Fannie Mae

• Europe focus of global May Day labour protests (BBC)
• Occupy movement's May Day turnout seen as test for its future (Reuters)
• BofA to Cut From Elite Ranks, will fire 2000 (WSJ)
• Man Group Has $1 Billion Outflows; Shares Slide on Cash Concern (Bloomberg)
• Obama Fails to Stem Middle-Class Slide He Blamed on Bush (Bloomberg)
• Berlin insists on eurozone austerity (FT)
• This must be really good for AMZN's 1.5% operating profit margins: Microsoft muscles in on ebooks (FT)
• Ohio Union Fight Shakes Up Race (WSJ)
• How to Lose $7.8 Billion and Still Be Top of the Rich List (WSJ)
• Hollande Seen Bowing to Debt Crisis in Socialists’ Balancing Act (Bloomberg)
• BP profit falls as Gulf spill costs still weigh (Reuters)

Sadly, it looks like the 99% will likely have more than just one lost decade in the course of bailing out the 1%.

Debunking Bailout Myths

• First Japan now... Australia Ready to Help IMF (WSJ)
• "Not if, but when" for Spanish bailout, experts believe (Reuters)
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
• Spain weighs financing options (FT)
• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
• Spain and Italy Bank on Banks (WSJ)
• Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
• China preparing to roll out OTC equity market – regulator (Reuters)
• Angry North Korea threatens retaliation, nuclear test expected (Reuters)
• North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)

• Subprime bubble is back: Lenders Again Dealing Credit to Risky Clients (NYT)
• Housing bubble is also back: AIG Is Planning a Return to U.S. Property Investing (WSJ)
• Spain and EU Reject Talk of Bailout (FT)
• Coeure Suggests ECB Could Restart Bond Purchases for Spain (Bloomberg)
• IMF Set to Recognise Shrinking Chinese Surplus (FT)
• Government to Propose New Mortgage Servicing Rules (AP)
• Japan Currency Chief Warns Against Delay Over Finances (Bloomberg)
• The 'Michael Corleone' of Libya (Reuters)
• North Korea Says Fuel Being Injected Into Rocket (Reuters)
• SNB Reaffirms Vow to Cap Swiss Franc (FT)

FHFA Acting Director Edward DeMarco offered some prepared remarks today making it abundantly clear that his preference is for forbearance over forgiveness in the great mortgage hole in the US balance sheet's dam. As Bank of America's Chris Flanagan noted this evening "[DeMarco] effectively nixed the idea of broad-based principal forgiveness by Fannie Mae and Freddie Mac" in his comments on the Treasury's incentives to forgive principal on underwater borrowers. Citing three factors - NPV Impact to taxpayer, moral hazard, and operational costs - the FHFA Director indicated that forbearance (simply put - delaying foreclosure) is effectively a shared appreciation mortgage (SAM) without the operational complexities of a more formal SAM. BofA concludes: "his preliminary remarks on the incentive approach to principal forgiveness of GSE loans [mean] that there will be zero to minimal scale of such an approach." Back to the drawing board for the Treasury (or more forced-through unintended consequences?).

There is a lot of talk about IG9 these days.  We think the JPMorgan 'Iksil' story has a lot more to do with tranches than with outright selling of the index. Noone knows what exactly is going on, but we think selling tranches without delta explains far more than just selling the index, given the size and leverage. Critically, in the end it is all speculation as what (if any) trade they have on but if our belief on this being a tranche exposure (for the thesis reasons we explain) then the explanation is far less scary.

Last Friday saw the release of a below-expected US Non-Farm Payrolls figure, causing flight to safety in particularly thin markets, with equity futures spiking lower and US T-notes making significant gains. Data from this week so far in Asia has shown Chinese CPI is still accelerating, coming in above expectations at 3.6% against an expected 3.4% reading. Looking ahead in the session, there is very little in the way of data due to the reduced Easter session in the US and the European and UK markets closing for Easter Monday.

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.

Anyone who hasn’t sensed a mood change in this country since the 2008 financial meltdown is either ignorant or in denial. Millions of Americans fall into one of these categories, but many people realize something has changed – and not for the better. The sense of pure financial panic that existed during September and October of 2008 had not been seen since the dark days of 1929. Our leaders used the initial terror and fear to ram through TARP and stimulus packages that rewarded the perpetrators of the financial collapse rather than helping the middle class who lost 8 million jobs, destroyed by Wall Street criminality. The stock market plunged by 57% from its 2007 high by March 2009. What has happened since September 2008 has set the stage for the next downward leg in this Crisis. The rich and powerful have pulled out all the stops and saved themselves at the expense of the many. Despite overwhelming proof of unabashed mortgage fraud, rating agency bribery, document forgery on a grand scale and insider trading based on non-public information, the brazen audacity of Wall Street oligarchs is reminiscent of the late stages of the Roman Empire.   

• BOJ Crosses Rubicon With Desperate Monetary Policy, Hirano Says (Bloomberg)
• Europe’s bailout bazooka is proving to be a toy gun (FT)
• Monti Signals Spanish Euro Risk as EU to Bolster Firewall (FT)
• Merkel set to allow firewall to rise (FT)
• Banks set to cut $1tn from balance sheets (FT)
• Supreme Court weighs historic healthcare law (Reuters)
• Spain PM denied symbolic austerity boost in local vote (Reuters)
• Anti-war movement stirs in Israel (FT)
• Obama to Ask China to Toughen Korea Line (WSJ)
• Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meeting (Bloomberg)

Gretchen Morgenson has earned a Pulitzer-winning career from exposing abuse and conflicts of interest on Wall Street. In this interview, she confirms that there is indeed a second set of rules that our elite financial institutions enjoy, largely unfettered by the constraints that apply to the rest of us. Consequences for failure and fraud are very different under this second set of rules - in fact, they're practically rewarded.  Accountability, by all prudent measures, has become non-existent. The extraordinary measures the country deployed to deal with the great contraction in 2008 only served to exacerbate these imbalances. What's sorely needed now is a national dialogue on whether we're willing to allow this to continue. What benefits are we receiving by enabling these elite to enjoy such different standards? What type of system and rules might work better for our interests? Sadly, beyond the disorganized OWS outrage that has waned in visibility, there is no real cogent, organized public debate focused on this right now. A big reason is that Washington is actively avoiding such a dialogue. It was fundamentally complicit in creating the underlying factors resulting in the '08 collapse and it doesn't want brighter light helping the public understand that more clearly.

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

• There is no Spanish siesta for the eurozone (FT)
• Greece over halfway to recovery, says PM (FT) - inspired comedy...
• Sarkozy Trims Gap With Rival, Polls Show (WSJ) - Diebold speaks again
• IMF’s Zhu Sees ‘Soft-Landing’ Even as Property Slides: Economy (Bloomberg)
• Obama Uses Lincoln to Needle Republicans Battling in Illinois (Bloomberg)
• Three shot dead outside Jewish school in France (Reuters)
• Osborne Seeks to End 50% Tax Spat With Pledge to Aid U.K. Poor (Bloomberg)
• Monti to Meet Labor Unions Amid Warning of Continued Euro Crisis (Bloomberg)

This cannot be the right course for us to take in the wake of such a widely recognized crisis. The lack of purposeful outrage is deafening. We cannot restore lasting stability to our economy and society unless we are willing to face up to what we did wrong, right it, and throw out the bums who put us there. Without that, the pattern of ever escalating crisis and interventionist, market-distorting solutions will surely lead to a bigger crisis still ahead... Perhaps the most important symbol of our failure to address reform are the pictures accompanying much of the coverage of Greg Smith’s letter, those of a power-posing Blankfein and Cohn, who without the Government’s accommodation might be striking a very different pose, indeed. You want to sign on to Mr. Smith’s army in joint distaste for Goldman’s lost culture? Please, be my guest. But more deserving of your enmity is the insidious co-option of the core premise of capitalism by a handful of people to ensure the banks’ undeserved survival, and their managers’ really nice lifestyle.