Friday, February 17, 2012

Weekend links

1--New American Dream is renting to get rich, Reuters

Excerpt: xamining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, "100 percent of the time it was better to rent, rather than own."

That's right: 100 percent.

The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs - what's needed to hold and maintain the asset - range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.

"I don't have the emotions a lot of people do surrounding real estate," Arzaga says. "I have steely eyes for how investing in real estate works, and I'd better be a prudent investor for my clients."

Owning a dream home, he says, creates a drain on other financial priorities, causing homeowners "not to meet their financial goals. They were going to fail."...

"To state that owning a home is or isn't a good investment is too simplistic," says Jeffrey Rogers, president and COO of Integra Realty Resources. "It depends. In times of relatively higher rents, low home values, and low interest rates, it makes sense to own a home. But in a reverse market, it wouldn't be economically feasible. Over time, those who purchase in down or flat markets with low interest rates come out ahead."

2--The U.S. foreclosure crisis, Beverly Hills-style, NY Times

Excerpt: the dynamics of the residential real estate collapse are very different in elite neighborhoods such as this. The majority of delinquent homeowners here owe more than $1 million. Many are walking away not because they can't pay, but because they judge it would be foolish to keep doing so.

"It's a business decision, not an emotional one which it is for normal people," said Deborah Bremner, owner of the Bremner Group at Coldwell Banker, which specializes in high-end properties in the Los Angeles area. "I go to cocktail parties and all people are talking about is whether it is time to walk away, although they will never be quoted in the real world."

She said she had seen in Beverly Hills a big increase in "strategic defaults," in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble.

Strategic default is an especially appealing option in California, one of only a handful of U.S. states where primary mortgages made by banks are "non-recourse" loans. That means the loan is secured solely by the property, and banks cannot go after a delinquent owner's wages or other assets if they default.

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage - even though he could easily afford it - when the value of the property had dropped to $2.5 million.

"They were able to comfortably cover the loan," Bremner said. "They were just no longer willing to see the value of the property drop."

A huge "shadow inventory" is building of elite homes that are in default but have not been put on the market. Of the 180 distressed properties in Beverly Hills, only 12 are up for sale.

The backlog reflects the pent-up flood of foreclosed properties of all price ranges that are expected to hit the U.S. market this year, especially after five major banks reached a $25 billion settlement last week with the U.S. over fraudulent foreclosure practices....


Across the United States, the largest increase in foreclosures and delinquencies, compared with 2008 levels, is with "jumbo" mortgages - loans too large to be insured by Fannie Mae and Freddie Mac, the government controlled mortgage finance providers. Foreclosures on jumbo loans are up 579 percent since 2008, greater than any other form of loan, according to a report last month by Lender Processing Services, Inc.

Strategic defaults are now more likely among jumbo loan-holders than any other type of borrower, according to a report issued late last year by JPMorgan Chase & Co. Nearly 40 percent of delinquencies among non-governmental mortgages, which are mostly jumbo loans, are strategic defaults, the report said.

3--How Citibank Dumped Lousy Mortgages on the Government, propublica

Excerpt: Citigroup agreed yesterday to pay $158 million to settle a lawsuit over bad loans that the bank passed on to the Federal Housing Administration to insure. The whistle-blower who originally brought the case, Sherry Hunt, an employee of Citi's mortgage department, said the company actively undermined the process that was supposed to check for fraud in order to push through reckless loans and get higher profits.

The suit itself makes for good reading. We've pulled out the juiciest bits, and explain just what Citi appears to have been doing....

In the settlement, Citi, which was bailed out by taxpayers in 2008 to the tune of $45 billion, "admits, acknowledges, and accepts responsibility" for passing on bad loans.

The suit's allegations

Citi was passing on mortgages with particularly high rates of default to the FHA, costing taxpayers millions in insurance claims....(must read excerpts from the lawsuit)

4--Foreclosures on the Rise Again, CNBC

Excerpt: After a year-long reprieve from rising foreclosures, the numbers are going up again.

One in every 624 U.S. households received a foreclosure filing in January, up 3 percent from the previous month, according to a new report from RealtyTrac. Foreclosure activity froze in many states in 2011, due to processing delays after fraud, or so-called "Robo-signing," were uncovered in the fall of 2010. The thaw is now on.

"We expect the pattern of increasing foreclosures to continue in the coming months, especially given the finalized mortgage and foreclosure settlement reached in early February between 49 state attorneys general and five of the nation's largest lenders," said RealtyTrac's CEO Brandon Moore in a written release. "Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania, following a pattern we saw in late 2011 in states such as California, Arizona and Massachusetts."

While states that do not require a judge to preside over foreclosure proceedings, like California, saw a jump in filings toward the end of last year, judicial states have all but stalled. That will now change, thanks to the $26 billion dollar government-lender/servicer settlement. There will still be some delays on individual state levels, but the wheels are turning again, and that means more bank repossessions and more foreclosed properties heading to the re-sale market.

Bank repossessions, the final stage of the foreclosure process, increased at least 30 percent year-over-year in several states, including Massachusetts, which saw a 75 percent spike. Bank-owned or REO (real estate owned) activity hit a 16-month high in Illinois and a 15-month high in Indiana. Default notices, the first stage of foreclosure, were flat nationally in January, but spiked in judicial states, like Connecticut and Pennsylvania (up 112 percent) and even in non-judicial states like Maryland (up 100 percent).

Distressed property sales lower the value of homes around them, and that pushes more borrowers into a negative equity position, owing more on their mortgages than their homes are currently valued. Until banks work through the enormous backlog of foreclosures, which number in the millions, home prices will not hit a firm bottom, especially in the most troubled local real estate markets.

5--Big Long Is New Big Short as Bass Joins Subprime Bet, Bloomberg

Excerpt: Investors who made some of the biggest profits from the 2007 bust in U.S. mortgages are once again in agreement. This time, they’re going long....

The $1.1 trillion market for U.S. mortgage bonds without government-backing is joining a global rally in everything from stocks and commodities to company loans, as confidence grows that Europe’s sovereign debt crisis will be contained. Investors are speculating the riskiest mortgage securities are priced to withstand an economic slowdown and home price declines even as President Barack Obama and the Federal Reserve pursue policies to combat the six-year residential real-estate slump.

“You can end up, even using severe assumptions on things such as home prices and defaults, with a very high yield based on the prices that bonds are trading at,” Larry Penn, chief executive officer of Old Greenwich, Connecticut-based Ellington Financial LLC (EFC), said yesterday in a telephone interview. “Especially with interest rates this low, if you can buy something where you can end up with a double-digit yield under severe assumptions, that’s great.”...

Toxic Debt

Typical prices for the most-senior bonds tied to option adjustable-rate mortgages rose to 55 cents on the dollar last week from 49 cents in November, according to Barclays Capital.

Option ARMs, a type of loan that allowed borrowers to pay less than the monthly interest due with the shortfall added to the balance, were among the “toxic” debt that the Financial Crisis Inquiry Commission said was at the center of the “corrosion of mortgage-lending standards” that helped fuel the housing boom and subsequent bust. About 45 percent of the option ARM loans that are in bonds are delinquent, according to JPMorgan Chase & Co. data.

The debt has previously gained since markets seized up in 2008. Prices rose to 65 cents in February 2011 from a low of 33 cents in 2009. That reversed when the Federal Reserve Bank of New York in April began auctioning off bonds it acquired in the 2008 government rescue of insurer AIG, sparking a rout in credit markets that intensified as investor concern grew that Europe’s sovereign debt crisis would infect bank balance sheets globally....

Trading in non-agency mortgage bonds averaged $15.6 billion per week in the first six periods of this year, compared with $6.6 billion in the final 20 weeks of 2011, according to data reported to regulators and compiled by Empirasign Strategies LLC, a New York-based provider of information on securitization trading.

The securities are bouncing back “almost like a coiled spring,” Clayton DeGiacinto, chief investment officer of hedge fund Axonic Capital LLC said in a telephone interview.

“Risk appetite among the dealers” has increased, said DeGiacinto, a former Goldman Sachs trader whose New York-based firm oversees about $350 million. “A lot of people came in on Wall Street in January and realized they didn’t have any inventory.”
Dealer Inventories
Dealers have trimmed their stockpiles of debt including corporate bonds and mortgage securities without government backing to the lowest level in almost a decade, Fed data show. The holdings fell to $43 billion as of the week ended Feb. 1, down from 2011’s peak in May of $94.9 billion.

The Fed’s portfolio from AIG includes bonds backed by the types of home loans with some of the highest default rates, such as subprime, Alt-A and option ARMs. Those securities, which can be difficult to value, offer a chance for a bigger profit to a savvy investor.

Renewed demand doesn’t mean a property rebound is near. Appetite for the non-agency debt is growing because of the potentially high yields rather than any changes in bond buyers’ views on housing, said DeGiacinto....

Almost 28.3 percent of home loans pooled in bonds without government backing are at least 60 days delinquent, in foreclosure or already turned into seized property, according to data compiled by Bloomberg. The share has fallen from a record 30.2 percent in March 2010 as new defaults eased while regulatory probes into foreclosure practices slowed liquidations of bad debt....

Strong Reception
Barclays Capital analysts led by Ajay Rajadhyaksha said in a Feb. 10 report the strong reception to the Fed’s sales may also “entice” European banks into attempting to offload debt, a move that could set the market back.

U.S. banks hold $780 billion of delinquent first mortgages, with $124 billion of that amount representing borrowing above the value of the homes serving as collateral, according to data from the JPMorgan analysts.

Banks’ mortgage losses are “going to improve relative to what they were last year and remain elevated compared to historic norms” at least through 2013 because of borrowers’ negative equity and loan modifications, Mosby said. That means charge-offs of about 1 percent, about double the typical rate.

For all the gains in the market, issuance may not be any closer to reviving. Less than $1.5 billion of new U.S. mortgages have been packaged into securities without government backing since mid-2008, compared with the record of about $1.2 trillion in each of 2005 and 2006.

6-- Taxpayers Will Be Paying for Part of Mortgage Settlement, naked capitalism

Excerpt: in allowing the banks to use taxpayer-funded Hamp to meet their obligations under the settlement, the government presented the banks with an opportunity to reduce their losses, experts said.

“If the banks are doing something under this settlement, and cash flows from taxpayers to the banks, that is fundamentally an upside-down result,” said Neil Barofsky, a former special inspector-general of the troubled asset relief programme.

Last month, the Treasury department announced it was tripling the incentive payments to owners of mortgages who agree to reduce loan balances. By reducing those balances under Hamp, investors – including the banks who agreed the settlement – now will receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven. They also will receive additional funds when borrowers keep current on their restructured mortgages.

In certain situations, thanks to US taxpayers, the banks could suffer minimal losses where the Hamp-assisted principal cuts occur within the first year after the foreclosure accords are finalised. Incentive payments for successful loan restructurings could then turn a profit for the banks, according to people familiar with the settlement terms.

“How can the taxpayer be paying these servicers for a programme that’s supposed to ensure accountability, be punitive and right past wrongs?” asked Mr Barofsky…

More writedowns through Hamp are likely to follow. The largest US banks are increasingly routing principal reduction modifications of their own mortgages through Hamp, according to quarterly data to September 30 from the Office of the Comptroller of the Currency (OCC), a federal bank regulator.

7--Elevator Shaft Market in the Making, Trimtabs

Excerpt: Here is what worries me the most. Over the past year, take home pay for everyone who pays taxes is up something over $100 billion per year, or about 2% to 3% to $6.3 trillion and that $100 + billion gain does not even keep up with the current 3%+ inflation rate.

On the other hand US stocks are up over $3 trillion or 20% since the early October market low. That $3 trillion is an amount equal to all of the take home pay for all taxpayers over the past six months. Let me repeat that staggering number. The value of all stocks grew, which means an extra, $3 trillion since early October and the take home pay for everyone who pays taxes was about the same $3 trillion! Shareholders are racing ahead and getting rich and everyone else is sucking wind.

Yes, since 2010 companies have gotten lean and efficient and have been able make lots of money restocking inventories and filling pipelines. But if wages and salaries are flat lining, where is the future growth going to come from? The Biderman Market Theory gives little value to earnings. But what is interesting to us is that so far this earnings reporting season more companies are reporting disappointing results and lower future guidance than anytime recently.

So if future company growth will be slower and individuals do not have extra money with which to buy stocks, why is the stock market soaring?

Since October the Federal Reserve has printed about $600 billion of new money to pay the US government’s deficit. That is the only source of new money for the US economy. Does the Fed printing big bucks justify a $3 trillion increase in the market value of all US stocks? Not to me.

8--Not the Whole Story, Financial Armageddon

Excerpt: Not surprisingly, there was plenty of hoopla over today's larger-than-expected drop in first-time applications for unemployment insurance compensation

Unfortunately, the initial claims data doesn't tell the whole story. While weekly tallies of first-time applicants for unemployment benefits have drifted back towards the lower end of their historical range, those figures do not include Americans who have been out of work for more than a week. If you take the sum total of initial, continuing, extended, and emergency claims -- which runs the gamut of insurance programs for the unemployed - it remains more than 70% above the high end of the range that prevailed during the past two-and-a-half decades. (see chart)

So, while the number of newly unemployed workers is considerably less than it was, the number of Americans who are jobless and collecting benefits remains far above the levels that have been seen in the past, including during periods when the U.S. has been in recession.

But as usual, Wall Street must know better -- right? Otherwise, why else would they keep buying stocks?

9--Citigroup Whistle-Blower Says Bank’s ‘Brute Force’ Hid Bad Loans From U.S., Bloomberg

Excerpt: Four years after rotten mortgages helped trigger a global financial crisis, Sherry Hunt said her Citigroup Inc. quality-control team was still finding flaws in new loans that included altered tax forms, straw buyers and borrowers who listed fictitious employers.

Instead of reporting the defects to the Federal Housing Administration, the bank saddled the agency with losses by falsely declaring the loans fit for its federal insurance program, according to a complaint filed yesterday by the U.S. Attorney’s Office in Manhattan. Citigroup agreed to pay $158.3 million to settle the claims, and admitted that it certified loans for FHA backing that didn’t qualify....

The inspector general for the U.S. Department of Housing and Urban Development faulted Citigroup’s quality-control program during a 2008 audit, according to the complaint. Taxpayers rescued the bank with a $45 billion bailout that same year and guaranteed more than $300 billion of its risky assets after the lender’s stability was threatened by mounting costs on soured loans. The bank lost a total of $29.3 billion in 2008 and 2009.

Hunt’s co-workers, instead of checking for fraud or making reports about underwriting defects to the FHA as required, argued with her over the soundness of the loans, she said. Employees who acted as “gatekeepers” applied “what they describe as ‘brute force’ to pressure Citi’s quality control managers” into downplaying defects, according to the government’s complaint.

Some colleagues had pay incentives tied to reducing the number of reported problems, and they spent hours trying to get her to relax her warnings, including those about the most basic deficiencies, Hunt said.

‘Beating Us Up’
“They started beating us up over the quality-control reports,” she said....

Star Players
Efforts to quash negative quality-control reports about mortgages continued into 2011, according to the complaint. That January, at a quarterly staff meeting that Hunt said 1,000 people attended, CitiMortgage managers gave a “Star Players Award” to workers who had successfully challenged negative reviews during meetings with quality-assurance workers and others, according to the complaint.
“Many of the quality-assurance underwriters who sat in those meetings were humiliated in front of everyone,” Hunt said.

Her supervisor, Michael Watts, said in a May 21, 2010, e- mail that the challenges were aimed at improving numbers tied to compensation, not fixing the underlying problems.

“Instead of reviewing and analyzing results and then teaching their channels what is needed to improve, they’re being encouraged to rebut legitimate variances in an effort to drive down the rate. It appears that is how their worth is being measured,” Watts wrote, according to the government’s complaint....

“When this process began, Sherry had no idea there was a monetary award and what she could get,” said her attorney, Finley D. Gibbs of Rotts & Gibbs LLC in Columbia, Missouri. “She risked everything. We were the little guys standing up to the big guys.”

The $158.3 million that the bank is paying is the second- biggest ever in a mortgage-fraud case, said Jerika Richardson, a spokeswoman for the U.S. Attorney’s Office in the Southern District of New York. The largest was the $1 billion agreement on Feb. 9 between the U.S. and Bank of America Corp. and its Countrywide mortgage unit.

“I had to do something to stop them,” Hunt said. “I felt that if I were brave enough to come forward and take a stand, then maybe others would, too.”

U.S. District Judge Victor Marrero in New York approved the accord and unsealed Hunt’s lawsuit yesterday. CitiMortgage must pay the agreed-on amount within 30 days, said Manhattan U.S. Attorney Preet Bharara.

Fourth-Quarter Charge

Citigroup will record a $125 million after-tax charge to fourth-quarter results “in connection with the resolution of related mortgage litigation,” according to a Feb. 9 statement.

The FHA, whose cash has been depleted amid increasing insurance payouts to cover rising defaults among borrowers, announced on Jan. 20 “steps to limit risk and strengthen finances.” They include holding lenders accountable for “fraud and misrepresentation such that the mortgage never should have been endorsed by the lender.”....

In the second half of 2009 and the first half of 2010, 15 percent of the performing loans Citigroup sold to Freddie Mac had such flaws as incomplete appraisals, missing insurance documents or miscalculations of income, according to an internal Freddie Mac review of 375 mortgages obtained last year by Bloomberg News.

The upper limit for defects should be about 5 percent, Hunt said.
Other Litigation

Citigroup faces other litigation over mortgage-related securities, including a suit filed by the U.S Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-controlled mortgage buyers.

10--Goldman abandons mark to market, WSJ

Excerpt: Goldman Sachs Group Inc. and Morgan Stanley have reduced their use of "mark-to-market" accounting, shielding them from swings in the value of some loans made to companies.

After several months of internal discussion, the two companies are making an accounting change affecting a portion of corporate loans that have a combined value of more than $100 billion. The change will value that portion using so-called historical-cost accounting, according to financial filings and people familiar with the matter.

11--Fed Watch: Will They Or Won't They?, economist's view

Excerpt: Will They Or Won't They?, by Time Duy: Calculated Risk reads this passage in a recent speech by San Francisco Federal Reserve President John Williams:

This is a situation in which there’s no conflict between maximum employment and price stability. With regard to both of the Fed’s mandates, it’s vital that we keep the monetary policy throttle wide open.

and concludes:

QE3 is coming...

Now you have a solid majority willing to move forward with QE3 if the economy sags or inflation remains below 2%. The recent US data flow, however, has been generally positive, and it is hard to ignore the steady drop in initial unemployment claims. To be sure, we have been fooled by seemingly upbeat data in the past. But I suspect the median FOMC member will be wary about dismissing the generally positive data - sooner or later, some parts of the US economy, such as home building, are going to come back on line. Which leaves us pondering inflation data. With gasoline prices marching higher, headline inflation will head in that direction as well. Typically, however, the Fed will look toward core inflation as a gauge of where headline will eventually settle, and recently core has been soft: chart

12--Moochers Against Welfare, Paul Krugman, NY Times

Excerpt: Many readers of The Times were, therefore, surprised to learn, from an excellent article published last weekend, that the regions of America most hooked on Mr. Santorum’s narcotic — the regions in which government programs account for the largest share of personal income — are precisely the regions electing those severe conservatives. Wasn’t Red America supposed to be the land of traditional values, where people don’t eat Thai food and don’t rely on handouts? ...

Now, there’s no mystery about red-state reliance on government programs. These states are relatively poor... But why do regions that rely on the safety net elect politicians who want to tear it down? ...

Cornell University’s Suzanne Mettler points out that many beneficiaries of government programs seem confused about their own place in the system. She tells us that 44 percent of Social Security recipients, 43 percent of those receiving unemployment benefits, and 40 percent of those on Medicare say that they “have not used a government program.”

Presumably, then, voters imagine that pledges to slash government spending mean cutting programs for the idle poor, not things they themselves count on. And this is a confusion politicians deliberately encourage. For example, when Mr. Romney responded to the new Obama budget, he condemned Mr. Obama for not taking on entitlement spending — and, in the very next breath, attacked him for cutting Medicare.

The truth, of course, is that the vast bulk of entitlement spending goes to the elderly, the disabled, and working families, so any significant cuts would have to fall largely on people who believe that they don’t use any government program.

13--'The Escape Artist': Christina Romer Advised Obama To Push $1.8 Trillion Stimulus: Scheiber writes, economists view

Excerpt: The $1.8 trillion figure was included in a December 2008 memo authored by Christina Romer (the incoming head of the Council of Economic Advisers) and obtained by Scheiber in the course of researching his book.

"When Romer showed [Larry] Summers her $1.8 trillion figure late in the week before the memo was due, he dismissed it as impractical. So Romer spent the next few days coming up with a reasonable compromise: roughly $1.2 trillion," Scheiber writes…. [W]hen the final document was ultimately laid out for the president, even the $1.2 trillion figure wasn't included. Summers thought it was still politically impractical. Moreover, if Obama had proposed $1.2 trillion but only obtained $800 billion, it would have been categorized as a failure. "He had a view that you don't ever want to be seen as losing," a Summers colleague told Scheiber….

The most persistent internal division inside the White House, however, was between the deficit hawks and those who believed more stimuli were needed…. Orszag, writes Scheiber, "worried that the sheer size of the stimulus could undermine the confidence of businessmen and money managers." In the subsequent year, when other advisers argued that an additional dose of stimulus would prop up a staggering economy, he downplayed the potential impact….Summers fought Orszag's pursuit of a deficit reduction commission…. He also pushed back on Orszag's idea of a domestic spending freeze, insisting the cuts would be too close to the bone.

"We're Democrats," Summers harrumphed. "We believe in these things." Besides, both ideas struck him as gimmicks unworthy of a president…. Orszag, in turn, so distrusted Summers' influence that, as Scheiber writes, he "enacted a special rule for Summers's deputy, Jason Furman: anyone receiving an unsolicited inquiry from Furman was to alert Orszag's chief of staff, Jill Blickstein."

In the end, however, only one economic adviser truly argued that deficit reduction should be put off for another day. And by the time the 2010 elections were over, even Obama's top political advisers were arguing that Christina Romer's position was utterly untenable.

14--New York Fed to Take More Direct Role in Repo Market, Real Time Economics

Excerpt: The bond market’s inability to reform the market where Wall Street goes to borrow and lend fixed-income securities is leading to more direct involvement from the Federal Reserve Bank of New York.

At issue is the state of the triparty repo market. This sector is the backbone of bond trading... And because the market is dominated by short-term activity, a loss of confidence in a particular firm can kill its access to credit and potentially kill the institution, which can, in turn, create problems for the broader functioning of financial markets.

The effort to repair the market came to a head Wednesday with the release of a report by the Tri-Party Repo Infrastructure Reform Task Force, a private industry group operating with the support of the New York Fed. The report was to offer the group’s final recommendations, but that was evidently more than participants could manage.

Although the task force has made recommendations to improve trading in the repo market, the implementation of them “will require more time and technical implementation than the Task Force originally estimated and will constitute a multiyear project,” the report said. ...

In a related release, the New York Fed was clearly disappointed by the lack of traction the industry’s effort at self-reform had achieved.

“Despite these accomplishments, the amount of intraday credit provided by clearing banks has not yet been meaningfully reduced, and therefore, the systemic risk associated with this market remains unchanged,” the New York Fed said in a statement.

As a result, the bank said it “will intensify its direct oversight” of the triparty repo market. ...
Oversight is one thing, taking action is another, so we'll see what the NY Fed actually does. But at least there's finally some chance of movement on this front.

15--Downside risks to recovery, Nouriel Roubini, Project Syndicate

Excerpt: First, the eurozone is in deep recession, especially in the periphery, but now also in the core economies, as the latest data show an output contraction in Germany and France. The credit crunch in the banking system is becoming more severe as banks deleverage by selling assets and rationing credit, exacerbating the downturn.

Meanwhile, not only is fiscal austerity pushing the eurozone periphery into economic free-fall, but the loss of competitiveness there will persist as relief at the waning prospect of disorderly defaults strengthens the euro’s value. To restore competitiveness and growth in these countries, the euro needs to fall towards parity with the US dollar. And, while the risk of a disorderly Greek collapse is now receding, it will re-emerge this year as political instability, civil unrest, and more fiscal austerity turn the Greek recession into a depression.

Second, there is now evidence of weakening performance in China and the rest of Asia. In China, the economic slowdown underway is unmistakable. Export growth is down sharply, turning negative vis-à-vis the eurozone’s periphery. Import growth, a sign of future exports, has also fallen.

Similarly, Chinese residential investment and commercial real-estate activity are slowing sharply as home prices start to fall. Infrastructure investment is down as well, with many high-speed railway projects on hold and local governments and special-purpose vehicles struggling to obtain financing amid tightening credit conditions and lower revenues from land sales....

Third, while US data have been surprisingly encouraging, America’s growth momentum appears to be peaking. Fiscal tightening will escalate in 2012 and 2013, contributing to a slowdown, as will the expiration of tax benefits that boosted capital spending in 2011. Moreover, given continuing malaise in credit and housing markets, private consumption will remain subdued; indeed, two percentage points of the 2.8% expansion in the last quarter of 2011 reflected rising inventories rather than final sales. And, as for external demand, the generally strong dollar, together with the global and eurozone slowdown, will weaken US exports, while still-elevated oil prices will increase the energy import bill, further impeding growth.

Finally, geopolitical risks in the Middle East are rising, owing to the possibility of an Israeli military response to Iran’s nuclear ambitions.

16--The United States is Experiencing the Longest Stretch of High Unemployment Since the Great Depression, CBO

Excerpt: The rate of unemployment in the United States has exceeded 8 percent since February 2009, making the past three years the longest stretch of high unemployment in this country since the Great Depression. CBO projects that the unemployment rate will remain above 8 percent until 2014. The share of unemployed people who have been looking for work for more than six months—referred to as the long-term unemployed—topped 40 percent in December 2009 and has remained above that level ever since.

17--Greece: On Pace for the Worst Recession in Modern History, credit writedowns

Excerpt: The Atlantic tells us that Greece Is on Pace for the Worst Recession in Modern History.

The Greek economy shrank nearly 7% in 2011, the fifth straight year the country has been in a recession. GDP has shriveled by a sixth since 2006, and unemployment has tripled over that period to 20%. With new rounds of austerity just announced, and a default yet to come, the nightmare isn’t even close to being over. Will Greece be the deepest recession of the last 30 years?

It’s getting there. Argentina’s output plummeted 20 percent peak-to-trough when it defaulted in 2001, and Latvia’s economy has shrunk by a fifth since 2008. Uri Dadush, an economist with the Carnegie Endowment in Washington, told Reuters that "on the current path, which is not sustainable in my view, we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It’s a disastrous crisis for them.

18--Greece heads toward a revolutionary explosion, WSWS

Excerpt: It is obvious that the shock treatment prescribed for Greece by the troika and implemented by the Greek government is not aimed at “rescuing” the country or rebalancing its budget. Rather, its purpose is to set an example and intimidate the working class in other European countries, making clear once and for all where the real power lies.

The class character of the cuts could not be more evident. While the unemployed and both public-sector and private-sector workers are bled dry, the country’s wealthy elite escapes unscathed. They have long since transferred their assets to financial and property markets abroad.

The Greek austerity measures are the spearhead of an international offensive by the financial aristocracy aimed at offloading onto the working class the full impact of the 2008 financial crisis, precipitated by the very same financial elite. The incomes, past social gains and democratic rights of workers are everywhere under attack. The German government, which has adopted a particularly arrogant stance towards Greece, proceeds with the same arrogance against unemployed workers in Germany and will act toward them in an even more ruthless manner if it succeeds in Greece.

The Greek working class, which has experienced Nazi occupation, civil war and military dictatorship, will not accept a new dictatorship of finance capital without a fight. The combination of despair and anger expressed Sunday evening will inevitably intensify and turn in a revolutionary direction.

19--Army Whistleblower Lt. Col. Daniel Davis Says Pentagon Deceiving Public on Afghan War, Democracy Now

Excerpt: In the report’s opening lines, Davis writes, quote, "Senior ranking U.S. military leaders have so distorted the truth when communicating with the U.S. Congress and American people in regards to conditions on the ground in Afghanistan that the truth has become unrecognizable."

Part of the report was published in The Armed Forces Journal in an article called "Truth, Lies and Afghanistan." In an interview on The Alyona Show, Davis explained what motivated him.

LT. COL. DANIEL DAVIS: The job that I had there was—required me to travel all over the country and to talk to soldiers at every level, from the highest commander to the lowest 19-year-old private. And what I saw out there, over time, especially was—began to be clear was so different than what the public assertions are, that I started to have, you know, some moral problems with it. But that turned into something more when I started seeing the results of men dying as a result of this, in missions that made no sense and were then later characterized as big successes, when in fact they were not. In later in the summer, a couple of guys, in particular, that I had met were killed in action a couple of weeks later. And that—that drives it home pretty strong to you, toward the end of the summer...

the more NATO and Western and American troops that get put in, the higher the violence rate is, right? And once we start taking troops out, the violence goes down. And you see this as a direct kind of correlation. So what does that tell you? On the one hand, it says that much of the fighting is not in fact related to this sort of global war on terror—that’s the framework we’re still sort of looking in—but it’s related to the fact that there is a foreign army in another country and the people there are resisting it. So that’s one of the sort of basic takeaways.

The other sort of strange, you know, Orwellian paradox of all of this is that the senior military leadership—General David Petraeus, General McChrystal, General John Allen—what they always say is, "Look, if the violence is going up, that means it’s working, because we’re getting in and fighting in places that we haven’t been before," right? And when the violence goes down, they say, "Oh, that means we’re working, too." So, no matter what the outcome is, all we’ve heard is the same message of "We’re winning. We’re winning. We’re winning." You know, a couple months ago, I called it the Charlie Sheen strategy. You know, it’s—of winning. You just keep saying it, and you hope someone believes it. But that’s what Colonel Davis lays out. And he takes, in fact, quotes from commanders over a significant amount of time, and he compares that to what’s actually happening. And what he demonstrates, very ably, is that the message that we’re winning, they’ve been saying this now for six years, eight years, 10 years, when in fact things have gotten progressively worse....

what Colonel Davis is reporting and what we’ve seen from every other report is that, in fact, all this money we’re spending is—much of it’s going to waste. There’s pervasive drug problems, Taliban infiltration—you know, you go down the list—discipline problems, people not showing up. So, in fact, there’s an amazing moment in Colonel Davis’s report where he says that almost all the Afghan forces that he visited have different pacts themselves with the Taliban about—so they don’t actually want to fight each other. So, what does that tell you, right? And I witnessed that firsthand in Afghanistan, where I was with an Afghan unit, and they knew the Taliban would attack, because one of their friends in the Taliban would call and be like, "Hey guys, we’re attacking tonight."

So, what does it say that we’re spending $11.6 billion to build a proxy army in Afghanistan, essentially, that’s going to be barely functional without our support?

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