Mish's Global Economic Trend Analysis

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• Bank of America Clash with Fannie Mae Intensifies; Insurance Disputes Put Taxpayers On the Hook For Still More Losses
• Money for Debt Swaps but No Money for Greece; Eurozone Delays Rescue Funds on Failure to Meet Conditions
• Public Pension Ponzi Scheme; New York Cities Borrow From Pension Plan to Make Contributions

Bank of America Clash with Fannie Mae Intensifies; Insurance Disputes Put Taxpayers On the Hook For Still More Losses Posted: 02 Mar 2012 02:52 PM PST Taxpayers are already on the hook for $180 billion in losses at Fannie Mae and Freddie Mac. That number is going to rise, perhaps significantly. The clever synonym for more taxpayer losses is "treasury Advance". With that understanding, please consider Fannie Mae's Losses Narrow but Treasury Advance Requested. Fannie Mae is reporting a net loss of $2.4 billion for the fourth quarter of 2011 compared to a net loss of $5.1 billion in the third Quarter. For the entire 2011 year it reports a net loss of $16.9 billion compared to $14.0 billion in 2010. The net worth of the company had a net deficit of $4.6 billion as of December 31 reflecting the $1.9 billion loss and its payment to Treasury of $2.6 billion in senior preferred stock dividends during the fourth quarter compared to $2.5 billion in Quarter Three. The Federal Home Mortgage Finance Agency (FNFA), conservator of Fannie Mae, will submit a request to the Treasury Department for a draw of $4.57 billion to eliminate the net worth deficit. Bank of America Clash with Fannie Mae Intensifies In simple terms, Fannie Mae will cost taxpayers another $4.6 billion. That's not the worst of it. Taxpayers may be on the hook for still more losses as BofA Clash With Fannie Intensifies. Bank of America Corp. said it's facing more demands by Fannie Mae for refunds on flawed home loans because mortgage insurers who cover defaults rejected 25 percent more claims last year. Unresolved insurance rejections rose to 90,000 at the end of 2011 from 72,000 the year earlier, Bank of America said last week in its annual filing with regulators. Last year's denials equal $1.2 billion in unpaid loan balances, according to a note yesterday by Compass Point Research and Trading LLC. The rejections heighten tension between Brian T. Moynihan, the bank's chief executive officer, and U.S.-owned Fannie Mae in their disputes over who must pay for billions of dollars in failed loans made during the housing boom. When mortgage insurers deny claims, the two firms are left to squabble over whether losses will be borne by bank shareholders or the taxpayers who bailed out Fannie Mae. Shorter Deadline Pressure on Bank of America, the second-biggest U.S. lender by assets, may rise in July when Fannie Mae shrinks the amount of time it gives a bank to appeal an insurer's denial to 30 days from 90 days before pressing for a refund. Repurchase costs probably would rise if the firm is forced to adhere to Fannie Mae's policy, Bank of America has said. Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities for sale to investors. Both firms were seized by the U.S. in 2008 to stave off collapse, and have collectively drawn more than $180 billion in taxpayer funds. The bill is likely to rise -- Fannie Mae this week requested $4.6 billion more from the U.S. Treasury Department -- and the firms' regulator is pressing banks for refunds on bad loans to limit the bailout's cost to the public. Insurance Disputes Bank of America is involved in legal disputes with mortgage insurers, including MGIC, saying the firms are denying valid claims. In the second half of last year, Bank of America has "materially increased" the percentage of denials it argues are improper, Milwaukee-based MGIC said this week in a filing. AIG's mortgage guarantor said last week that lenders were devoting more resources to reversing rejections. Bank of America has committed about $42 billion to deal with flawed mortgages, foreclosures and writedowns since the start of 2007. The lender accounts for half of Fannie Mae's pending repurchase demands after insurance denials, the Washington-based firm said this week in an annual filing. Outstanding repurchase claims against Bank of America from all sources jumped 22 percent to a record $14.3 billion as of Dec. 31, the lender said in January. That increase was fueled in part by other demands from Fannie Mae. The mortgage financing firm has started asking for refunds on loans that have performed for 2 years or more before defaulting, requests Bank of America has deemed invalid. More Public Money Fannie Mae faces its own squeeze and asked for more public funds this week after posting a $2.4 billion loss in the fourth quarter. The company said that while Bank of America has failed to "honor repurchase obligations in a timely manner," it still expects to get reimbursed. "If we collect less than the amount we expect from Bank of America, we may be required to seek additional funds from Treasury," the company said in the Feb. 29 filing. By the way, look at the potential losses mounting up at Bank of America if Fannie Mae does succeed on those push-backs. Think Bank of America has sufficient reserves for credit losses? I don't. 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.

Money for Debt Swaps but No Money for Greece; Eurozone Delays Rescue Funds on Failure to Meet Conditions Posted: 02 Mar 2012 09:49 AM PST The Financial Times reports Eurozone delays Athens rescue funds Eurozone members have delayed approval of more than half of the €130bn bail-out for Greece after deeming that Athens has yet to meet all the terms set as the price of a second rescue. However, finance ministers from the 17-country currency bloc meeting in Brussels signed off on funds to underpin a €206bn debt swap to cut the value of the Greek bonds held by private investors. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said Greece's official creditors would "finalise in the next few days" an assessment of Greece's steps to enshrine the bail-out conditions into law. But he added that the full bail-out would only be completed on a successful completion of the debt swap with private bondholders. The ministers decided that Athens had yet to meet all the conditions to secure the €71.5bn portion of the bail-out destined for the Greek government. The balance of the rescue funds – which, when combined with other incentives and instruments to be used in the debt swap comes to some €93bn – was agreed. There is not much new information here actually. Greece was supposed to have met conditions at the end of October, then November, then January, then February. Every time Greece failed and it did not matter. The EMU granted extension after extension. However, with the debt swap and protection of the ECB, and with a bond payment due on March 20, time has run out for extensions. The sane thing to do would be for the EMU, IMF, and ECB to accept the very simple fact that Greece is bankrupt and there is no point in giving Greece another nickel, thereby forcing Greece out of the Eurozone. All parties should have recognized that years ago actually, but stubborn ideology got in the way. 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.

Public Pension Ponzi Scheme; New York Cities Borrow From Pension Plan to Make Contributions Posted: 02 Mar 2012 07:51 AM PST In the worst possible form of kicking the can down the road, at the worst possible time as well (given the lofty overvalued condition of the stock market), To Pay New York Pension Fund, Cities Borrow From It First. When New York State officials agreed to allow local governments to use an unusual borrowing plan to put off a portion of their pension obligations, fiscal watchdogs scoffed at the arrangement, calling it irresponsible and unwise. And now, their fears are being realized: cities throughout the state, wealthy towns such as Southampton and East Hampton, counties like Nassau and Suffolk, and other public employers like the Westchester Medical Center and the New York Public Library are all managing their rising pension bills by borrowing from the very same $140 billion pension fund to which they owe money. Across New York, state and local governments are borrowing $750 million this year to finance their contributions to the state pension system, and are likely to borrow at least $1 billion more over the next year. The number of municipalities and public institutions using this new borrowing mechanism to pay off their annual pension bills has tripled in a year. Public pension funds around the country assume a certain rate of return every year and, despite the market gains over the last few years, are still straining to make up for steep investment losses incurred in the 2008 financial crisis, requiring governments to contribute more to keep pension systems afloat. Nationwide, the cost of public retiree benefits has soared in recent years, and states including California, Connecticut and Illinois have been borrowing to pay, or even deferring, their pension bills. Many states are worse off than New York. New Jersey is still paying off bonds issued in 1997 to close a hole in its pension system. But New York appears to be unusual in allowing public employers to borrow from the state's pension system to finance their annual contributions to that system. In Poughkeepsie, which is contributing $3.6 million into the state pension system this year and borrowing nearly $800,000, Mayor John C. Tkazyik, a Republican, said rising pension costs and new federal accounting requirements for retiree health coverage could have dire consequences. "It could bankrupt the city," Mr. Tkazyik said, adding that the city had cut its work force, to 367 from 418 employees, in four years as it struggled to compensate. Perverted Math Only with the most perverted actuarial math can anyone fund a pension plan by borrowing from it. Unfortunately, it's not just cities that are borrowing money from plans to fund them. New York state borrowed $575 million in the current fiscal year, and $782 million in the next, under Gov. Andrew M. Cuomo's proposed budget. The True One Percent The following video may come across as a bit over-the-top in terms of presentation, but the examples are accurate. Link if video does not play:Government Employees: The True 1% Public Pension Ponzi Scheme As I have commented on numerous occasions, defined benefit pension plans are going to bankrupt numerous cities and states. Several smaller cities have already gone bankrupt over union salaries and pensions. Numerous other cities are on deck. The public pension Ponzi scheme will fly apart as soon as one major city declares bankruptcy to get those pension benefits tossed out in court. Realistically speaking, numerous cities such as Los Angeles, Houston, and San Diego are already bankrupt, as are second tier cities like Oakland, Newark, Cincinnati, and Baltimore and others too numerous to list, they just have not admitted it yet. Simply put, pension promises have been made that cannot and will not be kept. In the meantime, defined benefit plans need to end, city services privatized or eliminated, Davis-Bacon and prevailing wages laws scrapped, national right-to-work laws implemented, and at the top of the list, collective bargaining of public union workers need to stop immediately. It's time to abolish collective bargaining, a practice that makes slaves out of everyone. I make the case in ... Collective Bargaining neither a Privilege nor a Right Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You! Clearly, huge battles loom over these issues. 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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