Monday, November 29, 2010

Today's Links

1--Portugal, Spain in crosshairs as Ireland bailed out, Reuters

Excerpt: The European Union's bailout of Ireland is unlikely to halt expectations that the euro zone debt crisis will spread to Portugal, or provide reassurance that a firewall can be built around Spain.

Europe's debt contagion has moved on from Greece to consume Ireland in a matter of months, even though Ireland had complained it was not like Greece and did not need help to sort out its bad banks or a gaping budget deficit.

"I think it is almost impossible now to stop the contagion," said Mark Grant, managing director of corporate syndicate and structured debt products at Southwest Securities in Florida.

2--The Definitive Unwrapping Of The "Irish Package", zero hedge

Excerpt: The program envisages that €35bn will be earmarked for Ireland’s local banks and €50bn for the budgetary requirements of the sovereign.

Of the €35bn for the banks, € 10bn will constitute an immediate injection in banks capital above and beyond what the government has already committed. The remaining €25bn will be provided on a contingent basis in 2011 after new stress tests and liquidity assessment conducted by the Central Bank of Ireland.

The aim of the program is the ‘a recapitalisation, fundamental downsizing, restructuring and re-organisation of the banking sector. To this aim, banks will be required to run down non-core assets, securitize and or sell portfolios or divisions with credit enhancement provided by the State, if needed....

While there is no final word on bondholder participation in the bank recapitalization plans, we believe that forced loss absorption for senior lenders is unlikely given the statements released today....The budget vote on December 7 is still in the balance but, in our view, is likely to be passed.

3--Should we sting our saviours? (Ireland's chance to go nuclear), Independent

Excerpt: A debate has already opened on the merits of a default or a devaluation. After all, our credibility is already shot, our credit rating was downgraded again last week, we are reduced to begging to the lender of last resort. What have we got to lose?

... We could press the nuclear button....Europe and the IMF should be told that we will not be discarded to the rubbish heap of history; that if their terms condemn us to a decade of poverty, we will walk. We must not underestimate the fear in Europe of the damage that an Irish default could cause. If they impose terms on us that would take us down the road to inevitable bankruptcy, we might as well default now as default later.

Desperation may be the only ace left in our hands. But it is a card we should be prepared to play.....Walking is an option.

4--New home sales: Down 80% from the boom, CNN Money

Excerpt: Home builders had another dismal sales month in October, falling to just one-fifth of the sales rate during the boom five years ago.

New home sales dropped to an annual pace of just 283,000, according to the Commerce Department. That was down 8.1% from a slow September and 28.5% from 12 months ago when the annualized sales rate was at 430,000.

"The new home market delivered another turkey of a performance last month," said Mike Larson, a housing market analyst with Weiss Research. "Sales fell sharply across most of the country."

Sales are off nearly 80% from the housing boom peak pace of 1.4 million, set in July 2005. Sales have remained near historic lows this year despite very attractive mortgage interest rates that slash the monthly costs of homeownership.

The Commerce Department also revised August sales figures downward to 275,000, which represents the record low point for new homes sales since it started tracking figures in 1963.

5--Rich Americans Ditch Home Ownership For Renting, Diana Olick, CNBC

Excerpt: “More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”

And they're paying top dollar to rent. ...

In Manhattan the demand for high-end rentals has never been hotter. In the third quarter of 2010 there were 200 new leases signed for rentals charging $10,000 a month and up, more than double the 89 leases signed the year before, according to Jonathan Miller, CEO and president of New York City-based real estate appraisal and consulting firm Miller Samuel....

“The cachet that came with owning seems to be gone now," he says.

6--Demonstrators in Ireland denounce austerity cuts, WSWS

Excerpt: Michelle, a housewife, said, “I’m here today because I’m really angry that our government has sold us out, although I know they sold us out a long time ago. But today the bribers have become the oppressors and they are looking to turn Ireland into a third world country. I’m not having it. I’m not having my children starving on the streets because of the greed and corruption in the Irish government.

“Any time the IMF has gone into any country—look at Argentina—they turned people that had plenty into people that were starving. They gave away our oil, same as Fianna Fail gave away our gas field. I’m not putting up with it. I’m going to refuse to pay car tax, the TV licence, credit bills… The elite are driving the poor poorer, they want masters and peasants and I am not going to be anybody’s peasant.”...

Joe Smith, an environmental academic at Trinity, said, “I think the economic crisis in Ireland has been devolved by the global market and policies are being dictated by international market forces. This is going to end with a devastated and depleted country. Public sector workers are paying for the crisis caused by a carve-up between the bankers and the property developers. There will be fewer public workers, lower wages. I think it’s terrible that the Irish government’s hands are so constrained by the international system of finance, but they also helped cause it and are complicit in it, particularly with regard to the initial crisis.”...

“They are going after the people who are least able to afford it—the middle class and the lower class. They are asking us to pay a heavy price for their mischief, but they should set an example and take a big pay cut or contribute more. Hard working middle-class and working-class people, who are struggling to put bread on the table, should be able to breathe freely, and have some sort of arrangement to override this debt, which is going to go on for another 50 years.”

7--The Spanish Prisoner, Paul Krugman, New York Times

Excerpt: Like America, Spain experienced a huge property bubble, accompanied by a huge rise in private-sector debt. Like America, Spain fell into recession when that bubble burst... And like America, Spain has seen its budget deficit balloon thanks to plunging revenues and recession-related costs.

But unlike America, Spain is on the edge of a debt crisis. ... Why is Spain in so much trouble? In a word, it’s the euro. .....

Through the good years,... the Spanish government appeared to be a model of both fiscal and financial responsibility... But ... prices and wages rose more rapidly in Spain than in the rest of Europe... And when the bubble burst, Spanish industry was left with costs that made it uncompetitive with other nations.

Now what? If Spain still had its own currency, like the United States ... it could have let that currency fall, making its industry competitive again. But with Spain on the euro, that option isn’t available. Instead, Spain must achieve “internal devaluation”: it must cut wages and prices until its costs are back in line with its neighbors.

8--Lessons From the Recovery Stage of the 1930s, David Wessel, Wall Street Journal

Excerpt: Avoiding a double-dip recession in the context of fiscal consolidation following a serious financial crisis is not a done deal unless central banks can keep real, or inflation-adjusted, interest rates low, according to economists gathered Monday at London’s Chatham House....

Not only is quantitative easing likely to be an important underpinning for fiscal consolidation but it also may be appropriate to revise inflation targets of central banks upwards.

–In 1931 and 1932, the British government, alarmed by deteriorating public finance, acted to over-ride the “automatic stabilizers” through deflationary budgets, which hit the economy hard. This mistake was not repeated by the outgoing Labour administration in the present crisis with the inevitable result that public borrowing rose very rapidly. This should not be seen as a failure but an appropriate response to the financial crisis.

–Leaving the “golden fetters” of a fixed exchange rate system was a key to recovery in the U.S. and the U.K. in the 1930s. This classic escape route is denied to today’s members of the euro zone, in the absence of which the prospects for economies like Greece look bleak indeed.

–Fiscal policy did not fail in the 1930s. Rather it was not really tried until very late in the day in the context of rearmament. The New Deal in the U..S was certainly not a Keynesian policy package.

–The 2009 U.S. stimulus package led to federal deficits as a share of GDP that are nearly twice as high as any peace-time deficits in U.S. history. The deficit response looks like the type of Keynesian response one might have expected for the Great Depression, while the response in the 1930s looked more like the type of response one would have anticipated to the modern recession.

9--The housing problem in 3 pictures, Pragmatic Capitalism

Excerpt: We’ve seen clear evidence in recent weeks that the housing double dip is in process. Price declines have varied depending on different reports with the prices of new homes reported as low as -13% year over year. The problems in housing remain entirely intact and as I’ve repeatedly stated over the course of the housing crisis it remains a problem of supply and demand.

If you’re attempting to visualize the problems in the housing market look no further than the following three charts (via Mortgage News Daily): (Take a look at the charts)

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