miercuri, 25 ianuarie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Merkel Casts Doubt on Saving Greece, Insists ECJ be Empowered to Police Nannyzone; ECB insists on Profits on Greek Bonds; IMF Takes Tougher Stance; Greek Socialists Reject EU Mandates

Posted: 25 Jan 2012 10:41 PM PST

Amazingly, smack in the midst of deal to save Greece from bankruptcy, the ECB not only insists on taking no losses on Greek bonds its holds, it wants a profit on them because it bought them at what seemed at the time to be a substantial discount. The discount was imaginary. The bonds were trading at 7% at the time.

Uncomfortable Days for ECB

The Financial Times reports Uncomfortable days for ECB
The ECB started buying Greek bonds in May 2010, when the eurozone debt crisis first erupted. The objective of Jean-Claude Trichet, president, was to stabilise financial markets. The assumption was that bonds bought at market prices would be held until maturity, when the ECB would book a tidy profit.

Having taken action when the private sector held back, it justifiably feels it should not have to pay a price now, said Erik Nielsen, chief economist at UniCredit. "In an emergency, the fire brigade goes in – but the deal is that it is protected."

Economists estimate that a 70 per cent "haircut" on the face value of the ECB holdings could leave a loss of more than €20bn – a significant but not disastrous sum given the size of the reserves held by the ECB and eurozone national central banks. But the ECB's resistance to accepting losses is not just principled. Agreeing to take a loss could be viewed as providing financial assistance to Greece – and in violation of the European Union's ban on central banks funding governments.
ECB Itself Puts Deal at Risk

It is the ECB's insistence to be made whole that is a primary source of bickering about lowered coupon rates.

I commented on this mess previously in Greek Bondholders Reject Deal; History Lesson on Defaults; The ECB's Dilemma; Deadline Laugh of the Day.

In that post I showed a calculator that suggests the IMF and Germany are angling for a haircut between 75% and 79%.

To top it off, taxpayers in the EMU states would have to cover all the ECB's losses as well.

Should the deal go through, another 100+ billion euros will be thrown down the Greece rathole. In my estimation that still will not bring Greek debt down to 120% of GDP by the targeted 2020 date, up from the targeted 2015 date, up from the targeted 2013 date.

Bear in mind, with the original 21% haircut idea, Greece was supposed to be at an 80% debt-to-GDP by 2013. So not only did timeframes stretch, the targeted debt levels did as well.

IMF Throws Its Hat Into the Ring

Today the IMF threw its hat into the ring with a tougher stance over Greek debt.
On Wednesday [IMF Chief Christine Lagarde] argued that if Greece's private creditors did not accept a big enough writedown, the European Central Bank might have to take a reduction in its own Greek debt holdings. "The balance between the participation of the private and the public sector is a concerning question," Ms Lagarde said.
Ruffled Feathers and Spooked Investors

There was no official response from the ECB but it is safe to presume the IMF's stance ruffled a lot of feathers.

However, look at the situation from the point of view of investors. If the ECB and IMF never have to take losses, and everyone else does, then investors are buying subordinate debt that should have a much higher yield.

The situation is obviously a complicated mess in more ways than one. 

Place the Blame on Arrogant Fools

Place the blame for this Grecian dilemma squarely on the shoulders of former ECB president Jean-Claude Trichet, an arrogant fool who insisted on buying Greek bonds, overriding strong objections by then Bundesbank president Axel Weber who resigned in protest of the move.

Merkel Casts Doubt on Saving Greece, Insists ECJ be Empowered to Police Nannyzone

In a candid interview with The Guardian, Angela Merkel casts doubt on saving Greece from financial meltdown
Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.

In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.

She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.

Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.

Despite the prime minister's blockade and the belief in Berlin that he blundered, Merkel sounded conciliatory.

"I am convinced that Great Britain wants to remain a member of the European Union. Of course, it's never easy for 27 states to hold together … We need to find that balance with everyone time and again, including the United Kingdom wherever possible."

On her "vision" for the future of the EU, though, there is unlikely to be any "balance" struck with No 10 because Merkel's hopes for a Europe united politically under a single government are at odds with Britain's views. Besides, Merkel's project would require substantial transfers of powers to Brussels that would run foul of Cameron's EU referendum law.

"My vision is one of political union because Europe needs to forge its own unique path. We need to become incrementally closer and closer, in all policy areas," the chancellor said. "Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government."

"And finally, the supreme court will be the European court of justice. That could be what Europe's political union looks like in the future – some time in the future, as I say, and after a goodly number of interim stages."

There was no immediate reaction to Merkel's interview from Cameron.
Candid Interviews or Candid Lies?

I am suspicious of "candid interviews". Every time one of these European leaders starts acting pessimistically, another kick-the-can rescue is pulled out of the hat.

I also get the sense Merkel is fighting for her political life.  That be the case, she has all the more reason to say anything that suits her purpose. Then again, it's always safe to assume politicians are babbling lies for political purposes.

In this case it is clear she is throwing an olive branch to Cameron. After that affair in December, it would be appropriate for him to throw Merkel an anchor.

Rest assured she would connive with Sarkozy once again to weigh the UK down with a financial transaction tax, except for two things.

  1. After all his Pompous "France will go it alone" buffoonery, Sarkozy pulled the Tobin Tax off his agenda bowing to French banks.
  2. Sarkozy is not going to be reelected.

For details please see


Merkel's Motives

My take is Merkel finally realizes Sarkozy is toast and the Tobin Tax is toast for now, and now Merkel wants to suck up to Cameron to help save her political career.

Is there any reason to believe anything else?

Greek Socialists Reject EU Mandates

For an article that shows just why the Greek bailouts are ultimately doomed even if another rabbit is pulled out of the hat, please consider Greek deputies join populist backlash
A revolt by socialist lawmakers over one clause in a new structural reform package has highlighted a populist backlash as Greece races to complete talks with international lenders on a medium-term fiscal programme.

More than 60 backbenchers, among them a former European commissioner, voted against the lifting of restrictions on Greek pharmacy opening hours, as part of measures liberalising more than 130 "closed-shop" professions.

A group of conservatives were among another 90 deputies who abstained, forcing the coalition government to withdraw the article. Andreas Loverdos, health minister, appeared poised to make concessions to the rebels, saying it would be presented again "with improvements" as a separate piece of legislation.

The uproar in the chamber was emblematic of continued unwillingness by Greece's political class to accept the discipline imposed by its European partners and the IMF in return for a second bail-out, even as the country stands on the brink of a disorderly default.

"I cannot understand a parliamentary vote that puts the interests of 12,000 pharmacists above those of 11m Greeks . . . the house must finally stop protecting these mini-oligarchs," said Giannis Ragousis, defence undersecretary and a socialist backer of market liberalisation.

A Pame [communist trade union] official said: "Greece faces three more years of austerity, even if the latest package succeeds in stabilising the economy, and people are already facing extreme hardship."
Eventually, Will Come a Time When ....
 
I am sticking with what I said on November 23, 2011 in Eventually, Will Come a Time When ....

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

That time may be at hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Chart of the Day: Apparel Import Data in Square Meters and Dollars; J.C. Penney's Slashes Prices on All Merchandise by "At Least 40%", Offers Every Day Low Pricing

Posted: 25 Jan 2012 01:02 PM PST

Here is a chart of apparel trends sent to me last week by reader Tim Wallace.



click on chart for sharper image

Wallace Writes ....
Dear Mish

As I have been saying over the past several months there is a tremendous unit drop going on in the import apparel industry, but it is not reflected in reporting because dollars keep going up, at least until recently when they flat-lined.

The attached chart looks at the two criteria together, dollars imported and units imported reflected as meters square. As you can see, the dollars kept going up but the units turned south back in May, yes the very May my petroleum distillates distinctly show the economy turning south.

Things are just starting south like towards the end of 2007. Give it time.

Demand is plummeting.

Regards,

Tim
For Tim Wallace's latest report on gasoline and petroleum usage, please see Year-Over-Year Gasoline and Petroleum Usage Charts; Shares Decline as Chevron Warns of Weaker 4th Quarter Earnings.

JC Penney's Slashes Prices on All Merchandise by "At Least 40%"

I had forgotten about the apparel chart from Wallace but was reminded of it today by this headline news story today in USA Today: Penney's slashing prices on all merchandise
J.C. Penney is permanently marking down all of its merchandise by at least 40% so shoppers will no longer have to wait for a sale to get the lowest prices in its stores.

Penney (JCP) said Wednesday that it is getting rid of the hundreds of sales it offers each year in favor of a simpler approach to pricing. On Feb. 1, the retailer is rolling out a three-tiered strategy that offers "Every Day" low pricing daily, "Monthly Value" discounts on select merchandise each month and clearance deals called "Best Price" during the first and the third Friday of each month when many shoppers get paid.

Penney's plan comes at a time when stores are struggling to wean shoppers off the profit-busting bargains that they have come to expect in a weak economy. The move is risky because shoppers who love to bargain hunt may be turned off by missing the thrill they might get from feeling like they're getting a deal.

"The big question on investors' minds will be how customers react to a single price point versus a perceived discount under the old strategy," says Citi Investment Research analyst Deborah L. Weinswig.
The plan is the brainchild of former Apple executive Ron Johnson who became Penney's CEO in November.

How Pricing Strategy Works

  • Sale prices become everyday prices. The company will use last year's sales figures to slash all prices at least 40% or lower than last year's prices. So, a woman's St. John's Bay blouse regularly priced at $14.99 could have the "Every Day" price of $7.
  • Fewer sales. The retailer will pick items to go on sale each month for a "Monthly Value." Items that don't sell well go on clearance and will be tagged "Best Price," signaling to customers that it's the lowest price.
  • New tags. The retailer used to pile stickers on price tags to indicate each time an item was marked down. Now, when an item gets a new price, it gets a new tag. A red tag indicates an "Every Day" price, a white tag a "Monthly Value" and a blue tag a "Best Price."
  • Simpler pricing. Penney will use whole figures when pricing items. You won't see jeans with a price tag of $19.99, but rather $20.

Price Deflation Hits Penney's

Here is another way of looking at things: Price deflation hits J.C. Penny's. In turn, this will place pressure on other retailers to do the same.

Those who think Bernanke's attack on the dollar can stave this off have another thing coming.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Gold, Silver, $HUI React to Bernanke Pledge to Hold Rates near Zero "At Least" through Late 2014; Hello Stephanie, Ben Promises More of the Same

Posted: 25 Jan 2012 11:04 AM PST

In a press statement regarding today's FOMC meeting, the Fed announced that economic conditions would "likely warrant exceptionally low levels for the federal funds rate at least through late 2014".

If It Doesn't Work, Keep Doing It

As noted in Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned, this policy decision is highly unlikely to accomplish what Bernanke wants.

Bernanke's policy now boils down to "if it doesn't work, we'll keep doing it until it does". Those on fixed incomes have been crucified by the Fed's policies and will continue to be crucified by the Fed's policies until low interest rates work.

Reaction of Gold, Silver, $HUI to FOMC Statement

$HUI 10-Minute Chart



Gold 10-Minute Chart



Silver 10-Minute Chart



The $HUI gold miner index blasted higher on the FOMC announcement. Interestingly gold and silver blasted higher before the announcement.

Treasuries rallied as banks and brokers font-ran the trade.

This is all well and good for the 1% and for the banks that front-ran the bond trade, but it sure is not doing anything good for those on fixed income or most of the 99%.

I wrote about the plight of those on fixed income in detail, nearly one year ago in Hello Ben Bernanke, Meet "Stephanie".

Hello Stephanie, uncle Ben promises more of the same.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

My Horrific Experiences With Sony Customer Support

Posted: 25 Jan 2012 09:43 AM PST

I have a Sony laptop computer. It is less than a year old. It was not cheap. I bought the best components, memory and hardware components options available including 3-year in home support.

A couple of months ago the monitor developed a problem (a line of dead pixels down the entire length of the screen). I knew it was a hardware failure because I run a dual monitor setup and the line did not appear on the second screen.

I ignored that problem because it was relatively minor. However a hard drive failure cannot be ignored.

Unfortunately I experienced a hard drive failure at the beginning of January and was dead in the water. I could not boot.

Please follow this chain of events (Mac users, please try not to laugh too loudly).

My Sony Support Experience

  1. I called Sony support and told them of my problems. They told me my computer was out of warranty even though it was less than a year old and under standard warranty. I told them I had a 3 year warranty. They told me I they had no record of it but gave me another Sony phone number to call to verify my warranty.
  2. I suggested that rather than me hang up and dial Sony, that Sony should dial Sony and verify my service contract. The technical rep said that was not possible.
  3. I called the service number at Sony the tech rep gave me and that service rep verified my date of purchase as less than a year old. The service rep also gave me my 3-year in-home service contract number.
  4. I called back Sony technical support and gave them my service contract number. The technical rep said they could not find that service contact and would not help me. The tech rep told me to call back the service rep and get the right number.
  5. I called back up the service rep, and I did indeed have the right number. The service rep agreed to call the tech rep and stay on the line to verify the number. Apparently service can call technicians but not vice-versa. Some of these calls took 20 minutes.
  6. The service rep informed the technical rep of my purchase date of the service contract (less than a year old), and that it was for 3-years. At that point the tech rep agreed to help me. The service rep hung up.
  7. The tech rep then took my serial number and other information but said before he could schedule a service call he needed a copy of my receipt. I did not have a copy of my receipt. Given the Sony service rep verified my purchase date and 3 year service contract I failed to understand why I need a written receipt. As you might expect I was quite upset and talking rather loudly at this point.
  8. The service rep said he needed to know whether the computer was to be repaired under the service contract or the 1-year standard warranty. As you might imagine I did not see why any of this mattered as my date of purchase was confirmed by Sony as was my 3-year warranty.
  9. Well this mattered to the technician who demanded a receipt. The technician gave me a Sony website in which I could look up my order and get a receipt. I said "If I can go to a website on Sony and look up my order, why can't you?"
  10. As you can probably guess from what has transpired so far, the tech rep could not do that. It was now late in the day and I had company over and a backup PC was working but without a lot of programs I frequently use and need. I waited overnight to get the receipt.
  11. The next day I attempted to get a receipt but the website URL the tech rep gave me was invalid. 
  12. Once again I called the service contract rep and that person gave me the right address. I said why don't you look up my purchase day and get it to the tech but this time the service rep was uncooperative.
  13. I go to the Sony website and find my order. I print out my order and fax it to the tech rep. I call the tech rep number and the tech informs me he has scheduled a service call and someone would call me shortly to arrange a time within three days.
  14. I was suspicious of that claim, so the next day I called up the service rep who indeed verified the tech rep did not schedule a service call. 
  15. The service rep put in the order noting they had received my fax and that everything was in order.
  16. I was told I would get a call within 3 days. I was actually shocked to get a call the next day but the pleasant surprise quickly ended on news they had to order parts and I would get a another call within 3 days when the parts would be ready.
  17. Two days later the parts arrive and I get a call and schedule a time.
  18. The rep brings out another monitor and another hard drive. 
  19. The monitor is bad. It has a line of dead pixels in a different spot. 
  20. The tech rep installs the hard drive and leaves me with a set of install disks.
  21. One might think that the on-site technician might actually load the disks they delivered but one would be wrong. These guys are 100% without a doubt strictly hardware only. They do not load disks. Even ones they hand deliver.
  22. It is late in the evening and once again I had company. The next day I run the setup disks and get an I-O error. I cannot tell what is wrong. 
  23. I call Sony and they suspect another hard drive problem and tell me someone will call me within three days to schedule an appointment.
  24. I am screaming at the top of my lungs at this point as I have had it. The rep agrees to do nothing but schedule another call. I ask for his supervisor and an transferred to a "national customer relations specialist" NCRS.
  25. I ask the NCRS to send me a new computer. He tells me that the computer I have is no longer available. That was a direct lie because in advance (in expectation of lies) I had gone on the Sony website and could order the exact computer I already had. 
  26. I informed the NCRS that the computer was still orderable and he said he did not have the authority to do what I asked. If a national customer relations person does not have that authority, one has to wonder "Do they have ANY authority?"
  27. I asked to be transferred to his superior and was put on hold. His superior (and the NCRS refused to tell me the title of that person) would not take my call but whoever that person was did tell the NCRS that if the next delivery did not work they would pro-rate a refund.
  28. I demanded to talk to the NCRS superior but the NCRS would not comply.
  29. At that point I had had enough. I had been without my computer for 11 days and had loaded trial versions of software I use on another computer to get by, but I was still running in limited mode in a number of ways.
  30. I do an online search for computer repair for my city at 4:30 PM. The first two places did not answer the phone or had a messages they were closed. The owner of a third local repair shop in Barrington Illinois did answer the phone. He was open until 7:00PM and Barrington is only a half hour away.
  31. He agreed to look at my computer. I brought in my computer, the install DVDs Sony gave me, and an external hard drive backup I had of my computer.  He took one look at the install disks and said "this one is bad" (it had a discolored spot on the DVD). He changed the bios on my machine to boot to an external DVD drive and fortunately the external drive was able to read the install disks. It was now going on 8:00PM and the owner had stayed an hour past closing to help me but the configuration was only 70% done.
  32. The owner had to go but the next day when I called in, he had reset my drive to the original Sony state, removed all the Sony bloatware including Norton. He loaded all my personal files from an external hard drive I brought in. Above and beyond the call of duty, he found every ICON on my computer and went out and loaded trial versions of every software program I had.
  33. Now that is service. I had my Microsoft Office Key as well as keys to the other programs I use.  I had no idea how to configure my POP account at SBC on to my Microsoft Exchange account but he did that off the top of his head. By accident, I found someone (a business owner) who not only understands computers but someone who also understands the value of a customer.
  34. Five days later (two over the weekend) Sony did come by and replace my monitor. It might have been done sooner but I was out of town on Friday.

Moral of the Story

  • Have file backups. I did.
  • Don't count on Sony
  • I have had bad experiences with Dell as well so don't count on Dell or any other mass producer either.
  • Instead find a local computer shop that understands computers and the value of a customer.

If you live in NW Illinois, the place I found that helped me is BarringtonComputer. The owner is Richard Zatek.

By the way, I left out one interesting detail.

Barrington Computer has the ability to access a computer remotely. Zatek gave me a way to see what was happening remotely to my computer. When I checked on it at midnight (from my backup machine  at home), Zatek was also dialed into my computer and we exchanged messages right on my computer remotely using notepad, at midnight. We could see what each other was typing. That is pretty cool as well as exceptional service.

One good thing came out of this. I am pleased to have found someone who knows computers and also understands the value of a customer. Sony sure doesn't.

Addendum:

I received many emails regarding this post. Here is one from attorney "BR" who says ...
Dear Mish,

I'm a big fan of your site and it is pretty much required reading for me most days. I read your account of your travails with "Big Corporate Customer service" with great empathy. I encountered a very similar experience two years ago getting a burner part replaced on my natural gas hot water heater. It took six weeks, 7 separate "house calls," at least 15 different phone calls, and nearly being divorced before the problem was rectified. And it was a parts problem for which the company had issued a "recall," so it wasn't a unique or unexpected problem.

I've become convinced that this type of customer "service" is viewed as being a "feature" and not a "bug." And it crosses all lines of products and services, but especially those covered by "warranties." They are actively discouraging you from insisting on your right to the free repairs and other services for which you have already paid when you purchased your warranty. In my judgment it represents a calculated effort by corporate types to maximize the profits they obtain under extended warranty agreements. It really is a form of fraud.

Lesson learned is that while P.C. stands for piece of crap, warranties are worth even less.

Very truly yours,

BR
Addendum Two

I received many comments about the poor quality of consumer products. I failed to mention a possible remedy.

I asked the store owner if he custom built computers and he said it would not be cost-effective. After all, he still would be using components straight from China.

Instead he said, never buy a computer from a normal retail store or through the "consumer division" of a PC maker. Sony only has a a consumer division. HP and Dell have business divisions.

Unfortunately, that may not mean support will be much better, but rather the components will likely be of a higher quality. Large businesses might buy hundreds of computers or more at once. To get repeat business, the computers need to be more durable and have no built-in bloatware (trial software and other garbage).

Addendum Three

I received many emails like this from Mac users but here is one from a person at VMC Consulting Corporation with a email address at Microsoft.
Reading your recent "Horrific Experiences" post, I just want to make a friendly suggestion.

Next time you want the best Windows machine money can buy, get a Mac.

No kidding.

The Mac is the best Windows machine you can buy, and the support is fantastic. I don't know where you live, but if it's a major city, I bet there's an Apple store nearby.

You can either use "Boot Camp" and run entirely in Windows, or you can be booted into the Mac OSX, and run Windows inside of Parallels, which is a fantastic Virtualization program.

Cheers,

David
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Obama Proposes Mortgage Bailouts, Handouts, Copouts Exactly One Paragraph After Stating "Top to Bottom: No Bailouts, No Handouts, and No Copouts"; How the Taxpayer Ripoff Works

Posted: 25 Jan 2012 12:55 AM PST

Inquiring minds are reading the complete text of President Obama's State of the Union Address to see what distortions, lies, and hypocrisy it contains.

I found a nice Orwellian set of paragraphs smack in the middle of his speech.
And while Government can't fix the problem on its own, responsible homeowners shouldn't have to sit and wait for the housing market to hit bottom to get some relief.

That's why I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.

Let's never forget: Millions of Americans who work hard and play by the rules every day deserve a Government and a financial system that do the same. It's time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody.
Top to Bottom: More Bailouts, More Handouts, More Copouts

While reading the first paragraph above I knew without a doubt a huge bailout proposal was coming up.

Sure enough, the very next paragraph contained a massive bailout proposal and in more ways than is readily apparent at first glance. For starters "responsible homeowners" don't need mortgage relief. Secondly, $300 a month is a lot of dough so I would like to see an accounting.

Finally, and most importantly, every loan that is refinanced will be paid off in full. Thus, any bank, hedge fund, mortgage provider, or GSE that is paid off on a nonperforming loan will be immediately made whole.

This is a massive backdoor bailout of banks, mortgage companies, hedge funds, foreign banks, and anyone else holding mortgage related garbage.

In case you were wondering about the big rally in bank shares this year, this proposal just might have something to do with it.

The Orwellian irony of it all comes in the third paragraph with Obama's bald-faced lie "It's time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts."

How the Taxpayer Ripoff Works

The New York Times explains the ripoff in President to Offer Way for Easing Home Debt
The White House plans to propose legislation that could allow a few million homeowners to reduce monthly mortgage payments by refinancing their current loans into new ones guaranteed by the Federal Housing Administration.

The program would broaden the availability of government-backed mortgages to include many borrowers whose loans are held by private companies and who have been unable to persuade those lenders to reduce their interest rates. Existing federal programs focus mostly on borrowers whose loans are owned by the government.

The new program will be directed at people whose mortgage debts exceed the value of their homes, according to a senior administration official who spoke on the condition of anonymity because the details have not yet been finalized. The official estimated that the program could benefit two million to three million homeowners who have loans that are not guaranteed by the government, and that the program's cost would not exceed $10 billion.
$10 Billion?! Really?

The proposal as outlined rates to take every "responsible" underwater mortgage held by banks, Fannie Mae, Freddie Mac, hedge funds, foreign banks, and pension plans, and transfer all of them to the FHA. The idea this will only cost $10 billion is absurd.

The "small fees on the largest financial institutions" are absolutely guaranteed to not cover the cost of this monstrous proposal. Indeed there is something in Obama's proposal for everyone except "responsible citizens".

"Let's never forget: Millions of Americans who work hard and play by the rules every day" will be royally screwed by Obama's proposition in the form of higher taxes down the road.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Publicat de 1 la 23:24

Niciun comentariu:

Trimiteți un comentariu

Abonați-vă la: Postare comentarii (Atom)