further 12 billion euros to Greece and said the details of a second aid package for Athens would be finalised by mid-September. After a conference call, the 17 euro zone ministers agreed that the fifth tranche of the 110-billion-euro bailout agreed with Greece in May 2010 would be paid by July 15, as long as the IMF's board signs off on the disbursement. The IMF is expected to meet on July 8 to approve it. The payment will allow Greece to avoid the immediate threat of default, but the country still needs a second rescue package, which is also expected to total around 110 billion euros and which will now likely only be finalised in September. Between now and then, finance ministers will work on the "precise modalities and scale" of the private sector's involvement in the second aid package, which Germany hopes will eventually total around 30 billion euros. Greece said it expected a final decision on a second bailout programme by mid-September to keep the country financed. Eurogroup decided through a teleconference today to work out a new programme on time, before mid-September," Greek Finance Minister Evangelos Venizelos said shortly after the finance ministers approved the 12 billion euro disbursement." More importantly, "The 12 billion euro payment will help Athens cover
a 5.9 billion euro bond redemption in August, but the government still
has a monumental hill to climb if it is to return to debt
sustainability, with its debt-to-GDP ratio above 150 percent." Another update on the MLEC that failed with US subprime but is expected to rescue Greece: Private financial institutions held talks with finance ministry and central bank officials in euro zone countries last week to discuss under what conditions the private sector would be willing to help finance Greece and by how much.
Those discussions continue, with the involvement of the private sector in the next package a must for several euro zone countries as voters grow increasingly opposed to shouldering the burden of bailing out Greece on their own.
But private sector involvement must be voluntary to avoid triggering another downgrade of Greek debt to default status by ratings agencies, a development which could put the whole Greek banking sector at risk.
The Institute of International Finance, a global association of financial institutions, said on Friday that the "private financial community is ready to engage in a voluntary, cooperative, transparent and broad-based effort to support Greece given its unique and exceptional circumstances".
Schaeuble has said German banks wanted to roll over 3.2 billion euros' worth of Greek bonds maturing to 2014. The full statement from the Eurozone is below, but in the meantime, here is a repost of the math involving the 5th bailout tranche: Greek Math: €12 Billion In, €18.2 Billion Out... And That's IF The Impossible Happens
Here is a simple summary of the Greek bailout math explained with just 2 numbers. First, the country has to do the impossible. As Citi's Jurgen Michels summarizes: "Once the whole new cabinet is announced, parliamentary discussions ahead of the vote of confidence will probably start on Sunday, with the vote actually taking place next week on Tuesday evening. Even if the new government manages to pass the vote of confidence, it will still have to submit to Parliament the new austerity package for approval, probably sometime later next week or the week thereafter. This will be key for the smooth disbursement of the next tranche of EU/IMF loans, of €12bn." In other words, the Greek government has to pass 2 near-Sysiphean tasks before it can even hope to sniff the IMF's €12 billion in rescue funding. That's number 1. Number 2 comes from the chart below, which shows the debt and interest payments through August. This number is €18.2 billion. This number does not include the billions in deficit spending that will also have to be funded somehow over and above debt paydown. Ergo, the math for a viable Greece is as follows: €12BN > €18.2BN + X. Simply said, unless somehow Greece discovers how to tax its citizens and actually record net revenue in July, the best the ECB can hope for before it has to mark its tens of billions in Greek bonds to about 45 cents on the dollar, is one month. So will someone please explain to us why again the EUR is up today? Actually the only possible reason is that Europe is now pricing in the fact that China will be the de facto owner of at least 2 European countries by this time next year, however not in an Asset Purchase Transaction but Stock, whereby China also acquires the liabilities. Which in turn may explain why Russia's just announced minutes ago that China may turn into "zone of risk" for the global economy.
Full statement from the Eurozone.
7 2 11 Eurogroup Statement
By EconMatters The CPC (Communist Party of China) was founded on July 1, 1921 in Shanghai with
Via Pension Pulse. It was a gorgeous day in Montreal so I spent the afternoon swimming and
tanning while listening to my tunes. But I did manage to hook up with a
buddy of mine who flew in to close the sale of his house and visit
friends.
My buddy is smart and has extensive operational experience
across manufacturing and the financial industry, most recently managing a
major infrastructure project in Greece which went sour following the
crisis. He has been extremely negative on Greece over the last three
years to the point where he got on my nerves several times. But in the
end he was right, Greece is a basket case and the bailout won't work.
Below,
I'll share with you topics from our interesting conversation on
blogging, bankers and regulation, BRICs, deflation, oil, Greece, the
Greek bailout, ratings agencies, Canada, and lots more: On blogging:
We began by discussing some of my recent posts. My buddy detected "lots
of anger" in them and told me that I can be more effective by making my
points "more subtly." He added:"I don't care about the Caisse or PSP,
but you don't need to be venomous and you won't change the way they
conduct business. What are you trying to get out of this?" Told him that
I've said everything I've had to say about the Caisse and SARA Fund,
will try to be more constructive, giving these pension funds the
"benefit of the doubt," but I'm flabbergasted when senior public pension
fund managers tell me "they're only accountable to their depositors and
not the public." That just doesn't sit well with me and one of the
reasons I started this blog was because I got fired after predicting the
2008 credit crisis for being "too negative" and wanted to sound the
alarm on the pension crisis. So, to all pension funds, I'm going to
remain fair and professional, but don't expect me to only send flowers
your way.On bankers and the need for regulation: My
buddy is a lot more hopeful than I am that regulation will finally hit
Wall street hard. He said that senior management at BNP Paribas and
SocGen was quietly changed following the 2008 crisis and "it's only a
matter of time before the guys in Wall Street get their due. They gotten
away with shenanigans long enough." His former boss once told him the
story about bankers who went to see Louis the XIV to tell him France was
bankrupt and he couldn't save it. "The bankers all got the guillotine." I
remain skeptical that better financial regulation is on its way and
told my buddy: "they had the perfect opportunity to introduce meaningful
reforms following the crisis and as usual, they pandered to the bankers
and bungled it up." On BRICs:
We didn't go over all the BRICs (Brazil, Russia, China, India, and
China) but we spoke at length about China. Just like Paul Beattie, who
thinks phosphate will be Canada's next Potash,
my buddy agrees China will continue to grow exponentially in the coming
decades. "Unlike Russia which got its freedom and is now effectively a
lawless country run by mafiosos and oligarchs, or India where class
warfare is getting worse, the Chinese model is focusing on developing
the middle class and slowly nurturing in democracy. China is still a
communist country with a huge military, but their leaders know what
they're doing and won't repeat the mistakes of Russia or India."On oil, interest rates, and the risk of deflation: While
my buddy agrees with Paul Beattie that China will continue to grow
strongly over the next decades, he isn't sold on higher oil prices or
higher interest rates: "It's not about supply and demand. The Saudis
created the 82 recession, they're not going to repeat the same mistake.
In Greece, right after the government foolishly introduced the petrol
tax, our revenues on the highway project plummeted because people
stopped driving. People will adapt to higher oil prices and that's why I
don't buy that oil will skyrocket or that interest rates are heading
higher. The real danger remains deflation."On the next financial crisis:
While my buddy is bullish on China and relatively bullish on Canada
(see below), he sees the next crisis and thinks "it will be much worse
than 2008." he added: "In the past, we had a hit to incomes, in the last
crisis, a hit to balance sheets, the next one will be a hit to both
incomes and balance sheets. It won't be a Depression but it's going to
be ugly, especially in Greece."On the Greek tragedy: My buddy wasn't surprised that the Greek government passed the austerity bill following the showdown at Syntagma.
He said things will calm down over the summer but get much worse next
winter: "Unemployed Athenians will flock to the islands desperately
seeking any job related to tourism, they'll party, drink up, get laid,
but once the summer is over, they'll return to Athens and realize that
reality bites. Once winter sets in and the weather gets worse, emotions
will boil over again in March." I asked him what was the government
suppose to do, not pass the bill and set Greece back 100 years? His
response: "Well now they set Greece back 5,000 years and only prolonging
the agony. If Papandreou had any sense, and did the right thing for the
country and the people, he would have just defaulted, gone
back to the drachma and let the German and French banks take a
substantial haircut (others agree, Greece should default). Instead, he signed a deal with the French, the
Germans followed, but Greece is worse off and they will realize that
they will never balance the budget with severe austerity measures. It's a
fucking disaster and it will only get worse. Partisan politics
destroyed Greece. I think Greeks will castrate all the Greek politicians
who raped and pillaged the country over the last decades. They came
close to it last week and next time they'll succeed." On the real reason behind the Greek bailout:
My buddy thinks the real reason behind the Greek bailout was to buy
time for French and German banks to clean up their balance sheets.
"They're worried about what comes after Greece, Portugal or Spain? This
thing can easily spiral out of control." Moreover, he added: "I suspect
that French and German pension funds are loaded up with Greek CDS, and
this is the real reason behind the bailout."On the incompetence and fraudulent activities of ratings agencies:
My buddy and I agree on this point, ratings agencies are a joke. He
didn't mince his words: "They should be shut down. Period. They're
grossly incompetent and the timing of their announcements tells me
they're in cahoots with Wall Street and hedge funds. In your last post
you said Ed Clark, President and CEO of TD Bank is one of the smartest
people in the Canadian financial industry. Want to know why? He doesn't
trust ratings agencies and has his bankers do their own due diligence
rating paper, which is why TD didn't touch ABCP." It looks like the
ratings agencies are up to no good again, trying to wreck the Greek rescue.On Canada and Canadian politics: My
buddy thinks Canada is "selling its resources cheap" and that the
current taxes benefit Alberta but not the rest of Canada. "Alberta
should understand more than anyone about interprovincial transfers." As
far as Prime Minister Harper is concerned, my buddy thinks "he's
basically a dictator and the country is split under his leadership
because of the effects of partisan politics." I wrote an open letter to our PM
criticizing central control, but also praising him on some initiatives.
As far as Vancouver real estate, my buddy thinks it will continue going
higher but sections are becoming "ghettos of Chinese." I asked him if
he'd like to come back to Quebec, and he said "yes but there are too
many vowels in my name." I shared with him the time I went to interview
for a job at Hydro Quebec and the manager showed me an org chart of his
team and told me: "you see, I got no ethnics working for me." I told
him: "thanks for wasting my time, this interview is over." (Quebec's
institutions have done the bare minimum at integrating minorities at all
levels, it's truly scandalous!)On asset gatherers vs money managers:
I told my buddy that I couldn't believe Eric Sprott's fund is now at
$10 billion. He told me he's not surprised: "These big funds have an
army of salespeople, they're basically marketing machines. Same thing
happened to Altamira and Frank Mersh. That's why I don't believe in
alpha in money management and think most hedge funds are poor
performers. I have a lot more respect for a guy like Tim Barakett of
Atticus who shut his fund down
once his model didn't work anymore and realized he wasn't going to
deliver alpha than asset gatherers who focus on collecting management
fees." Can't argue with him there but mutual funds are even worse.On my horoscope: I
downloaded this horoscope app on my BlackBerry a while back (don't ask!)
and been sort of hooked on it, mostly to entertain myself. Today's horo
reads: "You have proven someone wrong, Taurus. Someone in your life has
repeatedly claimed that some interest of yours - a goal, a love
relationship, or some important personal pursuit - would not last. And
yet it has. But whatever it is, you
need to examine whether it has lasted because it is truly close to your
heart and a source of passion for you - or you have maintained it
simply to prove someone else wrong. You don't like it when
others claim to know more about you than you know about yourself - most
people don't of course. But you take it more personally. Assess what
has lasted, and decide if it should continue or not - but for the right
reasons." What does my horoscope have to do with saving the
world? What does any of this have to do with saving the world? Beats me,
but I'm hooked on this song from Swedish House Mafia, Save the World
(see video below), and maybe it will come to me tonight as I drink it up
with my buddies and enjoy the rest of this beautiful day. In the
meantime, enjoy the rest of your weekend, and let's all do our part,
however small, to save this world. It's the only one we got and the only one we'll leave to future generations.
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