Perspectives on the global economic meltdown (Jan 26 2010)

svinayak · Post by **svinayak** » 07 Feb 2010 22:47

Boomers Working Longer, Finding New Opportunities
CNBC.com | February 05, 2010 | 08:18 AM EST
As Baby Boomers approach retirement age, it's only natural that members of this generation should stop and reflect on what they have contributed to society—individually, collectively and in their careers—and where they can possibly go from here.

As a Professor of Physical Therapy and Director of the University of Wisconsin, La Crosse's Clinical Education program, Gwyneth Straker is as close to the top of her profession as she feels she's going to get—at least without expending more time and energy than she's willing to give at this point.

At 60, she's also feeling both the pull of retirement and the pressure to keep going for as long as possible—something that is driven both by financial concerns (her 401(k) took the same hit as everyone else's recently) and by her desire to keep mental deterioration at bay by remaining active and involved.

"I was planning to retire two years ago," Straker says, but now acknowledges that she's looking at "at least another six years, if not eight," in the workforce. Not only that, but "I'm working longer and harder than I ever have, and if you factor in inflation I'm making less than I did ten years ago," she says.

The one consolation for Straker is that she's reached a point in her career where her skills and knowledge are in huge demand, prompting her to consider a switch into the consulting world: something that likely resonates with many workers in her age group.
"Ideally, I'd like to do around 12 to 15 hours per week," says Straker, envisioning a future in which she parlays her experience into conducting workshops, seminars, and on-site evaluations. Not that the remainder of her time would be spent idly; an active participant in her church, she says she'd like to do more service-oriented work. Anything, in fact, that will keep her busy. "We know so much more than our parents did about how keeping active helps prevent Alzheimer's and dementia," she says. "I can't imagine retiring just to spend more time in the garden."

In addition to success, Straker has enjoyed something in her career that many younger workers will likely never experience: the stability of having had one employer over most of the last two decades. However, even that has come at a cost, she says—something that she puts down to a trait instilled within her generation.

"We grew up believing that if you were loyal to your employer, they'd show you loyalty in return. That's a stark contrast to what I'm seeing in these times. It doesn't feel like there's any loyalty any more."

That last point, she says, goes for Gen X and Y workers, as well as for employers, resulting in a change in attitudes among workers that she's been happy to see: "The younger generation have a threshold where they say 'I'm not going to do that.' That's something I admire."

As a member of the first wave of female employees who entered the workforce on a theoretically equal footing with her male counterparts, Straker says she struggled over the course of her working life to strike the proper balance between working and raising a family, and with the added pressure of "having more than our parents had"—a phenomenon she characterizes as the Boomer generation "getting sidetracked by greed." That, plus the concept of loyalty to employers has left her feeling like her generation "did it," when it came to balancing priorities, "but at a price we didn't know we were going to pay."

For each member of the Boomer generation, that price will obviously be different, but for Straker hers is clear: "I've sacrificed my own professional goals—and to some extent my personal ones—to meet the needs of my employer. That was a mistake that I don't think this generation will make."

"We set out to change the world with grand plans," she says of her the Boomers—comparing it to what she sees as the "pragmatism" of X and Yers—"and I still think in those terms." With that in mind—and an increasing number of Boomers looking to extend their stay in the workforce and still seeking to take their careers in new directions it's entirely possible that there's another act yet to come from her generation.

http://m.cnbc.com/us_news/35237861

RamaY · Post by **RamaY** » 07 Feb 2010 23:15

Neshant wrote:Nobody is taking loans at 10 and 20% interest to go gambling in the stock market. Banks are not lending to real businesses why would they be lending to half-bankrupt stock market gamblers.

There is no source that has driven the stock market up other than government rigging via big fianancial firms. The monetization of debt via the stock market where a great number of Americans own assets (like retirement funds, pension funds...etc) is the only way the govt can come up with to launder printed up money into the economy. They cannot do it via handout checks as that becomes too obvious and they cannot do it by pork barrel public sector spending which looks like a waste and frightens creditors. They got to do it discretely.

My theory on recent market rally is that Financial institutions used TARP money to start the rally and inturn improved their asset base. The plan is to dump those positions once 2nd and 3rd tier investors come back to the stock market. When it doesn't happen the bubble bursts one more time.

SwamyG · Post by **SwamyG** » 08 Feb 2010 00:25

One thing to analyze would be to find out how much did Institutions dump the stocks in the last year?

shyamd · Post by **shyamd** » 08 Feb 2010 02:48

Greece lying is an old story. Remember when deficit went higher than 3%, they were asked to push it below 3%. So, they included prostitution into hte calculations, to push the deficit figure below 3%.

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2010 08:04

Sometimes, can't help but admire the US legal system only. Subpoenas, grand juries, deals offered and bartered and what not. Speedy, open and tough.

Here's a comely example. We know that Andy Cuomo has charged BoFA's Ken Lewis.This is Sri Lewis had to say:

"If this thing goes to trial you can expect both Paulson and Bernanke to be on the witness list."

IOW,

If he's going down, he's bringing them down, too.

Or so I hope.

Sri Denninger weighs in:

If this is Cuomo's strategy - charge Lewis and roll him to get to people higher up - it works for me, irrespective of whether it happens by Lewis rolling over or whether we do it the old-fashioned way - Lewis subpoenas them as hostile witnesses.

Either way I'll take it, and if that's what we have to do to find some justice in this whole sordid mess all I can say is "it's about damn time."

Jai Ho.

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2010 08:23

The guardian reports that

investors have pulled a stunning €8-10 billion since the Greek crisis commenced in earnest last November. If true, this is the beginning of the end for the troubled EMU-member country.

And

"In the last four to six weeks a lot of money has been moved abroad; I've heard extraordinary figures," analyst, Kostas Panagopoulos said.

"People are moving funds either because they don't trust our banking system, want to avoid what they fear will be taxes on deposits or are simply anxious about the future of our economy."

There's more:

While a fifth of the population lives beneath the poverty line, some 20% of Greeks are believed to earn more than €100,000 annually – even if, according to income tax records, 90% declare salaries of less than €30,000 a year.

"Greece has a lot of rich people who are not being taxed properly because there is so much tax evasion," finance minister Giorgos Papaconstantinou, told the Observer. "If you look at the actual numbers, you will see that the number of people declaring over €100,000 a year is roughly 15,000," he said. "I don't think that there is anyone in this country who believes there are only 15,000 Greeks earning more than €100,000 a year."

Can't help but notice paralells with Yindia where income taxes are massively undercollected from the 'self-employed' set and its only the boor TDSsed salary-wallahs having to pay in full. Chalo, Des' tax revenue come more from indirect taxes than from direct taxes. VAT and GST now should further help cut evasion.

At least in Greece, seems the public has gotten onto the game:

The growing flight of funds from Greece has whipped up much resentment among the public. "It's revolting," said one popular radio chat-show host last week. "After pillaging the country, they flee with their ill-gotten gains at the very mention of the word tax."

Now, Tyler Durden over at zero hedge can be excitable at times. So take his pronouncements with a discount factor of 2. Sorts. Still, he's way ahead on many curves, much analysis and has no compunctions about pricking big reputations every now and then. So worth watching only.

The Run On Greece Is Here: Investors Pull Out €10 Billion From The Troubled Country; Crisis Escalation Approaches

Remember the proverbial run on the bank? Well, that was the norm (or rather the outlier) before governments decided to backstop entire financial industries residing within their territory. As a result, the post-Lehman version of "the bank run" will henceforth be referred to as "the country run" and for an example of one in practice, look no further than Greece.

And then, delivers his verdict:

If you will recall a mere 15 months back, the one factor that truuly excerbated the pre and post-Lehman fiasco, both domestically and globally, was investors' loss of conifdence in the system: first in the deposit custodians and then in money markets themselves. As the financial system is never, by definition, prepared for massive fund flows in the outward bound direction, this is the greatest nightmare of any regulator or any central bank. If indeed the money rush out of Greece has commenced, then it is too late to save the country, no matter what Papandreou or Almunia will say: the only voice that matters is that of the depositor, and what is being said is the polar opposite of the claims of those who continue lying and telling us that everything is fine.

Read it all.

Meanwhile, a ROFL comment on ZH (its made in jest onlee)

Germany will save them, right? - - - Right? - - - I mean they've got to - right? Otherwise things will be a mess, right?

They said on Bloomberg everything was OK, right?

Everything is going to be OK, isn't it?

Isn't it?

Isn't it?

Neshant · Post by **Neshant** » 08 Feb 2010 11:50

Nassem Taleb on what's about to happen next

(click beside the Psy text in the lower right of the video screen and change it to Eng to get rid of the Russian translation and hear the English)

http://2010.therussiaforum.com/news/session-video3/

Chinmayanand · Post by **Chinmayanand** » 08 Feb 2010 14:25

20 reasons Global Debt Time Bomb explodes soon

Chinmayanand · Post by **Chinmayanand** » 08 Feb 2010 14:27

Chicago Fed Letter

Abstract:
A handful of high-frequency trading firms accounted for an estimated 70
percent of overall trading volume on U.S. equities markets in 2009. One firm
with such a computerized system traded over 2 billion shares in a single day
in October 2008, amounting to over 10 percent of U.S. equities trading
volume for the day. What are the advantages and disadvantages of this
technology-dependent trading environment, and how are its risks controlled?

abhischekcc · Post by **abhischekcc** » 08 Feb 2010 14:31

Greece lying is an old story. Remember when deficit went higher than 3%, they were asked to push it below 3%. So, they included prostitution into hte calculations, to push the deficit figure below 3%.

Must be a lot of whoring goes on in that country to make a dent in the GDP.

I suppose China does the same too.

Chinmayanand · Post by **Chinmayanand** » 08 Feb 2010 17:06

Does the Fed have an Anti-Inflation Exit Strategy?2

In yesterdays column, I outlined the problem that now confronts the Fed the direct consequence of monetary expansion along unconventional lines and Allan Meltzers proposed solution. In this column I shall outline the monetary model that, in my judgment, defines the terms on which the Fed mustretract its over-expansion, and the public choice model that will determine whyrequired monetary contraction is unlikely to occur. In tomorrows column, I shall outline the predictable consequences for the economy of the United States.

The key monetarytheory question that must be addressed is: can the Fed contract the money supply significantly without imposing a short-run increase in the rate of unemployment? The one word answer is,no. The relevant model is that enunciated in 1971 by maestro Milton Friedman inThe Journal of Political Economyunder the title: A Monetary Theory of Nominal Income.Friedmans paper is technical, but I shall explain it assimply as possible by reference to a basic quantity theory equation:

MV=PY

where M is the quantity of high-powered money, V is the income velocity of circulation of that money (defined as the number of times money turns over in the real economy during a specified time-period), P is the aggregate price level, and Y is the level of real output or gross domestic product.

As written above, the quantity relationship is not an equation but an identity; that is to say, it will always hold just as 2 always equals 2. It becomes an equation, a falsifiable hypothesis, if you will, by asserting something more specific about the nature of therelationship. For our purposes, three alternative sets of assertions are worthy of consideration:

In the first case, advanced by Irving Fisher during the 1920s, V and Y are constants, determined outside the system. So any change in M, upwards or downwards, impacts P, and P alone. This is known as the classical dichotomy, namely that only real factors impact the real economy and nominal factors affect only the nominal values of real factors. If Fishers theory were to hold, then Bad Benindeed could contract the money supply without impacting adversely on Y (and unemployment levels). But alas, it does not hold, as was demonstrated conclusively over the period 1979-1982 when Paul Volckers monetary contraction lifted the level of unemployment in the United States to 10.8 per cent, well above the level currently observed in 2010.

In the second case, advanced by Maynard Keynes in 1936, or rather by hisundisciplined so-called disciples during the 1940s and 1950s, P and Y are constants determined outside the monetary system and M and V always completely offset each other. If M rises, V falls andvice versa.So, one cannot push or pull on a string, and monetary policy is completely ineffective.If this theory were to hold, Bad Bencould do whatever he liked. No one would care. His interventions would exert no impact on the economy. Unfortunately for Bad Ben, however,the theory is [also] false, as Friedman and Schwartzs magnificentMonetary History of the United Statesclearly demonstrated. Inflation is always and everywhere a monetary phenomenon.

In the third case, correctly advanced by Milton Friedman in 1971, if M changes, then V moves somewhat in the samedirection, accentuating any shift in M. This combined movement on the left-hand side of the equation manifests itself in a same direction movement on the right-hand side, primarily on P, but somewhat on Y, in the short-run. In the long run, the LHS movement impacts solely on P alone (the return of the classical dichotomy). This is the theory that almost all Americans embrace, as Wall Street reactions to Fed statementsclearly demonstrate. It is the theory that putsBad Benin the hole, and that should concern all of us as the Fed ponders what to do about impending inflation.

So the definitive response is that Professor Meltzer is right.Bad Benundoubtedly confronts a trade off between lower inflation and higher unemployment if and when he enters the money market to mopup the excess supply of money that he has so recentlyloaded onto the US economy.

As I have mentioned earlier,Bad Bens dilemma is worse than this. Because he purchased toxic mortgage-based securities instead of Treasury notes, when expanding the money supply, no doubt he will attempt to sell those back to the market should he decide to attack inflation. But suppose the market values those securities atzero, as well they might, and as the failure of the TALF program suggestsit will. Bad Benwill be unable to make a dent in the supply of money byhis pathetic yard sale. Hemay be forced to sell off all his remaining Treasury notes, effectively bankrupting the Fed, while still leaving significant inflationary pressurein the US economy.By that timeBad Benwould be political toast, a prospect that has considerable public choice significance forBad Bens predictable decision when inflation bites.

Finally, I turn to the public choice issues that surround the Feds choice between inflation and increased unemployment. A fundamental insight from public choice is that politicians always prefer solutions that involve concentrated benefits and dispersed costs over solutions that involve concentrated costs and dispersed benefits. That preference is indelibly ingrained in the gene pool of political survivors. Think now aboutBad Bens alternatives. If he attacks inflation successfully with his toxic assets, he raises mortgage interest rates directly, by saturating the market with existing mortgage securities. Down comes the housing market once again, this time coupled to a dramaticcollapse in the commercial securities market. The population at large benefits to amuch more limited immediate extent from reduced inflation. Dear Readers, this scenario wipes out Obama in 2012 and Democrat-majorities in Congress for decades to come. What do you think thatBad Benwill do given his track recordat the Fed?

In my concluding column, tomorrow, I shall outline just what Bad Ben predictably will do and the consequences for the United States economy.

Hari Seldon · Post by **Hari Seldon** » 08 Feb 2010 17:55

Interesting persp onlee...

Rorschach's Journal: Last Night, a Comedian Died in New York..

This was no accident, no act of God. No unforeseen mishap, no simple miscalculation.

Somebody pushed AIG out a window, to collect the insurance. Then they saw the opportunity to extort billions from the Congress and a Presidency in transition by bringing the financial system to the point of collapse. And they took it. And somebody knows who and how they did it.

Somebody knows.

SwamyG · Post by **SwamyG** » 08 Feb 2010 21:02

durgesh wrote:20 reasons Global Debt Time Bomb explodes soon

Too much US-Centric, no?

svinayak · Post by **svinayak** » 08 Feb 2010 22:21

Hari Seldon wrote:Interesting persp onlee...

Rorschach's Journal: Last Night, a Comedian Died in New York..

This was no accident, no act of God. No unforeseen mishap, no simple miscalculation.

Somebody pushed AIG out a window, to collect the insurance. Then they saw the opportunity to extort billions from the Congress and a Presidency in transition by bringing the financial system to the point of collapse. And they took it. And somebody knows who and how they did it.

Somebody knows.

The whole system is rigged. When they saw the timing is good they used all the cards to extract money and run away.

Satya_anveshi · Post by **Satya_anveshi** » 09 Feb 2010 00:06

After Buying Spree, China Owns Stakes in Top U.S. Firms

paramu · Post by **paramu** » 09 Feb 2010 04:00

durgesh wrote:20 reasons Global Debt Time Bomb explodes soon

Forbes discovered the trigger mechanism in "This Time Is Different: Eight Centuries of Financial Folly," by economists Carmen Reinhart and Kenneth Rogoff: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!" Well guess what? "The U.S. government-debt-to-GDP ratio is 84%." Soon, Ka-Booom! Depression. Kiss your retirement goodbye

This 800 years represent the rise of western civilization as we know today. According to those economists, that was a big economic folly. Connecting to what ss-roy said earlier, this could be the trigger point for the end of western civilization.

Hari Seldon · Post by **Hari Seldon** » 09 Feb 2010 10:58

posted w/o kament only.

abhischekcc · Post by **abhischekcc** » 09 Feb 2010 11:06

paramu wrote: This 800 years represent the rise of western civilization as we know today. According to those economists, that was a big economic folly. Connecting to what ss-roy said earlier, this could be the trigger point for the end of western civilization.

The 800 year time frame also represents the rise of usury, or charging interest on borrowed money, or charging money on money. IOW, making money out of thin air.

The rise of the west was truly a bubble of epic proportions in human history. Now, it is being replaced by the Confucian bubble.

svinayak · Post by **svinayak** » 09 Feb 2010 11:13

This is a very thoughtful, provoking, at the same time very scary to imagine the events discussed at length, which appear definitely to unravel in the near future! The follow up comments to main essay are quite enlightening with unusual quotes

This has made others more defensive as a whole and probably very negative (short) against the FIRE Economy ! They no longer afford to keep on 'kicking the can' down the road as they have done it for the past 2 years.

Enjoy!

http://www.nakedcapitalism.com/2010/02/ ... nning.html

Abhijeet · Post by **Abhijeet** » 09 Feb 2010 11:33

abhischekcc wrote:The 800 year time frame also represents the rise of usury, or charging interest on borrowed money, or charging money on money. IOW, making money out of thin air.

Interest did not exist more than 800 years ago? It seems impossible for a banking system to exist without interest ("Islamic banking" notwithstanding). Do you have a source?

vera_k · Post by **vera_k** » 09 Feb 2010 11:43

^^^

One source is this book : Money and Power - The History of Business. Charging interest was a mortal sin for Catholics and banned by the Catholic church. Hence Jews were the only people who would lend money and got to be the bankers.

abhischekcc · Post by **abhischekcc** » 09 Feb 2010 11:47

Abhijeet wrote:
abhischekcc wrote:The 800 year time frame also represents the rise of usury, or charging interest on borrowed money, or charging money on money. IOW, making money out of thin air.
Interest did not exist more than 800 years ago? It seems impossible for a banking system to exist without interest ("Islamic banking" notwithstanding). Do you have a source?

I was talking about Europe. Earlier, usury was banned in Europe by the Church. It started making inroads back since the 11th century onwards.

Technically, the first MNC bank was a Catholic institution - the Knights Templar during the crusades. Later, there were many family based banking concerns in Europe, all of which got burnt when their loans to kings were dishonored

. This is the root of the distrust that bankers have of politicians, and their rabid need to insulate the financial system from politics. You will find it reflect in the comments about Central Bank "Independence".

Modern banking has its roots in Venice, during the Renaissance (that's not exactly 800 years ago).

abhischekcc · Post by **abhischekcc** » 09 Feb 2010 12:16

vera_k wrote:^^^

One source is this book : Money and Power - The History of Business. Charging interest was a mortal sin for Catholics and banned by the Catholic church. Hence Jews were the only people who would lend money and got to be the bankers.

Jews had another advantage over catholic institutions.

European experience shows that national financial systems are open to abuse by politicians, especially because of advent of fiat money. That means finance can only be managed at an international level. Whether it is Knights Templar, or the Medici family, or later the Jewish Community - all had this international character.

However, it must be added that the first MNC bank was Catholic, not Jewish.

The advantage the Jews had was that they were not tied to any country, and when prosecution or taxes was raised to high they could always migrate to another country. And they did. You can see the rise and fall of European countries paralleling exactly the migration patterns of Jews - Spain to Belgium, Belgium to England, England to USA.

Because they could escape with their wealth, they could preserve it longer than their Catholic counterparts.

abhischekcc · Post by **abhischekcc** » 09 Feb 2010 12:37

May I suggest the book - Confessions of an Economic Hitman (john Perkins) as the book to read to understand what really happened to create the crisis.

Chinmayanand · Post by **Chinmayanand** » 09 Feb 2010 17:23

Britain need not fear a Greek tragedy – yet

First the hedge fund manager, Jim Rogers, co-founder with George Soros of the Quantum Fund, says "sell any sterling you might have. It's finished". Then along comes another veteran of the hedge fund scene, Bill Gross of Pimco, to insist that "the UK is a must avoid. Its gilts are resting on a bed of nitroglycerine".

abhischekcc · Post by **abhischekcc** » 09 Feb 2010 19:16

Bill Gross of Pimco, to insist that "the UK is a must avoid. Its gilts are resting on a bed of nitroglycerine".

Reminds one of Pakistan

What an apt parallel that pakistan and its founder (England, not Jinnah) are both sunk in holes of their own making.

SwamyG · Post by **SwamyG** » 09 Feb 2010 19:33

Frugal consumer era continues - USA savings rate rises to 4.8%. Well that is good news, but not in the short term for the companies. Hope people in USA and the World settle down little bit.

Chinmayanand · Post by **Chinmayanand** » 09 Feb 2010 20:25

Some nuggets from this month's Gloom Boom Doom report by Marc Faber :

India’sland mass is only a third that of China or the United States, yet its population will exceed 1.4 billion in 20 years’ time. With close to 20% of the world’s population, India has just 4% of the world’s water resources and is likely to suffer in future from water scarcity. This will be particularly true if, as The Times of India recently argued, “China, alarmed at India’s rise, will raise tensions along the Himalayan border. China will threaten to divert the waters of the Brahmaputra from Tibet to water-scarce northern China. India will threaten to bomb any such project.The issue will go to the Security Council.”

Tensions between India and China will also increase in the IndianOcean, where China has been involved in a number of port development projects in Indian Ocean littorals such as at Hambantota (Sri Lanka), Chittagong (Bangladesh), Gwadar (Pakistan), and Mukkala (in Yemen) . Saurav Jha, an Indian researcher on global energy issues, has noted that “as China’s dependence on Middle Eastern energy sources has grown, so has its concern over protecting its sea lines of communication for those energy imports. Given projected rates of growth of the Chinese economy, this dependence [on imported oil — ed.note] is only set to increase, from between 40 percent and 50 percent today to up to 80 percent in 2025.Naturally, the PLAN (the Chinese Navy) has been tasked with coming up with a strategy that can secure the lines of communication for China’s oil — not an enviable task, given the tyranny of geography.”

Naturally, India is concerned about these moves, which explains why it refused to give China either observer or associate member status in the Indian Ocean Naval Symposium, which includes 33members of Indian Ocean littoral states and seeks to evolve a common security agenda. As I have opined before, for China, and also increasingly for India, securing the shipping lanes for the transport of oil is a top priority and is likely to lead to increased tensions in the Indian Ocean. I should add that Yemen is one of the most important countries in the region strategically, because whoever controls Yemen will also control the shipping lanes to the Suez Canal . In this respect,it is also important to understand that if China wishes to weaken India’s rising power, it has every interest that Islamic fundamentalists take over in Afghanistan and Pakistan. This would force the US out of the region and leave India to bear the brunt of the consequences.

Satya_anveshi · Post by **Satya_anveshi** » 09 Feb 2010 20:46

(a little OT)
^^^

durgesh wrote:Saurav Jha, an Indian researcher on global energy issues

He used to be a BRF member until he was chased away seemingly unreasonably.
Saurav ji must be proud that D&G expert Marc Faber is quoting him.

Someone (Negi ji, RahulM ji?) should let him know.

shravan · Post by **shravan** » 09 Feb 2010 23:28

From Reuters: Euro Zone Agreed in Principle to Aid Greece: Report

"The decision on help for Greece has been taken in principle within the euro zone," [a senior German coalition source] said.

From Bloomberg: U.S. Stocks Gain on Prospects for Bailout of Greece by EU

“You have to do the necessary measures in order for us to support you,” [Olli Rehn, who takes over as EU economic affairs commissioner tomorrow] said of Greece in an interview in Strasbourg, France today. “This will be further discussed in the coming days. We are talking about support in the broad sense of the word. I cannot specify it now.”

shyamd · Post by **shyamd** » 10 Feb 2010 01:53

The new eurobillions lottery

Post categories: world economy

Stephanie Flanders | 13:01 UK time, Tuesday, 9 February 2010

Others may rush headlong into their financial crises, but on the Continent they like to give them time to mature. There are those who've been betting on a eurozone chapter to this financial crisis ever since Lehmans. Others started betting on a euro showdown the day the single currency began.

People walk past Greek parliament buildingNow the nay-sayers think they've hit the jackpot. Read the headlines, and you'd think that the problems of Greece were about to bring the eurozone to its knees. But it doesn't have to be that way.

To crack this, European officials and governments just need to do something they find very difficult. They need to get ahead of the curve.

More specifically: they need to show they have a solution not only to the short-term problem of Greece but also to the long-term structural problem for the eurozone that the PIIGS have come to represent.

We should remember one thing: Greece is a special case. The chart below (from Goldman Sachs) tells the story. Other countries have a double-digit public deficit as a share of GDP, or a stock of public debt over 100% of GDP, or debt-financing costs that are also over 10% of GDP. But Greece is the only one to have all three red marks.

Greece is also the only country that's been forced to admit that its tax revenue and spending figures in recent years had been more or less fictional. And its public servants seem uniquely adept at the politics of denial. According to the New York Times, the Greek parliament more than doubled its administrative staff last year, from 700 to 1,500. And the finance ministry says that in 2009 alone, 29,000 public-sector workers were hired to replace 14,000 who retired. This, even as the country was slipping deeper and deeper into the red.

eurozone periphery chart

So, it's a special case. And it's small - responsible for perhaps 3% of eurozone GDP. That's why many have said Greece was a good first test case for the eurozone. The stakes seem smaller; the amounts more manageable. But that's only true if ministers and officials get it right. If they get it wrong - a crisis that did involve 3% of the eurozone suddenly involves more than 30%.

The challenge is to fix it - and contain it. But how?

I'm not in the business of prescribing solutions. But I would say that any solution to the Greece problem has to send two powerful messages to the financial markets.

The first is that - all appearances to the contrary - Europe can do crisis management.

The second message is that they "get" the broader structural problem afflicting the euro area and they're committed to fixing it.

This last challenge merits a post in its own right. I'll say more about it later in the week.

But here's what I would say about message number one.

One reason why so many predicted a European "round" of the financial crisis a year ago was that people looked at the mish-mash of European institutions - the ECB, the commission, the council of ministers, all the national financial regulators (not to mention the web of treaty clauses that did or did not bind them together) and wondered: "how is this lot going to respond if a Lehmans explodes on their patch?"

Henry Kissinger famously asked: "when I want to call Europe, who do I call?" Investors' version of this question is: "who's going to pay?"

And when it comes to Greece, the answer has been far from clear.

Every time the markets think they have an idea how Greece could be bailed out - for example, through a loan from the European Investment Bank - the institution in question releases a statement ruling it out. This morning the EIB said it could "only finance economically viable projects" and that its rules would not allow it help an EU nation cover a budget deficit.

A similar thing happened two weeks ago, when President Barroso appeared to tell journalists that EU support could be there for Greece. Hours later the UK Chancellor, Alistair Darling, made clear that he and other non-euro members of the EU would expect the eurozone to solve its problems first.

As it happens, I don't think EIB involvement is ruled out. The EIB did participate in a broader IMF loan package for Latvia last year (though, crucially, Latvia is not in the euro). What the EIB doesn't want to do is take the lead.

The problem is that nobody does. It's that lack of clarity - more than their details of their particular financial situations - which is driving investors to punish other PIIGS as well as Greece.

It doesn't help that personal rivalries - and institutional pride - seem to be getting in the way of a deal.

Almost everyone - including, I'm told, the Greek government - thinks an IMF programme would provide the cleanest, most credible, solution. That could be the IMF acting alone, or alongside the EU. However, key European officials are dead against the idea. This is mainly because they can't bear the symbolism of the IMF coming in to bail out the euro. But there are also suggestions that President Sarkozy is fighting an IMF deal for domestic political reasons.

If it were held today, French polls suggest that the IMF Managing Director, Dominique Strauss-Kahn would handsomely beat Sarkozy in a presidential election. Strauss-Kahn has made no secret of wanting to come back to French politics (he hinted as much in a radio interview earlier this week). The word is that Sarkozy can't bear the idea of his rival coming in on a white charger to save the euro.

This may or may not be a fair depiction of President Sarkozy's motivation. Only he can say authoritatively one way or another. But we do know that such speculation does no good for the euro, or for Greece.

At their summit on Thursday, investors - and the rest of the Pigs - need Europe's leaders to show they can rise above all this. And that they can indeed do 21st-Century financial crisis management after all.

Update 16:10: Dempster (Comment 5) takes exception to my use of the term Pigs - the rather unfriendly acronym for the eurozone's problematic periphery (Portugal, Italy, Ireland, Greece and Spain). True, it is disrespectful. But you have to let economists have some fun.

Maybe you would feel better if I told you the new term that some are using for the economies in trouble if Greece should fall is Stupid (that's Spain, Turkey, UK, Portugal Italy and Dubai). Then again, maybe not.

Brilliant article I thought. Basically, they are doing whatever they have to do to bail out Greece, but I think the problem appears to be that soverign debt (govt debt) is the next big crisis unfolding. Many Eastern european countries outside the euro and inside are in deep trouble too. Alistair Darling also replied in the negative for Greek bailout package.

Found this quote from Stephanie Flanders blog: "Eurozone officials would like a way to say yes to the bond markets, without appearing to let Greece off the hook. But it's not clear that such a path exists. And if they keep looking for one, they risk making the bailout they fear that much more likely."

Will be interesting to see what happens, Spain and Portugal are next. I really do doubt that Euro guys will have the stomach for the PIIGS and then KABOOOM, down they go. Markets are heading for disaster folks, its just the PR that are holding things together. Enjoy the ride down folks, hold on tight!

And here is why the interest rate is headed up in the UK.

The acute vulnerability of the mortgage market

Robert Peston | 10:16 UK time, Monday, 8 February 2010

Readers of this column will be well aware that the measures taken by the British government to prop up the banking system and limit the depth of our recession were an emergency life-saving procedure - and that they created all sorts of dependency problems for the British economy that will take years to fix.

Think of our banks, in particular, as hooked up to a life support machine of guarantees and loans. If that drip-drip of sustenance was turned off with a sudden click of the switch, well the banks themselves would become pretty poorly again - and, perhaps, more importantly there would be a profound and unpleasant impact on all of us, their customers.

Man looking at window of an estate agents

Mortgage banking is one business that remains hooked on taxpayer support in a way that most would say is unhealthy: via the Special Liquidity Scheme, our banks have dumped mortgages in the form of mortgage-backed bonds on the Bank of England in return for Treasury Bills, or the equivalent of cash, worth £178bn; and the Treasury has guaranteed fund-raising by banks to the tune of £134bn through a Credit Guarantee Scheme.

In effect, that is £314bn of credit provided to mortgage providers by us, by taxpayers.

And what do you think would happen if we demanded all that money back tomorrow? It's doubtful that a single new mortgage would be provided for some time.

Fortunately, that is not going to happen. The Bank of England wants its £178bn of bills back at the end of 2012, which is also when the majority of taxpayer guarantees expire that banks have taken out under the Credit Guarantee Scheme (although the final maturity of the CGS is 2014).

But for banks, 2012 does not seem that far off.

Any banks providing mortgages with a maturity of 25 years will see 2012 as more-or-less the day after tomorrow, or too soon for comfort. It would not be prudent or rational for banks to significantly increase the volume of long-term mortgages they award, knowing that they have to repay some £300bn to their creditors - in this case us, as taxpayers - in just a couple of years.

Which is why the recent recovery in the supply of mortgages and in the housing market looks somewhat fragile.

And it is also why the Council of Mortgage Lenders - the lobby group for mortgage banks - warned the government last week about the possible implications for the mortgage market and for the housing market of sticking to the schedule for repaying taxpayers.

The mortgage banks' case is supported by the Bank of England's last Financial Stability Review, which makes a number of important points.

The Bank of England says that the ideal solution would be for the deposits of household and corporate customers to grow by 10% a year (which is not far from the growth rate before 2007) and for lending to grow at say 4 or 5% a year. That would close the gap between what banks lend and what they borrow from customers over four years.

Now the good news is that individuals are saving more. The bad news for banks is that we're putting a disproportionate share of our new saving into unit trusts and products other than bank accounts. So according to the Bank of England, household deposit flows to UK banks increased by only £6bn between June and December - which is a veritable drop in the £300bn ocean of taxpayer credit that needs to be repaid.

What's just as troubling for banks, and for those who may be thinking about taking out a mortgage, is that banks are having to pay considerably more to retail savers for their wonga: the increment over the official Bank Rate paid by banks on fixed rate savings bonds has gone from next-to-nothing two years ago to almost two percentage points today.

And if banks are paying more to savers for their money, they will charge borrowers more.

So what about wholesale sources of funding? Although it was banks' excessive dependence on these flighty, unreliable sources of finance that took too many of them to the brink of collapse in the dire conditions of 2007 and 2008, wholesale finance is not by definition evil.

Wholesale finance would be okay if it could be made relatively secure for the long term and was not too pricey.

But here's the thing. The so-called securitisation market, where banks package up bonds for sale to investors, has not recovered properly yet. The market remains sick and small, although it has re-opened. It is not remotely possible (even if it were sensible, which is moot) for banks to wean themselves off taxpayer support by securitising mortgages and selling them.

The other important wholesale market, for short and medium term bank debt, is also a long way from functioning normally. And one historically important source of wholesale funds for British banks, the US money market mutual funds, has become much smaller, due to regulatory changes in the US.

There's a final indignity. Let's say banks were to succeed in tapping wholesale markets for longer-term finance that made them less vulnerable to unpredictable swings in the supply of money. Well that would cost them an extra £5bn a year, according to the Bank of England, based on the current structure of interest rates - whose cost would be passed on to borrowers (yikes).

In other words, there is an acute risk of mortgages becoming either scarce or very expensive or both, if the government were to insist that taxpayers get their £300bn back in 2012 or so. And that in turn would almost certainly prompt a further housing-market dip.

But what if the government were to extend the £300bn of support? That too would be dangerous, because it would risk seeing the £300bn of bank succour classified (either formally or in the eye of investors) as part of our national debt, at a time when public-sector borrowing is rising far too fast.

And adding a further £300bn to the national debt would further undermine the confidence of those who lend to the government, at a time when their confidence is a little bit too fragile for comfort.

Chinmayanand · Post by **Chinmayanand** » 10 Feb 2010 02:45

Hope, it has some relevance in this thread :
--------------------------------------------
Let the fight begin

During last year’s G-20 summit in Pittsburgh, US President Barack Obama said that “global fiscal imbalances” had to be addressed for the world to get over its economic hangover. This wasn’t a Madison Avenue turn of phrase. But in its nerdiness was embedded a big geopolitical subtext. This manifest itself in the next few months as the US and China go for each other’s jugular. Godzilla versus Destoroyah. It doesn’t get bigger than this.

The origin of what one Washington lobbyist called “a tectonic shift regarding China in the US” is a consensus within the Obama administration that the source of the financial crisis, the reason the recovery has been jobless, and the primary reason why the crisis may happen again, is “fiscal imbalance”.

This school of thinking argues that during the Lehman Brothers Era the world was economically divided between those with China-like qualities and those with US-like ways and means. The China camp exported like crazy and used the resulting currency reserves to subsidise consumption in the American-style countries. The Americans lived off the cheap credit, imported like crazy but also used the money to blow up asset bubbles. Such imbalances are not unknown. In a market environment, however, the resulting imbalance corrects itself through exchange rates. But in one where the Chinese government pre-empts the market and deliberately keeps the yuan low, the result is crisis.

Washington pundits say the US has concluded that putting the Great Recession out of the way, once and for all, means putting the Great Currency Fix out of the way as well. The Democrats’ favourite Nobel economist Paul Krugman has calculated that Chinese ‘mercantilism’ will cost America 1.4 million jobs over the next few years.
China must export less if the US is to save more. That means the yuan must rise. This, not love, will make the world spin this year.

Obama held his fire earlier because he needed Chinese assistance on a host of other international issues. Beijing was less than helpful on Iran and North Korea. It humiliated Obama during his November visit to Beijing, though he angered many in the US by refusing to meet the Dalai Lama beforehand. Insiders say Obama described the atmosphere of his meeting with Hu Jintao as “frigid”.

The straw that broke Obama’s patience was Copenhagen. The US believes it had a pre-summit deal with China on climate change. But Beijing reneged and dumped the US. It then rubbed salt in the backstab. It sent low-level officials to meetings with Obama and prepared the ground for the US president to go back home empty-handed.

The Danish caper proved a step too far. The Democrats, remember, include human rights activists, green types, labour unions, Free Tibet people and a lot of people uncomfortable with the Chinese government. Their congressional supporters have been restrained from taking action against Beijing only because the Obama administration would whisper the words ‘climate change’ and ‘T-bills’ to them.

Copenhagen removed the first inhibition. House Speaker Nancy Pelosi is a known Sinophobe in the US system. But she kept quiet during her visit to China last year. “You know why? Because climate change was more important to her,” said a former member of the US climate change negotiating team. “Now she sees no reason to hold back.”

The second inhibitor, the T-bill issue, refers to the fact that China holds a quarter of the US public debt in the form of some $800 billion worth of US Treasury bills. The standard view is that China is now ‘the US’s banker’ and has the sole superpower by the short and curlies.

This was always exaggerated. The present view in Washington is that it doesn’t matter. If China dumps Treasury bills, it will stab itself because the value of its holdings will fall and US consumers will buy less Chinese stuff. More to the point is that the world is knee-deep in capital right now and there are enough alternative buyers of T-bills. Krugman is one of those who argue the T-bill threat is a bluff. “It would probably weaken the dollar against other currencies — but that would be good, not bad, for US competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank you note.”

The US is preparing to fire broadsides into the Chinese economy. The ebb of any political support to at least keep Beijing cooperative was evident when the US imposed tariffs on imported China tyres and steel. It was overt during the recent contretemps between Google and the Chinese authorities over internet censorship. The White House publicly supported the US search engine company. The lobbyist explained the significance: “Recall that along with labour unions, Hollywood, the Jewish community and trial lawyers, Silicon Valley — and Google specifically — is one of the financial pillars of the Democratic Party.” China is responding in kind. “Note that China is not sending anyone senior to the latest Permanent 5+1 meeting on Iran.”

A senior US multinational executive said that the Obama administration has warned US companies to “button down” their investments in China by April. “That’s when the fur is going to fly.”

When others close to the Obama administration were asked whether the US president would try to restrain the momentum against China. They said, “He believes Beijing has done nothing but kick him in the teeth since he became president.”

shyamd · Post by **shyamd** » 10 Feb 2010 04:43

^^ Interesting article above. Hmm... Just add that to the massive Eurozone problems that I posted above. I would go as far as saying some countries may pull out of the euro. Am I right in seeing that, there will be huge credit contraction again this year if we are hit by a huge sovereign debt problem?? Forget "too big to fail", the mantra will become "Too big to BAIL" lol. If the PIIGS problem kicks off then, its going to affect the rest of the eurozone economies, knock on effect in confidence in stock markets. Some private equity guys admitted that there will be takeovers albeit if stock market stays stable. Well you can guess what I think about that.

India seriously needs to get its border infrastructure sorted, China needs to divert public attention and I reckon may pick a fight. Revolution in China is gonna happen, expect more repression in authoritarian states. Thinking of it, all these authoritarian regimes(west asia etc) have become more uncompromising because of international recognition (like in Davos etc). Some of them are gonna be in for a shock in the next 5 years.

All IMO's, Just my 2 cents etc...

Satya_anveshi · Post by **Satya_anveshi** » 10 Feb 2010 09:57

US Banks Have $176B Exposure To Weak Euro Countries -Report

According to a report by Barclays Capital, 73 large U.S. banks have exposure of $82 billion to Ireland, $68 billion to Spain, $18 billion to Greece and $8 billion to Portugal.

Hari Seldon · Post by **Hari Seldon** » 10 Feb 2010 11:31

Simon Johnson, ex-IMF chief economist is mincing no words in this piece here:
Europe Risks Another Global Depression

Global depression, eh? Well, today's instant gratification generation doesn;t have time for tomorrow. Today itself is so hard to keep up with, just ask any bond trader.

Here's a list of why counting on the EU sorting out its own mess is overoptimistic:

# The IMF is supposed to provide only "balance of payments" lending. That doesn’t fit well when a country is in a currency union such as the euro, which floats freely and does not have a current account issue, and the main problem is just the budget.
{Aha. How did we miss this, eh? IMF rides to the rescue of sucker countries that have borrowed in currencies they do not print. So what if Greece is using the Euro, it sure doesn't print any Euros, does it now? }

# Greece and the other weak eurozone countries need euro loans, not any other currency. If the IMF lent euros, that would be distinctly awkward – as this is what the European Central Bank (ECB) is supposed to control.
{Heh, heh. Why can't the IMF lend in Euros? As long as they have forex stashes that are freely convertible?}

# Sending Greece to the IMF would result in some international "burden sharing," as it would be IMF resources – from all its member countries around the world – on the line, rather than just European Union funds. But is the US really willing to burden share through the IMF? After all, Europe has long refused to confront the trouble in its weaker countries, now known as PIIGS (Portugal, Ireland, Italy, Greece, and Spain)? How would the Chinese react if such a proposition came to the IMF?

That last one is interesting. The khans wouldn't mind a Eurostan shakeout IMHO because it strengthens the USD's safe haven effect and keeps US bond yields low across the board, something the khans could well do with.

Then, there's this whole litany of 'prestige' related problems. == with PRC's face-saving issues. Somehow, IMHO, once the smelly stuff hits the fan, prestige won't be a big deal anyway. Credibility, yes. Prestige, no. Still, here goes:

# "Going to the IMF" brings with it a great deal of stigma. European governments are unwilling to take such a step as it could well be their last.

# Would the Europeans really want the IMF and its somewhat cumbersome rules to get involved – this would be a huge loss of prestige. It could also lead to some perverse outcomes – you never know what the IMF and the US Treasury (and Larry Summers) will come up with in terms of needed policies (ask Korea about 1997-98; not a good experience). The European Union (EU) has handled IMF recent engagement well in eastern Europe (from the EU perspective), but that was seen as the EU’s backyard. If the eurozone is in trouble, everyone will be paying much more attention – no more sweetheart deals.

# The IMF gave eastern Europe amazingly good deals over the past 2 years (by IMF standards). Would this fly with financial markets in the sense of restoring confidence in the PIIGS and their medium-term fiscal futures?

See. IMF screwed 'em colored turd worlders only. But ended up giving sweet heart deals to the oiropeans, seems like. A charge that has also been made by others in the past.

Well, willingness to help is one thing. Ability, quite another.

* Does the IMF really have enough resources to backstop all the PIIGS? The IMF’s notional capital was increased substantially last year, but just based on what we see now, the Fund would need even more ready money to tackle the eurozone – all the weaker countries would need at least preventive lending programs and these would need to be large. If that is where this goes, the EU looks simply awful and has failed at a deep level.

* The IMF could play a constructive "technical assistance role" alongside the European Commission, but everyone would want to keep this pretty low profile. Anything that goes to the IMF executive board would result in a lot of cheering and jeering from emerging markets. This would break the power of Europe on the international stage – perhaps a good thing, but not at all what the European policy elite is looking for.

To add to the ability pie - EU is looking at raising some 1.5 trillion euros from the mkts in 2010. One of the PIIGS has already had a failed bond auction pretty recently. meanwhile the mkts soft-shorted German bunds on rumors that the Germans were considering bailing out Greece. Good luck with that 1.5 trill figure is all I can say.

Here's Sri Denninger on the issue:

The truly bad news, however, is that Greece (even with our banks more than $100 billion of exposure to them) isn't the worst of it. Their economy is tiny compared to those of Spain and Portugal, both of which are much larger - and bigger problems.

One would hope that Merkel and friends in Germany aren't really stupid enough to implement such a transfer of a peripheral nation's problem to the EU's core, but then again we have seen time and time again that "can-kicking" is the mantra of the world since this crisis began. Rather than deal with the underlying problems - excessive leverage, naked swaps that the seller can't possibly pay, various forms of fraud and gamesmanship in securities issue and similar - governments have instead decided to lift up the corner of the carpet and sweep, time and time again.

Should the EU implement this with Greece they may indeed set a precedent that could easily destroy the European Union over the next couple of years. Faced with Spain, Portugal, Italy and Ireland, all of which are huge problems compared to Greece both in terms of the debt outstanding and the size of their economies Germany will find itself unable to backstop all four nations - yet it will have to, once the die is cast with Greece.

Yet unlike Greece, which has a GDP of EUR $261 billion, Spain's is EUR 1.134 trillion and Italy's EUR 1.406 trillion. Portugal and Ireland's economies are smaller, but they belie big problems, with the "best" indication being the external debt to GDP ratio.

Italy's is 127% (the US is running close to 100% at present), while Greece's is 161%. Spain's, on the other hand, is 171%. Germany, for all of its vaunted "strength", runs 178% of GDP, Portugal is at 214% and Ireland is running an unbelievable 1267%.

That's right - tiny Ireland with EUR 144 billion in GDP has well north of a trillion Euros outstanding in external debt. This, by the way, makes clear that debt service is likely compounding upon itself even now, which is a death spiral from which one cannot escape - whether it is being recognized or not.

Oh, and don't look at Great Britain as a bastion of "fiscal responsibility" - they're over 400% - nor the Swiss, at 423%.

Read it all only.

Hari Seldon · Post by **Hari Seldon** » 10 Feb 2010 11:48

Blessed Brit-e-stan is in the news again. Warnings are dire and all, but I would take them with a pinch of salt. UK-stan is too big to fail, after all. Isn't it? Isn't it??

'Tidal wave' of British business failure feared as tax help scheme ends

The Government has been warned that it faces a "ticking time bomb" of company closures and job losses when a scheme to allow firms to delay their tax payments is wound up. Experts say the "time to pay" programme has been a resounding success and has kept many businesses afloat in the recession, since HM Revenue & Customs (HMRC) would normally have first call on their money and could have pushed them into liquidation or administration.

But insolvency firms expect that the £4.8bn scheme, which has helped 160,000 businesses employing 1.2 million people, will be axed after the expected May general election, so companies will have to stump up their delayed VAT, national insurance and other tax payments. Malcolm Shierson, a partner at Grant Thornton's recovery and reorganisation practice, said the number of business failures fell in the last three months of 2009 but were still a near historic high. "We expect the number of liquidations to shoot up even further when the future government stops extending the 'time to pay' tax scheme," he said.

Wonder why the brits are suddenly all up in arms against their former benefactors like the big banks based in londonistan ('pay the 50% bonus supertax or else ship out!') and now this ('enough flexible tax payment scheduling. Cough up now or else...'). Could things on the revenue side really be that dire in UK stan? Not that I would find that very hard to believe, still, I do find it a tad surprising only.

Sure enough, soothing words arrive asap:

A Treasury spokesman said last night: "The 'time to pay' scheme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and businesses forced to repay is incorrect and runs counter to what the scheme was set up to achieve." The Treasury said more than 90 per cent of tax payments are being repaid on time. Of the £4.8bn deferred in tax, some £3.69bn is already in the process of being repaid.

Well, good for the small businesses, I guess. The common man is burdened enough already, even in UK stan. Hope they get a reprieve.

And more:
Ireland's suffering offers a glimpse of Britain's future under the Tories

Right! So vote labor and Sri Brown (Borrow-n?) back into the saddle. Please!

Darling has no intention of being swayed by critics who say that Ireland is showing how deficit reduction should be done. Indeed, he would quite welcome some interest being taken in events across the Irish Sea, for if Greece is the right's nightmare vision of where the UK is heading under Labour, Ireland is Labour's dystopia of a Tory Britain.

Hmmm. But what is so terrible abt things in Ireland currently, pray tell?

Unlike Britain, the United States, France, Germany, China and the rest of the G20, Ireland has not rediscovered Keynes. It has spurned counter-cyclical budgetary policy and instead has been raising taxes and cutting spending in a series of budgets and mini-budgets that have sucked demand out of the economy. Lenihan has cut child benefit by 10%, public-sector pay by up to 15%, and raised prescription charges by 50%. One eighth of the working population has no job, yet unemployment benefit is being cut by 4.1%. For the young unemployed, the measures are even more draconian: the dole has been slashed by 50%.
{Ouch!}
The consensus view in the markets is that Ireland will be rewarded for its prudence. Bond yields will come down because investors will grow less anxious about a default. The ratings agencies will think again about downgrading Ireland's credit rating. This, though, is by no means guaranteed. Ireland has experienced near-depression conditions over the past 18 months, and the expectation that budget cuts will lead to spontaneous recovery through which the private sector will compensate for the retreat of the public sector is unproved. Indeed, there is a considerable risk that removing spending power from the economy will lead to more companies going bust and deter the survivors from investing more.

The writing on the wall is clear. UK-stan must steer clear of this madness in Ireland and go the way of Greece instead. It must re-discover (and re-invent!) Keynes if necessary and turn the QE taps full on in the night when no one's looking.

Unlike in Greece, there has been no rioting on the streets. Ireland has a corporatist system of government in which the social partners seek consensus rather than confrontation. The onset of austerity, according to some commentators, has been greeted with a certain stoicism, as if there had to be payback time after the excesses of the boom years. Even so, the fiscal retrenchment is stretching the social fabric to its limits. David Begg, general secretary of Ireland's Congress of Trade Unions, has described the policies of the Fianna Fáil/Green coalition as a "charter for exploitation" that puts "very deep blue water between this government and the majority of Irish people".

Ain't no way in hell UKstan will swallow the bitter auterity pill with anything approaching the stoicism the Irish have displayed. Expect UKstan's welfare mooching packees to hit the streets in full force in riot gear only, if nothing. UK really has no choice but to go the sovereign default way. period. IMHO, of course.

Now, maybe Yindia can help them with a few USDs here and there for our ancient treasures looted and hoarded currently in UKstan's museums....

Neshant · Post by **Neshant** » 10 Feb 2010 14:22

how the heck is ireland operating with such a high debt load?

if it was a non-white country, deliberate speculative attacks against its markets would have been launched by now to induce a collapse so the IMF could move in for the kill.

Neshant · Post by **Neshant** » 10 Feb 2010 14:52

there is more incentive to walk away from an upside down jumbo mortgage than any other kind of underwater mortgage.

------

Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6%
www.bloomberg.com

Feb. 8 (Bloomberg) -- U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement.

Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas. Loans in jumbo securities can be smaller than those amounts if they were issued in earlier years. Non-agency mortgage securities lack guarantees from Fannie Mae, Freddie Mac or federal agency Ginnie Mae.

After falling as low as 63 cents on the dollar in March, typical prices for the most-senior securities backed by fixed- rate prime-jumbo loans were at 83 cents last week, according to Barclays Capital data. Prices have fallen 3 cents on the dollar over the past month amid declines across credit markets.

shyamd · Post by **shyamd** » 10 Feb 2010 15:30

Neshant wrote:how the heck is ireland operating with such a high debt load?

if it was a non-white country, deliberate speculative attacks against its markets would have been launched by now to induce a collapse so the IMF could move in for the kill.

They rely on MNC's, most of whom repatriate their money. They also rely on foreign Irish workers to send money back home to ireland, hence why the stats look that way.

Hari Seldon · Post by **Hari Seldon** » 10 Feb 2010 15:41

Heh, heh. Am sure folks've heard of the germany buyiong on the black mkt lists of German depositors in Swiss banks.... things get interest-ing only. read on.

German Bounty Tears Veil Off Swiss Secrecy

The Swiss are shocked again, this time over the German decision to buy a list of some 1,500 possible tax cheats saved on a disc lifted from a Swiss bank.

Tch, tch. Anyone would be shocked, shocked I tell you. No? Wouldn't you be shocked now, tell me?!

It’s stolen property, say the Swiss bankers. It’s bank robbery, cry the lawyers. It is behavior unfitting of a "civilized state," harrumphed one Swiss politician.

Look who's effing talking.....

Wait a minute. Who’s talking here? This is a country that for centuries has relied on banking-secrecy laws to benefit from the dishonesty of others. Maybe the Swiss should think first before crying foul.

The Germans are right to agree in principle to pay a former bank employee 2.5 million euros ($3.4 million) for information on the Swiss accounts -- provided, of course, that it’s genuine --just as they were right to make a similar acquisition of secret bank data in Liechtenstein in 2008. That 5 million-euro deal led to the recovery of 180 million euros in taxes and turned Klaus Zumwinkel, the former head of Deutsche Post AG and a flagrant dodger caught red-handed, into a poster child for local tax collectors. Not only did German taxpayers come out ahead in the Liechtenstein case, but there has so far been no successful legal challenge to the use of stolen information.

This time, the Germans’ moral dilemma has raised a storm at home, as well as in Switzerland. The Frankfurter Allgemeine Zeitung has warned against behavior that could lead to the "erosion of the foundations of the rule of law." German Chancellor Angela Merkel’s decision to accept the deal faces opposition within her own conservative party, the Christian Democratic Union. "It’s a very questionable position to be in, the state essentially obtaining contraband," Michael Fuchs, the CDU’s deputy leader in parliament, said this week.

Maybe there's a lesson for Yindia here somewhere.Would be fun to buy up details of 10%'s assets for example....

and blackmail his green painted arse.

More seriously, a status-quoist power like Germany, that has played studiously by the rules since WWII, adopting such 'questionable' tactics to break money laundering and banking cartels the kind the swiss specialize in whitewashing, has the power of precedent behind it. It will do more to spur others in other traditionally status-quoist and law-abiding countries (Yindia, anyone?) to follow the German lead.

Jai Ho. interesting times may be upon us, who knows?