Unfortunately, nobody in the Treasury seems to want to deal with the mess at Ally Financial before Election Day. But the question is whether Ally can wait until then.
In what appears to be surprising news for some, Reuters has an article titled "Americans brace for next foreclosure wave" whose key premise is that "a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures." Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America's attorneys general, but far more importantly to the country's crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America's record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here's the simply math: there will be no housing bottom until the 9 million excess homes clear. Period. Until then it is a buyer's market, even if said buyer is unable to obtain bank financing, as ultimately it will be the seller who is forced to monetize (or vacate if underwater) their home in a world of ever diminishing cashflows. The fear of the supply onslaught will only make the dumpage that much faster.
Wherein Tom Day of Sungard drops out of hyperspace just long enough to write the following missive on the PRMIA DC web rant soapbox and get a few hours sleeep. Ode to Frank Partnoy. -- Chris
The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine. That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.
Thank you Ben Shalom Bernanke for being the singular pompous PhD idiot who can take the yeoman's credit for navigating this entire golbal ship of financial farce into the sargasso sea of pinstriped fraud.
We have previously discussed the substantial, and growing, threat to the German economy that is the Bundesbank's negative TARGET2 balance, which we have formerly dubbed Europe's €2.5 trillion closed liquidity loop, which just rose to a new record over €550 billion (in "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?", "Goldman's Take On TARGET2 And How The Bundesbank Will Suffer Massive Losses If The Eurozone Fails", and most recently in "Dear Germans: Bring Out Ze Checkbooks") which in turn merely represents the taxpayer funded capital flow to insure that the Eurozone remains solvent for one more day as Germany's peripheral trading partners receive rescue capital every day in the form of recycled German current account surplus. It now appears that the Bundesbank president has taken to these allegations of monetary instability strongly enough to where he has just released the following response on Target2 in "What is the origin and meaning of the Target2 balances?" Full letter below.
Only in a debt-based money system could debt be curiously cast as an asset. We’ve made “extend and pretend” a quaint phrase for a burgeoning market for financial lying and profiteering aimed toward preventing the collapse of a debt- (or lack-) based system that was already doomed by its initial design to collapse. This primer will detail the major components and basic evolution of fake wealth creation, accelerating debt expansion, hollowing out of the economy, and inevitable financial implosion.
Break a leg...
Fed economists slam TARP (LTRO?) in a paper measuring the rescue fund's effect on risk-taking at TBTFsSubmitted by Daily Collateral on 03/06/2012 21:21 -0500
Paging the eurozone: Coercing banks to lend into a recession didn't work here in 2008. It made things worse.
All this money sloshing around is nothing but kindling. This is enough to start one hell of a large inflationary fire, but probably not until we have a deflationary panic first – which will add even more kindling to the pile. The progression from the $1.5 billion Chrysler rescue to the current multi-trillion dollar worldwide financial support operations seems to parallel the march from the first US forestry service attempts to limit forest fires about a century ago to the far more sophisticated efforts possible today... Studies have shown that the onset of that catastrophe is almost totally unpredictable. By suppressing small fires, the forests approach an unstable state where the dead wood, resulting from the natural cycle of birth and death in the wild, is piled high, ready to explode into flames if the conditions are right. The central banks and other governmental authorities have piled the money so high that bubbles are popping up everywhere. With so many bubbles and so much kindling, volatility in price is a sure thing. As research has shown that the timing of these dramatic breakdowns, whether a forest fire, an earthquake, or a market crash cannot predicted, or mitigated as it runs its course, the time to control these crises is way before they start. The US Forestry Service knows that, please tell Bernanke!
Since the system itself has disconnected risk from consequence with backstops, guarantees and illusory claims of financial security, then it is has lost the essential feedback required to adapt to changing circumstances. As the risk being transferred to the system rises geometrically, the system is incapable of recognizing, measuring or assessing the risk being transferred until it is so large it overwhelms the system in a massive collapse/default. The consortium has only two ways to create the illusion of solvency when the punter's $100 million bet goes bad: borrow $100 million from credulous possessors of capital or counterfeit it on a printing press. These are precisely the strategies being pursued by central banks and states around the globe. BUt since risk remains disconnected from gain/loss, then capital and risk both remain completely mispriced. Risk is being transferred to the entire global financial system at a fantastic rate, because counterfeiting money or borrowing it on this scale to cover losses creates new self-reinforcing feedbacks of risk....At some unpredictable stick/slip point, the accumulated risk will cause the system to implode like a supernova star.
As you know, back in December the ECB conducted a 3 year LTRO operation that drew far more interest than anticipated. The operation saw banks draw a Gross (net liquidity injection was ~210 Billion Euros) ~490 Billion Euros from the ECB (and not according to plan, turned around and parked it back at the ECB instead of buying up shitty bonds).
Hands up anyone who is surprised that the Bank of England has added another £50 billion to the quantitative easing pot? The same hands will also believe that the Greeks have agreed terms for the next bail out tranche with the Troika (the European Union, the IMF and the European Central Bank). This ongoing epic odyssey of the voyage to nowhere has grabbed the headlines, but the BoE’s quiet announcement is equally significant to us Brits. Central banks never utter the words quantitative easing, so the Bank calls it an addition to its “asset purchase programme”, which was only hiked to £275 billion back in October. The accompanying rhetoric states that inflation is on the way back down and may fall below their target of 2%, mainly as a result of the VAT increase last January falling out of the equation and lower energy prices, (despite Brent crude being over 10% higher Y-o-Y in sterling terms..); a convenient excuse perhaps.
The concept of social fractals can be illustrated with a simple example. If the individuals in a family unit are all healthy, thrifty, honest, caring and responsible, then how could that family be dysfunctional, spendthrift, venal and dishonest? It is not possible to aggregate individuals into a family unit and not have that family manifest the self-same characteristics of the individuals. This is the essence of fractals. If we aggregate healthy, thrifty, honest, caring and responsible families into a community, how can that community not share these same characteristics? And if we aggregate these communities into a nation, how can that nation not exhibit these same characteristics? If this is so, then how do we explain the complete corruption of America's financial and political Elites? What else can you call a nation that passively accepts financial predation, looting, robosigning, etc. by protected cartels as the Status Quo but thoroughly corrupt?
With the impending March 20th maturity GGBs trading at 1400% yield (or 36% of par), EURUSD trading at 1.31, and European financials (and Greek financials explicitly) all up considerably, one could be forgiven for confusion as to what is priced in and what is not. As Bank of America (BAML) noted earlier in the year, believe it or not, Greece remains a blind spot and that risks from Greece are not fully priced in. Summarizing the deep cuts that Greece is expected to make - the Troika is demanding fiscal measures of 2% of GDP in 2012 - BAML points out that while they believe a common ground can be found, the asymmetric risks of a disorderly default could weaken the EUR well below their projection of 1.25 in the first half of the year. Certainly, while Greek sovereign bond markets seem priced for inevitable default (as real cashflows still count in the credit markets), FX and equity markets seem to be jumping-the-shark of the crisis - Europe will be stronger without Greece and Fed will backstop inevitable crisis - and missing the interim crisis conditions (Lehman-moments) that will occur as tail-risk scenarios and social unrest (that LTRO seems to have assuaged for now in people's minds) could return rapidly across the entire region. With frustration growing between an impatient Troika (that faces total humiliation, moral hazard, and ugly precedents for others) and a stubborn April-election-facing political class in Greece (along with the inability of the PSI to get done for all the reasons we have discussed in the past - foreign law bonds, basis traders, hedged positions, hedge fund sovereign litigation arbs) it seems the Troika has the most to lose for now seemingly holding a gun to their own head (as once again a massive ECB intervention might be needed with all its knock-on effects on the Fed's balance sheet expansion).