Mish's Global Economic Trend Analysis

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• Postponed Due to "Political Suicide"; Flag of Germany Burned, Could This be a Trigger?
• Banks Paying as Much as $35,000 Cash to Homeowners in Short Sales; Why and How Many?
• Rise of the High Frequency Trading Robots
• New Merkozy Proposal "I will Give You Money If You Give It Right Back"; Mathematical Scam to Prevent CDS Triggers

Postponed Due to "Political Suicide"; Flag of Germany Burned, Could This be a Trigger? Posted: 07 Feb 2012 06:41 PM PST Greece bailout talks that were postponed on Friday to Saturday, then Saturday to Sunday, then Sunday to Monday, then Monday to Tuesday. They have been postponed again, this time for a reason that makes perfect sense "Political Suicide". The New Work Times reports Greece Puts Off Decision on Austerity Measures Amid a Strike Protesting Them As thousands of Greeks walked off the job in a general strike on Tuesday to protest stringent new austerity measures, there was a growing sense that the country was reaching a critical point in its efforts to survive the debt crisis. Greek political leaders postponed for yet another day a decision on an austerity package — including 20-percent cuts to base pay for workers in private companies and a loosening of public sector job protections — in exchange for the billions in loans Athens needs to prevent a default in March. With elections looming as soon as April, the parties fear that they are essentially being told to commit political suicide to save the country. If that indeed is the case, analysts here say, it is not clear what will replace them, making Greece a potential laboratory for a volatile mix of austerity, populism and social unrest. Not that the old order, widely derided as corrupt and inefficient, is likely to be deeply mourned. For most Greek voters, the two larger parties participating in the fragile tripartite coalition of Prime Minister Lucas Papademos — the Socialist Party and the center-right New Democracy — were already drained of political capital before the debt crisis by decades of self-interest and corruption. That has now been capped by two years of unrelenting austerity that has hurt most Greeks but has ultimately failed to revive the system, or even change it in any significant way. With unemployment at 19 percent, businesses closing, credit scarce and the proposed new wage cuts expected to further decimate the shrinking middle class, the hard left and extreme right are rising. With Greek popular anger at the country's foreign lenders rising — a German flag was burned in front of Parliament at a demonstration on Tuesday — the Socialists and New Democracy are treading a fine line: They want to push back against the troika enough to regain some political capital — and keep more Greeks from falling into poverty — but not push hard enough to precipitate a default. If the Greek political leaders do not agree to accept the new austerity measures in the coming days, Greece will run out of time to complete a broader deal for the voluntary write-down of Greek debt before a bond comes due on March 20. If Greece cannot pay the bond, it will default, which could result in its leaving the euro zone, among other ill effects. Most Greeks say they have lost what little faith they had in the political system. "None of the parties we've been voting for have anything to offer," said Vassiliki Karanasou, 42, an employee in a biscuit factory north of Athens who was participating in a demonstration outside Parliament on Tuesday. Eventually, Will Come a Time I keep repeating 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. Flag-Burning Trigger For Greece, "eventually" may be at hand. The only thing missing is a party leader willing to stand up and tell Germany to go to hell. That is not a comment on the desirability of  telling Germany to go to hell, rather a comment that is likely to happen. However, the austerity measures imposed by Germany and the Troika cannot possibly work, even though the worker reforms are badly needed. What is causing the revolt? The sad irony of this mess is the flag-burning and latest strike is over the one thing that is needed: work rule reform. The flag-burning incident could easily be a trigger. All sides handled this very poorly straight from the get-go. Greece would have been better off defaulting 2 years ago and the EMU and ECB much better off to simply let it happen. Now Greece is totally and completely trashed, having agreed to austerity measures that cannot work and resisting work rule changes that can work, but only years 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.

Banks Paying as Much as $35,000 Cash to Homeowners in Short Sales; Why and How Many? Posted: 07 Feb 2012 10:53 AM PST In a short sale, banks forgive the difference between what is owed and the sale price of the house. Recently, however, banks have started giving cash back to the sellers. So far, the programs are a drop in the bucket. There are millions of pent-up foreclosures and JP Morgan is doing 5,000 short sales a month, hardly enough to make a dent. Still, "short sales represented 9 percent of all U.S. residential transactions in November, the most recent month for which data is available, up from 2 percent in January 2008, according to Corelogic." Please consider Banks Paying Cash to Homeowners to Avoid Foreclosures Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe. Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller's outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody's Investors Service in New York. Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody's. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., a Santa Ana, California-based real estate information company. Karen Farley hadn't made a mortgage payment in a year when she got what looked like a form letter from her lender. "You could sell your home, owe nothing more on your mortgage and get $30,000," JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News. Tom Kelly, a JPMorgan spokesman, declined to comment on the company's incentives. "When a modification is not possible, a short sale produces a better and faster result for the homeowner, the investor and the community than a foreclosure," he said in an e-mail. Lenders spend an average of 348 days to foreclose in the U.S. and an additional 175 days to sell the property, according to RealtyTrac. In New York, a state that requires court approval for repossessions, it takes about four years to foreclose on a home and then resell it, the company said. Lenders can often afford to forgive debt, offer the incentive and still make a profit because they purchased the loan from another bank at a discount, said Trent Chapman, a Realtor who trains brokers and attorneys to negotiate with banks for short sales. What's Really Going on Here? If the answer is "it's faster, quicker, cheaper" than foreclosures, then why don't we see more of them, lots more of them? Could it be these are the real problem loans with clouded titles, questionable practices by lenders, or huge numbers of written complaints by borrowers? Add to that a dearth of willing new borrowers and I think you have the answer. Addendum: Reader Bruce comments ... Hello Mish The only solution, is as you have said, to speed up the process. Unfortunately, this begs the question, how much more insolvency can the banks sweep under the carpet? All the best Mish! fight the good fight! Not to mention the fact that politicians are against foreclosures and have delayed, at great cost, stepping up the foreclosure process. 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.

Rise of the High Frequency Trading Robots Posted: 07 Feb 2012 09:56 AM PST I do not know enough about algorithm-driven High Frequency Trading to comment intelligently other than to say 100% without a doubt that someone is making a huge pile of cash from HFT or it would not be done. You can watch an animated GIF that chronicles the rise of the HFT Algo Machines from January 2007 through January 2012 by clicking on the link. The GIF starts out slow and boring, but watch the progression through the end. 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.

New Merkozy Proposal "I will Give You Money If You Give It Right Back"; Mathematical Scam to Prevent CDS Triggers Posted: 06 Feb 2012 11:59 PM PST The Merkel proposal for Greece to cede budget sovereignty to a European commissioner has finally been trashed. In its place is a Spaghetti-O loop proposal to give Greece money only if Greece earmarks the funds to immediately pay back bondholders. Please consider Greece bail-out funds could be split European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets. Under a new Franco-German plan that senior European officials said is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past. The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands. Eurozone officials said they believed the escrow account would give European Union and International Monetary Fund lenders strong control over Greece's use of bail-out funds without stripping Athens of its budgetary sovereignty "This is a better idea than the proposal of a debt commissar," said the senior French official. "It is more acceptable." Although the idea originated in Berlin, Nicolas Sarkozy, the French president, embraced it during a news conference with his German counterpart, Angela Merkel, following a joint cabinet meeting between the two governments in Paris. Ms Merkel also signalled her support, saying it would ensure "this money will be reliably accessible". Mathematical Nonsense They give money to an intermediary The intermediary gives it right back The proposal is of course mathematical nonsense, at least in regards to the portion of money going straight back to the bondholders (most of it). In regards to the portion that goes to Greece, I still have to wonder. Creditors either give Greece the money or don't. Once again, there is little reason for the middleman unless they want the IMF to be the judge as to whether or not Greece is living up to the agreements. Essentially, the EMU is taking 130 billion out of their wallet, putting 110 billion (or whatever) right back in their wallet and calling it 130 billion in "new funding". The only thing that can be construed of as "new funding" is the additional amount that actually goes to Greece. Why the Mathematical Farce? I suspect the answer is to make it appear as if Greece is paying back debts, when it isn't. Weren't dotcom and mortgage frauds based on the same methodology? In the case of dotcoms, intracompany arrangements were made to make it appear there were actual revenue flows when there weren't. In the case of housing, such maneuvers could be used to make it appear someone was making payments on their mortgage when they really weren't. This setup is either mathematical ignorance or a scam to prevent triggering of credit default swaps. I lean towards the latter. 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.

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