Mish's Global Economic Trend Analysis |
- Foreclosure-Gate Screw Tightens: Banks Face $17 Billion in Suits Over Foreclosures; Common Sense Says $5 Billion is Very Generous
- Chinese Rating Agency Downgrades UK Sovereign Debt; Downgrade Party Needed
- Structural Problems in Greece Compared to US
- Energy Shortages Spreading: Rationing in China, Pakistan, Venezuela, Japan, Argentina; China Resorts to Punitive Prices to Curb Demand
Posted: 24 May 2011 09:44 PM PDT State attorneys general are not happy with a $5 billion offer by major banks to settle lawsuits regarding robo-foreclosures and other alleged grievances. Some officials want as much as $20 billion. The compromise threat is on the high end. Please consider Banks Face $17 Billion in Suits Over Foreclosures State attorneys general told five of the nation's largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices, according to people familiar with the matter.What are the Damages? This is what I want to know:
Throw Category #2 in the Ash Can I am sure category #2 is the largest. Throw those cases in the ash can where they belong. No one want to admit they were stupid. Yet people paid stupid prices for homes. Others were unlucky. Some lost their jobs. Even then, one can ask "did you have a year's worth of living expenses saved up in the bank, in case you lost your job?" Regardless of the answer, banks should not be on the hook for people losing their jobs or having medical problems. Here's the cold simple truth: If you do not pay your mortgage, it is reasonable to expect to lose your home. There is no other realistic way of looking at it. Robo-signing may not be right, but it is irrelevant. Category #1 the Real Problem I have deep sympathy for those in cases where banks foreclosed on the wrong home, the wrong address, or on homes with no mortgage at all. Those people deserve their home paid free and clear and some huge penalty on top of it. I suspect the number of such cases is minuscule. They receive enormous publicity but is the number 10,000? 5,000? 500? or 50? I suspect the number is far closer to the lower end than the higher end. 50 might easily be on the high side. Whatever the number is, banks should pay mightily and punitively for it. The money should go to those wronged, not to the states. Even with massive penalties I doubt the total would come close to $200 million. Category 3 is Where the Uncertainty Is I do not know how big the "strung along" category is, but the only ones in this category who were genuinely harmed to any significant degree are those who continued to make mortgage payments, strung along on a promise, when instead they could have and should have walked away. How many is that? You tell me. However, the harm is easy to quantify. The harm is extra payments people made (if any), while the banks engaged in deceptive practices or were simply understaffed. Assume banks engaged in deceptive practices and people made extra payments instead of walking away. Would those extra payments amount to as much as $1 billion? I rather doubt it. $5 Billion is Very Generous What is a valid penalty? $4 billion seems like a lot of money to me. That would be a 400% penalty if the total wrong-doing amounted to $1 billion which I doubt. The sad truth of the matter is we have a full scale witch-hunt over robo-signing and other alleged grievances even though there was little actual damage caused by banks. If you disagree then total up the damages. However, I insist you start from two essential points.
So total up the damages, add a huge penalty, and let me know what you come up with. No doubt, many will accuse me of siding with banks. The reality is I am siding with common sense. No one fought against bank bailouts harder than I did. Banks should have been allowed to go under. Unfortunately they were bailed out. However, two wrongs do not make a right. I am all for punishing banks provided the punishment is based on damages rather than the widespread belief "we need to stick it to the banks". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Chinese Rating Agency Downgrades UK Sovereign Debt; Downgrade Party Needed Posted: 24 May 2011 03:09 PM PDT The Wall Street Journal, the Telegraph, and International Business Times have stories regarding a downgrade of UK sovereign debt by a Chinese rating company. Much of the information overlaps, but some snips vary site-by-site. Wall Street Journal: China Ratings Agency Downgrades UK Sovereign Credit Ratings Chinese ratings provider Dagong Global Credit Rating Co. said Tuesday it downgraded the local and foreign currency sovereign credit rating of the U.K. from AA- to A+ with a negative outlook.The Telegraph: Chinese rating agency downgrades UK debt Dagong Global Credit Rating Company downgraded the UK's local and foreign currency sovereign credit rating to A+ from AA- with a "negative" outlook for its solvency, the company said in a statement.International Business Times: UK credit rating downgraded by Chinese rating agency Dagong sees relatively low growth and high inflation. This is simply another institution pointing out the new global phenomenon, Stagflation.Downgrade Party Needed Ironically, Iceland deserves an upgrade for telling the EU where to shove it, thereby getting its fiscal house back on the right track. Nearly every other country deserves a downgrade. Let's have a downgrade party. We may as well downgrade some states too. In case you missed it, the Illinois Treasurer Warns Against Lending to Illinois Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Structural Problems in Greece Compared to US Posted: 24 May 2011 09:32 AM PDT Many countries have restrictions and requirements on doctors, nurses, lawyers etc. Greece carries the idea to extreme. According to Keep Talking Greece "closed professions" include beauticians, drama and dance school instructors, bakers, antiques dealers, insurance agents, insurance consultants, employment consultants, diagnostics centre staff, translators, divers, cameramen, driving school instructors, cab drivers, tourist bus drivers, newspaper stand owners, electricians, sound technicians, private school owners, tobacco sellers, gun manufacturers and sellers, hairdressers, private investigators, port workers, real estate agents, lifeguards, carpenters, financiers, opticians, auditors, movie/theatre director and even car mechanics. Restrictions will be lifted July 2. That is a much needed maneuver, and the same applies in the US as well. Many states have prevailing wage laws and other restrictions that have nearly the same effect as the insanity in Greece. Greek Asset Fire Sale Please consider Greece Will Accelerate State Asset Sales to Stem Debt Crisis as Bonds Drop The Greek government endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts to win extra aid and stem a market slide that threatens to swamp the most debt-laden euro-area nations.Untenable Timeline Note that Roubini's timeline is 5-10 years. The ECB an EU expect Greece to return to the dent markets by 2013. Structural reforms or not, Greece will not pay back its debt in two years, nor will Greece return to a healthy bond market in two years. Greece will default. Greece Compared to US Ending Restrictions on 130 "Closed Professions" is a badly needed reform. However, the near-term effect will be lower wages, lower benefits, and increased competition. Increased competition needs to happen in the US as well, with public unions kicking and screaming every step of the way. The SEIU, like the Greek unions, don't want reform at all. Regardless, the US desperately needs to reduce red-tape and open up competition for jobs in education, in garbage collection, in prisons, in healthcare, in all government work. Unfortunately Keynesian clowns and politicians alike want results now, and when it doesn't happen now, they clamor for more stimulus, even though stimulus is a problem. Fed's Misguided Tactics Compounding the problem, the Fed fights wage destruction with policies that encourage speculation and debase the dollar but don't increase wages. The result is repetitive asset bubbles and debt that cannot possible be paid back. Wages have not gone up, nor have housing prices, nor has employment, yet the Fed persists with failed policies that slowly destroy the middle class. It's a nasty brew. In many ways the US has more in common with Greece than most realize, especially when it comes to public unions and lack of competition for protected government jobs. Interestingly, self-serving extortionists compared the public union protests in Madison to freedom fighters in Egypt. As I pointed out in Public Union Protesters More Like Greek Extortionists than Egyptian Freedom Fighters; Unions Under Fire in Wisconsin, Ohio, Tennessee; Student Idiocy, comparing SEIU protests to freedom fighting is sheer lunacy. The Gimme, Gimme, Gimme "Better Way" Chanting Mob looks more like the Greek public union extortion than it does anything else. Our cure is simple. Pass national right-to-work laws, scrap Davis-Bacon and all prevailing wage laws, and end the Fed. Dissimilarities Bear in mind Greece has other problems that are not comparable, so does the US. For example, the US has untenable military spending and a health-care system that is the most costly in the civilized world. Greece is in a currency union with no fiscal union. Greece has no way to devalue its currency or set interest rates. Greece has few exports while the US is a huge exporter that simply imports far more than it exports. Thus, I do not want to imply the US is Greece. I simply highlighted one area that is more similar than most think. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 24 May 2011 12:50 AM PDT Electric power shortages caused by insufficient water levels at hydroelectric stations in some places, and unaffordable oil prices in others, have led to rationing, blackouts, and other problems. China Resorts to punitive Prices to Curb Demand Bloomberg reports China's Zhejiang Plans Punitive Power Prices to Curb Consumer Demand China will impose punitive power prices on businesses that exceed consumption limits in Zhejiang province, a manufacturing hub bordering Shanghai, to curb demand during an expected electricity supply shortfall this summer.High Coal Prices Cause Plant Closures Please consider China's Power-Capacity Utilization at Record Low China's power plants are operating at a record-low utilization rate as many have closed, potentially causing the most severe electricity shortage since 2004, Mirae Assets Securities said.Venezuela Plans Rationing Bloomberg reports Venezuela Plans to Ration Power for Second Year Venezuela will ration power again this year, planning steps similar to those taken in 2010 amid an energy crisis, Electricity Minister Ali Rodriguez said.Energy Shortages Spreading Please consider the ASPO May 23 Energy Review Pakistan and China continue to top the list of countries with the most serious power shortages. Last week brought in reports of energy shortages developing or worsening in Egypt, Guyana, the Dominican Republic, India, Japan, El Salvador, Bangladesh, Libya, Mozambique, Nepal, Venezuela, Argentina, Zimbabwe, Kenya, and Tanzania. Most of the reported shortages are of electric power caused by inadequate water levels at hydro dams or insufficient coal, but some of these shortages stem from unaffordable oil prices or the inability to import sufficient quantities of liquid fuels.Rogers Predicts Oil Price to Rise "Beyond Anybody's Expectations" Speaking with the British BBC, last Tuesday 17 May 2011, famed investor Jim Rogers chairman of Rogers Holding said he believes that the oil prices will rise "beyond anybody's expectations" in the foreseeable future and that America is in serious trouble. I do not know how high oil prices go and in what timeframe. Nor does anyone else. However, I do know that the price of oil (and everything else) will not rise above people's willingness to pay for it. Demand for oil will drop with rising prices. Currently, much of the rise in oil has been speculation, just as it was in 2008. Rampant credit expansion and overheating in China has also contributed to higher prices. Near-term, slowing global growth seems likely to put a damper on prices. Long-term, those who assume the Chinese economy can grow at 10 percent a year for another decade are in Fantasyland. Energy constraints will not permit it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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