Links 8/6/11


  1. Foppe

    Re: “Bank of America’s ReconTrust Sued by Washington State Over Foreclosures Bloomberg (hat tip reader Social Apocalypse)”
    So the outsourcing of government to private parties is going on at the state level as well? Still somewhat surprised by that (if not that it is going on in Kentucky).. Expected state politics to be slightly more resistant to stuff like that happening except in extraordinary circumstances.

    1. ambrit

      Dear Foppe;
      Sorry to pop your ‘bubble,’ but State and Local finances are in a tangle right now. The privitization ‘scheme’ has been heavily promoted at that level for perhaps longer than at the National level. Something to do with ‘test bed’ proving runs, and ‘shake down’ cruises.
      This was all based on the pernicious doctrine that Government needed to be run like a ‘business.’ What rot!
      No self respecting governing entity would be caught dead focusing on making a profit. Public service has been, and always will be, the only legitimate reason for government. Anything else is what wiser heads than mine have dubbed; “Kleptocracy.”
      So, this is just another part of the segregation of wealth movement. Public employees get the ax, to be replaced with much lower compensated ‘private’ employees. The rentier ‘patrons’ who own and sometimes run the ‘new’ private operations reap most of the benefits accruing to the ‘privitization.’ Eventually, the costs to the public return to pre privitization levels, with the difference that now most of the ‘profit’ involved goes to the ‘owners’ and the ‘workers’ get sweated and ground further into the dust.
      As many commentators point out about this trend; it may look like a ‘sure thing’ to the rentiers, but they ignore, or are insufficiently educated to realize the paradox of feudalism. The rich and powerful do indeed enjoy the bulk of the societies resources. There is, however, a countervailing force to feudalism: Peasant Revolts. “Uneasy lies the head that wears the crown..” and all that. Why else do we think the Social Philosophers call it the “Class Struggle?”
      Oh, well. Time to get ready for work. Thanks for letting me rant.

  2. dearieme

    Heavens, the FT refers to “Grouse hunters”. It might as well move to nyc and be done with it.

  3. appointmetotheboard

    Yves – thanks, much appreciated!

    Dear UK readers of NC. Please sign the HM Government e-petition calling for a fairer economy. Lets get to 100,000 signatures and make our politicians look at real change to benefit its citizens.

    1. David

      Nice way to get visibility for the issue.

      Easy to sign. Flags a US zip, but submits correctly. Concerned citizens that don’t think of themselves as Brits everyday should step up — addressing the problem of income inequality would help both your countries’ economies.

  4. Jim Haygood

    From Ed Harrison’s essay:

    Markets are looking at the combination of debt, deficits, and political will, and [their] implication on solvency. Spain has a better debt profile than Germany and France, for example. And Belgium has a high debt to GDP and no active government to make tough decisions.

    But, I could make the same case right across with France with its high debt to GDP and high primary budget deficit or with Germany where export strength masks a relatively high debt to GDP [and] declining growth in an aging society. And the Germans’ export dependence creates a lot of economic volatility in this kind of slower growth environment.

    France and Germany constitute the political and economic core of the EC. Yet last week, French debt was trading at an alarming 90 basis point yield premium to German bunds. This is FAR higher than the spreads between US, Canadian and British 10-year debt, which cluster within a tight 13-basis point range, despite these Anglophone nations being more loosely affiliated and geographically dispersed.

    Medium-term, it will hard for the euro to survive with gaping yield spreads among its members, because they impose competitiveness differentials.

    Short-term, the French-German spread serves as a litmus test of financial stress within the euro zone. If this spread blows out further, the end is nigh for the euro — probably initiated by Germany, in a refusal to fund a vastly expanded EFSF (European Failed State Fund).

    D-marks for Christmas, comrades?

    1. Jim Haygood

      Pimco’s Mohammed el-Erian hints, softly-softly, that France is the next target of the bond vigilantes:

      It is hard to imagine that, having downgraded the US, S&P will not follow suit on at least one of the other members of the dwindling club of sovereign AAAs. If this were to materialise and involve a country like France, for example, it could complicate the already fragile efforts by Europe to rescue countries in its periphery.

      A direct, predictable consequence of doomed attempts to enlarge the EFSF is that peripheral spreads (including the critical French-German spread) will continue widening.

      I wouldn’t be surprised to see the French-German spread reach 100 basis points next week.

  5. Susan the other

    Ironic that the Eurozone is actually more politically coherent than the USA: Der Spiegel’s Jacob Augstein. Over the same time span that we have been deliberating our budget crisis, so have the Euros. We Americans clearly despise each other here in the USA. Whereas the Euros are just frustrated with the financial obligations they must now face. But they have stepped up; they are monetizing and bond buying like pros. And so are we, of course. But the difference is, as it is reflected in the Spiegel piece, they have the ability to come together politically. And we just plain hate each other. We are a nation of very nasty people all bent on throat cutting the other guy and our own personal enrichment. It will do us in. Finance is a problem that can be solved. Politics and morality is a much harder task.

  6. Anonymous Jones

    Wait…What?!?!?! Wuh…What??!?!

    Emotions such as happiness are relative to one’s position in the world (age, gender, wealth) and change over time? As people mature and settle into a more established vision of themselves, they are less anxious and…happier?

    This CANNOT be true. Junk study alert! Junk study alert! I’m sure they fabricated all the data. I bet the questions were leading. I bet the response group was carefully crafted toward this end. What a nefarious cabal of conspirators, trying to make us believe that the older are happier! They clearly want to dismantle Social Security in order to more evenly divide the collective happiness among all classes of society, not just the old and unimportant. This is the sign of the kleptocratic apocalypse. We’re doomed!!!

    1. blah bloggins

      I’m sure in your own mind you find yourself remarkably clever.
      I, however, find you distinctly tiresome Jones.

      1. Anonymous Jones

        :). This is hilarious.

        Are you really trying to imply that I’m not the most clever man who ever lived? That’s patently outrageous. How in the world could I not be the most clever man who ever lived? It’s so obvious to me!

        And you mean to say, let me get this straight, that there are people who don’t like me?

        And that my comments (the very ones that can just be passed over without a second thought) are so uniform (always sarcastic, always saying the same thing) that they have become tiresome to *you and others*?

        I think I’m crying a little inside. No, strike that, I think I’m tearing up right now.

        OK, maybe this response is tiresome too.

        Instead, let’s try this your way: “I’m sure in your own mind you find that your opinion regarding what is or is not clever terribly important. I, however, hold a distinctly different impression, blah bloggins.”

        [Snark aside… I myself find my comments tiresome!!! I can’t believe the things I write!!!]

  7. Doly

    More news about the indignants in Spain from my mother:

    They have evicted people from the Plaza del Sol in Madrid. Minister of the interior Rubalcaba left his position in the government last week because he will be the presidential candidate from the PSOE (Spanish socialist party) in the next elections that have been set early for the 20th of November.

    I was certain that Rubalcaba would never evict the indignants, but the new minister of the interior has allowed it. It wasn’t a decision of the PSOE, but of Rubalcaba.

    Now 5,000 indignants in Madrid are playing cat and mouse with the police. They say the reason is the next visit ofthe Pope to Madrid on the 15th or 16th of August, that all taxpayers are paying for, including atheists and Buddhists. I think the main reason is another, the indignants are an annoyance.

    But you can’t put doors on an open field. People will continue having meetings where they can and communicating through the Internet. The demonstration on the 19th of October will be done and people will continue to come out to the streets to protest from time to time.

    This country is screwed, Spain will fall and I imagine that sooner or later we’ll get out of the euro. I don’t have great worries, though I assume we’ll lose money. It doesn’t worry me. We went through the seventies crisis, though I know this one will get worse. We need little to live, we aren’t paying rent or mortgage any more so we can live with little money.

    Now that they’e evicted the indignants of the Purta del Sol and they have blocked access to the square, they have been trying to return to the square, without success. Now they have decided to divide among the streets around the square, assigning a workgroup to each street, and have group meetings there to advance their proposals to improve society.

    To stop new parties from entering the election the government has changed election law in a very tough way. Parties that didn’t get any representative on the last elections and new parties need to get together many signatures, recognized by a solicitor.

    Later email:

    Today one can enter freely the Puerta del Sol. The indignants had divided in groups in all the streets around, a lot of them, about eight streets, and they continued working and doing meetings next to the iron police block… Today the square is free again.

    I was fighting under Franco’s dictatorship, and the stuff nowadays is nothing (literally, it looks like a day out in a nun’s school.)

    Closing the square couldn’t last, the retailers in the square must have been fuming. The police were fuming and protested to the government. They weren’t wearing badges by their own decision (logically, they are afraid of being denounced by an indignant if they hit someone.)

    It’s calculated that 8.5 million Spaniards support the indignant movement.

  8. attempter

    Rob Dickerson, Army Veteran, Forced To Pay $21 C.O.D. For Purple Heart Medal

    I sometimes wonder if any of these people ever have an epiphany, that that’s who they’re fighting for. The kind of scum who, even as they steal literally tens of trillions, will literally nickel-and-dime them for their medals they get for risking their lives for this scum. They begrudge you $21.

    And do you think this guy realizes that they’d have happily seen him die instead if that would’ve saved them the $21?

    How many of them realize it?

    1. Just Tired

      Realize this — We have a professional military! Where were you when we had a conscripted military? Nobody gave a shit then about the soldiers except their families. Us conscripts were “baby killers” and other assorted forms of scumbags. Now our professional military is composed solely of “patriots”. Go figure.

      1. Charles

        Do not say that no one gave a shit for the conscripted solders. We took to the streets to stop that war…its your turn to step up now.

  9. Jim Haygood

    Expanded EFSF — “Dead On Arrival”

    FRANKFURT, Aug 06, 2011 (Dow Jones Commodities News via Comtex) — Germany’s government thinks Italy is too big for Europe’s rescue fund to save, Der Spiegel magazine reports in a preview of an article to be published Monday.

    The government doubts whether even tripling the size of the rescue fund, known as the European Financial Stability Facility, would enable it to save Italy because the country’s financing needs are so enormous, the magazine reports without naming the source of its information.

    German government finance experts believe euro-zone states couldn’t guarantee Italy’s EUR1.8 trillion of sovereign debt without markets considering Germany to be overstretched, Der Spiegel reports.

    GOT CDS?? See ya on blue Monday!

    1. Valissa

      Yeah, I was reading more about EFSF issues today over at STRATFOR. Here’s the latest:

      Germany’s Opportunity Takes Shape With Eurozone Crisis [subscription firewall]

      European Commission President Jose Manuel Barroso openly maligned the eurozone’s newly improved bailout fund, calling for a “rapid reassessment.” …

      However, preventing defaults is not the same thing as avoiding bailouts, and here is where Barroso’s statements come into play. Barroso asserted that the EFSF suffers from two serious flaws, and STRATFOR agrees wholeheartedly.

      The first problem is that the changes to the fund agreed to at the last summit must be ratified by eurozone governments (in most cases through parliamentary approval). However, enshrined in the laws of most EU states is a robust vacation benefit for workers — six weeks a year is common. In Europe, August is vacation time. The plan for the new EFSF may be fully agreed to, but the fund cannot act in its new capacities until the various parliaments reconvene after their summer recesses. At present no European parliament has been called back for an emergency session to ratify the EFSF changes. (Incidentally, Barroso made his comments today while on vacation back home in Portugal.)

      The second problem is the latest summit’s failure to formally increase the EFSF’s maximum funding above its current level of 440 billion euro. Many observers — particularly bond traders — are concerned that the rolling eurozone crisis will not end until it becomes crystal clear that the Europeans have allotted sufficient financial resources to stamp out any reasonable crisis. The colloquial term in the financial world is on the crass side, so we’ll paraphrase it as “shove it” money — the idea being that the Europeans would be able to point to the stack of reserve cash as proof that no European state will be allowed to fail.

      If the EFSF needs more funds, where would that come from?

      How long can this game be played?

      1. Cedric Regula

        “If the EFSF needs more funds, where would that come from?”

        They are going to tell private investors that they are selling new bonds that are backed by german and maybe french taxpayers. ZH calc’d it would be around 130% of German GDP, if the French wriggle out of the commitment somehow. That doesn’t include enough money for Spain.

        The private investors are supposed to then feel safe and secure in their discovery of a new AAA investment opportunity. Probably will yeild 3% – 3.5% being risk free and all.

        We’ll not know how it goes exactly for another 6 weeks because everyone is on vacation in Europe. (except, iceland, latvia, Greece, Ireland, england, and perhaps portugal – sometimes these countries use the term “layoff”)

        1. Valissa

          My take is that the “private investors” are becoming less confident that the taxpayers can afford to pay them. In order words, there isn’t really infinite money despite the QE cartoon I posted. Isn’t this where the game breaks down? Did you play musical chairs at parties when you were a kid?

          Besides, saying the money would come from the tax payers isn’t really an explanation is it, it’s more of a verbal cartoon :)

        2. Cedric Regula

          The word among shoe shine boys on the street is there aren’t any private investors dumb enough to go for the deal.

          Consider official German debt to GDP is something like 80% (IIRC), plus they do enough “off balance sheet accounting” to make a banker proud, the total existing debt ratio plus implicit backstop liability (in case Italy runs out of money eventually anyway) adds up to 210% of debt to GDP plus whatever off balance sheet stuff there is.

          That’s of course excluding the French taxpayer. But some think France is in line sooner or later too. So germany can add them too to spain when they need some backstopping and all the rest when they need a second helping.

          I always hated musical chairs when I was a kid and just took my chair with me. I think that’s what germany will do, but then they would need to pull the plug on german banks too. That’s the chaos part.

          Or the ECB just buys all the bonds, assuming it gets a rule change and can find the euros somewhere. Then the euro goes back to 80 or less and about 25% of US corporate profits disappear due to lack of competivness in Europe. It’s a cruel world.

          1. Valissa

            Ironic how the best cartoons lampoon the cruel world. According to many eastern traditions laughing and crying at the same time leads to samadhi. The age of enlightenment approaches!

            Need more money? Time to visit the leprechaun and see if you can steal his pot of gold!

            Happy leprechaun

            Surly leprechaun

            Perhaps there’s hope for the Irish

  10. /L

    Here is one from The Telegraph

    Spanish bank fields Ronaldo as collateral

    Cristiano Ronaldo, the most expensive footballer in history, has joined the European Central Bank (ECB) on a free transfer. Sources say the authorities want his help on the sovereign debt crisis – by kicking the can further down the road.

    Well, not quite. But Ronaldo could feasibly become ECB property after he was pledged as collateral for emergency liquidity support by Spain’s struggling savings bank, Bankia. In 2009, one of the Spanish banks that has since become Bankia lent Real Madrid €76.5m (£67m) to pay the transfer fees for both Ronaldo and Kaka, the Brazilian forward.

    It has now emerged that Bankia has put up the loan as collateral with the ECB in return for vital funding. If both Bankia and Real Madrid go bust, the ECB would own the two “galácticos”.

    The loan was rated AAA by Moody’s, which judged the £80m Real Madrid paid Manchester United for Ronaldo and the £56m fee to AC Milan for Kaka a gilt-edged security – as safe as US government debt – for what that’s worth. It is not known whether the ECB imposed a haircut on the collateral, though it is thought unlikely the Portuguese winker would have consented without advice from a professional stylist.

    Collateralising the footballers is part of a rescue plan that has already seen Bankia take €4.5bn in state support. It was created earlier this year from the merger of seven troubled regional banks, becoming the country’s largest savings institution. It plans a public listing to raise funds and bolster its finances.

    The board is hoping the shares don’t take a dive.”

    Not any longer now the soccer players are safer investments than US T-bonds. (-:

  11. Jim Haygood

    Here are the stunning final paragraphs from an NYT article about Trichet’s impending retirement:

    With spreads on Italian and Spanish bonds reaching the point where officials in those countries would have trouble issuing debt at sustainable interest rates, the [European] central bank may be the only institution powerful enough to intervene convincingly in markets.

    The bank would probably have to violate its own charter and effectively print money through big purchases of Spanish and Italian bonds. But some economists predict the bank will have no choice. For Mr. Trichet, it may prove the only way to preserve his life’s work.

    “Only the E.C.B. can do something,” Professor Wyplosz said. “We are in a such a dangerous situation that I don’t worry about legalities. Now they have to go to the bitter end and do what they have to do to prevent a breakup of the euro area and a world crisis.”

    There you have it folks: “Never mind the law — THIS IS A PANIC. Anything goes!

  12. PC in SC

    i read NC everyday because it is on my RSS feed– i may not understand everything (since i’m just a retired nurse/housewife) but i am learning a lot here.

    i do see what is happening in the state i moved to 10 yrs ago (SC). the people vote for guns, against gays, and “no taxes.” this state is sucking big time.

    i also have Umair Haque who blogs on Harvard Business Review — and he calls out “Yves Smith at Naked Capitalism” in his latest blog post:

    thank you Yves and commenters, for “edumacating” me.

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