Monday, June 4, 2012
Today's links
Today's quote: "Stocks have reached what looks like a permanently high plateau." —Irving Fisher, Professor of Economics, Yale University, 1929
1--Prostate cancer drug so effective trial stopped, SFGate
A new drug for advanced prostate cancer patients has proved so effective that researchers stopped the clinical trial early to give all patients a chance to receive the life-extending medication, according to a UCSF-led study released Saturday.
The hormone treatment, Johnson & Johnson's Zytiga, when added to a standard steroid therapy doubled the time it takes for the disease to progress in patients treated with the standard therapy alone, said the lead researcher, Dr. Charles Ryan, associate professor of clinical medicine at the UCSF Helen Diller Family Comprehensive Cancer Center.
The U.S. Food and Drug Administration last year approved Zytiga, also known as abiraterone, for use in men whose prostate cancer had spread to other parts of their body and had already been treated with chemotherapy. The FDA will have to approve it for patients who have not had chemotherapy before it can be marketed for broader use.
This trial focused on patients whose cancer had metastasized, may have been treated with other hormone therapies but had not yet gone through chemotherapy. The interim results are to be presented Saturday at the American Society of Clinical Oncology's annual meeting in Chicago.
2--Why China grows so fast, Big Picture
3--Last week's "downers", The Big Picture
1) May Payrolls grow only 69k after just 77k in April, well below expectations of 150k. Likely again some weather give back but US economy clearly slowing.
2) ISM mfr’g at 53.5, slightly below expectations of 53.8 but not as bad as feared and ISM puts positive spin on mfr’g.
3) April Pending Home Sales fall 5.5% vs the est of flat and comes after cumulative 16.3% in unusual Oct thru Mar fall/winter.
4) Refi and purchase apps fall even with another new drop in mortgage rates.
5) Conference Bd Consumer Confidence falls to 4 month low.
6) Spanish and Italian yields again higher, IBEX closes at fresh 9 yr low and MIB just 100+ pts from Mar ’09 low.
7) Euro zone unemployment at 11% in April, unchanged with Mar.
8) China mfr’g PMI falls to 50.4 from 53.3 and PMI’s in India, South Korea and Taiwan fall slightly.
9) India’s Q1 GDP grows only 5.3%, the slowest in 10 yrs.
10) Fallout from China’s slowdown, Hong Kong’s April retail sales rise less than expected.
4--Secret ‘Kill List’ Proves a Test of Obama’s Principles and Will, NY Times
A few sharp-eyed observers inside and outside the government understood what the public did not. Without showing his hand, Mr. Obama had preserved three major policies — rendition, military commissions and indefinite detention — that have been targets of human rights groups since the 2001 terrorist attacks. ...
The Use of Force
It is the strangest of bureaucratic rituals: Every week or so, more than 100 members of the government’s sprawling national security apparatus gather, by secure video teleconference, to pore over terrorist suspects’ biographies and recommend to the president who should be the next to die.
This secret “nominations” process is an invention of the Obama administration, a grim debating society that vets the PowerPoint slides bearing the names, aliases and life stories of suspected members of Al Qaeda’s branch in Yemen or its allies in Somalia’s Shabab militia...
Yet the administration’s very success at killing terrorism suspects has been shadowed by a suspicion: that Mr. Obama has avoided the complications of detention by deciding, in effect, to take no prisoners alive. While scores of suspects have been killed under Mr. Obama, only one has been taken into American custody, and the president has balked at adding new prisoners to Guantánamo.
“Their policy is to take out high-value targets, versus capturing high-value targets,” said Senator Saxby Chambliss of Georgia, the top Republican on the intelligence committee. “They are not going to advertise that, but that’s what they are doing.” ...
But, he said, “secrecy has its costs” and Mr. Obama should open the strike strategy up to public scrutiny.
“This program rests on the personal legitimacy of the president, and that’s not sustainable,” Mr. Hayden said. “I have lived the life of someone taking action on the basis of secret O.L.C. memos, and it ain’t a good life. Democracies do not make war on the basis of legal memos locked in a D.O.J. safe.” ...
Moreover, Mr. Obama’s record has not drawn anything like the sweeping criticism from allies that his predecessor faced. John B. Bellinger III, a top national security lawyer under the Bush administration, said that was because Mr. Obama’s liberal reputation and “softer packaging” have protected him. “After the global outrage over Guantánamo, it’s remarkable that the rest of the world has looked the other way while the Obama administration has conducted hundreds of drone strikes in several different countries, including killing at least some civilians,” said Mr. Bellinger, who supports the strikes.
5--Merkel Rejects Debt Sharing as Obama Urges End to Crisis Cloud, Bloomberg
German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.
With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds
Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.
6--The jobs stall, Robert Reich
Not only has the unemployment rate risen for the first time in almost a year, to 8.2 percent, but, more ominously, May's payroll survey showed that employers created only 69,000 net new jobs. The Labor Department's Bureau of Labor Statistics also revised its March and April reports downward. Only 96,000 new jobs have been created, on average, over the last three months.
Put this into perspective. Between December and February, the economy added an average of 252,000 jobs each month. To go from 252,000 to 96,000, on average, is a terrible slide. At least 125,000 jobs are needed a month merely to keep up with the growth in the working-age population available to work.
Face it: The jobs recovery has stalled.
What's going on? Part of the problem is the rest of the world. Europe is in the throes of a debt crisis and spiraling toward recession. China and India are slowing. Developing nations such as Brazil, dependent on exports to China, are feeling the effects and they're slowing as well. All this takes a toll on U.S. exports.
But a bigger part of the problem is right here in the United States, and it's clearly on the demand side of the equation. Big companies are still sitting on a huge pile of cash. They won't invest it in new jobs because American consumers aren't buying enough to justify the risk and expense of doing so.
7--Why Stocks Declined in May, Trim Tabs
I did a video May 8 entitled Sell in May and Then Go Away, in which I suggested that stocks this May would sell off for the third straight May. I was right. US stocks are down over 4% since then. The reason for the decline this May is pretty much the same as in May 2010 and May 2011. It is all about supply and demand: More shares chasing less money.
The financial media has more obvious reasons for the declines. This year’s drop is due to Europe and the Facebook debacle. Last years plunge reportedly was also due to Europe and May 2010 was obviously due to the flash crash.
To repeat the real reason is simply supply and demand. Investors are fleeing US stocks. Up until May companies had been buying back almost $2 billion of their own shares, more then were sold each and every trading day since the beginning of last summer. That ended in May where companies sold over $25 billion more shares than they bought.
To repeat everybody is now a seller of US stocks. US equity mutual funds, hedge funds and pension funds are all selling US stocks and now companies are also. As I see it, stock prices are likely to keep dropping until the Federal Reserve announces the next round of stimulus. That announcement should create a very sharp and loud rally in stock prices. Unfortunately whatever the Fed does will not work, but it will create a stock market rally.
Never the less, the Federal Reserve will go on predicting that economic growth will pick up. Both US presidential candidates will promise if elected economic growth will accelerate. What bull shit.
Where we are now as a world is where it is OK for governments and bankers to lie about reality. Governments tell us that we can afford to pay government workers all their pension and health benefits, in addition to Social Security and Medicare. They lie. The truth is that even when all the laws were passed and pension deals were cut, lawmakers had to know that there is no way that we could ever pay out all the benefits we have promised to everyone.
Banks are lying about the quality of the loans on their books. If they told the truth the banks would go bust and the bankers would lose their jobs. Japanese banks started that trend in the early1990s by refusing to write off bad loans. What happened to Japan as a result? The Japanese economy has not grown ever since. But the bankers kept their jobs. In Europe today there is no way most of the banks would survive if they wrote off all their bad loans. The solution? Euro bankers and European officials solution lie about what is really happening. In other words, delay and pray.
8--Capital flight in Spain, FT Alphaville
Spain is leaking capital. Data from the Bank of Spain released yesterday showed that almost €100bn has left the country in the first three months of the year..
Spanish bank deposits from the nonbank private sector continued to decline. The fall in 1Q12 was €23bn, while April’s €32bn drop was partly due to the volatile nonbank financial intermediaries, rather than just households and/or corporates. ...
Hence, foreigners are pulling out of Spain, but whether domestic residents are abruptly shifting funds abroad is still less clear based on these data. ... But, for now, the main driver appears to be capital rather than deposit flight, and it appears to be driven by foreigners rather than Spanish residents.
9--Obama’s role in the selection of drone missile targets, WSWS
In the end, Obama selects most of the victims. He “signs off on every strike in Yemen and Somalia and also on the more complex and risky strikes in Pakistan—about a third of the total,” according to the Times.
Thus, when one sees or hears news accounts of “suspected militants” being slain in a drone missile strike—or the less frequent follow-up stories revealing that the “militants” were in fact unarmed men, women and children—it can be assumed that Obama personally ordered the killings.
The article is not an exposé. It appears to have been commissioned by the administration itself as part of his re-election campaign’s attempt to run Obama as the unflinching commander-in-chief in the “war on terror,” touting the supposed success of his assassination program and outflanking the Republicans from the right.
The authors note that the article is based upon interviews with “three dozen of his [Obama’s] current and former advisers,” who were clearly authorized and encouraged to talk about the president’s immersion in state murders.....
There is clearly an element of personal psychology in Obama’s evolution. If he personally directs state killings, it is in part because he enjoys it. The Times reports: “Asked what surprised him most about Mr. Obama, Mr. [Thomas] Donilon, the national security adviser, answered immediately: ‘He’s a president who is quite comfortable with the use of force on behalf of the United States.’”
The secret of Obama’s “principles” is that he has none. A political chameleon without independent ideas, democratic convictions or moral scruples, Obama’s personality is that of a bureaucratic state functionary. He identifies himself with the military and intelligence apparatus that he officially “commands,” always under the watchful eye of his counterterrorism advisor, the former CIA official John Brennan.
More important than what the state killing program says about Obama personally, however, is what it exposes about the ruling political establishment as a whole. It testifies to the wholesale repudiation of core constitutional principles at the highest levels and a real political and moral breakdown of the entire US government.
If the assassination of an American citizen is “easy”, of what crimes are this president and his administration not capable? Clearly, the institutionalization of kill lists, targeting committees and fascistic justifications for state murder have profound implications at home as well as abroad.
10--Euro zone unemployment hits record high, seen rising, Reuters
Euro zone unemployment has hit a record high, and job losses are likely to keep climbing as the bloc's devastating debt crisis eats away at businesses' ability to hire workers while indebted governments continue to cut staff.
Around 17.4 million people were out of work in the 17-nation euro zone in April, or 11 percent of the working population, the highest level since records began in 1995, the EU's statistics office Eurostat said on Friday.
"This 11 percent level is going to continue edging up in the coming months and probably until the end of the year," said Francois Cabau, an economist at Barclays Capital who sees the euro zone's economy contracting 0.1 percent this year.
11--GREECE. SYRIZA's Proposals: The Exit From the Crisis Is On the Left, Global Research
1. Creation of a shield to protect society against the crisis:
Not a single citizen without a guaranteed minimum income or unemployment benefit, medical care, social protection, housing, and access to all services of public utilities.
Protection of and relief measures for indebted households.
Price controls and price reductions, VAT reduction, and abolition of VAT on basic-need goods
We are asking immediately for:
A moratorium on debt servicing.
Negotiations for debt cancellation, with provisions for the protection of social insurance funds and small savers. This will be pursued by exploiting any available means, such as audit control and suspension of payments.
Regulation of the remaining debt to include provisions for economic development and employment.
European regulations on the debt of European states.
Radical changes to the European Central Bank's role.
Prohibition of speculative banking products.
A pan-European tax on wealth, financial transactions, and profits.
3. Income redistribution, taxation of wealth, and elimination of unnecessary expenses:
Reorganization and consolidation of tax collection mechanisms.
Taxation of fortunes over 1-million euros and large-scale revenues.
Gradual increase, up to 45%, of the tax on the distributed profits of corporations (SA).
Taxation of financial transactions.
Special taxation on consumption of luxury goods.
Removal of tax exemptions for ship owners and the Greek Orthodox Church.
Lifting of confidentiality for banking and merchant transactions, and pursuit of those who evade taxes and social insurance contributions.
Banning of transactions carried out through offshore companies.
Pursuit of new financial resources through efficient absorption of European funds, through claims on the payment of German World War II reparations and occupation loan, and finally via steep reductions in military expenses.
4. Productive social and environmental reconstruction:
Nationalization/socialization of banks, and their integration into a public banking system under social and workers’ control, in order to serve developmental purposes. The scandalous recapitalization of the banks must stop immediately.
Nationalization of all public enterprises of strategic importance that have been privatized so far. Administration of public enterprises based on transparency, social control, and democratic planning. Support for the provision of Public Goods.
Protection and consolidation of co-operatives and SMEs in the social sector.
Ecological transformation in development of energy production, manufacturing, tourism, and agriculture. These reforms will prioritize nutritional abundance and fulfillment of social needs.
Development of scientific research and productive specialization.
5. Stable employment with decent wages and social insurance:
The constant degradation of labour rights, coupled with embarrassing wage levels, does not attract investment, development, or employment.
Instead, we are calling for:
Well-paid, well-regulated, and insured employment.
Immediate reconstitution of the minimum wage, and reconstitution of real wages within three years.
Immediate reconstitution of collective labour agreements.
Instigation of powerful control mechanisms that will protect employment.
Systematic opposition of lay-offs and the deregulation of labour relations.
6. Deepening Democracy: democratic political and social rights for all:
There is a democratic deficit in the country. Greece is gradually being transformed into an authoritarian police state.
We are calling for:
The restoration of popular sovereignty and an upgrade of parliamentary power within the political system:
Creation of a proportional electoral system
Separation of powers
Revocation of ministerial immunity
Abolishment of economic privileges for MPs
Real decentralization to create local government with sound resources and expanded jurisdiction.
The introduction of direct democracy and institutions of self-management under workers’ and social control at all levels.
Measures against political and economic corruption.
The solidification of democratic, political, and trade union rights.
The enhancement of women's and youths’ rights in the family, in employment, and in public administration.
Immigration reforms:
Speeding up the asylum process
Abolition of Dublin II regulations and granting of travel papers to immigrants
Social inclusion of immigrants and equal rights protection
Democratic reforms to public administration with the active participation of civil servants.
The demilitarization and democratization of the Police and the Coast Guard. Disbandment of special forces.
7. Restoration of a strong welfare state:
Anti-insurance laws, the shutdown of social services, and the steep fall in social expenditures under the Memorandum have turned Greece into a country where social injustice reigns.
We are in need of:
An immediate rescue of the pension system, to include tripartite financing and the gradual consolidation of separate pension fund portfolios into one public, universal system of social insurance.
A raise in unemployment benefits until the substitution rate reaches 80% of the wage. No unemployed person is to be left without unemployment benefits.
The introduction of a guaranteed minimum income.
A unified system of comprehensive social protection covering the vulnerable social strata.
8. Health is a Public Good and a social right:
Health care is to be provided for free and will be financed through a Public Health System. Immediate measures include:
Support and upgrades for hospitals. Upgrade of health infrastructures of the Social Insurance Institute (IKA). Development of an integrated system of first-level medical care.
Covering the needs of medical treatment in both personnel and equipment, in part by stopping lay-offs.
Open and cost-free access to medical treatment for all residents in the country.
Free pharmaceutical treatment and medical examinations for low-income pensioners, the unemployed, students, and those suffering from chronic diseases.
9. Protection of public education, research, culture, and sports from the Memorandum's policies:
With regards to education, we are calling for:
Consolidation of universal, public, and free education, including coverage of its urgent needs in infrastructure and personnel at all three levels.
Compulsory 14-year unified education.
Revocation of the Diamantopoulou Law.
Assurance of self-government for Universities.
Preservation of the academic and public character of Universities.
10. An independent foreign policy committed to the promotion of peace:
The capitulation of our foreign policy to the desires of the U.S. and the powerful states of the European Union endangers the country's independence, peace, and security.
We propose:
A multi-dimensional and peace-seeking foreign policy.
Disengagement from NATO and closure of foreign military bases on Greek soil.
Termination of military cooperation with Israel. Aiding the Cypriot people in the reunification of the island.
Furthermore, on the basis of international law and the principle of peaceful conflict resolution, we will pursue improvements in Greek-Turkish relations, a solution to the problem of FYROM's official name, and the specification of Greece's Exclusive Economic Zone.
The incumbent economic and social system has failed and we must overthrow it!
The economic crisis that is rocking global capitalism has shattered the illusions. More and more, people understand that capitalist speculation is an inhuman organizational principle for modern society. It is also widely acknowledged that the private banks function only for the benefit of the bankers, harming the rest of the people. Big business and bankers absorb billions of euros from health care, education, and pensions.
An exit from the crisis requires bold measures that will prevent those who created the crisis from continuing their destructive work. We are endorsing a new model for the production and distribution of wealth, one that will include society in its totality. In this respect, the large capitalist property is to be made public and managed democratically along social and ecological criteria. Our strategic aim is socialism with democracy, a system in which all will be entitled to participate in the decision-making process.
We are changing the future; we are pushing them into the past!
We can prevail by forging unity and creating a new coalition for power with the Left as a cornerstone. Our strength in this endeavour is the alliance of the People: the inspiration, the creative effort, and the struggle of the working people. With these, we will shape the lives and the future of a self-governed people.
Now the vote is in the hands of the People! Now the People have the power!
In this new election, the Greek people can and must vote against the regime of the Memoranda and the Troika, thus turning over a new page of hope and optimism for the future.
For Greece and for Europe, the solution is with the Left
Thursday, May 31, 2012
Weekend Links
1--A Fiscal Union Won't Fix the Euro Crisis --The only practical choices are more geographic mobility, inflation, or subsidies..WSJ
Excerpt: One key economic difference is the existence of a fiscal union in the United States. Increasingly, euro-zone hardliners have called for putting in a disciplined, unified fiscal arrangement similar to the one we have in the U.S. Unfortunately, their vision of fiscal union has badly missed the essence of the U.S. experience and would not fix the euro crisis.
At root, the euro-zone problem remains the locking together of very different economies into a monetary union without a way to adjust. Since the start of the union in 1999, productivity in the North, especially in Germany, has grown rapidly while wages have not. In the South, productivity has lagged. As a result, the unit labor costs in Germany have fallen about 25% since the euro's creation as compared to the Southern countries and France.
Normally, exchange-rate adjustments would reduce this gap. The slower growing, poorer country would become more competitive as its manufactured goods and its tourism became cheaper. Real incomes would take a hit initially, but the economies would have a path to growth. Inside a monetary union, however, there are no exchange rates to change.
That alone doesn't need to doom the monetary union. But without an exchange-rate safety valve you need an alternate way to rebalance economies. Moving, inflating, struggling, or subsidizing are your only choices—and none of them is easy.
If workers move freely to high-growth areas or if the central bank is willing to loosen monetary policy to get the high-growth economies to start inflating, that can replace the exchange rate as the safety valve. Inflation in the high-growth economies will change the relative real wages between the counties the same way a devaluation can. Labor mobility helps the U.S. in that sense. In Europe, though, mobility between countries with different languages is low and German tolerance for inflation seems even lower. That leaves suffering and subsidies.
Southern Europe can struggle through the problem—grinding down wages through high unemployment and structural labor-market reforms to make a country such as Greece more competitive internationally. History suggests this will not be an easy sell. Wage cuts usually come only after tremendously extended bouts of high unemployment. Structural reforms can take years to actually raise productivity growth rates.
Or Northern Europe could decide, for the sake of a united Europe, that it is willing to permanently subsidize euro-zone countries with low productivity growth. That could be through explicit subsidies or through bailouts and broad-based guarantees. But in the North, subsidies remain anathema. The Germans are quite right that the euro zone was absolutely not created to enable permanent subsidies, and their opposition is easy to understand.
Thus, lacking the normal safety valves to keep dangerous imbalances from destroying the monetary union, the euro hardliners are left with the idea of fiscal union. These hawks, however, misunderstand a fundamental strength of the U.S. fiscal union. They seek a union to impose budgetary discipline and structural reforms on laggard countries while the U.S. fiscal union serves mainly as an engine of subsidy.
Last year, the Economist compiled census data from 1990 to 2009 for all 50 U.S. states on the amount of federal spending in each state minus the amount the state's residents pay in federal taxes. Over 20 years, states like Minnesota and Delaware annually paid in about 10% more of their state GDP than they got back. On the other side, for the last 20 years New Mexico, Mississippi and West Virginia have received annual subsidies of more than 12% of state GDP. While not a perfect measure of subsidy, it conveys the basic point well. These are big. Greece's entire 2011 deficit, for example, was 9.1% of GDP.
The U.S. fiscal union has worked, in no small part, by enabling subsidies to the Mississippis without requiring the approval of the Minnesotas. It creates an important form of insurance. When Texans suffered from the collapse of the oil market in the 1980s, they could rely on the fiscal union to help them. When Texas boomed with rising oil prices in the 2000s, it contributed to the union to help harder hit regions.
Giving Northern Europe a veto over Southern Europe's budgets will not hold a monetary union together. The euro zone will continue to need the weaker countries to stomach decades of high unemployment to grind down wages.
Without some significant inflation in the North or mobility from the South, holding the European monetary union together will cost Northern Europe a great deal of money. In other words, if a fiscal union is to save the euro zone, it would need to facilitate subsidies from North to South, not eliminate them. As far as the likelihood of that, I wouldn't be willing to bet a dollar—even if it were backed by the state of Minnesota itself.
2--Woman Not Intimidated by Citi Wins $31M, Bloomberg
Excerpt: By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses.
Executives buried her findings, Hunt says, before, during and after the financial crisis, and even into 2012.
In March 2011, more than two years after Citigroup took $45 billion in bailouts from the U.S. government and billions more from the Federal Reserve — more in total than any other U.S. bank — Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay in a conference room after a meeting.
The encounter with Polkinghorne was brief and tense, Hunt says. The number of loans classified as defective would have to fall, he told them, or it would be “your asses on the line.”
On March 29, 2011, Hunt walked into CitiMortgage’s human resources department in O’Fallon and told them everything: how the bank had been routinely buying and selling bad mortgages for years, how the fraud unit wasn’t doing its job and how the quality-control people were being pressured to change their ratings.
One place where she uncovered flaws was in the fraud prevention and investigation group. That’s where Hunt’s team shipped questionable loans, with issues such as obviously forged signatures, whited-out income lines on tax forms or misspelled bank names on borrower bank statements.
There was no testimony and no trial. Citigroup admitted wrongdoing on Feb. 15 and paid the $158.3 million to settle. In a press release the same day, Citi said it was pleased to resolve the matter.
“We take our quality-assurance processes seriously and have proactively undertaken process improvements to ensure that they are as robust as possible,” the bank wrote. The statement didn’t mention Hunt.
Bank of America
Citigroup isn’t the only bank that’s been held accountable for processing bad mortgages. In February, Charlotte, North Carolina-based Bank of America Corp. settled a false-claims case with the government for $1 billion, without admitting wrongdoing.
In May, Frankfurt-based Deutsche Bank AG agreed to pay $202.3 million for endorsing unqualified mortgages for FHA insurance, and admitted wrongdoing...
What continues to set Citigroup apart is that the bank approved flawed loans well past the 2008 financial crisis. A battleground over loan quality persisted at CitiMortgage even as the settlement was signed in February, the complaint says.
3--China and the Impending Global Slowdown, econbrowser
Even before the newest portents of a slowdown, [0] it was clear that 2012 gains in world output were going to be highly reliant on Chinese growth. Figure 1 shows that the Eurozone switches to a net drag on world growth. China’s contribution is thus a much larger share of total world growth.
Clearly, a slowdown is underway. In addition, a domestic source of growth –- namely the property market –- is cooling off.
The slowdown in the BRICs and recession in the Eurozone (and the UK!) highlights the need to avoid the contractionary impact of ending extended unemployment benefits, the payroll tax rate reduction, and the provisions of EGTRRA and JGTRRA (many charts)
4--PIMCO's Gross warns of economic "breaking point", Reuters
Excerpt: The debt crisis and central bank policy responses have degraded the quality and value of debt markets and signal a "potential breaking point" in the global economy, PIMCO's Bill Gross, manager of the world's largest bond fund, said in his monthly letter to investors.
In his June outlook entitled "Wall Street Food Chain," Gross said stimulus policies by the Federal Reserve and the European Central Bank have led to riskier government bonds with lower value and paved the way for higher inflation.
"Policy responses by fiscal and monetary authorities have managed to prevent substantial haircutting of the $200 trillion or so of financial assets that comprise our global monetary system, yet in the process have increased the risk and lowered the return of sovereign securities which represent its core," Gross said.
"Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year old global monetary system," he added.
5--FHA Sub-Prime Defaults At 9% In California, testosterone pit
The American taxpayer is about to be saddled with another multi-billions bail-out of sub-prime mortgage loan losses from the stealth Federal Housing Authority (FHA) lending program that has been offering ultra-low 3.5% down payments since 2009. Delinquency rates are already at 9% in California and expanding rapidly across the United States.
Sub-prime lending drove the U.S. housing bubble from 1998 until its collapse beginning in 2007. Since that time, real estate prices have fallen by 35% across the United States. Sub-prime was first hailed for its expansion of the number of people who could qualify for a mortgage. But many of those borrowers fudged on their income and net worth levels in order to borrow more than their true incomes would allow them to repay. Since the bubble burst and many sub-prime borrowers defaulted, the U.S. government has provided bank bail-outs deficit spending stimulus that will double the national debt from $9 trillion in 2007 to $18 trillion next year. ...
Unfortunately, taxpayers are about to learn they are increasingly liable for another multi-billion dollar sub-prime bail-out. The U.S. Department of Housing and Urban Development website trumpets: “FHA Loans Help You.” In smaller print that help is described as insuring your loan so your lender can offer you mortgage down payments of 3.5% of the purchase price that include closing costs and fees in the loan. FHA will allow you to buy a home, remodel and refinance your existing home or convert your equity into cash through a reverse mortgage if you are 62 or older. All this FHA hoopla sounds allot like sub-prime lending, because it is sub-prime lending!
Any bank that made this type of loan on its own would be required by regulators classify the loan as a non-conforming investment and reserve approximately 25% of the amount of the loan in cash as protection against a potential sub-prime borrower default. But the beauty of the FHA insured loan program is banks collect fees for risk-free processing of loans and then sell the loans to Federal National Mortgage Corporation (Fannie Mae) or The Federal Home Loan Mortgage Corporation (Freddie Mac) for another profit.
Of course both of these government sponsored enterprises have been in operating in conservatorship (nice word for bankruptcy) since September 6, 2008 as a result of sub-prime loan losses. Treasury Secretary Henry Paulson stated “I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction.” That correction has resulted in 5 million completed foreclosures and another 8 million mortgages that are over 30 days delinquent or in foreclosure.
Center for Responsible Lending (CRL), founded by ACORN, recently published a study reporting that requiring a 20% down payment would prevent 60% of all FHA borrowers from qualifying for a residential mortgage.
...
The Obama Administration’s Office of Management and Budget estimated in October 20111 that FHA’s $4.7 billion capital reserves will be wiped out this year, forcing FHA to seek at least $700 million bail-out from the U.S. Treasury. Americans are justifiably angry at being required to bail-out the banks’ irresponsible sub-prime lending. Think how angry they are going be this election season, when they have to bail-out the government’s irresponsible sub-prime lending
6--Capital flees China, Tim Duy, economists view
With a fortune of at least $1.6 million, Mr. Shi is part of the wealthy elite that benefited most from the Communist Party's brand of capitalism. He is riding the crest of arguably the biggest economic expansion in history.
And yet, while the party touts the economic success of the "Chinese model," many of its poster children are heading for the exits. They are in search of things money can't buy in China: Cleaner air, safer food, better education for their children. Some also express concern about government corruption and the safety of their assets.
Domestic money in China will be the first to head for the exit - insiders will always know more than outsiders about the underlying economic conditions. So the exodus of cash could indicate that the Chinese story is coming to a close - and that will have significant consequences for the global economy. It is another signal that emerging markets will not be supporting global demand anytime soon. I think the team at alphaville is right - this story is slipping under the radar while we all have our eyes focused on the farce in Europe. But it could be the real game changer in the global economy.
7--FHA foreclosures spike 73% in April: LPS, Housingwire
Foreclosure starts on mortgages insured by the Federal Housing Administration spiked 73% in April, according to data from Lender Processing Services ($23.08 -0.3%).
Mortgage servicers foreclosed on 63,129 total FHA-backed loans in April, more than any other product type including home loans guaranteed by Fannie Mae, Freddie Mac or held by private investors.
When the mortgage market collapsed in 2007, FHA stepped in. Originations backed by the agency tripled in 2008 and increased to five times the historical average the next year. The rise in April foreclosure starts consisted of loans guaranteed in 2008 and 2009.
"Whether or not it's the beginning of a trend for these vintages is hard to tell. It's cloudy," said LPS Analytics Senior Vice President Herb Blecher. "It does seem like there is some exogenous effect in April."...
8--SHILLER: POSITIVE HOUSING SIGNS ARE A “SEASONAL BLIP, pagmatic capitalism
Robert Shiller: We had home prices going up for almost a decade….Home prices show a lot of momentum. They’re not like the stock market. The real question is do we still have downward momentum? There’s a lot of positive signs but a skeptic who believes in momentum says it’s been going on now for six years and I am a little bit of a skeptic, might well say it’s going to keep going down. After the seasonal blip is over, it may not be over.”
9--False Reporting on the Health of Venezuela's President Hugo Chavez, Eva Golinger, global research
Venezuelan President Hugo Chavez was diagnosed with cancer and a malignant tumor was removed from his pelvic region last June, all kinds of rumors, lies and speculations have circulated about his health. Most of the hype has come from known anti-Chavez media, such as the Miami Herald and several online blogs run by right-wing extremists like Bush’s former Assistant Secretary of State Roger Noriega, who’s been obsessed with Chavez for years. All cite unnamed sources who claim they have “insider information” about the Venezuelan head of state’s health.
It’s been unsurprising that those media outlets, known for their decade-long distortions of Venezuela’s reality, would publish such falsities and morbid tales about President Chavez. But that a serious, veteran, investigative journalist, such as Dan Rather, would indulge in the necrophiliac story-telling about the Venezuelan President is truly disappointing.
Rather, who now runs his own show on HDNet, Dan Rather Reports, posted a report on Wednesday, May 30, claiming President Chavez’s health is “dire” and has “entered the end stage”. Rather also claims his unnamed “high-level” source, who he alleges is close to the Venezuelan President, told him Chavez won’t live “more than a couple of months at most”.
In his brief report, which he calls an “exclusive”, Rather also bids in with his own biased language, calling the democratically-elected Venezuelan President a “dictator”.
What prompted Dan Rather to write such diatribe? Why would he join the ranks of Roger Noriega, the wretched Miami Herald and a slew of pseudo-journalists drooling over their morbid wet dreams of President Chavez’s failing health?
What is apparent is that Rather was quick to the gun to “break” his “exclusive” story. Just the day before, President Chavez hosted a cabinet meeting broadcast live on television that lasted more than four hours. The Venezuelan head of state appeared energized, optimistic and focused on his duties, and even sang a few heartfelt songs, as is custom for the eclectic and charismatic Chavez. He reaffirmed his candidacy for the October 7th presidential elections. (Yes, Venezuela is a democracy!) That’s a far cry from being on his “death bed”, as Rather implies.
10--Chicago Business Barometer Signals Economy on Edge of Recession, WSJ
A closely-watched index gauging U.S. factory output fell to a near 2 1/2-year low in May, indicating the economy might be heading back toward a recession.
The Institute for Supply Management-Chicago reported Thursday that its business barometer fell 3.5 points to 52.7 in May, the third straight monthly drop and lowest reading since September 2009.
Readings above 50.0 reflect economic expansion. However, three consecutive declines are “associated with the onset of each of the last seven national recessions, with a lead of some six-to-eight months,” ISM-Chicago said in a news release.
11--Once Again, Economy Cools When Weather Warms Up, WSJ
The U.S. recovery can’t seem to shake off the hot-weather jinx.
Thursday brought uniformly bearish news on May economic activity. Private-sector hiring is weak, jobless claims are rising and factory activity in Chicago slumped to its weakest level since September 2009.
The data paint an economy stumbling in the spring. Gross domestic product growth probably won’t turn negative, but a jump to above 3% also looks like a long shot this quarter.
The weak ADP report–which showed only 133,000 private jobs created–raises questions about the health of the labor markets just ahead of Friday’s closely watched employment report.
Most economists are sticking to their payroll forecasts. But the risks are clearly on the downside for the consensus projection of 155,000 new jobs added in May. The unemployment rate is expected to stay at 8.1%.
About the only bright spot in the trove of Thursday data was slower inventory accumulation last quarter that led to GDP growth being revised down to a 1.9% annual rate from 2.2%. U.S. businesses ended the first quarter with fewer goods on hand than previously estimated. That diminishes the risk that excessive stockpiles will lead to less ordering and production and job cutbacks.
12--More Student Loans Are Past Due, WSJ
13--U.S. Savings Rate Falling Amid Stagnant Incomes, WSJ
The government made a sharp downward revision to fourth-quarter income figures Thursday, a sign of stagnant wages and a potential hurdle for consumer spending.
The figures, tucked in to the latest GDP report, show real disposable personal income–income minus taxes, adjusted for inflation–rose only 0.2% in the fourth quarter, compared with an earlier estimate of 1.7%. The change is largely due to lower-than-expected paychecks. Real first-quarter income was unrevised at a 0.4% gain.
The upshot: consumers are saving less in order to spend more. Consumer outlays rose a solid 2.1% in the fourth quarter and 2.7% in the first three months of this year.
But the personal savings rate for the first quarter dropped its lowest level since the start of the recession. Americans stashed away 3.6% of personal income in the first quarter, down from 4.2% in the fourth quarter and a near-term peak of 6.2% in the second quarter of 2009
Excerpt: One key economic difference is the existence of a fiscal union in the United States. Increasingly, euro-zone hardliners have called for putting in a disciplined, unified fiscal arrangement similar to the one we have in the U.S. Unfortunately, their vision of fiscal union has badly missed the essence of the U.S. experience and would not fix the euro crisis.
At root, the euro-zone problem remains the locking together of very different economies into a monetary union without a way to adjust. Since the start of the union in 1999, productivity in the North, especially in Germany, has grown rapidly while wages have not. In the South, productivity has lagged. As a result, the unit labor costs in Germany have fallen about 25% since the euro's creation as compared to the Southern countries and France.
Normally, exchange-rate adjustments would reduce this gap. The slower growing, poorer country would become more competitive as its manufactured goods and its tourism became cheaper. Real incomes would take a hit initially, but the economies would have a path to growth. Inside a monetary union, however, there are no exchange rates to change.
That alone doesn't need to doom the monetary union. But without an exchange-rate safety valve you need an alternate way to rebalance economies. Moving, inflating, struggling, or subsidizing are your only choices—and none of them is easy.
If workers move freely to high-growth areas or if the central bank is willing to loosen monetary policy to get the high-growth economies to start inflating, that can replace the exchange rate as the safety valve. Inflation in the high-growth economies will change the relative real wages between the counties the same way a devaluation can. Labor mobility helps the U.S. in that sense. In Europe, though, mobility between countries with different languages is low and German tolerance for inflation seems even lower. That leaves suffering and subsidies.
Southern Europe can struggle through the problem—grinding down wages through high unemployment and structural labor-market reforms to make a country such as Greece more competitive internationally. History suggests this will not be an easy sell. Wage cuts usually come only after tremendously extended bouts of high unemployment. Structural reforms can take years to actually raise productivity growth rates.
Or Northern Europe could decide, for the sake of a united Europe, that it is willing to permanently subsidize euro-zone countries with low productivity growth. That could be through explicit subsidies or through bailouts and broad-based guarantees. But in the North, subsidies remain anathema. The Germans are quite right that the euro zone was absolutely not created to enable permanent subsidies, and their opposition is easy to understand.
Thus, lacking the normal safety valves to keep dangerous imbalances from destroying the monetary union, the euro hardliners are left with the idea of fiscal union. These hawks, however, misunderstand a fundamental strength of the U.S. fiscal union. They seek a union to impose budgetary discipline and structural reforms on laggard countries while the U.S. fiscal union serves mainly as an engine of subsidy.
Last year, the Economist compiled census data from 1990 to 2009 for all 50 U.S. states on the amount of federal spending in each state minus the amount the state's residents pay in federal taxes. Over 20 years, states like Minnesota and Delaware annually paid in about 10% more of their state GDP than they got back. On the other side, for the last 20 years New Mexico, Mississippi and West Virginia have received annual subsidies of more than 12% of state GDP. While not a perfect measure of subsidy, it conveys the basic point well. These are big. Greece's entire 2011 deficit, for example, was 9.1% of GDP.
The U.S. fiscal union has worked, in no small part, by enabling subsidies to the Mississippis without requiring the approval of the Minnesotas. It creates an important form of insurance. When Texans suffered from the collapse of the oil market in the 1980s, they could rely on the fiscal union to help them. When Texas boomed with rising oil prices in the 2000s, it contributed to the union to help harder hit regions.
Giving Northern Europe a veto over Southern Europe's budgets will not hold a monetary union together. The euro zone will continue to need the weaker countries to stomach decades of high unemployment to grind down wages.
Without some significant inflation in the North or mobility from the South, holding the European monetary union together will cost Northern Europe a great deal of money. In other words, if a fiscal union is to save the euro zone, it would need to facilitate subsidies from North to South, not eliminate them. As far as the likelihood of that, I wouldn't be willing to bet a dollar—even if it were backed by the state of Minnesota itself.
2--Woman Not Intimidated by Citi Wins $31M, Bloomberg
Excerpt: By 2006, the bank was buying mortgages from outside lenders with doctored tax forms, phony appraisals and missing signatures, she says. It was Hunt’s job to identify these defects, and she did, in regular reports to her bosses.
Executives buried her findings, Hunt says, before, during and after the financial crisis, and even into 2012.
In March 2011, more than two years after Citigroup took $45 billion in bailouts from the U.S. government and billions more from the Federal Reserve — more in total than any other U.S. bank — Jeffery Polkinghorne, an O’Fallon executive in charge of loan quality, asked Hunt and a colleague to stay in a conference room after a meeting.
The encounter with Polkinghorne was brief and tense, Hunt says. The number of loans classified as defective would have to fall, he told them, or it would be “your asses on the line.”
On March 29, 2011, Hunt walked into CitiMortgage’s human resources department in O’Fallon and told them everything: how the bank had been routinely buying and selling bad mortgages for years, how the fraud unit wasn’t doing its job and how the quality-control people were being pressured to change their ratings.
One place where she uncovered flaws was in the fraud prevention and investigation group. That’s where Hunt’s team shipped questionable loans, with issues such as obviously forged signatures, whited-out income lines on tax forms or misspelled bank names on borrower bank statements.
There was no testimony and no trial. Citigroup admitted wrongdoing on Feb. 15 and paid the $158.3 million to settle. In a press release the same day, Citi said it was pleased to resolve the matter.
“We take our quality-assurance processes seriously and have proactively undertaken process improvements to ensure that they are as robust as possible,” the bank wrote. The statement didn’t mention Hunt.
Bank of America
Citigroup isn’t the only bank that’s been held accountable for processing bad mortgages. In February, Charlotte, North Carolina-based Bank of America Corp. settled a false-claims case with the government for $1 billion, without admitting wrongdoing.
In May, Frankfurt-based Deutsche Bank AG agreed to pay $202.3 million for endorsing unqualified mortgages for FHA insurance, and admitted wrongdoing...
What continues to set Citigroup apart is that the bank approved flawed loans well past the 2008 financial crisis. A battleground over loan quality persisted at CitiMortgage even as the settlement was signed in February, the complaint says.
3--China and the Impending Global Slowdown, econbrowser
Even before the newest portents of a slowdown, [0] it was clear that 2012 gains in world output were going to be highly reliant on Chinese growth. Figure 1 shows that the Eurozone switches to a net drag on world growth. China’s contribution is thus a much larger share of total world growth.
Clearly, a slowdown is underway. In addition, a domestic source of growth –- namely the property market –- is cooling off.
The slowdown in the BRICs and recession in the Eurozone (and the UK!) highlights the need to avoid the contractionary impact of ending extended unemployment benefits, the payroll tax rate reduction, and the provisions of EGTRRA and JGTRRA (many charts)
4--PIMCO's Gross warns of economic "breaking point", Reuters
Excerpt: The debt crisis and central bank policy responses have degraded the quality and value of debt markets and signal a "potential breaking point" in the global economy, PIMCO's Bill Gross, manager of the world's largest bond fund, said in his monthly letter to investors.
In his June outlook entitled "Wall Street Food Chain," Gross said stimulus policies by the Federal Reserve and the European Central Bank have led to riskier government bonds with lower value and paved the way for higher inflation.
"Policy responses by fiscal and monetary authorities have managed to prevent substantial haircutting of the $200 trillion or so of financial assets that comprise our global monetary system, yet in the process have increased the risk and lowered the return of sovereign securities which represent its core," Gross said.
"Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year old global monetary system," he added.
5--FHA Sub-Prime Defaults At 9% In California, testosterone pit
The American taxpayer is about to be saddled with another multi-billions bail-out of sub-prime mortgage loan losses from the stealth Federal Housing Authority (FHA) lending program that has been offering ultra-low 3.5% down payments since 2009. Delinquency rates are already at 9% in California and expanding rapidly across the United States.
Sub-prime lending drove the U.S. housing bubble from 1998 until its collapse beginning in 2007. Since that time, real estate prices have fallen by 35% across the United States. Sub-prime was first hailed for its expansion of the number of people who could qualify for a mortgage. But many of those borrowers fudged on their income and net worth levels in order to borrow more than their true incomes would allow them to repay. Since the bubble burst and many sub-prime borrowers defaulted, the U.S. government has provided bank bail-outs deficit spending stimulus that will double the national debt from $9 trillion in 2007 to $18 trillion next year. ...
Unfortunately, taxpayers are about to learn they are increasingly liable for another multi-billion dollar sub-prime bail-out. The U.S. Department of Housing and Urban Development website trumpets: “FHA Loans Help You.” In smaller print that help is described as insuring your loan so your lender can offer you mortgage down payments of 3.5% of the purchase price that include closing costs and fees in the loan. FHA will allow you to buy a home, remodel and refinance your existing home or convert your equity into cash through a reverse mortgage if you are 62 or older. All this FHA hoopla sounds allot like sub-prime lending, because it is sub-prime lending!
Any bank that made this type of loan on its own would be required by regulators classify the loan as a non-conforming investment and reserve approximately 25% of the amount of the loan in cash as protection against a potential sub-prime borrower default. But the beauty of the FHA insured loan program is banks collect fees for risk-free processing of loans and then sell the loans to Federal National Mortgage Corporation (Fannie Mae) or The Federal Home Loan Mortgage Corporation (Freddie Mac) for another profit.
Of course both of these government sponsored enterprises have been in operating in conservatorship (nice word for bankruptcy) since September 6, 2008 as a result of sub-prime loan losses. Treasury Secretary Henry Paulson stated “I attribute the need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction.” That correction has resulted in 5 million completed foreclosures and another 8 million mortgages that are over 30 days delinquent or in foreclosure.
Center for Responsible Lending (CRL), founded by ACORN, recently published a study reporting that requiring a 20% down payment would prevent 60% of all FHA borrowers from qualifying for a residential mortgage.
...
The Obama Administration’s Office of Management and Budget estimated in October 20111 that FHA’s $4.7 billion capital reserves will be wiped out this year, forcing FHA to seek at least $700 million bail-out from the U.S. Treasury. Americans are justifiably angry at being required to bail-out the banks’ irresponsible sub-prime lending. Think how angry they are going be this election season, when they have to bail-out the government’s irresponsible sub-prime lending
6--Capital flees China, Tim Duy, economists view
With a fortune of at least $1.6 million, Mr. Shi is part of the wealthy elite that benefited most from the Communist Party's brand of capitalism. He is riding the crest of arguably the biggest economic expansion in history.
And yet, while the party touts the economic success of the "Chinese model," many of its poster children are heading for the exits. They are in search of things money can't buy in China: Cleaner air, safer food, better education for their children. Some also express concern about government corruption and the safety of their assets.
Domestic money in China will be the first to head for the exit - insiders will always know more than outsiders about the underlying economic conditions. So the exodus of cash could indicate that the Chinese story is coming to a close - and that will have significant consequences for the global economy. It is another signal that emerging markets will not be supporting global demand anytime soon. I think the team at alphaville is right - this story is slipping under the radar while we all have our eyes focused on the farce in Europe. But it could be the real game changer in the global economy.
7--FHA foreclosures spike 73% in April: LPS, Housingwire
Foreclosure starts on mortgages insured by the Federal Housing Administration spiked 73% in April, according to data from Lender Processing Services ($23.08 -0.3%).
Mortgage servicers foreclosed on 63,129 total FHA-backed loans in April, more than any other product type including home loans guaranteed by Fannie Mae, Freddie Mac or held by private investors.
When the mortgage market collapsed in 2007, FHA stepped in. Originations backed by the agency tripled in 2008 and increased to five times the historical average the next year. The rise in April foreclosure starts consisted of loans guaranteed in 2008 and 2009.
"Whether or not it's the beginning of a trend for these vintages is hard to tell. It's cloudy," said LPS Analytics Senior Vice President Herb Blecher. "It does seem like there is some exogenous effect in April."...
8--SHILLER: POSITIVE HOUSING SIGNS ARE A “SEASONAL BLIP, pagmatic capitalism
Robert Shiller: We had home prices going up for almost a decade….Home prices show a lot of momentum. They’re not like the stock market. The real question is do we still have downward momentum? There’s a lot of positive signs but a skeptic who believes in momentum says it’s been going on now for six years and I am a little bit of a skeptic, might well say it’s going to keep going down. After the seasonal blip is over, it may not be over.”
9--False Reporting on the Health of Venezuela's President Hugo Chavez, Eva Golinger, global research
Venezuelan President Hugo Chavez was diagnosed with cancer and a malignant tumor was removed from his pelvic region last June, all kinds of rumors, lies and speculations have circulated about his health. Most of the hype has come from known anti-Chavez media, such as the Miami Herald and several online blogs run by right-wing extremists like Bush’s former Assistant Secretary of State Roger Noriega, who’s been obsessed with Chavez for years. All cite unnamed sources who claim they have “insider information” about the Venezuelan head of state’s health.
It’s been unsurprising that those media outlets, known for their decade-long distortions of Venezuela’s reality, would publish such falsities and morbid tales about President Chavez. But that a serious, veteran, investigative journalist, such as Dan Rather, would indulge in the necrophiliac story-telling about the Venezuelan President is truly disappointing.
Rather, who now runs his own show on HDNet, Dan Rather Reports, posted a report on Wednesday, May 30, claiming President Chavez’s health is “dire” and has “entered the end stage”. Rather also claims his unnamed “high-level” source, who he alleges is close to the Venezuelan President, told him Chavez won’t live “more than a couple of months at most”.
In his brief report, which he calls an “exclusive”, Rather also bids in with his own biased language, calling the democratically-elected Venezuelan President a “dictator”.
What prompted Dan Rather to write such diatribe? Why would he join the ranks of Roger Noriega, the wretched Miami Herald and a slew of pseudo-journalists drooling over their morbid wet dreams of President Chavez’s failing health?
What is apparent is that Rather was quick to the gun to “break” his “exclusive” story. Just the day before, President Chavez hosted a cabinet meeting broadcast live on television that lasted more than four hours. The Venezuelan head of state appeared energized, optimistic and focused on his duties, and even sang a few heartfelt songs, as is custom for the eclectic and charismatic Chavez. He reaffirmed his candidacy for the October 7th presidential elections. (Yes, Venezuela is a democracy!) That’s a far cry from being on his “death bed”, as Rather implies.
10--Chicago Business Barometer Signals Economy on Edge of Recession, WSJ
A closely-watched index gauging U.S. factory output fell to a near 2 1/2-year low in May, indicating the economy might be heading back toward a recession.
The Institute for Supply Management-Chicago reported Thursday that its business barometer fell 3.5 points to 52.7 in May, the third straight monthly drop and lowest reading since September 2009.
Readings above 50.0 reflect economic expansion. However, three consecutive declines are “associated with the onset of each of the last seven national recessions, with a lead of some six-to-eight months,” ISM-Chicago said in a news release.
11--Once Again, Economy Cools When Weather Warms Up, WSJ
The U.S. recovery can’t seem to shake off the hot-weather jinx.
Thursday brought uniformly bearish news on May economic activity. Private-sector hiring is weak, jobless claims are rising and factory activity in Chicago slumped to its weakest level since September 2009.
The data paint an economy stumbling in the spring. Gross domestic product growth probably won’t turn negative, but a jump to above 3% also looks like a long shot this quarter.
The weak ADP report–which showed only 133,000 private jobs created–raises questions about the health of the labor markets just ahead of Friday’s closely watched employment report.
Most economists are sticking to their payroll forecasts. But the risks are clearly on the downside for the consensus projection of 155,000 new jobs added in May. The unemployment rate is expected to stay at 8.1%.
About the only bright spot in the trove of Thursday data was slower inventory accumulation last quarter that led to GDP growth being revised down to a 1.9% annual rate from 2.2%. U.S. businesses ended the first quarter with fewer goods on hand than previously estimated. That diminishes the risk that excessive stockpiles will lead to less ordering and production and job cutbacks.
12--More Student Loans Are Past Due, WSJ
13--U.S. Savings Rate Falling Amid Stagnant Incomes, WSJ
The government made a sharp downward revision to fourth-quarter income figures Thursday, a sign of stagnant wages and a potential hurdle for consumer spending.
The figures, tucked in to the latest GDP report, show real disposable personal income–income minus taxes, adjusted for inflation–rose only 0.2% in the fourth quarter, compared with an earlier estimate of 1.7%. The change is largely due to lower-than-expected paychecks. Real first-quarter income was unrevised at a 0.4% gain.
The upshot: consumers are saving less in order to spend more. Consumer outlays rose a solid 2.1% in the fourth quarter and 2.7% in the first three months of this year.
But the personal savings rate for the first quarter dropped its lowest level since the start of the recession. Americans stashed away 3.6% of personal income in the first quarter, down from 4.2% in the fourth quarter and a near-term peak of 6.2% in the second quarter of 2009
Wednesday, May 30, 2012
Today's links
1--EU Weighs Direct Aid to Banks as Antidote to Crisis, Bloomberg
Excerpt: The European Commission challenged Germany’s remedies for the financial crisis, calling for direct euro-area aid for troubled banks and demanding a path to common bond issuance.
The commission, the European Union’s central regulator, sided with Spain in proposing that the planned permanent rescue fund, the European Stability Mechanism, inject cash to banks instead of channeling the money via national governments......
Proposals for more liberal use of European bailout money face resistance in creditor countries such as Germany, Finland and the Netherlands, the scenes of growing taxpayer opposition to adding to the 386 billion euros ($479 billion) already pledged to fight the crisis.
Germany showed no signs of easing its stance, as Steffen Seibert, Chancellor Angela Merkel’s chief spokesman, told reporters in Berlin that “the German position on the direct recapitalization of banks out of the European rescue funds is known.” ...
The commission packaged the bank-aid ideas along with a call for a European deposit-insurance program, designed to break the spiral of faltering governments and failing banks. It said it will make concrete proposals for common bond issuance -- also opposed by northern European donor countries -- and singled Spain out as the only country entitled to more time to cut its budget deficit....
The commission appealed for a “banking union” that would more tightly integrate supervision and create a pool of European funds to clean up banks with cross-border exposure and segregate their underperforming assets.
2--Barney Frank: Obama Rejected Bush Administration Concession to Write Down Mortgages, naked capitalism
Excerpt: Here’s Barney Frank, in an exit interview recently in New York Magazine, revealing unwittingly that Obama during the transition rejected a Bush administration concession to write down mortgages. Here’s what Barney said.
The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it.
This is consistent with other accounts. There were policy debates within Obama’s economic team about what to do about the mortgage crisis. The choices were to create some sort of legal entity to write down mortgage debt or to allow the write-down of mortgage debt through a massive wave of foreclosures over the next four to six years. He choice the latter. That choice was part of what led to roughly $7 trillion of middle class wealth gone, with financial assets for the elites re-inflated.
Since I pointed out that the growth of income inequality under Obama is worse than that under Bush, many people have responded by saying that somehow this is not Obama’s responsibility, that it was an inherited crisis and structural problems that caused a widening of inequality. They simply do not want to accept that policy matters, or, if it does, that Obama had any choice in the policy choices he made.
In fact, crisis response is the single most significant policymaking time imaginable, because all structural barriers are swept away. Think about it – this was literally a deal offered by Hank Paulson – one guy – to Barack Obama, with a multi-trillion dollar impact. No 60 votes in the Senate. No hearings. No confirmations. Just a handshake, basically. In other words, policy does matter, and Obama had a variety of choices and leverage, and he did what he thought was best. He did not want to write down mortgages, even though he was offered that choice by the Bush administration and Barney Frank. So he didn’t.
So yes, Barack Obama is worse than George Bush on economic inequality.
3--National Bank warns of dire Grexit fallout, athens news
Excerpt: If the country left the euro, living standards would plummet, incomes would be slashed by more than half, and inflation and unemployment would skyrocket, the country's biggest bank warned on Tuesday.Lower provisions for loan losses and higher noninterest income were responsible for most of the year-over-year improvement in earnings.
In a 16-page report, the privately owned National Bank of Greece said the risk of a Greek euro exit was no longer just a theoretical possibility, warning that the fallout from such a move would be dramatic.
"An exit from the euro would lead to a significant decline in the living standards of Greek citizens," the NBG wrote.
The bank said per capita income would collapse by at least 55 percent, the new national currency would depreciate by 65 percent against the euro and a recession, now in its fifth year, would deepen by 22 percent.
Painting a dire picture of a post-euro landscape, it added that unemployment would jump to 34 percent of the work force from around 22 percent now and that inflation would rise to 30 percent from its current level of 2 percent.
4--Housing Recovery - Hope and Reality, dshort
Excerpt: Every year for the past three years there have been recurring calls for a housing bottom and recovery. The importance of an eventual recovery in housing should not be dismissed as it is a critical component of an economic recovery due to the large multiplier effect of each dollar spent. The recovery in housing would signal that a foundation for a more lasting economic recovery would be in place. That is the hope anyway.
One issue that will continue to confound the real estate market in the near term is the level of inventory that is being held off market for various reasons. This does not include the shadow inventory held by banks which is an additional issue. As we have stated in previous reports the housing market is driven by the activity "at the fringes" between those actively seeking to buy a house versus those with "for sale" signs in their yard. Today, roughly 1/3 of all homeowners are under water on their mortgages. Therefore, it is no surprise that many are holding homes as long as possible hoping for a price recovery. However, at some point these "vacant" houses, along with the excess shadow inventory and trapped homeowners, will come to market either due to force or desperation. The excess supply will continue to pressure home prices, more supply than demand, in the future further exacerbating the problem for those already drowning in their home....
Ultimately there is only one truth to whether there is really a housing recovery or not. How many people own a home? If new and existing home activity, as seen in recent reports, is truly on the rise then we should see the number of individuals that are "home owners" on the rise as well.
5--What record low 10-year rates tell us about the toxic effects of permanent zero, credit writedowns
Excerpt: If the central bank is telling you that zero rates are practically permanent i.e. permanent zero, wouldn’t you expect the term structure to eventually flatten? That’s what has happened, folks – just as in Japan.
So what does this mean for you and me? Well, first of all, what’s your savings account statement saying? Is it telling you you can spend a lot more because you are flush with interest income or is it telling you you better save more if you expect to retire without having to live on cat food? Here’s another question: does this bode well for consumption or ill? Clearly, it bodes ill via the interest income channel but it could bode well if you and I leverage up a bit as debt service costs are down. And that is the point of low rates, by the way.
The Fed is squeezing interest rates down to levels where you see private portfolio preference shifts, a euphemism for the risk seeking return mentality that arises from artificially low real fixed income returns and that forces up risk assets. But this can only go one for so long.
See, eventually there will be another recession and the question should be what happens to all those toxic assets on bank balance sheets. What happens if new loans go sour too? If you recall, US FDIC-insured institutions recorded $35 billion in Q1 2012 accounting gains. But the quality of those accounting gains was dubious. Here’s the key line to note:
That means FDIC insured institutions are under-provisioning and earning money through non-lending channels. These institutions are taxpayer guaranteed by the FDIC because they take deposits and lend that money in support of economic activity. Yet, what the FDIC is telling you is that institutions are not earning money through the traditional interest income channel which is the source of their FDIC guarantee. And that’s as you should expect in a permanent zero environment.
6--Most Aid to Athens Circles Back to Europe, NY Times
Excerpt: Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.
But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets.
The European bailout of 130 billion euros ($163.4 billion) that was supposed to buy time for Greece is mainly servicing only the interest on the country’s debt — while the Greek economy continues to struggle.
If that seems to make little sense economically, it has a certain logic in the politics of euro-finance. After all, the money dispensed by the troika — the European Central Bank, the International Monetary Fund and the European Commission — comes from European taxpayers, many of whom are increasingly wary of the political disarray that has afflicted Athens and clouded the future of the euro zone....
In an elaborate payment system that began after the May 6 election that brought down the Greek government and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payments on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.
About three-quarters of Greece’s debt, or $229 billion, is now effectively owned by one of the three troika members, according to estimates by the investment bank UBS....
On its face, the situation seems absurd. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them.
“You send the money, you call it a ‘loan’ — you get it back and call it an ‘interest rate,’ ” said Stephane Deo, global head of asset allocation in London for UBS. Mr. Deo said such arrangements were common in situations where governments were in danger of defaulting on their debts....
Only a third has been earmarked to finance government operations, with only a tiny sliver spent on stimulus projects for the anemic economy.
This circular lending is all about risk management.
7--Mysteries of the ELA, acting man
Excerpt: The European Central Bank is trying to limit the flow of information about so-called Emergency Liquidity Assistance, which is increasingly being tapped by distressed euro-region financial institutions as the debt crisis worsens. Focus on the program intensified last week after news leaked that the ECB moved some Greek banks out of its regular refinancing operations and onto ELA until they are sufficiently capitalized....
European stocks fell and the euro weakened on May 16 as investors sought clarity on how the Greek financial system would be kept alive. The episode highlights the ECB’s dilemma as it tries to save banks without taking too much risk onto its own balance sheet. While policy makers argue that secrecy is needed around ELA to prevent panic, the risk is that markets jump to the worst conclusion anyway.
“The ELA is a perfect life-support system, but it’s not a system for what happens after that,” said Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics LLC in Clare, Ireland. “What you need is a bank resolution mechanism, a method to get rid of a bank that’s insolvent. In Ireland, and perhaps in Greece as well, the problem is that you’ve got banking systems that are insolvent.”
8--Squatters rent?, Bloomberg
Excerpt: So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.
“We’ve had a lot of government transfers to the household sector; this is a transfer from the business sector to households,” Feroli said. “It’s a shock absorber that has helped the consumer ride out the storm.”
9--Greece economy "in depression" is best, infowars
Excerpt: The article, entitled Greece to Leave Euro Zone on June 18: Wealth Manager, focuses on Integral Asset Management’s Nick Dewhirst’s contention that Greece will exit the single currency the day after national elections on June 17 if the populist party is victorious.
However, in the very last paragraph of the story we read;
“Kit Juckes, global head of foreign exchange at Societe Generale, told CNBC’s “Worldwide Exchange” (see video above) that the best outcome was “the status quo.” “A Greek economy in depression, austerity that guarantees they’ll stay in depression and living on life support from the rest of Europe is the best,” he said.”
As the representative of Societe Generale, one of Europe’s biggest banks, Juckes is brazenly admitting that the elite would rather see Greece rot and decline into a failed state than allow her to leave the euro and become economically independent once again.
10--Greek Leftist Leader Alexis Tsipras --'It's in Europe's Interest to Lift the Austerity Diktat', Der Speigel
Excerpt: SPIEGEL: Which "others" do you mean? The Greek economy is already in a shambles.
Tsipras: What I mean by that is if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel.
SPIEGEL: Are you seriously claiming that the reforms which Europe is demanding as a precondition for loan assistance are the reason for Greece's miserable situation?
Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.
SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?
Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.
SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …
Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.
SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?
Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.
The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy
Excerpt: The European Commission challenged Germany’s remedies for the financial crisis, calling for direct euro-area aid for troubled banks and demanding a path to common bond issuance.
The commission, the European Union’s central regulator, sided with Spain in proposing that the planned permanent rescue fund, the European Stability Mechanism, inject cash to banks instead of channeling the money via national governments......
Proposals for more liberal use of European bailout money face resistance in creditor countries such as Germany, Finland and the Netherlands, the scenes of growing taxpayer opposition to adding to the 386 billion euros ($479 billion) already pledged to fight the crisis.
Germany showed no signs of easing its stance, as Steffen Seibert, Chancellor Angela Merkel’s chief spokesman, told reporters in Berlin that “the German position on the direct recapitalization of banks out of the European rescue funds is known.” ...
The commission packaged the bank-aid ideas along with a call for a European deposit-insurance program, designed to break the spiral of faltering governments and failing banks. It said it will make concrete proposals for common bond issuance -- also opposed by northern European donor countries -- and singled Spain out as the only country entitled to more time to cut its budget deficit....
The commission appealed for a “banking union” that would more tightly integrate supervision and create a pool of European funds to clean up banks with cross-border exposure and segregate their underperforming assets.
2--Barney Frank: Obama Rejected Bush Administration Concession to Write Down Mortgages, naked capitalism
Excerpt: Here’s Barney Frank, in an exit interview recently in New York Magazine, revealing unwittingly that Obama during the transition rejected a Bush administration concession to write down mortgages. Here’s what Barney said.
The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it.
This is consistent with other accounts. There were policy debates within Obama’s economic team about what to do about the mortgage crisis. The choices were to create some sort of legal entity to write down mortgage debt or to allow the write-down of mortgage debt through a massive wave of foreclosures over the next four to six years. He choice the latter. That choice was part of what led to roughly $7 trillion of middle class wealth gone, with financial assets for the elites re-inflated.
Since I pointed out that the growth of income inequality under Obama is worse than that under Bush, many people have responded by saying that somehow this is not Obama’s responsibility, that it was an inherited crisis and structural problems that caused a widening of inequality. They simply do not want to accept that policy matters, or, if it does, that Obama had any choice in the policy choices he made.
In fact, crisis response is the single most significant policymaking time imaginable, because all structural barriers are swept away. Think about it – this was literally a deal offered by Hank Paulson – one guy – to Barack Obama, with a multi-trillion dollar impact. No 60 votes in the Senate. No hearings. No confirmations. Just a handshake, basically. In other words, policy does matter, and Obama had a variety of choices and leverage, and he did what he thought was best. He did not want to write down mortgages, even though he was offered that choice by the Bush administration and Barney Frank. So he didn’t.
So yes, Barack Obama is worse than George Bush on economic inequality.
3--National Bank warns of dire Grexit fallout, athens news
Excerpt: If the country left the euro, living standards would plummet, incomes would be slashed by more than half, and inflation and unemployment would skyrocket, the country's biggest bank warned on Tuesday.Lower provisions for loan losses and higher noninterest income were responsible for most of the year-over-year improvement in earnings.
In a 16-page report, the privately owned National Bank of Greece said the risk of a Greek euro exit was no longer just a theoretical possibility, warning that the fallout from such a move would be dramatic.
"An exit from the euro would lead to a significant decline in the living standards of Greek citizens," the NBG wrote.
The bank said per capita income would collapse by at least 55 percent, the new national currency would depreciate by 65 percent against the euro and a recession, now in its fifth year, would deepen by 22 percent.
Painting a dire picture of a post-euro landscape, it added that unemployment would jump to 34 percent of the work force from around 22 percent now and that inflation would rise to 30 percent from its current level of 2 percent.
4--Housing Recovery - Hope and Reality, dshort
Excerpt: Every year for the past three years there have been recurring calls for a housing bottom and recovery. The importance of an eventual recovery in housing should not be dismissed as it is a critical component of an economic recovery due to the large multiplier effect of each dollar spent. The recovery in housing would signal that a foundation for a more lasting economic recovery would be in place. That is the hope anyway.
One issue that will continue to confound the real estate market in the near term is the level of inventory that is being held off market for various reasons. This does not include the shadow inventory held by banks which is an additional issue. As we have stated in previous reports the housing market is driven by the activity "at the fringes" between those actively seeking to buy a house versus those with "for sale" signs in their yard. Today, roughly 1/3 of all homeowners are under water on their mortgages. Therefore, it is no surprise that many are holding homes as long as possible hoping for a price recovery. However, at some point these "vacant" houses, along with the excess shadow inventory and trapped homeowners, will come to market either due to force or desperation. The excess supply will continue to pressure home prices, more supply than demand, in the future further exacerbating the problem for those already drowning in their home....
Ultimately there is only one truth to whether there is really a housing recovery or not. How many people own a home? If new and existing home activity, as seen in recent reports, is truly on the rise then we should see the number of individuals that are "home owners" on the rise as well.
5--What record low 10-year rates tell us about the toxic effects of permanent zero, credit writedowns
Excerpt: If the central bank is telling you that zero rates are practically permanent i.e. permanent zero, wouldn’t you expect the term structure to eventually flatten? That’s what has happened, folks – just as in Japan.
So what does this mean for you and me? Well, first of all, what’s your savings account statement saying? Is it telling you you can spend a lot more because you are flush with interest income or is it telling you you better save more if you expect to retire without having to live on cat food? Here’s another question: does this bode well for consumption or ill? Clearly, it bodes ill via the interest income channel but it could bode well if you and I leverage up a bit as debt service costs are down. And that is the point of low rates, by the way.
The Fed is squeezing interest rates down to levels where you see private portfolio preference shifts, a euphemism for the risk seeking return mentality that arises from artificially low real fixed income returns and that forces up risk assets. But this can only go one for so long.
See, eventually there will be another recession and the question should be what happens to all those toxic assets on bank balance sheets. What happens if new loans go sour too? If you recall, US FDIC-insured institutions recorded $35 billion in Q1 2012 accounting gains. But the quality of those accounting gains was dubious. Here’s the key line to note:
That means FDIC insured institutions are under-provisioning and earning money through non-lending channels. These institutions are taxpayer guaranteed by the FDIC because they take deposits and lend that money in support of economic activity. Yet, what the FDIC is telling you is that institutions are not earning money through the traditional interest income channel which is the source of their FDIC guarantee. And that’s as you should expect in a permanent zero environment.
6--Most Aid to Athens Circles Back to Europe, NY Times
Excerpt: Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.
But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets.
The European bailout of 130 billion euros ($163.4 billion) that was supposed to buy time for Greece is mainly servicing only the interest on the country’s debt — while the Greek economy continues to struggle.
If that seems to make little sense economically, it has a certain logic in the politics of euro-finance. After all, the money dispensed by the troika — the European Central Bank, the International Monetary Fund and the European Commission — comes from European taxpayers, many of whom are increasingly wary of the political disarray that has afflicted Athens and clouded the future of the euro zone....
In an elaborate payment system that began after the May 6 election that brought down the Greek government and is meant to ensure that the Greeks do not touch the cash, the big three creditors are now wiring bailout payments to an escrow account in Greece. There the money sits for two or three days — before much of it is sent back to the troika as interest payments on the Greek bonds that Europe accepted under terms of the bailout deal struck in February.
About three-quarters of Greece’s debt, or $229 billion, is now effectively owned by one of the three troika members, according to estimates by the investment bank UBS....
On its face, the situation seems absurd. The European authorities are effectively lending Greece money so Greece can repay the money it borrowed from them.
“You send the money, you call it a ‘loan’ — you get it back and call it an ‘interest rate,’ ” said Stephane Deo, global head of asset allocation in London for UBS. Mr. Deo said such arrangements were common in situations where governments were in danger of defaulting on their debts....
Only a third has been earmarked to finance government operations, with only a tiny sliver spent on stimulus projects for the anemic economy.
This circular lending is all about risk management.
7--Mysteries of the ELA, acting man
Excerpt: The European Central Bank is trying to limit the flow of information about so-called Emergency Liquidity Assistance, which is increasingly being tapped by distressed euro-region financial institutions as the debt crisis worsens. Focus on the program intensified last week after news leaked that the ECB moved some Greek banks out of its regular refinancing operations and onto ELA until they are sufficiently capitalized....
European stocks fell and the euro weakened on May 16 as investors sought clarity on how the Greek financial system would be kept alive. The episode highlights the ECB’s dilemma as it tries to save banks without taking too much risk onto its own balance sheet. While policy makers argue that secrecy is needed around ELA to prevent panic, the risk is that markets jump to the worst conclusion anyway.
“The ELA is a perfect life-support system, but it’s not a system for what happens after that,” said Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics LLC in Clare, Ireland. “What you need is a bank resolution mechanism, a method to get rid of a bank that’s insolvent. In Ireland, and perhaps in Greece as well, the problem is that you’ve got banking systems that are insolvent.”
8--Squatters rent?, Bloomberg
Excerpt: So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.
“We’ve had a lot of government transfers to the household sector; this is a transfer from the business sector to households,” Feroli said. “It’s a shock absorber that has helped the consumer ride out the storm.”
9--Greece economy "in depression" is best, infowars
Excerpt: The article, entitled Greece to Leave Euro Zone on June 18: Wealth Manager, focuses on Integral Asset Management’s Nick Dewhirst’s contention that Greece will exit the single currency the day after national elections on June 17 if the populist party is victorious.
However, in the very last paragraph of the story we read;
“Kit Juckes, global head of foreign exchange at Societe Generale, told CNBC’s “Worldwide Exchange” (see video above) that the best outcome was “the status quo.” “A Greek economy in depression, austerity that guarantees they’ll stay in depression and living on life support from the rest of Europe is the best,” he said.”
As the representative of Societe Generale, one of Europe’s biggest banks, Juckes is brazenly admitting that the elite would rather see Greece rot and decline into a failed state than allow her to leave the euro and become economically independent once again.
10--Greek Leftist Leader Alexis Tsipras --'It's in Europe's Interest to Lift the Austerity Diktat', Der Speigel
Excerpt: SPIEGEL: Which "others" do you mean? The Greek economy is already in a shambles.
Tsipras: What I mean by that is if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel.
SPIEGEL: Are you seriously claiming that the reforms which Europe is demanding as a precondition for loan assistance are the reason for Greece's miserable situation?
Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.
SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?
Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.
SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …
Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.
SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?
Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.
The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy
Tuesday, May 29, 2012
Today's links
1--European Union Survey --Poll Finds Huge Gap between Greeks and Germans, Der Speigel
Excerpt: Of the five euro-zone member states surveyed (France, Germany, Spain, Italy and Greece), a median of only 37 percent sees the common currency as a good thing, while those countries outside the euro zone are happy they didn't join, including nearly three-quarters of the British (73 percent). Similarly most -- including the Germans -- do not have a favorable view of the European Central Bank, with only 39 percent having a positive view of the ECB.
Except for Germany, support for a free market is declining, down 20 percent between 2007 and 2012 in Spain and 23 percent in Italy, though relatively unchanged in the United States with a 3 percent decline. Support for free markets rose in Germany by 4 percent.
Despite all this, the report showed that Europeans are reluctant to relinquish symbols of a united Europe. More than half of those surveyed in the five euro-zone member states -- including 71 percent of the Greeks, 69 percent of the French and 66 percent of the Germans -- would like to keep the euro as their currency.
Europeans are divided over who to blame for the crisis. The Greeks, Italians, Poles and Czechs blame their own governments. The French and Spanish blame banks and other major financial institutions. The British and Germans blame both.
2--JP Morgan dips into cookie jar to offset "London Whale" losses, IFR
Excerpt: JP Morgan Chase & Co has sold an estimated US$25bn of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale”, compounding the cost of those trades.
CEO Jamie Dimon earlier this month said the bank sold corporate bonds and other securities, pocketing US$1bn in gains that will help offset more than US$2bn in losses. As a result, the bank will not have to report as big an earnings hit for the second quarter.
The sales of profitable securities from elsewhere in the bank’s investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.
Gains from the sales could provide about 16 cents a share of earnings, about one-fifth of the bank’s second-quarter profit, analysts said. But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company’s financial statements to another.
“They really made two stupid decisions,” said Lynn Turner, a consultant and former chief accountant of the Securities and Exchange Commission. The first was taking risks with derivatives that they did not understand, Turner said.
“The second is selling assets with high income that they can’t replace,” Turner added. In a low interest-rate environment, the bank will struggle to generate as much income with the cash it received from selling the securities, he said.
3--ECB moves from liquidity to solvency role, IFR
Excerpt: We have moved from a situation last year where the EBA stress tests showed “No Spanish bank is required to increase its capital as a result of the EBA stress test” to beefing up the capital base of Bankia
The worry remains that we are running through a script similar to that for Ireland where we also went from a position of no help being needed and ended up with a complete overhaul of the banking system that saw the sovereign fall into the hands of the EU/IMF bailout.
With funding options for the sovereign and financials difficult the end result is to rely on government guarantees and the ECB.
Like it or not the ECB’s liquidity is increasingly being used to shore up solvency of sovereigns and financials in the eurozone. This is something that the ECB will find difficult to stop as we can see by the way in which the ELA has increasingly been used in recent weeks and also LTRO usage by Spain and Italy to help fund sovereigns.
Getting help from the ESM/EFSF is one option but this still faces the difficult task of reducing the firewall for other countries. In the end the ECB will likely be forced to play a more pivotal role by opening up its balance sheet and more formally supporting solvency. Without this the eurozone sovereign/financial crisis will be difficult to put to bed.
4--Stop subsidizing the banks, London Banker
Excerpt: At some point policy makers will need to turn their efforts from reinforcing and bailing out the bankers who use any and every opportunity to take public support as private bonuses and instead evaluate much simpler, lower cost models of financial intermediation likely to yield domestic investment in domestic businesses and assets....
It is a conservative principle that the state should intervene when markets fail. If the banking system has failed (and it has) and requires a taxpayer subsidy to continue to operate (which it does), then conservative principles dictate that the state must intervene to secure a resolution in the public interest. More of the same is not a conservative policy, but social welfare for bankers.
We currently have a system of excess regulatory complexity, hidden market distortions and public subsidies. Moving away from the status quo requires state action to identify and reduce subsidy through promotion of business models that are simpler, more transparent and more directly aimed at securing public benefit
5--- U.S. Winds Down Longer Benefits for the Unemployed, NY Times
Excerpt: Hundreds of thousands of out-of-work Americans are receiving their final unemployment checks sooner than they expected, even though Congress renewed extended benefits until the end of the year. ... In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and effectively made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits.
Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number of people cut off prematurely this year to close to half a million, according to the National Employment Law Project. That estimate does not include people who simply exhausted the weeks of benefits they were entitled to.
...Most states offer 26 weeks of unemployment benefits, plus the federal extensions that kicked in after the financial crash.
The number of extra weeks available by state is determined by several factors, including the state’s unemployment rate and whether it is higher than three years earlier. So states like California have had benefits cut even though the unemployment rate there is still almost 11 percent.
“Benefits have ended not because economic conditions have improved, but because they have not significantly deteriorated in the past three years,” Hannah Shaw, a researcher at the Center on Budget and Policy Priorities, wrote in a blog post. In May, an estimated 95,000 people lost benefits in California.
..by the end of September, the extended benefits will end in the last three states providing 99 weeks of assistance — Nevada, New Jersey and Rhode Island.
6--Greek Leftist Leader Alexis Tsipras --'It's in Europe's Interest to Lift the Austerity Diktat', Der Speigel
Excerpt: Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.
SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?
Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.
SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …
Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.
SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?
Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.
The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy
7--The Eurepo curve spells trouble, FT Alphaville
Excerpt: Sandy Chen at Cenkos has drawn our attention to an interesting development in the repo market: the Eurepo curve has inverted.
Why is this important?
Because it’s a clear signal of stress in the repo market. The Eurepo curve shows the repo rate for Euro borrowing amongst European banks at maturities from 1-day to 1-year; we interpret this inverted curve as a sign that banks are unwilling to commit the collateral (required for the repo) beyond a 1-month contract. Indeed, it appears that 1-day repos are strongly preferred. The Eurepo curve has shifted a lot in a month.
In other words, banks want to be able to get collateral back and prefer short maturities. It’s also a quite negative view on Europe’s ability to handle the crisis:
Judging from the shift in the Eurepo curve, the banks themselves don’t believe that any boosts will last longer than a month.
As Sober Look noted on Friday, inverted repo curves mean stress in the market, and looking at the shift in the Eurepo curve in the last month, the level of stress has gone up considerably…
8--College loans are next debt crisis, Miami Herald
Excerpt: Some 62 percent of the grads from U.S. public universities emerge with both a diploma and debt, according to figures compiled by the federal Department of Education’s Project on Student Debt. About 72 percent of grads from private nonprofit universities owe money. An astounding 96 percent of the kids who attend for-profit schools venture out into the real world as debtors.
The study was conducted in 2008. It’s only gotten worse amid a recession and slow, slow recovery, as state legislatures hack away at higher education allocations.
If grads from Cypress Bay High attend one of Florida’s universities this fall, their freshman year will coincide with a $300 million cut in state funding. Along with a 15 percent pop in tuition and diminished help from Bright Futures scholarships.
They’ll be attending schools with fewer courses and larger classes, taught by professors disheartened by stagnant wages and benefit cuts, on campuses suffering from drastic cutbacks in maintenance budgets.
Florida college students, after paying ever more for ever less education, graduated in 2010 owing an average of $21,184 in student loans. The dismal trend lines indicate that the debt load will be much heftier when the Cypress Bay High School Class of 2012 finally get their degrees.
As the state’s contribution to higher education was cut by 24 percent over the last five years, Florida universities responded by jacking up tuition (five state universities have increased tuition by 60 percent over the last four years, six others by 45 percent.) Incoming freshmen are looking at annual 15 percent increases — the maximum the state allows — throughout their academic careers.
At the bottom of the education food chain, the students respond by borrowing more money.
Their debt will add to the $1 trillion in unpaid student debt already looming over the U.S. economy. This isn’t limited to recent college grads. A third of American student debtors are 40 years old or older.
9--US threatens military intervention in Syria following Houla massacre, WSWS
Excerpt: The massacre of over 100 people in Houla is being utilized by the United States, other Western powers and the Gulf States to step up their drive for regime-change in Syria. Thirty-two children and 34 women were among Friday’s dead, the United Nations has said.
Speaking yesterday to Fox News, Chairman of the US Joint Chiefs of Staff Gen. Martin Dempsey said, “Of course, there is always a military option… it may come to a point with Syria because of the atrocities.”
His comments follow a series of bellicose statements by Washington. US Secretary of State Hillary Clinton said, “The US will work with the international community to intensify our pressure on [Syrian President Bashar] Assad and his cronies, whose rule by murder and fear must come to an end.” The White House called the Houla attack “a vile testament to an illegitimate regime.”
The Gulf Cooperation Council, led by Saudi Arabia and Qatar, is also once again urging direct military intervention. Kuwait, which currently heads the Arab League, announced it is calling for a ministerial meeting to “take steps to put an end to the oppressive practices against the Syrian people.”
The Free Syrian Army (FSA), based in Turkey and funded and organized by Washington and its allies, declared it was no longer committed to the truce brokered by former United Nations Secretary-General Kofi Annan. It issued a statement saying that “unless the UN Security Council takes urgent steps for the protection of civilians, Annan’s plan is going to go to hell.”
The Western-backed Syrian National Council (SNC) has called on the UN Security Council to convene an emergency meeting and take binding decisions to “protect the Syrian people” by invoking Chapter VII, which sanctions the use of force.
The Obama administration has to date confined its efforts to destabilize the Assad regime to covert support for proxy Sunni-based forces such as the FSA and SNC. But it is seeking to capitalise on the tragic events in Houla to secure the necessary political backing for direct intervention. This means either enlisting Russia’s support or neutralizing Moscow’s opposition to any move to depose Assad...
Moscow fears that regime-change would deprive it of its main base in the Middle East and secure undisputed US hegemony over the region’s oil riches by surrounding Shia Iran with a ring of pro-Washington Sunni regimes.
Russian Foreign Minister Sergei Lavrov, speaking yesterday at a news conference with UK Foreign Secretary William Hague, said he wanted Damascus to resolve its problems “without foreign interference..
Houla is being lined up to serve the same political function as atrocities in the former Yugoslavia and elsewhere in providing a justification for imperialist intervention....Ultimate responsibility for Houla rests with Washington and its allies, who have fostered and armed a sectarian Sunni insurgency dedicated to the overthrow of the Assad regime and its replacement by a government entirely subordinated to a strategic Middle East alliance dominated by the US.
10--Double suicide underscores Greece’s deepening health crisis, WSWS
Excerpt: The appalling suicide of a mother and son in Athens again underscores the social nightmare being visited on Greece by the troika—the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF).
The tragedy occurred May 24. The mother, aged 90, and her son, aged 60, leapt hand in hand from the roof of their apartment building in the capital shortly after 8 a.m.
The son was identified as Antonis Perris, an unemployed musician. Since Antonis had been unable to find work, the pair had been forced to survive on the mother’s pension of just €340 (US$427) a month.
The joint suicide occurred only days before IMF head Christine Lagarde dismissed reports that people were dying in the country due to the savage austerity measures being imposed, callously claiming that it was “payback” time for Greek workers.
The night before their deaths, Perris described their deteriorating economic situation and suffering on a well-known blog site.
He wrote, “I have been taking care of my 90-year-old mother for 20 years. In the last 3-4 years she has developed Alzheimer’s, recently she also has been having Schizophrenic fits amongst her other grave health problems, so nursing homes won’t accept her.
“The problem is that I hadn’t foreseen the crisis so I don’t have enough cash in my account, although I have real estate assets I sell from time to time, I’m left without cash and we can no longer eat. I borrow money from my credit card with 22% interest even though the banks themselves borrow with 1%. I have other running costs.
“Unfortunately, I have also developed serious health problems lately. I have no solution in front of me. I can no longer live this drama. There’s no solution. Does anyone have a solution?”
In his blog posting, Perris cited the lack of vitally needed medical services available to his mother as well as his inability to get the necessary remedies for his own developing medical problems. This is a direct result of the austerity measures imposed by PASOK and New Democracy, which are following the dictates of the EU and the IMF.
Bailout funds, destined for Greek banks, have been tied to the gutting of health care provision. Under the terms of the first bailout, health care spending was gutted by more than 10 percent. Under the second €174 billion agreed in March, another €1 billion cut in health care spending was made. This is equal to 0.5 percentage points of GDP. Its impact has been devastating under conditions in which many Greek workers have seen their wages reduced by up to 50 percent while unemployment has skyrocketed. Millions of people are now being forced to pay the full price for essential, life-saving medicines.
In April, the government suspended payments into the National Organisation for Health Care Provision (EOPPY), on which pharmacists rely for funding to prescribe drugs. According to officials last week, the state health system in Greece no longer has any funds to pay pharmacies for supplying their prescriptions.
People who used to pay prescription charges of between 10 and 25 percent for drugs, including those for treating heart conditions and cancer, now have to pay the full price. They can apply for a refund from social insurance funds that are members of EOPPY, but the likelihood of them ever getting the money back is slim. EOPPY was created last year on the direction of the troika and is now in a state of collapse. Pharmacies are owed a total of €520 million by EOPPY and other social insurance funds for prescriptions already supplied.
Patients in state hospitals are also being forced to go without basic medicines. One hospital administrator told the Financial Times, “We used to provide drugs for all patients receiving treatment, but we’re so squeezed now that we ask them to bring their own supplies of prescription drugs.”
There are warnings that Greece could rapidly run out of medicine. Dimitris Karageorgiou, secretary general of the Panhellenic Pharmaceutical Association, warned, “Already we have cancer sufferers going from hospital to hospital to try and find drugs because no one can afford to stock them.
“If the shortages get worse, God knows what we will see.”
11--.US student loan debt: Where did it come from and who benefits?, Nancy Hanover, WSWS
The impoverishment of American students and their families by student loan debt has become a well-known fact.
A generation of young people are facing financial desperation in order to make huge monthly payments on their loans. The scale of this collective debt affects all aspects of their lives:
* 39 percent of 18-to-29-year-olds have no health insurance.
* 23 percent say they cannot buy basic necessities.
* 20 percent have credit card debt of more than $10,000.
* 49 percent have taken a job they didn’t want in order to pay bills.
* 24 percent have moved back home with parents to save money.
* 20 percent have postponed marriage.
* 22 percent of 18-to-34-year-olds have postponed having children.
Today, 15.4 percent of Americans have student loans, and 14.4 percent of these loan holders are delinquent, the highest delinquency rate of any form of debt.
But why this is this tsunami of debt devastating a generation, and who benefits?
To avoid the mention of profit, the banking industry or the role of the government, the media typically blames either the students themselves, the purportedly overpaid faculty, or the mindset of an “entitled generation.”
Yet the actual cost of the loans themselves is more than covered by the 3.4 percent rate, since the bankers’ interest rate, the Federal Reserve discount window, has fluctuated between 0 percent and 1 percent. The fact is that the Obama administration is not arguing with the Republicans over assisting students, but over how much to squeeze them....
Even without doing all the math, clearly it is the banks that profit most handsomely from student loan payments—while being uniquely protected by the federal government.
Loans originated in the Federal Family Education Loan Program (FFEL) have a 97 percent guarantee against default by the federal government (with accrued interest in addition). Additionally, since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loans are the only type of consumer debt that may not be discharged in bankruptcy.....
With more than two thirds of students (up from 45 percent in 1993) forced to borrow to earn a bachelor’s degree, the indebtedness of a generation is clearly social policy. On average, for every dollar borrowed, a student will pay $2....
No longer just protecting the profits of the banks, the government is now well on its way to becoming the largest holder of student debt. This process was dramatically accelerated with Obama’s Health Care and Education Reconciliation Act, which made the government the sole funder of new student loans.
According to the Federal Reserve Bank of New York, non-revolving personal bank debt—the vast bulk of which is student loan debt—has jumped a massive 368 percent since 2007. The amount of student loans held by banks is now about $500 billion, or half of existing student debt, with the federal government just slightly behind. Federal-held student loans have quadrupled over the past four years.
This process has transformed the government’s role. The DOE report shows that there is not just a declining higher education subsidy, but that there is actually no overall subsidy from the federal government for student loans. On the contrary, student loans are an income source, to the tune of nearly $30 billion for 2012. Below is a chart from the president’s 2013 budget request showing the net inflow of cash from student debtors into federal coffers since 2009. The negative figures are inflows, the positive ones represent federal costs....
Government “subsidies” for student loans go from a cost to the federal government in 2008 of $2 billion to an estimated cash inflow of $39 billion for 2012. (Source: US DOE)
In 2011, more than 11 million new Direct Loans have been issued to students, for a total of $109 billion. The administration is realizing a steady increase in student loan market share. The DOE budget proposal states, with dry but unmistakable language, “For FY 2013, based on proposed policies, the Direct Loan program weighted average subsidy rate is estimated to be -20.08 percent. The reflects the projection that on average, the Federal Government will earn 20.08 percent on each dollar of loans originated in FY 2013.”
This is a far cry from the official line—”students who rely on loans to finance postsecondary education should not be burdened with additional college debt.” It is the government that will collect the debt, interest, origination fees and late penalties from student debt, rather than the servicers, guarantors and banks that dominated the business in the past.
New attacks from Obama
The report then details Obama’s proposed student loan “reforms” for the FY 2013 budget. These changes will actually increase the cost of college borrowing, place more loans under the DOE’s aegis and allow debt collectors to apply more pressure on students....
Legalize auto-dialing collection calls to students’ cell phones.
In the “President’s Plan for Economic Growth and Deficit Reduction,” he calls for an amendment of the 1934 Communications Act to allow prerecorded voice messages and robo-dialing to wireless phones for the purposes of debt collection.
* Require guaranty agencies to forward their portfolio of rehabilitated loans (student loans which were temporarily in default, but are now in repayment) to the DOE.
While the Obama administration insists on being the new collector, the rules stipulate that the former guaranty agencies may still collect a whopping 16 percent fee.
Obama has also pointed the way toward creating a national rating system on college affordability and value, and hinted that low-rated schools could be punished via withholding of loan or grant eligibility. There has been similar action threatened against the for-profit schools with skyrocketing default rates. Neither of these public relations maneuvers encroaches in the slightest on the banking industry’s ability to profit from student loans or lessens the income accruing to the federal government from their loans.
Already, state and federal governments are withdrawing professional licenses from those who default on their student loans, and garnisheeing Social Security and other government checks. Under the Higher Education Act, the DOE can subject student loan defaulters to Administrative Wage Garnishment or Federal Salary Offset, and require employers to forward 15 percent of “disposable pay” toward repayment of loans. The Debt Collection Improvement Act of 1996 permits the DOE to garnish up to 15 percent of disposable pay until the entire balance of the outstanding loan is paid.
The government is also pressing schools to withhold transcripts for those students delinquent in payments, which prevents them from transferring, applying for certain types of work, or seeking further degrees....
Student loan debt collection, a new parasitic industry
Student loans have become so lucrative that their debt collection has become its own spin-off industry—all overseen by the federal government. MyDebt.com explains ballooning fees that defaulters face: “The largest of these costs is usually the cost of contingent fees that may be incurred to collect the loan…. The contractors earn a commission, or contingent fee, for any payments then made on those loans. The Department [of Education] charges each borrower the cost of the commission earned by the contractor…the amount needed to satisfy a student loan debt collected by the Department’s contractors will be up to 25 percent more than the principal and interest repaid by the borrower.”....
Last week, the San Francisco Chronicle’s “Number of the Day” was $454,000, the one-year income of Joshua Mandelman, a student-loan debt collector. It reports on the nearly half-million dollars earned by Mandelman and six others at Educational Credit Management, a Minnesota nonprofit group, which subcontracts with the U.S. government to collect on defaulted student debt.
Education is a basic right
Only the Socialist Equality Party considers education a basic right. It should not be a means to prey on the young and create a new form of lifelong peonage.
We call for the immediate forgiveness of all student loan debt. Neither the banks nor the government have the right to profit from the determination of the population to become educated and productive.
We call for the right to free education for all, from pre-school through college and adult education.
12--Fukushima radiation seen in tuna off California, Reuters
Excerpt: Low levels of nuclear radiation from the tsunami-damaged Fukushima power plant have turned up in bluefin tuna off the California coast, suggesting that these fish carried radioactive compounds across the Pacific Ocean faster than wind or water can.
Small amounts of cesium-137 and cesium-134 were detected in 15 tuna caught near San Diego in August 2011, about four months after these chemicals were released into the water off Japan's east coast, scientists reported on Monday.
That is months earlier than wind and water currents brought debris from the plant to waters off Alaska and the U.S. Pacific Northwest.
The amount of radioactive cesium in the fish is not thought to be damaging to people if consumed, the researchers said in a study published in the journal Proceedings of the National Academy of Sciences....
scientists found elevated levels of two radioactive isotopes of the element cesium: cesium 137, which was present in the eastern Pacific before the Fukushima Daiichi disaster in the spring of 2011; and cesium 134, which is produced only by human activities and was not present before the earthquake and tsunami hit the Japanese plant....There was about five times the background amount of cesium 137 in the bluefin tuna they tested...
Most of the radiation was released over a few days in April 2011, and unlike some other compounds, radioactive cesium does not quickly sink to the sea bottom but remains dispersed in the water column, from the surface to the ocean floor.
Fish can swim right through it, ingesting it through their gills, by taking in seawater or by eating organisms that have already taken it in, Madigan said
Excerpt: Of the five euro-zone member states surveyed (France, Germany, Spain, Italy and Greece), a median of only 37 percent sees the common currency as a good thing, while those countries outside the euro zone are happy they didn't join, including nearly three-quarters of the British (73 percent). Similarly most -- including the Germans -- do not have a favorable view of the European Central Bank, with only 39 percent having a positive view of the ECB.
Except for Germany, support for a free market is declining, down 20 percent between 2007 and 2012 in Spain and 23 percent in Italy, though relatively unchanged in the United States with a 3 percent decline. Support for free markets rose in Germany by 4 percent.
Despite all this, the report showed that Europeans are reluctant to relinquish symbols of a united Europe. More than half of those surveyed in the five euro-zone member states -- including 71 percent of the Greeks, 69 percent of the French and 66 percent of the Germans -- would like to keep the euro as their currency.
Europeans are divided over who to blame for the crisis. The Greeks, Italians, Poles and Czechs blame their own governments. The French and Spanish blame banks and other major financial institutions. The British and Germans blame both.
2--JP Morgan dips into cookie jar to offset "London Whale" losses, IFR
Excerpt: JP Morgan Chase & Co has sold an estimated US$25bn of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale”, compounding the cost of those trades.
CEO Jamie Dimon earlier this month said the bank sold corporate bonds and other securities, pocketing US$1bn in gains that will help offset more than US$2bn in losses. As a result, the bank will not have to report as big an earnings hit for the second quarter.
The sales of profitable securities from elsewhere in the bank’s investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.
Gains from the sales could provide about 16 cents a share of earnings, about one-fifth of the bank’s second-quarter profit, analysts said. But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company’s financial statements to another.
“They really made two stupid decisions,” said Lynn Turner, a consultant and former chief accountant of the Securities and Exchange Commission. The first was taking risks with derivatives that they did not understand, Turner said.
“The second is selling assets with high income that they can’t replace,” Turner added. In a low interest-rate environment, the bank will struggle to generate as much income with the cash it received from selling the securities, he said.
3--ECB moves from liquidity to solvency role, IFR
Excerpt: We have moved from a situation last year where the EBA stress tests showed “No Spanish bank is required to increase its capital as a result of the EBA stress test” to beefing up the capital base of Bankia
The worry remains that we are running through a script similar to that for Ireland where we also went from a position of no help being needed and ended up with a complete overhaul of the banking system that saw the sovereign fall into the hands of the EU/IMF bailout.
With funding options for the sovereign and financials difficult the end result is to rely on government guarantees and the ECB.
Like it or not the ECB’s liquidity is increasingly being used to shore up solvency of sovereigns and financials in the eurozone. This is something that the ECB will find difficult to stop as we can see by the way in which the ELA has increasingly been used in recent weeks and also LTRO usage by Spain and Italy to help fund sovereigns.
Getting help from the ESM/EFSF is one option but this still faces the difficult task of reducing the firewall for other countries. In the end the ECB will likely be forced to play a more pivotal role by opening up its balance sheet and more formally supporting solvency. Without this the eurozone sovereign/financial crisis will be difficult to put to bed.
4--Stop subsidizing the banks, London Banker
Excerpt: At some point policy makers will need to turn their efforts from reinforcing and bailing out the bankers who use any and every opportunity to take public support as private bonuses and instead evaluate much simpler, lower cost models of financial intermediation likely to yield domestic investment in domestic businesses and assets....
It is a conservative principle that the state should intervene when markets fail. If the banking system has failed (and it has) and requires a taxpayer subsidy to continue to operate (which it does), then conservative principles dictate that the state must intervene to secure a resolution in the public interest. More of the same is not a conservative policy, but social welfare for bankers.
We currently have a system of excess regulatory complexity, hidden market distortions and public subsidies. Moving away from the status quo requires state action to identify and reduce subsidy through promotion of business models that are simpler, more transparent and more directly aimed at securing public benefit
5--- U.S. Winds Down Longer Benefits for the Unemployed, NY Times
Excerpt: Hundreds of thousands of out-of-work Americans are receiving their final unemployment checks sooner than they expected, even though Congress renewed extended benefits until the end of the year. ... In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and effectively made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits.
Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number of people cut off prematurely this year to close to half a million, according to the National Employment Law Project. That estimate does not include people who simply exhausted the weeks of benefits they were entitled to.
...Most states offer 26 weeks of unemployment benefits, plus the federal extensions that kicked in after the financial crash.
The number of extra weeks available by state is determined by several factors, including the state’s unemployment rate and whether it is higher than three years earlier. So states like California have had benefits cut even though the unemployment rate there is still almost 11 percent.
“Benefits have ended not because economic conditions have improved, but because they have not significantly deteriorated in the past three years,” Hannah Shaw, a researcher at the Center on Budget and Policy Priorities, wrote in a blog post. In May, an estimated 95,000 people lost benefits in California.
..by the end of September, the extended benefits will end in the last three states providing 99 weeks of assistance — Nevada, New Jersey and Rhode Island.
6--Greek Leftist Leader Alexis Tsipras --'It's in Europe's Interest to Lift the Austerity Diktat', Der Speigel
Excerpt: Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.
SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?
Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.
SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …
Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.
SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?
Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.
The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy
7--The Eurepo curve spells trouble, FT Alphaville
Excerpt: Sandy Chen at Cenkos has drawn our attention to an interesting development in the repo market: the Eurepo curve has inverted.
Why is this important?
Because it’s a clear signal of stress in the repo market. The Eurepo curve shows the repo rate for Euro borrowing amongst European banks at maturities from 1-day to 1-year; we interpret this inverted curve as a sign that banks are unwilling to commit the collateral (required for the repo) beyond a 1-month contract. Indeed, it appears that 1-day repos are strongly preferred. The Eurepo curve has shifted a lot in a month.
In other words, banks want to be able to get collateral back and prefer short maturities. It’s also a quite negative view on Europe’s ability to handle the crisis:
Judging from the shift in the Eurepo curve, the banks themselves don’t believe that any boosts will last longer than a month.
As Sober Look noted on Friday, inverted repo curves mean stress in the market, and looking at the shift in the Eurepo curve in the last month, the level of stress has gone up considerably…
8--College loans are next debt crisis, Miami Herald
Excerpt: Some 62 percent of the grads from U.S. public universities emerge with both a diploma and debt, according to figures compiled by the federal Department of Education’s Project on Student Debt. About 72 percent of grads from private nonprofit universities owe money. An astounding 96 percent of the kids who attend for-profit schools venture out into the real world as debtors.
The study was conducted in 2008. It’s only gotten worse amid a recession and slow, slow recovery, as state legislatures hack away at higher education allocations.
If grads from Cypress Bay High attend one of Florida’s universities this fall, their freshman year will coincide with a $300 million cut in state funding. Along with a 15 percent pop in tuition and diminished help from Bright Futures scholarships.
They’ll be attending schools with fewer courses and larger classes, taught by professors disheartened by stagnant wages and benefit cuts, on campuses suffering from drastic cutbacks in maintenance budgets.
Florida college students, after paying ever more for ever less education, graduated in 2010 owing an average of $21,184 in student loans. The dismal trend lines indicate that the debt load will be much heftier when the Cypress Bay High School Class of 2012 finally get their degrees.
As the state’s contribution to higher education was cut by 24 percent over the last five years, Florida universities responded by jacking up tuition (five state universities have increased tuition by 60 percent over the last four years, six others by 45 percent.) Incoming freshmen are looking at annual 15 percent increases — the maximum the state allows — throughout their academic careers.
At the bottom of the education food chain, the students respond by borrowing more money.
Their debt will add to the $1 trillion in unpaid student debt already looming over the U.S. economy. This isn’t limited to recent college grads. A third of American student debtors are 40 years old or older.
9--US threatens military intervention in Syria following Houla massacre, WSWS
Excerpt: The massacre of over 100 people in Houla is being utilized by the United States, other Western powers and the Gulf States to step up their drive for regime-change in Syria. Thirty-two children and 34 women were among Friday’s dead, the United Nations has said.
Speaking yesterday to Fox News, Chairman of the US Joint Chiefs of Staff Gen. Martin Dempsey said, “Of course, there is always a military option… it may come to a point with Syria because of the atrocities.”
His comments follow a series of bellicose statements by Washington. US Secretary of State Hillary Clinton said, “The US will work with the international community to intensify our pressure on [Syrian President Bashar] Assad and his cronies, whose rule by murder and fear must come to an end.” The White House called the Houla attack “a vile testament to an illegitimate regime.”
The Gulf Cooperation Council, led by Saudi Arabia and Qatar, is also once again urging direct military intervention. Kuwait, which currently heads the Arab League, announced it is calling for a ministerial meeting to “take steps to put an end to the oppressive practices against the Syrian people.”
The Free Syrian Army (FSA), based in Turkey and funded and organized by Washington and its allies, declared it was no longer committed to the truce brokered by former United Nations Secretary-General Kofi Annan. It issued a statement saying that “unless the UN Security Council takes urgent steps for the protection of civilians, Annan’s plan is going to go to hell.”
The Western-backed Syrian National Council (SNC) has called on the UN Security Council to convene an emergency meeting and take binding decisions to “protect the Syrian people” by invoking Chapter VII, which sanctions the use of force.
The Obama administration has to date confined its efforts to destabilize the Assad regime to covert support for proxy Sunni-based forces such as the FSA and SNC. But it is seeking to capitalise on the tragic events in Houla to secure the necessary political backing for direct intervention. This means either enlisting Russia’s support or neutralizing Moscow’s opposition to any move to depose Assad...
Moscow fears that regime-change would deprive it of its main base in the Middle East and secure undisputed US hegemony over the region’s oil riches by surrounding Shia Iran with a ring of pro-Washington Sunni regimes.
Russian Foreign Minister Sergei Lavrov, speaking yesterday at a news conference with UK Foreign Secretary William Hague, said he wanted Damascus to resolve its problems “without foreign interference..
Houla is being lined up to serve the same political function as atrocities in the former Yugoslavia and elsewhere in providing a justification for imperialist intervention....Ultimate responsibility for Houla rests with Washington and its allies, who have fostered and armed a sectarian Sunni insurgency dedicated to the overthrow of the Assad regime and its replacement by a government entirely subordinated to a strategic Middle East alliance dominated by the US.
10--Double suicide underscores Greece’s deepening health crisis, WSWS
Excerpt: The appalling suicide of a mother and son in Athens again underscores the social nightmare being visited on Greece by the troika—the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF).
The tragedy occurred May 24. The mother, aged 90, and her son, aged 60, leapt hand in hand from the roof of their apartment building in the capital shortly after 8 a.m.
The son was identified as Antonis Perris, an unemployed musician. Since Antonis had been unable to find work, the pair had been forced to survive on the mother’s pension of just €340 (US$427) a month.
The joint suicide occurred only days before IMF head Christine Lagarde dismissed reports that people were dying in the country due to the savage austerity measures being imposed, callously claiming that it was “payback” time for Greek workers.
The night before their deaths, Perris described their deteriorating economic situation and suffering on a well-known blog site.
He wrote, “I have been taking care of my 90-year-old mother for 20 years. In the last 3-4 years she has developed Alzheimer’s, recently she also has been having Schizophrenic fits amongst her other grave health problems, so nursing homes won’t accept her.
“The problem is that I hadn’t foreseen the crisis so I don’t have enough cash in my account, although I have real estate assets I sell from time to time, I’m left without cash and we can no longer eat. I borrow money from my credit card with 22% interest even though the banks themselves borrow with 1%. I have other running costs.
“Unfortunately, I have also developed serious health problems lately. I have no solution in front of me. I can no longer live this drama. There’s no solution. Does anyone have a solution?”
In his blog posting, Perris cited the lack of vitally needed medical services available to his mother as well as his inability to get the necessary remedies for his own developing medical problems. This is a direct result of the austerity measures imposed by PASOK and New Democracy, which are following the dictates of the EU and the IMF.
Bailout funds, destined for Greek banks, have been tied to the gutting of health care provision. Under the terms of the first bailout, health care spending was gutted by more than 10 percent. Under the second €174 billion agreed in March, another €1 billion cut in health care spending was made. This is equal to 0.5 percentage points of GDP. Its impact has been devastating under conditions in which many Greek workers have seen their wages reduced by up to 50 percent while unemployment has skyrocketed. Millions of people are now being forced to pay the full price for essential, life-saving medicines.
In April, the government suspended payments into the National Organisation for Health Care Provision (EOPPY), on which pharmacists rely for funding to prescribe drugs. According to officials last week, the state health system in Greece no longer has any funds to pay pharmacies for supplying their prescriptions.
People who used to pay prescription charges of between 10 and 25 percent for drugs, including those for treating heart conditions and cancer, now have to pay the full price. They can apply for a refund from social insurance funds that are members of EOPPY, but the likelihood of them ever getting the money back is slim. EOPPY was created last year on the direction of the troika and is now in a state of collapse. Pharmacies are owed a total of €520 million by EOPPY and other social insurance funds for prescriptions already supplied.
Patients in state hospitals are also being forced to go without basic medicines. One hospital administrator told the Financial Times, “We used to provide drugs for all patients receiving treatment, but we’re so squeezed now that we ask them to bring their own supplies of prescription drugs.”
There are warnings that Greece could rapidly run out of medicine. Dimitris Karageorgiou, secretary general of the Panhellenic Pharmaceutical Association, warned, “Already we have cancer sufferers going from hospital to hospital to try and find drugs because no one can afford to stock them.
“If the shortages get worse, God knows what we will see.”
11--.US student loan debt: Where did it come from and who benefits?, Nancy Hanover, WSWS
The impoverishment of American students and their families by student loan debt has become a well-known fact.
A generation of young people are facing financial desperation in order to make huge monthly payments on their loans. The scale of this collective debt affects all aspects of their lives:
* 39 percent of 18-to-29-year-olds have no health insurance.
* 23 percent say they cannot buy basic necessities.
* 20 percent have credit card debt of more than $10,000.
* 49 percent have taken a job they didn’t want in order to pay bills.
* 24 percent have moved back home with parents to save money.
* 20 percent have postponed marriage.
* 22 percent of 18-to-34-year-olds have postponed having children.
Today, 15.4 percent of Americans have student loans, and 14.4 percent of these loan holders are delinquent, the highest delinquency rate of any form of debt.
But why this is this tsunami of debt devastating a generation, and who benefits?
To avoid the mention of profit, the banking industry or the role of the government, the media typically blames either the students themselves, the purportedly overpaid faculty, or the mindset of an “entitled generation.”
Yet the actual cost of the loans themselves is more than covered by the 3.4 percent rate, since the bankers’ interest rate, the Federal Reserve discount window, has fluctuated between 0 percent and 1 percent. The fact is that the Obama administration is not arguing with the Republicans over assisting students, but over how much to squeeze them....
Even without doing all the math, clearly it is the banks that profit most handsomely from student loan payments—while being uniquely protected by the federal government.
Loans originated in the Federal Family Education Loan Program (FFEL) have a 97 percent guarantee against default by the federal government (with accrued interest in addition). Additionally, since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loans are the only type of consumer debt that may not be discharged in bankruptcy.....
With more than two thirds of students (up from 45 percent in 1993) forced to borrow to earn a bachelor’s degree, the indebtedness of a generation is clearly social policy. On average, for every dollar borrowed, a student will pay $2....
No longer just protecting the profits of the banks, the government is now well on its way to becoming the largest holder of student debt. This process was dramatically accelerated with Obama’s Health Care and Education Reconciliation Act, which made the government the sole funder of new student loans.
According to the Federal Reserve Bank of New York, non-revolving personal bank debt—the vast bulk of which is student loan debt—has jumped a massive 368 percent since 2007. The amount of student loans held by banks is now about $500 billion, or half of existing student debt, with the federal government just slightly behind. Federal-held student loans have quadrupled over the past four years.
This process has transformed the government’s role. The DOE report shows that there is not just a declining higher education subsidy, but that there is actually no overall subsidy from the federal government for student loans. On the contrary, student loans are an income source, to the tune of nearly $30 billion for 2012. Below is a chart from the president’s 2013 budget request showing the net inflow of cash from student debtors into federal coffers since 2009. The negative figures are inflows, the positive ones represent federal costs....
Government “subsidies” for student loans go from a cost to the federal government in 2008 of $2 billion to an estimated cash inflow of $39 billion for 2012. (Source: US DOE)
In 2011, more than 11 million new Direct Loans have been issued to students, for a total of $109 billion. The administration is realizing a steady increase in student loan market share. The DOE budget proposal states, with dry but unmistakable language, “For FY 2013, based on proposed policies, the Direct Loan program weighted average subsidy rate is estimated to be -20.08 percent. The reflects the projection that on average, the Federal Government will earn 20.08 percent on each dollar of loans originated in FY 2013.”
This is a far cry from the official line—”students who rely on loans to finance postsecondary education should not be burdened with additional college debt.” It is the government that will collect the debt, interest, origination fees and late penalties from student debt, rather than the servicers, guarantors and banks that dominated the business in the past.
New attacks from Obama
The report then details Obama’s proposed student loan “reforms” for the FY 2013 budget. These changes will actually increase the cost of college borrowing, place more loans under the DOE’s aegis and allow debt collectors to apply more pressure on students....
Legalize auto-dialing collection calls to students’ cell phones.
In the “President’s Plan for Economic Growth and Deficit Reduction,” he calls for an amendment of the 1934 Communications Act to allow prerecorded voice messages and robo-dialing to wireless phones for the purposes of debt collection.
* Require guaranty agencies to forward their portfolio of rehabilitated loans (student loans which were temporarily in default, but are now in repayment) to the DOE.
While the Obama administration insists on being the new collector, the rules stipulate that the former guaranty agencies may still collect a whopping 16 percent fee.
Obama has also pointed the way toward creating a national rating system on college affordability and value, and hinted that low-rated schools could be punished via withholding of loan or grant eligibility. There has been similar action threatened against the for-profit schools with skyrocketing default rates. Neither of these public relations maneuvers encroaches in the slightest on the banking industry’s ability to profit from student loans or lessens the income accruing to the federal government from their loans.
Already, state and federal governments are withdrawing professional licenses from those who default on their student loans, and garnisheeing Social Security and other government checks. Under the Higher Education Act, the DOE can subject student loan defaulters to Administrative Wage Garnishment or Federal Salary Offset, and require employers to forward 15 percent of “disposable pay” toward repayment of loans. The Debt Collection Improvement Act of 1996 permits the DOE to garnish up to 15 percent of disposable pay until the entire balance of the outstanding loan is paid.
The government is also pressing schools to withhold transcripts for those students delinquent in payments, which prevents them from transferring, applying for certain types of work, or seeking further degrees....
Student loan debt collection, a new parasitic industry
Student loans have become so lucrative that their debt collection has become its own spin-off industry—all overseen by the federal government. MyDebt.com explains ballooning fees that defaulters face: “The largest of these costs is usually the cost of contingent fees that may be incurred to collect the loan…. The contractors earn a commission, or contingent fee, for any payments then made on those loans. The Department [of Education] charges each borrower the cost of the commission earned by the contractor…the amount needed to satisfy a student loan debt collected by the Department’s contractors will be up to 25 percent more than the principal and interest repaid by the borrower.”....
Last week, the San Francisco Chronicle’s “Number of the Day” was $454,000, the one-year income of Joshua Mandelman, a student-loan debt collector. It reports on the nearly half-million dollars earned by Mandelman and six others at Educational Credit Management, a Minnesota nonprofit group, which subcontracts with the U.S. government to collect on defaulted student debt.
Education is a basic right
Only the Socialist Equality Party considers education a basic right. It should not be a means to prey on the young and create a new form of lifelong peonage.
We call for the immediate forgiveness of all student loan debt. Neither the banks nor the government have the right to profit from the determination of the population to become educated and productive.
We call for the right to free education for all, from pre-school through college and adult education.
12--Fukushima radiation seen in tuna off California, Reuters
Excerpt: Low levels of nuclear radiation from the tsunami-damaged Fukushima power plant have turned up in bluefin tuna off the California coast, suggesting that these fish carried radioactive compounds across the Pacific Ocean faster than wind or water can.
Small amounts of cesium-137 and cesium-134 were detected in 15 tuna caught near San Diego in August 2011, about four months after these chemicals were released into the water off Japan's east coast, scientists reported on Monday.
That is months earlier than wind and water currents brought debris from the plant to waters off Alaska and the U.S. Pacific Northwest.
The amount of radioactive cesium in the fish is not thought to be damaging to people if consumed, the researchers said in a study published in the journal Proceedings of the National Academy of Sciences....
scientists found elevated levels of two radioactive isotopes of the element cesium: cesium 137, which was present in the eastern Pacific before the Fukushima Daiichi disaster in the spring of 2011; and cesium 134, which is produced only by human activities and was not present before the earthquake and tsunami hit the Japanese plant....There was about five times the background amount of cesium 137 in the bluefin tuna they tested...
Most of the radiation was released over a few days in April 2011, and unlike some other compounds, radioactive cesium does not quickly sink to the sea bottom but remains dispersed in the water column, from the surface to the ocean floor.
Fish can swim right through it, ingesting it through their gills, by taking in seawater or by eating organisms that have already taken it in, Madigan said
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