Monday, February 17, 2014

Today's links

1---Deflation Threat Worries G-20 Roiled by Emerging Markets , Bloomberg

(Threat of deflation may "force" global central banks to give more money to rich guys)

2---Fixing the EU's zombie banks, RT

What little these European banks have disclosed so far is already bad enough: nearly €1 trillion in nonperforming loans as of last June. Or 6.7% of total loans! Up 6% from prior year. And the six largest banks that provide any information at all on their extend-and-pretend loans disclosed €115.6 billion in forbearance at the end of 2012. One of them, Spain’s largest bank, Banco Santander, under pressure due to Spain’s banking sector bailout, confessed that 7.7% of its loan portfolio consisted of restructured loans as of 2012. In 2013, it reclassified a bunch of those as nonperforming, which nearly doubled its bad loans to 7.5% of its total loans....

. Companies that can’t service their loans anymore would normally go bankrupt to shed them and force banks to write them off and take their losses. Exactly what these over-leveraged banks cannot afford to do. Instead, banks convert loans to deadbeat companies into new loans with longer terms and lower interest rates or into equity of dubious value to avoid having to recognize and write down these nonperforming loans. When the companies can’t service those loans either, the bank extends a new loan and pretends everything is hunky-dory on its balance sheet all over again.

Outsiders never know what’s really on a bank’s books. In the few cases when someone pried open a corner and allowed the reek of asset putrefaction to billow from it, the whole bank collapsed. It’s only then that outsiders are allowed to poke through the detritus, and what they find is a gaping hole that taxpayers are shanghaied to fill.

So the amount of these extend-and-pretend loans – the forbearance – is mostly secret in Europe for fear that any public knowledge of just how huge it is could topple some of the banks, eat into the claimed profits of others, and leave executives who were showered with love and record compensation packages red-faced. While some banks disclose snippets, about a third of the 39 largest banks in the Eurozone, including four of the top 10 – Societe Generale, BNP Paribas, and Credit Agricole in France plus bailed-out Commerzbank in Germany – according to Bloomberg, don’t disclose anything about their extend-and-pretend mega-portfolios.

Banks show profits by, among other strategies, attaching a creative value to their assets. Valuing bad loans at face value is one of the tricks. In better times, when the bank has more capital to take the loss, it could quietly come clean in bits and pieces. That’s the hope. Meanwhile, the bad loans clog up the bank’s balance sheet and crimp new lending. The zombie bank is born.

3---Turkey in eye of emerging market storm as everything goes wrong at once, Telegraph
(When one central bank controls the "international currency", crisis can be staged anywhere.)

Hedge funds close in on countries with the worst current account profiles and Turkey is looking naked with a deficit of 7.6pc of GDP....

Hedge funds are closing in on those countries with the worst current account profiles, and Turkey is looking naked with a deficit of 7.6pc of GDP. Foreign reserves have fallen to two months import cover. ....

The optimistic view is that the crisis has at last forced Turkey to do the right thing: raise rates, and weaken the currency. "If you had to devise an IMF-style package this is what the policy would have been, so they got there in the end," said one financier.

4---Venezuela’s Maduro expels 3 US consular officials, alleging conspiracy, RT

5---US missile shield: First strike capability and nuclear primacy, RT

In a 2006 interview with London’s Financial Times, then US Ambassador to NATO, former Cheney advisor Victoria Nuland— the same person today disgraced by a video of her phone discussion with US Ukraine Ambassador Pyatt on changing the Kiev government (“Fuck the EU”) — declared that the US wanted a “globally deployable military force” that would operate everywhere – from Africa to the Middle East and beyond—“all across our planet.”

Nuland then declared that it would include Japan and Australia as well as the NATO nations. She added, “It’s a totally different animal.” She was referring to BMD plans of Rumsfeld’s Pentagon.
As nuclear strategy experts warned at that time, more than eight years ago, deployment of even a minimal missile defense, under the Pentagon’s then-new CONPLAN 8022, would give the US what the military called, “Escalation Dominance”—the ability to win a war at any level of violence, including nuclear war...

As the authors of a seminal Foreign Affairs article back in April 2006 noted: “Washington's continued refusal to eschew a first strike and the country's development of a limited missile-defense capability take on a new, and possibly more menacing, look… A nuclear war-fighting capability remains a key component of the United States' military doctrine and nuclear primacy remains a goal of the United States.”
The two authors of the Foreign Affairs piece, Lieber and Press, went on to outline the real consequences of the current escalation of BMD in Europe (and as well against China in Japan):

“. . .[T]he sort of missile defenses that the United States might plausibly deploy would be valuable primarily in an offensive context, not a defensive one—as an adjunct to a US First Strike capability, not as a stand-alone shield. If the United States launched a nuclear attack against Russia (or China), the targeted country would be left with only a tiny surviving arsenal — if any at all. At that point, even a relatively modest or inefficient missile defense system might well be enough to protect against any retaliatory strikes.”

They concluded, “Today, for the first time in almost 50 years, the United States stands on the verge of attaining nuclear primacy. It will probably soon be possible for the United States to destroy the long-range nuclear arsenals of Russia or China with a first strike. This dramatic shift in the nuclear balance of power stems from a series of improvements in the United States' nuclear systems, the precipitous decline of Russia's arsenal, and the glacial pace of modernization of China's nuclear forces

6---S Cal's slowmotion crash, Dr Housing Bubble

The latest housing data highlights a stagnant market in Southern California.  January home sales came in at a three year low logging in 14,471 sales. ....

The current median home price is back to where it was in June.  While the median home price is up 18.4 percent year-over-year for SoCal, home sales are down 9.9 percent year-over-year.  The press doesn’t know what to make of this because they can’t come out and say that Fed and banking policy over the years has created a U.S.S.R. like housing market worthy of a gold medal in Sochi.  So they mention that low inventory is an issue.  Why?  Because banks are circumventing accounting standards but you also have 13.2 percent of home owners in LA and OC underwater in spite of the big jump in prices....
monthly socal sales

Manipulated policy leading to homes being sold to banks?  Sure.  Yet the elusive income question remains.  We do have 4,000,000 Californians on food stamps a 50+ percent jump since the recession ended.

7---Do banks sense a change in the California housing market? California foreclosure starts up 57 percent last month. Typical California foreclosure process lasts nearly one year and the misconception of middle class., Dr Housing Bubble

Banks are now moving probably because they are acting rationally and want to lock in some gains by selling to investors or highly leveraged buyers.  2013 was a damn good year.  A smart gambler knows when to walk away....

Many readers sent this chart over from RealtyTrac and even mentioned it in a previous post but it is worth analyzing here:
After 17 months of consecutive annual decreases we see foreclosure starts up by 57 percent in January.  It is interesting that banks suddenly decided to move on the foreclosure process this year.

One thing is certain and that is the California homeownership has taken a big hit since the bust hit:
california homeownership
To highlight the full circle here, take a look at this:
“(Reuters) - Wells Fargo & Co, the largest U.S. mortgage lender, is tiptoeing back into subprime home loans again.
The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.”
ARMs, interest only loans, jumbo loans, massive investor buying, low inventory, stagnant prices, a surge in foreclosure starts, and now subprime loans.  Sure sounds like all is great on the housing front!

The median income in California is $58,000. ...

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