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Attack of the Economic Crisis That Would Not Go Away

6:21 pm in Uncategorized by cmaukonen

Creature From The Back Lagoon - flickr Boogeyman13

So why is it that tiny little Cyprus and the their banks are causing such consternation and high blood pressure over in Europe and why should we care ? Richard Wolff gives a good explanation with this audio clip from an interview on KPFA that I grabbed and uploaded to my web site. You can hear the whole program here if you like.

Here is the long and the short of it. The Eurozone was the outgrowth of The Common Market or EEC – European Economic Community.

The European Economic Community (EEC) was an international organisation created by the Treaty of Rome of 1957.[1] aIts aim was to bring about economic integration, including a common market, among its six founding members: Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. The EEC was also known as the Common Market in the English-speaking world and sometimes referred to as the European Community even before it was officially renamed as such in 1993.

It gained a common set of institutions along with the European Coal and Steel Community (ECSC) and the European Atomic Energy Community (EURATOM) as one of the European Communities under the 1965 Merger Treaty (Treaty of Brussels).

Upon the entry into force of the Maastricht Treaty in 1993, the EEC was renamed the European Community (EC) to reflect that it covered a wider range of policy. This was also when the three European Communities, including the EC, were collectively made to constitute the first of the three pillars of the European Union (EU), which the treaty also founded. The EC existed in this form until it was abolished by the 2009 Treaty of Lisbon, which merged the EU’s former pillars and provided that the EU would “replace and succeed the European Community.”

Whew. That’s is essentially how it began. To allow trade between the various countries that made it up to proceed with few hindrances and eventually to have a common currency. Sounds good in theory but it has a number of flaws. For one there is a central bank but no central government behind it. It has no real power except to print money. It cannot set policy of the member states.  Nor can it set the policies of theses states banks. The states themselves remain autonomous.  When the single currency was brought forth, it was – more or less – to replace each states currency on a one for one basis, even if the exchange rate at the times was wildly different.

All of this was in and of itself a prescription for disaster.  As we all know the exuberance and risk taking by the banks both here and in Europe built up mounds of debt. Debt that eventually came due and the debtors could not pay.

So why all this fuss over Cyprus banks ? They could not be THAT big…or could they.  Well as a matter of fact and as Richard Wolff explains in the interview they are. Far bigger that this tiny country with only tourism and some maritime shipping would ever generate on it’s own.

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Eurozone Update – Greece ? Italy ? Spain ? Portugal ? … Maybe – or ?

8:00 am in Uncategorized by cmaukonen

Euro - flickr creative commons

The on going and deepening economic crisis in Europe once again has come to the for front in at least a few media outlets.  Now before I go any further let me point out what has been going on in reality – at least according to Richard Wolff.  He has given a good synopsis of the situation in a number of his presentations on the economy.

The European Central bank – funded primarily by Germany, France and Belgium – has been “bailing out” various peripheral countries.  Mainly Greece, Spain, Portugal and Italy. But where is the money going ? Well back to the big banks in Germany, France, Belgium and Switzerland.   That’s where. In other words it has been and continues to be a stealth bailout of these big banks, mostly by Germany.

And Germany is keeping this part quiet since Merkel and all know damn well that the German people would not put up with this if they knew this was what was really going on.  I suspect they do however and this is why this item from Ives Smith over at Nakedcapitalism is not and should not come as a big surprise.  She gives a good rundown on the situation – as linked to by Faster – and what it may mean.  Beginning with this revelation.

Data point one. One of my colleagues studied in Germany, has extensive, high level political and economic contacts there, and reads the press daily. He also describes his sang froid as “somewhere between that of a Chinese sage and a dead animal.”

Needless to say, he not prone to overstatement or overreaction and also has a propensity to makes Delphic remarks.

He said the Eurozone is over. In pretty much those words, a simple sentence, no caveats or conditionals. I nearly fell out of my chair. This apparently reflects the German recognition as a result of the Italian elections that they will not be able to surmount domestic opposition in Italy and potentially other periphery countries and would rather pull the plug than continue funding their trade partners. He said there was a fair bit of discussion of Germany leaving the Eurozone after the election. I quizzed him on how they thought they could do that, since the new DM would presumably trade at a big premium to the Euro. We discussed that the likely outcome would be further labor “reforms”. Maybe I am naive, but I don’t see how this would not undercut an critical German strength, that of the good, if also sometimes combative, relationship between German workers and management. My source finally said widespread recognition of the existential impasse at most a couple of months away. He’s never this definitive.

Germany throwing in the towel ? If Merkel’s Christian Democrats do as badly in the upcoming elections as it has been doing in the local elections recently, this is a good bet.  Since they have been footing the bill for most of this themselves. Not something that has proven popular with the German people one bit.

And with Italy in a dead lock politically,  the ministers of Portugal fearing for their safety and the police and firefighters refusing to enforce evictions in Spain – the likelihood of the enforced austerity programs IE bank bailouts  continuing apace grows dimmer and dimmer.

Greece is on the verge of exploding and imploding all at once. And other countries are taking notice. As Ives says.

Thus Greece for the Germans served pour decourager les autres, to show what would happen if you let your debt levels and finances get as badly out of whack as Greece has. But that might have backfired. Citizens in periphery countries now suffering high unemployment might decide they’d rather take more pain now and gain control over their destiny rather than face being broken later on the Trokia’s rack.

As I said, I don’t have an answer here. I’ve long thought the technocrats underestimated the risk of democratic revolt. Those tail risks are bigger than you think! The European elites beat back that threat in Greece, but Italy may (stress may) prove to be different.

Not to mention Spain and Portugal…among others.  It has been said in the past by other economists that the Euro was a bad idea poorly implemented and not really thought through . I tend to agree. I also think that Merkel’s loyally to the banks and her conservative ideology has been laid bare to the German people through all of this. Not good for her or her party and I see no way she can come out looking good.

So what does this mean for us ? Well according Ives sources in hedge funds circles, happy days are here again. But we have seen this kind of denial and naive exuberance before from Wall Street and even the FED and Treasury under Bush.  Even in the late 1920s just before the market crashed. And we actually had a manufacturing base back then.

I could be wrong but I suspect an unraveling of the Eurozone would lay bare a lot of uncomfortable realities concerning these masters of finance both in Europe and here.

 

As goes Greece, So goes ………

8:48 pm in Uncategorized by cmaukonen

Athens Greece - Brooklyn Musium / flickr creative commons

Ives Smith reminds us in her current critique of Martin Wolf that the situation is deteriorating still in Greece and even the IMF says that austerity is the worst measure they could take now.

Wolf then proceeds to tell us that the Eurozone continues to be a resolute practitioner of austerity policies. Readers may recall that there was a huge kerfluffle in the economics-related media when the IMF admitted it was all wrong, that the fiscal multipliers in the Eurozone had turned out to be larger than one. In econ-speak that means you can’t starve your way back to health. Cutting fiscal deficits results in an even greater economic contraction, resulting in even worse debt to GDP ratios. But the rest of the European officialdom seems to be in shoot-the-messenger mode.

So bad that people are now metal scavenging industrial sites and even the infrastructure

The thieves are accused of stealing industrial cable, power-line transformers and other metal objects – triggering blackouts and massive train delays. The profile of the metal thief is also changing, authorities say, from gypsies and immigrants living on the margins of society to mainstream Greeks who have fallen on hard times. A group of men were caught trying to take apart an entire bridge and droves of immigrants can be seen pushing shopping carts around Greek neighborhoods looking in recycling bins.

….snip….

Athens’ nine-year-old light rail system has been a prime magnet for metal robbers, with at least five major disruptions reported in the past six months due to cable theft that forced passengers to hop on and off trains as diesel replacements were needed. The trend has had lethal consequences: In early January, the body of a 35-year-old man was found near Athens beside the tracks of a suburban rail system that services the capital΄s airport. He had been electrocuted while cutting live cables, police said.

Barter has become typical and medicine scare and hospitals reusing old sheets etc. As anyone who recalls their history knows, it was this kind economic situation that enabled Hitler to come to power. And now it has been helping Greece’s Golden Dawn Nazi party to rise in popularity as well.

But Golden Dawn is not just a gang of radical right-wing thugs. It is now the fourth-largest party in Greek politics. In elections this year, it won 18 of 300 seats in parliament on an explicitly anti-immigrant platform. Its growing constituency includes many ordinary Greeks who fear that waves of impoverished foreigners are draining the state’s dwindling resources and taking their jobs in a country where nearly a quarter of the population is unemployed. And as the country’s economy continues to collapse, Golden Dawn is becoming increasingly entrenched in the mainstream of Greek political life.

It is not inconceivable for them to win the next election or at least become a very important player. And why is this so ? Well can’t you guess ?

So why are the periphery countries suffering this level of unproductive pain? Because the countries aren’t making the decisions. It’s powerful local politicians who are selling out their countries, working in cahoots with Eurozone technocrats. And I can assure you none of them are sharing in the suffering of periphery country workers.

It’s strangely ironic that the one country pushing the hardest for austerity of the Eurozone countries is the one country that should be painfully aware of the consequences of this.

Germany.

 

Greek Elections and the Eurozone Crisis – Day Four

6:31 am in Uncategorized by cmaukonen

It Happens Every Spring - flickr

“This is gettin monotonous. Me and the kid here is playin catch while you guys is just fannin the air” – It Happens Every Spring

Pretty good way to start off this diary on the goings on in the Eurozone.  In case you haven’t seen the movie, it’s about a college chemistry professor who accidentally come up with a formula that causes baseballs to hop over wood and uses it to help the home teem.   Rather like the politicians trying to get the dept problem to avoid the banks. Which now focuses on Spain as well.  Here is the current situation from The Guardian.

1.50pm: De Guindos is still going:

He believes the cost to Spain’s bank restructuring fund of helping out banks that cannot come up with the new provisions will be less than €15bn euros. Loans wil be for up to five years, but can be converted into shares (i.e. part nationalisation) if the banks fail to pay them back.

1.39pm: And more from Giles:

De Guindos has said that two separate valuations of the global real estate loan portfolio of Spanish banks will be produced by independent valuers.

Journalists at the press conference want to know if this is a vote of no confidence in the Bank of Spain and its valuations. Ministers do not want to answer the question and are insisting that all they want is maximum transparency.

Live blog: newsflash

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Eurozone and Greek financial crisis…Day 2

7:09 am in Uncategorized by cmaukonen

50 Drachmae - seriykotik1970

Hi Pups. Well here we go again and I bet you thought this was all taken care of. HA…silly you. But anyway here are the new links to the continuing stories and updates to this situation. From The Guardian and The Athens News.  The questions of the day are, Will the Syriza head Alexis Tsipras be able to form a coalition government and will Greece eventually leave the Eurozone ?

From the Guardian’s blog :

2.52pm: The global market rout of the past couple of days is continuing in America now Wall Street has opened.

The Dow Jones Industrial Average is down 106 points in early trading – another fall of almost 1% – and so there is no impetus for a recovery in Europe. The FTSE 100 is currently down 56 points or just over 1%, France’s Cac is 1.2% lower and Germany’s Dax is down 0.6%. The Athens market is getting off comparatively lightly, down just 0.25% but Spain is really feeling the pain – the Ibex is off 3.2%.

As well as the uncertainty over Greece – will it get a government? will it default on its debts? will it leave the euro? – the state of Spain’s banks is also causing concern to investors.

The Spanish goverment was expected to announce plans to support its banking system on Friday, but the country’s ABC newspaper is reporting [in Spanish] the bailout of Bankia – the third largest bank in Spain – could be announced this afternoon. The report says the government will convert the €4.5bn or so it has pumped into the bank into shares, giving it around 45% of the bank.

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Eurozone and Greek Elections Updates….

7:12 am in Uncategorized by cmaukonen

Greek Statue - Flickr Creative Commons

Though flying under the radar here, there are some important developments in the Greek Elections that could change the economic situation in Europe and here as well. The Guardian has a live blog going on the situation here.

And Athens News has one here. This in my estimation is more important that the French election results, but maybe only just.

Here is the latest break down from the Guardian.

2.35pm: Shares on the Athens stock markets are being routed, after Alexis Tsipras (who holds the mandate to form the next Greek government) insisted that Greece should not abide by the terms of its bailout (see 1.27pm onwards).

The main stock index in Athens has fallen by 5%, with the banking index down by over 10%.

Analysts at IHS Global Insight warned this afternoon that the prospects of a strong, stable Greek government look “more and more distant”, adding:

Without political and social support for austerity and reforms, the already challenging adjustment programme agreed with the “troika” looks destined for failure.

Although several polls show that a majority of Greeks wish to stay in the Eurozone, the surge in votes for parties decidedly against the reform programme suggests that a sizeable portion of the Greek electorate is not prepared to do what needs to be done in order to remain in the common currency area.

But can you blame them, in the face of a five-year recession, unemployment rising, and an ongoing slump in its manufacturing and industrial sectors?

2.30pm: Here’s a breakdown of Alexis Tsipras’s conditions for forming a new government with either of the two ‘mainstream’ Greek parties (via Ekathimerini

1) The immediate cancellation of all impending measures that will impoverish Greeks further, such as cuts to pensions and salaries.

2) The immediate cancellation of all impending measures that undermine fundamental workers’ rights, such as the abolition of collective labor agreements.

3) The immediate abolition of a law granting MPs immunity from prosecution, reform of the electoral law and a general overhaul of the political system. According to Keep Talking Greece, that would include abolishing the 50-seat bonus for the party which wins the most seats.

4) An investigation into Greek banks, and the immediate publication of the audit performed on the Greek banking sector by BlackRock.

5) The setting up of an international auditing committee to investigate the causes of Greece’s public deficit, with a moratorium on all debt servicing until the findings of the audit are published.

That adds up to a resounding rejection of Greece’s current financial programme.

And here from Athens News.

4.55pm A lot has been said today about the statements made by Syriza member Dimitris Stratoulis, concerning the Greek banks and possible state control, in an interview given to Vima FM radio station.  The highlights are as follows:
- Technically and financially, if you’re saying we are leaving the memorandum, how will you handle the banking issue? If we leave the memorandum, they’ll just be empty tresure chests.
- They won’t be empty treasure chests. Greek banks already have 165 billion euros worth of deposits by the Greek people.
- That’s our money, not bank money though.
- We shall put in motion an immediate public audit of the banks, guarantee citizen deposits and then use that money for growth and a productive re-structuring of our country.
- Does that mean deposits will be freezed?
- We said we will provide guarantees, no deposits will be frozen.
- And how will that money be used for growth, when it belongs to Greek citizens?
- How would you want it used? Up until now, it has been used, to fund the profits of bank shareholders and bankers. Should it not be used to support market liquidity, to offer loans to small and medium sized business ventures, to offer loans to the public for houses, to offer consumer loans? It is all a matter of political direction.
Part of his positions were echoed by Alexis Tsipras, when he spoke from Parliament earlier, although neither he nor Stratoulis have made the details of their banking plan completely clear.
Pictured here during his earlier meeting with the Syriza chief, Democratic Left party leader Fotis Kouvelis has pledged his support to Alexis Tsipras, in his quest to form a coalition government. ”I told him that if he wants he can go ahead with a government of leftist parties, with the support of the Democratic Left,” he said.
4.15pm At a press conference in parliament, Alexis Tsipras has said that the country’s commitment to an EU/IMF rescue deal has become null after voters rejected pro-bailout parties in Sunday’s election. “The popular verdict clearly renders the bailout deal null.”
He said said that Antonis Samaras and Evangelos Venizelos must take back their written support for the memorandum – by writing a letter to Brussels informing them of this. He presented his policy platform which he said was based on 5 pillars:
1. Immediate begation of the memorandum
2. Negation of all coming measures that will affect all aspects of employment law
3. Immediate changes to election legislation and negation of the ministerial culpability law
4. State control of banks
5. The creation of an international auditing body, with the purpose of finding a serious and logical solution to Greece’s debt repayment.
He once again extended his hand to all powers of the left, praising KKE’s position on protecting the unemployed and said that he still aimed at forming a government with all parties supporting leftist and eco-friendly ideology.
He noted that the formation of a coalition government with New Democracy and Pasok, was not possible for they were not looking at saving the nation, but saving the memorandum.
Basically giving Merkel and Germany the bums rush on Austerity. If he succeeds in forming a government and pushing these reforms through – which is problematical at this point – it would signal an end to German economic hegemony and Spain and Ireland and possible Italy may follow.
Keeps your eyes pealed.

The Global Financial Theatre of the Absurd…The show so far.

7:50 pm in Uncategorized by cmaukonen

Mortgage Meltdown, Market Chaos and Testosterone

Mortgage Meltdown, Market Chaos and Testosterone – Flicker

What with all the insane ramblings of the republican primaries and Israel wanting to start another war they would ultimately loose, I thought I would get you all up to speed on the Global financial circus first with some of the insight of The Slog.

If you find this too much of a generality, let’s take a quick peek at the EU member States in trouble.

Brussels has described the Portuguese austerity programme as ‘on track’. ‘The large fiscal correction in 2011 and the strong 2012 budget have bolstered the credibility of Portugal’s front-loaded fiscal consolidation strategy,’ say the folks in the Troikabunker. No mention at all of the economy: just some vague tripe about ‘headwinds’ in 2012….so let’s get real. The GDP will contract 3.5% in 2012 – at least. As we saw at this stage in Greece, the rate of meltdown is accelerating. During 2011, unemployment went from 10% to 13.6% – 1 in 8. In order to get rid of its debt of close to €300 bn, Portugal has received €52 bn from Brussels and €26 bn from the IMF’s Extended Fund Facility. Being deemed ‘on course’, a further €9.7 billion from the EU, and about €5.2 billion by the IMF, have been handed over.

That’s €93bn of public money in one year spent to service a €300bn debt problem spread over anything from six months to 20 years and more.

It doesn’t make any kind of economic sense for anyone except the banks. And it’s being done – along with everything – to save the banks….and the euro dream that became the long-predicted nightmare….and, ultimately but very clearly, the United States of America.

And Spain ?

Spain has asked for its austerity programme to be eased up, so they’re obviously doing really well. Spanish Economy Minister Luis de Guindos told reporters he thought his EU colleagues would “understand perfectly”. Brussels sent a one-word answer yesterday: ‘no’. It’s the same story: acceleration of GDP contraction in Q4 2011, rising unemployment – 115,000 in February alone, over 26% among those under 25 years old – and all budgets are over-budget: the 3% euro-zone deficit limit is expected to overshoot to 4.9% there in 2012: just so we’re clear, that’s over 60% out in the wrong direction. A Madrid spokesperson told me that Spain’s Prime Minister Mariano Rajoy “has no plans to discuss any easing of the programme at the forthcoming summit”, but the senora seemed happy to confirm that Spain had missed all its austerity targets for 2011. I suppose she’d have sounded a bit silly trying to do otherwise, really.

And well Greece…well you know Greece.

Let’s leave Greece for another post: I’m all Greeced out this morning. We’ve all (The Slog included) become obsessed with Greece to a point where the argument about time and date of default has become a pointless pissing contest along the same lines as the Climate Change debate. There are so many imponderables, unknowns, poison pills and impracticalities involved, so many different geopolitical agendas in play, and so many vested interests breaking or spraining the rules, it can only end in tears: the timing and volume of tears are the only things left. But if I may twist the allusion kaleidoscope just one more time, Greece-guessing is like a passenger on the Hindenburg watching his skin burn, and worrying about that nice new set of luggage he bought specially for the maiden voyage.

The eurozone is ablaze, and falling to earth rapidly. It cannot survive with a southern half to it: it was a barmy idea in the first place. We’re being told that a firewall is needed to contain Greek meltdown (pass the blender again) but it’s all bollocks: the plan looks to me like the Clubmeds themselves being detonated to create the tree-gap that ends a forest fire. They are, literally – just as with the Hindenburg – the victims of the most savage and cynical  sabotage in economic history.

So the Eurozone is essentially in the same pickle it has been in all along. Brussels (and Germany and France) are hoping someone starts a war or something to take the spotlight off.

Now for us. The Housing Crisis, another act that simply will not go away. Courtesy of Mike Whitney.

The reason that housing prices have dipped only 33.6 percent in the United States instead of 60 percent as they have in Ireland, is because the big banks have been keeping inventory off the market. If the millions of homes–that are presently headed for foreclosure–were suddenly dumped onto the market, prices would plunge and the biggest banks in the country would be declared insolvent. That’s why the banks have slowed the flow of foreclosures. According to Amherst Securities Group’s Laurie Goodman, “….2.8 million borrowers haven’t made a payment in over a year. Add that to the over 450,000 real estate owned (REO) units and you have approximately 3.2 million that are in the shadows. We are liquidating about 90,000 homes a month. That’s about 36 months of overhang; a really shocking number.” (See the whole interview here.)

. . . . .

Some readers will probably dispute the claim that housing prices could dip 60 percent in the US as they have in Ireland. These skeptics may want to read a new study titled “Housing, Monetary Policy, and the Recovery” released by the chief economists from the country’s two largest banks (Find it here.)

On page 29 of the report, the authors conclude that it would take “a 57% fall in housing prices would in our accounting sense eliminate housing overhang”. Their second projection estimates that it would take “a 68%” drop. So, if you bought a house in 2005 for $400,000. That house would currently be worth $128,000, a big enough loss to poke holes in anyone’s retirement plans.

So, what should the government do? Should they force the banks to release the backlog homes so prices can adjust quickly and new buyers won’t feel like they’re being gouged? But–if they do–what happens to all the people who bought homes in the last few years who suddenly discover they’re underwater? Won’t that create a whole new wave of foreclosures?

The best approach would be to reduce the principle on the mortgages of the people who are presently in some stage of foreclosure and make the banks pay for the losses. That would slow the stream of foreclosures to a trickle, stabilize the housing market, and force many of the banks into Chapter 11, which should be real goal of any mortgage modification program. The banks were the perpetrators of this gigantic mortgage laundering scam and continue to pose a threat to the financial security of every American. Dismatling the TBTF banks should be the nation’s highest priority.

So in other words, these big banks (and probably some smaller ones as well) are still the walking dead. All do regards to Dr. Dean and Krugman and even Robert Reich, the banks are still the main problem and have to be dealt with first. Or the rest is merely spinning our wheels in the ice.

The Greek referendum and what it may mean for the global economy.

10:32 pm in Uncategorized by cmaukonen

Greek Protesters Setting Stage for Referendum (Photo: Scott D. Meyer, flickr)

Greek Protesters Setting Stage for Referendum (Photo: Scott D. Meyer, flickr)

From the Christian Science Monitor. One of the better sources available.

The chaos generated by George Papandreou‘s mere proposal to put Greece’s participation in the deal to a referendum exposed the fragility of the European plan and the lack of confidence it enjoys in markets.

A top European official warned that Athens could be left to go bankrupt if it went through with the vote and experts said the broader eurozone deal — which hopes to protect larger countries like Italy — could collapse.

Ultimately, Greece could leave the euro union, causing massive financial havoc and pushing the global economy back into recession.

That prospect could be enough to keep the referendum from happening — Papandreou’s government could collapse before the proposal goes through, having lost huge amounts of support from its own party.

After a grueling seven-hour Cabinet meeting, Papandreou’s ministers expressed “total support” for his referendum proposal and said the vote would be held “as soon as possible,” government spokesman Ilias Mossialos said early Wednesday.

But Papandreou’s government still faces a vote of confidence scheduled for Friday. The prime minister was summoned to attend emergency talks Wednesday on implementation of the bailout convened by French President Nicolas Sarkozy and German Chancellor Angela Merkel in Cannes, France, a day ahead of the Group of 20 Summit in the French Riviera.

The referendum proposal piled more pressure on an already creaking deal that was facing scrutiny from markets that found details wanting.

But Papandreou’s government still faces a confidence vote and if the government falls, all bets are off. And Greece may not even get it’s bail out loans it it goes ahead with the vote. Read the rest of this entry →