US Government to Spent $1 Trillion on F-35 Fighters — That's More Than Australia's GDP

Nobel Piece Prize Laureate Obama, who also happens to be the US President who wages the most wars in history and attacked civil liberties the most, is now to spent $1 trillion on F-35 fighters. The Atlantic is reporting:

The Lockheed Martin F-35 Lightning II is an impressive aircraft: a fifth generation multirole fighter plane with stealth technology. It's also a symbol of everything that's wrong with defense spending in America.
[...]
The F-35 is designed to be the core tactical fighter aircraft for the U.S. military, with three versions for the Air Force, Navy, and the Marine Corps. Each plane clocks in at around $90 million.
In a decade's time, the United States plans to have 15 times as many modern fighters as China, and 20 times as many as Russia.

So, how many F-35s do we need? 100? 500?  Washington intends to buy 2,443, at a price tag of $382 billion.

Add in the $650 billion that the Government Accountability Office estimates is needed to operate and maintain the aircraft, and the total cost reaches a staggering $1 trillion.
In other words, we're spending more on this plane than Australia's entire GDP ($924 billion).

The F-35 is the most expensive defense program in history, and reveals massive cost overruns, a lack of clear strategic thought, and a culture in Washington that encourages incredible waste.

Money is pouring into the F-35 vortex. In 2010, Pentagon officials found that the cost of each plane had soared by over 50 percent above the original projections. The program has fallen years behind schedule, causing billions of dollars of additional expense, and won't be ready until 2016. An internal Pentagon report concluded that: "affordability is no longer embraced as a core pillar."

The Cause of Europe's Economics Woes? Austerity or the Inept Central Planners?

I am really getting sick of hearing from both the left and ring wing politicians, from the governments and from the central bankers that austerity is the cause of the trouble in their respective countries — or anywhere else. For example the NYT keeps on publishing silly news reports written by inept journalists who keep on parroting inept central planners (governments and central bankers) and describing austerity as the cause of all the troubles in Europe.

In reality, there has been NO AUSTERITY at all, except in Greece and Ireland. So please French, Italian, Spanish and other EU countrymen, please, stop the lies. See for yourselves the charts below (source: Wikipedia).

As you can see, debt to GDP ratio for all the countries but Germany have been soaring in 2009 and 2010 — and notice that these year were labeled as growth years!

And the financing needs of almost all economies (except Ireland and the UK have been rising, including for 2012 — ignore the over optimistic forecasts for 2013...)

In what kind of austerity government spending increases? dramatically?

Moreover, austerity is the cure, and spending and debt are the poison. Unfortunately, your beloved Central Planners will simply keep on telling the opposite to the Lemmings and Parrots, who will keep on repeating and will follow them over the cliff.

Cyprus Officially Requests EU Bailout

Bloomberg reported minutes ago: Cyprus informed European authorities today of its decision to request financial assistance from the euro area’s bailout funds, the government said in an e-mailed statement.

More Denial and Madness from Spain: Santander CEO Derides Surge in Spain Defaults and Spain Rules Out Bailout as De Guindos Says Banks Funded

This is a follow up to the post I wrote just a couple of days. Just listen to the completely unbelievable statements made from the CEO of Santander, one of the biggest banks in the world, which also happen to be a Spanish and most likely highly distressed one. He also makes the statement that "this place is different", one of the most dangerous sentences of the investment world:

April 27 (Bloomberg) — JPMorgan Chase & Co., the world’s largest bond underwriter, predicts that Spanish mortgage arrears will surge as unemployment rises. That’s also the view from the international debt market, which has driven up yields on Spain’s bonds in a bet the country will have to bail out banks. 

In Spain, Banco Santander SA Chief Executive Officer Alfredo Saenz said yesterday that’s nonsense. “Mortgages get paid in good times and in bad,” he said in a news conference at the bank’s headquarters outside Madrid. “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”
[...] 

“There does seem to be a strange contrast between the high level of unemployment and the surprisingly low level of delinquencies on mortgages,” said Georg Grodzki, who helps oversee $515 billion as head of credit research at Legal & General Plc in London. “This raises the issue of whether loans have been amended to make them look current when in fact they are distressed.” 

The more than 600 billion euros ($792 billion) of outstanding home loans on the books of lenders may be the “next elephant” for Spain as unemployment spurs defaults, JPMorgan analysts including Roberto Henriques and Gareth Davies wrote in a report published April 26. Spain’s jobless rate rose to 24.4 percent in the first quarter, the highest level in 18 years, from 22.9 percent in the previous three months, the National Statistics Institute said today.
[...] 

Saenz said Spanish culture is part of the reason why default rates remain low.
[...]
“It’s a sociological thing and that’s how it is,” said Saenz.
Santander had 59.4 billion euros of loans made to Spanish households to buy homes at the end of 2011 out of a total loan book in Spain of about 200 billion euros. The default ratio was 2.6 percent in March, down from 2.7 percent at the end of 2011, the bank said. 

“The data is good so let’s not start debating the quality of the information,” said Saenz. “Mortgage arrears are not a problem and are not going to be a problem.”

Santander isn’t the only Spanish bank defending its mortgage loan quality.
People “tend to look at the negative side, the unemployed that we have here,” said Manuel Gonzalez Cid, chief financial officer of Banco Bilbao Vizcaya Argentaria SA, Spain’s second- biggest lender, in an April 25 webcast for analysts. “But we don’t look at all the people who are working, who are paying their mortgages and paying their loans in a very normal fashion.” 

Of BBVA’s 79 billion euros of residential mortgage loans in Spain, 2.37 billion euros, or 3 percent, were impaired at the end of 2011, according to the bank’s annual report.
[...] Based on Irish default levels, a similar trend in Spain would lead to losses of 59 billion euros for the banks there, according to the JPMorgan analysts. 

The picture is clouded by the increasing willingness of banks to change the terms of loans to help customers keep up loan payments. Bankia SA, Spain’s third-biggest bank, said April 24 that it’s making 110 changes to loan terms a day and that mortgages made up 45 percent of the 7,300 term adjustments it carried out in the first quarter. 

“Mortgages for individuals in all markets, including the U.S. and the U.K., normally are very resilient and resistant when the situation changes,” said Saenz. “That’s because mortgages get paid.” 

Has Saenz been living in a cave for the past 5 years?

And also: Spain Rules Out Bailout as De Guindos Says Banks Funded

April 27 (Bloomberg) -- Spanish Economy Minister Luis de Guindos ruled out seeking a bailout hours before Standard & Poor’s cut the country’s credit rating to three levels above junk and a report showed unemployment jumped close to a record. 

“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late yesterday. “We don’t need it.”

Madness and Denial in Spain Lingers

Below are some quotes from a couple of interesting Bloomberg report. The key points I would like to highlight, in addition to the madness of the crowds is how the government and central planning crated the bubble. In a free market, the bubble would never reach such levels, and would bust naturally due to the lack of funding:

• Credit wasn’t a problem, the banks were throwing money at people. Comment: Yes, this is due to the fact that the Governments have created Central Banks which control the availability of credit, and they have also made it lawful for banks to create money out of nothing, with the fractional reserve banking, which allows banks to lend as much as 30, 40, or 50 times as much as they could without this law.
• More obviously: Both booms also were fueled by incentives. In Ireland, the government gave investors tax breaks to build in certain areas, and granted homeowners breaks on their interest payments. In Spain, there were incentives for municipalities to approve land for development because they could keep 10 percent of all the land they reclassified.
• The former Irish Minister couldn't say it better: “You could say the government was drunk on the revenue that was coming from all the construction taxes.”
• The regulators failed at their job, including every single Central Bank. Yet, pro-Central Planning people will say they need more power and more staff. 

(Bloomberg) May 10, 2012 — Spain is underestimating potential losses by its banks, ignoring the cost of souring residential mortgages, as it seeks to avoid an international rescue like the one Ireland needed to shore up its financial system. 

The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt. 

Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal. 

“How can you only talk about one type of real estate lending when more and more loans are going bad everywhere in the economy?” said Patrick Lee, a London-based analyst covering Spanish banks for Royal Bank of Canada. “Ireland managed to turn its situation around after recognizing losses much more aggressively and thus needed a bailout. I don’t see how Spain can do it without outside support.” 

Spain, which yesterday took over Bankia SA, the nation’s third-largest lender, is mired in a double-dip recession that has driven unemployment above 24 percent and government borrowing costs to the highest level since the country adopted the euro. Investors are concerned that the Mediterranean nation, Europe’s fifth-largest economy with a banking system six times bigger than Ireland’s, may be too big to save. 

[...] Spain’s banks face bigger risks than the government has acknowledged, even with lower default rates than Ireland experienced. If losses reach 5 percent of mortgages held by Spanish lenders, 8 percent of loans to small companies, 1.5 percent of those to larger firms and half the debt to developers, the cost will be about 250 billion euros. That’s three times the 86 billion euros Irish domestic banks bailed out by their government have lost as real estate prices tumbled. 

Moody’s Investors Service, a credit-ratings firm, said it expects Spanish bank losses of as much as 306 billion euros. The Centre for European Policy Studies said the figure could be as high as 380 billion euros. 

At the Bankia group, the lender formed in 2010 from a merger of seven savings banks, about half the 38 billion euros of real estate development loans held at the end of last year were classified as “doubtful” or at risk of becoming so, according to the company’s annual report. Bad loans across the Valencia-based group, which has the biggest Spanish asset base, reached 8.7 percent in December, and the firm renegotiated almost 10 billion euros of assets in 2011, about 5 percent of its loan book, to prevent them from defaulting. 

The government, which came to power in December, announced yesterday that it will take control of Bankia with a 45 percent stake by converting 4.5 billion euros of preferred shares into ordinary stock. The central bank said the lender needs to present a stronger cleanup plan and “consider the contribution of public funds” to help with that.

The Bank of Spain has lost its prestige for failing to supervise banks sufficiently, said Josep Duran i Lleida, leader of Catalan party Convergencia i Unio, which often backs Prime Minister Mariano Rajoy’s government. Governor Miguel Angel Fernandez Ordonez doesn’t need to resign at this point because his term expires in July, Duran said. 

Spanish banks have “a 1.7 trillion-euro loan book, one of the world’s largest, and they haven’t even started marking it,” Hesse said. “The housing bubble was twice the size of the U.S. in terms of peak prices versus 1990 prices. It’s huge. And there’s no way out for Spain.”
[...] The losses of bailed-out domestic banks in Ireland have reached 21 percent of their total loans. Spanish banks have reserved for 6 percent of their lending books. 

[...] Developers are still building new houses around the country, even with 2 million vacant homes.[...] In Spain, a bank can go after other assets of the borrower, who remains on the hook for the debt no matter what the price of the house when sold. Still, the same extended liability didn’t stop the Irish from defaulting on home loans as the economy contracted, incomes fell and unemployment rose to 14 percent.

(Bloomberg) May 2, 2012 — From atop the stone walls of Avila, Spain, a medieval city an hour’s drive northwest of Madrid, beyond the parking lots and empty playgrounds and thousands of vacant new apartments, a construction crane can be seen moving on the horizon as building continues. 

“Avila isn’t an exception,” said Jesus Encinar, co- founder of Madrid-based Idealista, Spain’s largest property website, and an Avila native. “It’s a small-scale example of the madness that gripped the whole real estate industry.” 

In the stages of death of a real estate boom, Spain is still in denial. [...] Spain, Europe’s fifth-largest economy, is the current focus of attempts to contain the region’s sovereign debt crisis, as Prime Minister Mariano Rajoy struggles to quell speculation it will need a bailout. Developers are showing similar optimism. They continue to build even with 2 million homes vacant around the country, new airports that never saw a single flight being mothballed, and property appraisers and banks reporting values have fallen only about 22 percent, said Encinar, who estimates the real decline is probably at least twice that. 

[...] On the plain below the central walled city of Avila, a world heritage site and a popular tourist destination, the province with a population of 171,680 has about 19,000 apartments and villas empty or unfinished, according to Borja Mateo, the author of “The Truth About the Spanish Real Estate Market.” 

Ministry of Infrastructure figures show 23,419 homes were constructed in the decade through 2007, with another 11,000 homes built there since 2008. The sprawling developments are dotted with thousands of empty parking spaces, while streets have makeshift barriers where the money has run out, others simply end in fields. 

Miguel Angel Garcia Nieto, mayor of Avila for the past decade, disagrees that his city has been overbuilt. 

“When we approved the first urban plan back in 1998 there was an unprecedented demand for homes,” Nieto said in a telephone interview on April 19. “Yes, there is oversupply at the moment because of the financial crisis and everyone’s gone back home to live with their parents, but it’s not because there is lack of demand. When the economy gets back on track I am confident the supply will be absorbed.” 

That may take decades, said Encinar, after Spain’s jobless rate rose to 24.4 percent in the first quarter, the highest in almost two decades and the economy is mired in a recession that the International Monetary Fund predicts will cause it to shrink by 1.8 percent in 2012. 

The Spanish real estate bust is the biggest test to date for European authorities with Spain’s economy almost twice that of Greece, Portugal and Ireland combined. Yields on Spain’s 10- year bonds climbed nine basis points to 5.86 percent from April, approaching the level of those countries when they had to be bailed out. 

[...] In 2009, Ireland created the National Asset Management Agency, or NAMA, a so-called bad bank. It used bonds to buy commercial real estate loans from the banks with a face value of 74 billion euros for 32 billion euros. That left banks needing capital, leading the state to pour in cash and nationalize five of the six biggest lenders. 

[...] “The big knock to the domestic economy was the fact that building and construction totally collapsed and that was over 20 percent of the economy and it was bang, gone completely,’” Finance Minister Michael Noonan said in a speech to a Parliamentary committee on April 25.[...] In the 1970s and 1980s, Spain and Ireland were among the poorest countries in Europe. Following the creation of the euro, both tapped into international money to fuel the growth in their real estate markets. 

Prices doubled in Spain in the decade through 2007. Irish house prices more than quadrupled from 1995 to 2005 to an average of 303,247 euros, the fastest growth among 18 countries surveyed by the Paris-based Organization for Economic Cooperation and Development. 

“It was avarice,” said James Nugent, managing director of Dublin-based real-estate broker Lisney. “You just had to get as much of it as you could possibly get your hands on. Credit wasn’t a problem, the banks were throwing money at people.”

Former Irish Minister Tom Parlon recalls putting a 2.1 acre site of the state’s veterinary college in Dublin’s embassy belt of Ballsbridge up for sale in 2005. “We thought in our wildest dreams that maybe it might make 100 million euros, which was a crazy price,” he said. “When the bids were opened there was a bid of 171 million euros and the developer was backed up by one of our main banks. That was just a flavor of the madness.” 

The site is currently being used by a local luxury car dealer, MSL Ballsbridge Motors, to store vehicles, mainly Daimler AG’s Mercedes-Benz models. 

On the northern outskirts of Madrid, near Barajas airport and the Real Madrid soccer team’s training ground, is Valdebebas, a development project under construction covering more than 10.6 million square meters of space. About 5,400 of the planned 12,500 homes have been built and another 2,100 are under construction, according to a spokesman for the project who declined to be identified by name, citing company policy. The development, which belongs to private land owners who pooled their property, is backed by banks including Banco Bilbao Vizcaya Argentaria SA and Aareal Bank AG. (ARL) There are bus tours on Saturday for potential buyers, and an open house of the model homes every Sunday. 

“In Spain, there seemed to be an effort to smooth out the pace of activity rather than face the shock, as Ireland did,” said Alcidi. “That means the adjustment is going to take much longer in Spain.” 

At the height of their respective real estate booms, construction accounted for more than 20 percent of the economies of both Spain and Ireland. In Spain, the figure is now about 14 percent, according to Alcidi. In Ireland, the figure is just 5 percent. 

Both booms also were fueled by [Government] incentives. In Ireland, the government gave investors tax breaks to build in certain areas, and granted homeowners breaks on their interest payments. In Spain, there were incentives for municipalities to approve land for development because they could keep 10 percent of all the land they reclassified. The towns would get revenue from the developments and they could use the land they acquired as collateral for loans, said Encinar. 

About 230,000, or about two-thirds, of Irish construction jobs have gone since 2007. Home building will hit an all time low this year, with just 1 house per 1,000 people being built, compared with 15 in the 2000s, according to the Society of Chartered Surveyors Ireland. 

“It was a mania,” said Parlon, the former Irish government minister who now heads the Construction Industry Federation. “You could say the government was drunk on the revenue that was coming from all the construction taxes.” 

[...] In all, about 15 percent of Irish homes were vacant in 2011, the country’s statistics office. About 20 percent of office space in Dublin is vacant. 

[...] “It took 20 centuries for the center of Avila to be developed, and in the last 10 years they’ve developed twice that amount,” said Natalio Encinar, a brother of Jesus Encinar who still lives in Avila. Until demand collapsed, “the main industry here was building houses. And plumbers made more than engineers.”

And a few links from Mish, in chronological order:

• Hopeless Situation in Spain: New Wave of Defaults as Home Prices Crash; Bad Loans Highest Since Oct '94
• Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value; Madrid Rejects Regional Budgets Representing 32.5% of GDP; Treasury Warns of "Immediate" Intervention
• Spain Long-Term Debt Lowered to BBB+ from A, With Negative Outlook; 100% Certain Conditions in Spain Worsen
• Depression in Spain: Unemployment Rate Up .5 Percentage Points to 23.6%; Expect Much Higher Rates Later This Year; When is the Breaking Point?
• Bank of Spain Confirms Foreigners Dump Spanish Bonds; Spanish Banks Foolishly Load Up
• Spain to Spend €7bn-€10bn (It Doesn't Have), Bailing Out Bankia, the Nation's 3rd Largest Bank
• Top Tweet in Spain "Do as Iceland Did"
• Audit Shows Spain's Bankia Short 3.5 Billion Euros; PP says "We Must Help Bankia, It Has Deposits for 10% of GDP"
• Spain Nationalizes BFA and 45% of Bankia; No Bid for CatalunyaCaixa, Bank Worth Less Than Zero; Der Spiegel: Germany Fears "Bottomless Pit"

Hollande Must Betray His Supporters to Save Them — Entrepreneurs in France Flee From Hollande’s Rejection of Wealth

This is a follow-up on the post I wrote on the 7th of May: Holland Elected the First President to Never Have Held A Real Elected Position Previously While Sarkozy Becomes First French President in 30 Years to Be Ousted

After all the non-sense I read in French newspapers — remember, France is close to be communist country as possible, and even Sarkozy qualifies as a far-left candidate in the whole range of political ideas, even though he considers himself to be in the right wing, he's in the right wing of the far left — here are quotes from a couple of sensible reports, courtesy of Bloomberg.

(Bloomberg) May 9, 2012 — French voters are deluding themselves if they think the man they just elected president offers a viable alternative to the departing Nicolas Sarkozy. 

Francois Hollande’s socialist program is inoperable. Let’s hope he understands that. If he doesn’t already, he soon will. 

Hollande’s campaign was a throwback to Francois Mitterrand’s failed socialist experiment of the early 1980s. The new president doesn’t oppose Europe’s fiscal pact because it needlessly imposes too much austerity too soon -- which is true. He opposes the very idea of structural reform. In France the government already spends 56 percent of gross domestic product. Hollande now promises, among other things, to hire tens of thousands of extra civil servants and roll back Sarkozy’s increase in the retirement age from 60 to 62. 

He can’t think of a public spending program he doesn’t like. His rhetoric is stridently anti-capitalist. And he proposes to pay for this further expansion of government with higher taxes -- including a new top income tax rate of 75 percent. 

France isn’t starting from a position of fiscal or financial strength. Capital markets were already nervous about its prospects. They will stamp on any conscientious attempt by Hollande to keep his crazy promises -- and if that happens, the wider crisis in the euro area will flare again. The question isn’t whether the crowds in Paris celebrating the return of good old-fashioned socialism will get what they want -- they won’t. The question is whether Hollande will row back from his campaign pledges quickly enough to avert disaster. 

The mood of jubilation among France’s unreconstructed leftists will make it difficult. And Hollande doesn’t have much time. Mitterrand took from 1981 to 1983 to discover that his policies constituted the alternative that Margaret Thatcher had in mind when she said, “There is no alternative.” Hollande may have just days to come to the same revelation. Looming parliamentary elections complicate the tactical judgment. Hollande needs voters to give him the majority in next month’s vote for the legislature. He can’t betray his supporters before then. 

Whether it’s sooner or later, Hollande will be forced to acknowledge reality, and the disillusionment of the French left will be terrible. 

[...] Wisely, Hollande’s campaign was more about posture than specifics. We know he’s against austerity and for taxing the rich -- but he hasn’t drawn up a budget. That must wait, he says, until auditors have checked the government’s books. This could give the new president cover to rethink his position on longer-term fiscal control and structural reform. If he does that and insists on short-term fiscal moderation, whether this is deemed a renegotiation of the fiscal pact or merely a supplement to it, his election might help Europe.
But Hollande can’t be a good thing without letting his supporters down. That’s a hard truth to contemplate in your first week in office. 

And, the following one. I couldn't agree more with Jeremie Le Febvre.

Jeremie Le Febvre, the 30-year-old founder of private equity marketing-services firm TBG Capital Advisors, plans to move to Singapore from Paris this year. 

Not because of President-elect Francois Hollande’s pledge to boost taxes; rather for what Hollande’s victory says about how wealth is viewed in France, the entrepreneur said. 

“What’s really driving my departure is the fact that I don’t share the values that emerged during the election, the rejection of ambition and success,” he said in an interview. “It’s part of France’s difficult relationship with money, but it has reached a new level. Even if it’s utopian, I need to believe for me and my descendents that the sky is the limit.” 

France, the fifth-richest country and home to some of world’s wealthiest, including LVMH Moet Hennessy Louis Vuitton SA Chief Executive Officer Bernard Arnault, doesn’t celebrate its affluent. Hollande, a Socialist who once said “I don’t like the rich,” and who plans to slap a 75 percent tax on income of more than 1 million euros ($1.29 million), reinforces the sentiment that in France to be rich is not glorious. 

“Hollande is using the 75 percent tax as a symbol to convey certain values through stigmatization,” Le Febvre said. 

Hollande’s rhetoric against wealth and finance is prompting some in France to consider leaving, and European rivals are welcoming them. “Bienvenue a Londres,” or welcome to London, Mayor Boris Johnson quipped in January. Switzerland and Belgium have been just as warm. 

Julien Berckmans, a real estate agent at Brussels-based Best Home Consult, took five calls from French citizens seeking to buy property in the Belgian capital after Hollande defeated President Nicolas Sarkozy on May 6. 

“They had come and visited houses in the previous weeks, telling us their decision depended on the outcome of the presidential election,” Berckmans said. “They called on the morning after to say they were serious about moving.” 

Berckmans said there’s been a steady flow of house hunters in areas such as Ixelles and Uccle -- near the French school. 

Abdallah Chatila, a Geneva-based realtor who specializes in properties worth more than 3 million euros, said he received several enquiries from lawyers on behalf of French clients. 

“It’s difficult to determine, but we’ll know in the next three months how many are willing to confirm,” he said. 

Hollande’s millionaire tax announcement during this year’s election campaign triggered a 30 percent spike in searches from France for prime properties in wealthy London neighborhoods such as South Kensington and Chelsea, according to real estate agent Knight Frank LLP.

“Seen from abroad, France is the last country where an entrepreneur wants to go,” Marc Simoncini, the founder of French dating site Meetic.com, said in an interview on BFM TV yesterday. “I don’t know of any British person who’s come to set up a business in France. But I know plenty of young French people who’ve gone to London to do that.” 

The attacks on the moneyed class intensified during the presidential race, leaving entrepreneurs and other wealth creators feeling like pariahs, said Michel Collet, a tax lawyer at Paris-based law firm CMS Bureau Francis Lefebvre. 

“The rich are fed up with being stigmatized,” he said. “Beyond the expectation of higher taxes, another important reason why our clients say they want to move abroad is that the negative perception of wealth has mounted in the past weeks.” 

The attitude toward business and wealth creators is driving people away, said Diane Segalen, founder of Segalen & Associes, an executive search firm specializing in top management and board members. 

“It’s not only for people who don’t want to be taxed 75 percent, but people who want to be in a country where they think they can do business,” she said. “They want to be in a country where there’s stability in taxes and labor laws, and where they aren’t at risk when they try to set up a business.” 

Talent and skills will go where they are welcome, she said. 

[...] Collet said he noticed increasing expatriation-related queries about a year ago, when Sarkozy started increasing taxes and ended a concession that capped all taxes at 50 percent of income. The so-called tax shield had been one of Sarkozy’s first measures after being elected president in 2007. 

About 1.6 million French citizens were registered in French consulates abroad as of Dec. 31, a 6 percent increase from 2010, beating both the 2.3 percent rise the previous year and the 3 percent average annual increase in the French population living overseas, according to the Ministry of International Affairs. 

The U.K. had an 8.5 percent jump, while Switzerland and Belgium recorded 7.3 percent and 8.1 percent respectively. The surge is partly explained by the 2012 vote, which generally boosts registrations, the ministry said. 

Still, although most of the people aren’t tax exiles, for those fleeing stifling fiscal rules, the decision to move is disruptive and not taken lightly, Collet said. The destination depends on what phase of their lives they are in, he said.
[...] 
Hollande’s millionaire levy would hit between 10,000 and 20,000 households, according to estimates by the tax-collectors’ union, SNUI. It needs to be approved by France’s constitutional council, which may find it confiscatory, according to Collet.
Meetic founder Simoncini, who, with 16 other high earners, signed a letter vowing to pay more taxes, was among the few people in France to openly criticize Hollande’s plan.
“I don’t approve of this measure,” Simoncini wrote in a column published by weekly magazine Nouvel Observateur on March 5. “It would affect only a few dozen chief executive officers with unusual compensation while sending a calamitous signal to the world. How could we possibly attract people to set up businesses, create, invest and succeed in a country that would be in effect the most taxed in the world?” 

Simoncini wrote that his wealth tax would amount to 100 times his current salary because most of his fortune is invested in small businesses that don’t yet generate income for him.
On the other side of the Channel, Conservative London Mayor Johnson laid out the welcome carpet. 

“This is the global capital of finance,” he said. “It’s on your doorstep and if your own president does not want the jobs, the opportunities and the economic growth that you generate, we do.” 

European Financial Companies to Fund European Ratings Agency — Denmark Is a Massive Subprime Base of Mortgages and Hosting One the Biggest Real Estate Bubbles in the World

I guess when you're not happy with the ratings you have because you cannot control the rater, you should fund your own rating agency. Note that in the US, only rating agency has dared to lower the rating of Uncle Sam, which gives them their oligopoly and hence funds their very useless but very lucrative business.

(Reuters) - European financial companies have agreed to back the creation of a European Rating Agency to compete with Standard & Poor's, Moody's and Fitch, a strategy consultants involved in setting up the new agency said on Thursday. 

"Following intensive talks conducted across Europe, a number of financial companies have now agreed to support the establishment of a global rating agency of European origin," said Markus Krall, a partner at Roland Berger Strategy Consultants. 

"We will soon wrap up the fundraising and complete operational realization of the new independent agency. We are currently in the process laying the institutional and corporate groundwork," he added, declining to name the companies that will provide the financial backing. 

A number of organisations are evaluating how to launch a new European rating agency after European policymakers criticised Standard & Poor's, Moody's and Fitch during the euro zone debt crisis, saying they have been too quick to cut the credit ratings of indebted European Union states despite bailouts and austerity drives. 

In a recent move, S&P downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status. 

Markus Krall will relinquish his role as senior partner at Roland Berger to become the founding chief executive of the new agency, Roland Berger said in a press release. 

Efforts to launch a European rating agency are also being made by the Bertelsmann Foundation which is seeking to overhaul the way rating agencies rate sovereign debt.
The Bertelsmann Foundation has said it will lead a group of international experts to develop a model for a non-profit rating institution. 

The foundation, based in Guetersloh, Germany is a politically nonpartisan think tank dedicated to making an "enduring contribution to society" including a "just and efficient economic system." 

Funded from its income from shares in publishing giant Bertelsmann AG, the foundation has offices in Brussels and Washington. (Reporting by Edward Taylor; Editing by Mark Potter)

Personally, I would be more supportive of simply ditching the ratings agencies, or making them a creation of the free market: that is, they should be created by entrepreneurs, and they should be selling their reports to the investors who want to invest in company X.

Currently, ratings agencies are an oligopoly created the US government (and the Chinese) ; and company X fund the report (basically, meaning that there's a massive conflict of interest).

Looks like investors in Denmark are getting there, but because their investments have been downgraded (meaning they are about to lose or have already lost money as a result of falling prices of their bonds).

The report below contains a few extra interesting points:

• Denmark has the 3rd largest mortgage bond industry in the world, for such a tiny country — expect a massive bubble to pop
• Investors don't care about the ratings, because those mortgages are safe — we all know how this story ends
• Marc Stacey explains why ratings agencies have to herd — meaning they are basically non-independent, due to conflicts of interest and lack of independent thinking as well.
• Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt — meaning that the whole mortgage industry is a massive subprime one, based on a pyramid of debt with delayed repayment 

(Bloomberg) — 2012-04-19 Denmark’s biggest banks are firing Moody’s Investors Service as they win assurances from some of the country’s biggest investors that the opinions of ratings companies hold limited value. 

Nykredit A/S, Denmark’s biggest mortgage lender and Europe’s largest issuer of covered bonds backed by home loans, terminated its contract with Moody’s on April 13, citing its “volatile” views. Danske Bank A/S (DANSKE)’s mortgage unit Realkredit Danmark A/S, the country’s second-largest home-loan provider, dropped Moody’s in June. Jyske Bank A/S, Denmark’s second- biggest listed bank, is looking into ending its dealings with Moody’s, according to Steen Nygaard, its head of treasury. 

“They have just crossed the line for fairness,” Nygaard said in an interview. “It’s not just that we have an opinion and if they rule against us, we are mad and walk away. It is about the fundamentals where we simply cannot follow Moody’s arguments.” 

Moody’s in June criticized Denmark’s $470 billion mortgage- bond industry, the world’s third largest after the U.S. and Germany, for failing to curb refinancing risks fueled by a mismatch in funding and lending maturities. Since then, Nykredit’s benchmark index of Denmark’s most-traded mortgage bonds has risen 6.3 percent to a record, signaling investors are disregarding the warnings. 

[...] “It’s not that ratings don’t matter. Of course they do,” said Inger Huus Pedersen, head of fixed-income investments at Hellerup, Denmark-based pension fund PKA, which oversees about $27 billion in assets. “These mortgage bonds, we feel pretty secure about. It’s an old system that’s gone through a lot, which is why I’m quite secure about the system. History has shown us that ratings agencies make mistakes as well.”

[...] In Denmark, Moody’s has been tougher on mortgage banks than other rating companies. [...] “Moody’s has shown a harsh stance on banks ratings compared to the other agencies,” said Marc Stacey, a fund manager at BlueBay Asset Management Ltd. in London, which oversees $42 billion in credit. “If Moody’s upcoming announcements show that they are an outlier, compared to where the other two rating agencies are, then you may find the Moody’s rating being dropped by more and more issuers.” 

[...] Denmark’s two-century-old mortgage market has moved away from traditional, fixed-rate 30-year loans and started offering adjustable rates in 1996 and interest-only loans in 2003 to attract more customers. The country is still struggling to emerge from a recession triggered by a burst housing bubble in 2007. A regional banking crisis claimed three lenders last year. 

“We agree there are risks, but they are less than when the house prices were in a bubble phase,” Nygaard said. “We cannot see the huge risk to the Danish economy. Jyske Bank is much stronger today that it was in 2007.” [...]  

While Denmark’s government debt is half the euro-area average at 44.6 percent of gross domestic product in 2012, the European Commission estimates, its private debt is the world’s highest. Household debt reached 310 percent of disposable incomes in 2010, according to Exane BNP Paribas. Danes’ savings, while high, are mostly “locked up” in hard-to-access pension and real estate assets, central bank Governor Nils Bernstein has said. 

Adjustable-rate loans, as well as loans that delay principle payments by as much as 10 years, make up more than half Denmark’s outstanding homeowner debt, according to the Association of Danish Mortgage Banks. Bernstein has urged the industry to phase out interest-only loans, which he says erode economic stability. 

Foreclosures jumped an annual 32 percent last month to a 17-year high, after Denmark’s economy fell into a recession in the second half and house prices sank an annual 8 percent in the fourth quarter. 

“What Moody’s is doing is putting pressure on the system, and that is not necessarily a bad thing,” said Peter Lindegaard, head of investments for Danica Pension, a unit of Danske Bank. Still, Lindegaard said Danica, which holds 20 billion kroner in mortgage debt, won’t exit Nykredit’s bonds after the lender dropped Moody’s. 

“We think we know as much as Moody’s about how the system works,” Lindegaard said in an interview. “We still deem them a very secure investment.”

Thanks for my friend Blbl for sending me the links a while ago! 

Danish Credit Crunch Deepens

My friend SS sent me the following Bloomberg report.

Feb. 6 (Bloomberg) -- Denmark’s credit crunch is getting worse as businesses accuse banks of withholding funds and the financial regulator warns that deteriorating asset quality may put more lenders out of business. 

“When we ask our companies, small- and medium-sized, they say they are experiencing a credit crunch and it has become worse in the last month,” Karsten Dybvad, chief executive officer of the Danish Confederation of Industry, said in an interview in Copenhagen.  

Dybvad’s group, which represents 10,000 Danish firms, wants the financial regulator to give banks more leeway in meeting capital requirements so they don’t call in loans and fuel a vicious circle that’s stifling the $300 billion economy. In a December survey of confederation members, two thirds said they had limited access to financing, while one in five said an absence of funds was the biggest obstacle for growth. 

Three Danish banks, including Amagerbanken A/S, failed last year after the FSA required them to restate bad loans, leaving them in breach of capital rules. Two of the failures pushed losses on to senior creditors and exacerbated a funding squeeze that’s frozen most of Denmark’s 120 banks out of debt markets. 

[...] The Organization for Economic Cooperation and Development warns an absence of credit may fuel a vicious circle in which businesses lack the funds to run their operations, leaving them unable to pay their debts.
[...] 

Denmark is also struggling to recover from a property bubble that burst in 2007, throwing the economy into a recession and killing jobs. House prices fell an annual 8.5 percent in November as the gap between bid and ask prices widened. Prices will have slumped 25 percent by 2013 since the crisis started in 2007, the government-backed Economic Council estimates.

[...] Denmark has the highest household debt load in the world, at 310 percent of disposable incomes, Exane BNP Paribas estimates.

Amazingly, credit addiction is deeply entrenched in Denmark as well, as this unbelievable statement from Dybvad group, which is asking the regulator to allow bankrupt banks to stay in business so that they can push on more loans... By the way, it looks like Mark-to-Fantasy has some limits in Denmark, while it's unlimited in the US, where the corruption of the system is far deeper than anywhere else in the developed world.

If you need to borrow money every month to keep your business running... Guess what? You're business should be closed long time ago and you're insolvent!

The OECD is saying that — I take a shortcut — if you don't lend the businesses money, they will go bankrupt... Eeeerrrm... How to put in a easy to understand statement? Well business, like states and countries, which rely on borrowing and spending and fail if no more credit is allowed are already insolvent. In addition to what, these kind of businesses have a name: Ponzi Schemes. One must be really from a communist country like France to believe otherwise.

What an amazing closing sentence... Now flashback in march 2011:

Denmark’s mortgage bond market is about 1 1/2 times the size of the country’s economy and more than seven times the size of the government bond market, according to the central bank.

And, flashback in 2009: I wrote a post titled Denmark the next country to default? where I basically made the same kind of forecasts.

Finally, flashback just a month ago, in January 2012:

 Jan. 19 (Bloomberg) -- Billionaire George Soros’s assertion that Denmark’s $480 billion mortgage credit system can weather any crisis better than any country where mortgages are bought and sold is proving the rule for international investors.

George Soros might be right, but weathering better doesn't mean that you're not going to make losses. I actually think losses will be substantial when banks default and debt is marked down.

The Nykredit Mortgage Bond Index, which includes the largest, most-traded of the securities, rose to a record this month, holding up through a real estate slump, a banking meltdown and Europe’s debt crisis. Home-loan bonds have gained 29.2 percent since 2007, beating U.S. Treasuries. 

[...] Denmark’s benchmark mortgage bonds have gained almost as much since the U.S. subprime collapse triggered the global credit seizure in 2007 than in the prior five years. Demand is surging even as home prices are projected to fall 25 percent by 2013 since the crisis, economic growth slows and unemployment rises, with investors gravitating to a country that’s one of only 12 nations in the world with AAA ratings at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. 

The Danish mortgage bond market differs from other countries in several key respects. When a homeowner in Denmark takes out a loan, the mortgage is immediately converted into a security of the same amount. A homeowner can then retire a mortgage either by paying off the loan or by purchasing an equivalent face value of the bonds at the market price.

Danes call this the balance principle. Mortgage issuers take all the credit risk, providing reserves in case a borrower defaults. Investors face a risk only on interest-rate fluctuations. Another difference with the U.S. is there are no government-sponsored companies involved in the market.

Can mortgage issuers take all the credit risk? How stupid is that statement, specially in 2012, when we saw what happened to similar schemes in the US? Fannie and Freddie anyone? If the mortgage guarantor defaults, what are your chances of getting back your principle?

Japanese Chartology

Japan in a few charts:

The Stock Market is still down more 75% since the collapse of the late 1980s:

Inflation rate — or, as you can, the deflation rate, since the same period. Could the same thing happen to the US and Europe?

The 10 Year JGB, yielding between 2% and 0.5% in the past 15 years — could the same thing happen in the US and Europe?

BoJ interest rate. Japan has been in ZIRP for the past 15 years — could the same thing happen to the US and Europe?

The Government Debt-to-GDP ratio — above 200%, much much higher than any European country:

And the demographic time-bomb about to hit Japan:

Population growth — the population is actually declining:

People above 65 years old — pensioners are exploding relative to the rest of the population. They pay little to no taxes and sell their pension's investments:

People between 15 and 64 years old — declining steadily. These are the people who work, pay taxes, produce and invest in their pension funds:

People under 14 — there's no new generation waiting to take over. It's normal to see such a low birthrate. Would you think about having children if you were in a depression, having hard time meeting months ends and no knowing what tomorrow will bring?

Kyle Bass Interview on BBC HardTalk

Kyle Bass was interviewed on BBC HardTalk — the 25 minute interview dates back from the 15th of November, showing just how much catching up I have to do — but is still very interesting.

It's amazing how the interviewer is trying to use the speculator in Kyle Bass as a culprit and the cause of the crisis, blaming him for making money by betting against governments, and taking short positions, and so forth...

The 2 part interview is available on YouTube.

Part 1:

Part 2:

Portugal To Receive 600 million euros Bailout in December

This seems to have been planed for some time, but I don't remember hearing about it anywhere:

The European Union (EU) placed on 29 September a € 1.1 billion bond with 7 years maturity, completing a successful series of EU bond issuances done over the last weeks. The operation, under the European Financial Stabilisation Mechanism (EFSM), was carried out by the European Commission on behalf of the EU. From the proceeds Ireland will receive € 500 million and Portugal € 600 million of loans as part of their financial assistance packages.

Jim Grant Interviewed on Bloomberg TV Discusses the ECB the EU Mess

Jim Grant was interviewed on Bloomberg TV yesterday, Nov the 11th. Unfortunately, the video on Bloomberg.com is broken. Luckily, the video is also available on YouTube, but embedding is disabled.

ZeroHedge has done a good job at summarizing the interview:
On the three thread by which the world currently hangs:

i) by the financial probity of Italy

ii) by the determination of Greece to implement austerity measures

iii) and by the responsibility of our money spinning central bankers

"These are very slender threads indeed."

On what the ECB will do:

The ECB has expanded its balance sheet mightily under Trichet. We have a new leader and we have a new imperative. I dare say Europe is going to print money.

On central bank monetization and its implications:

The Italian yields did not fall on their own. It raises questions of overall integrity of market prices. In the US the Fed has nationalized the yield curve. In Europe much the same is going on: the SNB is expanding its balance sheet at astonishing rates of speed. The world over there is seeing immense money printing and there is a huge race to debase on the behalf of the sponsors of paper money.

Central banks are insolvent:

The ECB has a ratio of non-AAA rated assets to equity of 14 to 1. What the ECB has been doing is stepping in where private money fears to tread. In the private sector we call the heading for trouble... The New York Fed is leveraged 100 to one.

And the kicker analogy which is absolutely spot on:

The ECB is now implementing the MF Global trade.

He also discusses:

• Immense money printing by the Swiss National Bank (SNB)
• The farmland price bubble in the US: everybody is chasing it, the income yield of about 2.5%, which is at the lowest of the past 40-50 years. In the late 80s, at the bottom, they were yielding 7-8% and trading for about 10% of the current value.

I would add that once must be mad to buy farmland which is such an illiquid asset and which will be prone to all the government manipulation and extortion as soon as the second leg of the Greater Depression settles in, with confiscations, price fixings etc.

ISDA Says Greek 50% Writedown Not A Credit Event

ISDA says Greek 50% write down is not a credit event, and hence will not trigger CDS payments. The massive fraud perpetrated by the ISDA is simply unbelievable.

Needless to say, this is yet another massive transfer of wealth from people whose forecasts were right to those who are plain and simply losers.

What is going to be interesting is to find out whether there will be litigations around this decision, and even more importantly, whether the CDS market and instrument will survive in face of such a blatant fraud and theft.

Oct. 27 (Bloomberg) -- The European Union’s agreement with investors for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered, according to the International Swaps & Derivatives Association’s rules. 

ISDA will decide if the credit-default swaps should pay out depending on whether it judges losses to be voluntary or compulsory. European leaders said in today’s agreement they “invite Greece, private investors and all parties concerned to develop a voluntary bond exchange” into new debt. 

A last minute agreement was reached after banks, the biggest private holders of Greece’s government bonds, were threatened with a costly full default, according to Luxembourg Prime Minister Jean-Claude Juncker. The involvement of the Institute of International Finance, which represents lenders, also helped progress toward an accord that the EU could portray as non-mandatory.

“As long as the agreement is voluntary, then CDS aren’t triggered,” said Cagdas Aksu, an analyst at Barclays Capital in London. “Provided it’s voluntary, CDS wouldn’t be triggered unless the Greeks missed a payment.” 

David Geen, ISDA’s general counsel in London, didn’t immediately respond to e-mailed questions.

Bank Runs 2011 Continues in France, Spreads to China

My friend blbl forwarded me a couple of interesting reports, in French, which I have translated using Google Translate (so please bear with the quality of the translation).

The first one is showing that a major corporation, the biggest oil producer in the country, has been withdrawing funds from the banks:

Total reduced the number of banks in which it deposits funds for fear of a credit crunch in the euro area, but remains confident in the French settlements, said Monday its chief financial officer at the agency Dow Jones and Wall Street Journal.

"We have reduced our exposure to banks by reducing the amounts that we file, the number of banks that we use and duration of deposits," said Patrick de La Chevardière the sidelines of a day devoted to investors in London.

The group, which manages about 20 billion euros of money available, runs its funds more quickly than before and instead of depositing money for a week or a month, prefers the day. He now uses a little over ten banks, without specifying how many schools he previously used.

The second one is about a massive fund withdrawals facing Chinese banks:

The four major Chinese commercial banks are losing large amounts of deposits so that high inflation and low interest rates encourage investors to entrust their funds to individuals or private companies, reported Thursday the official press.

Deposits of the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China and Agricultural Bank of China (ABC) have shrunk from 420 billion yuan (48, 6 billion euros) during the first 15 days of September, according to Zhongguo Zhengjuan Bao (Journal of the securities of China).

Corporate Bank Runs Have Started in the Eurozone

According to the FT, Siemens has withdrawn half a billion euros from a large French bank:

Siemens withdrew more than half-a-billion euros in cash deposits from a large French bank two weeks ago and transferred it to the European Central Bank, in a sign of how companies are seeking havens amid Europe’s sovereign debt crisis. [...] 

In total, Siemens has parked between €4bn ($5.4bn) and €6bn at the ECB’s facilities, mostly through one-week deposits, this person said. Only a handful of large companies have the banking licences that allow them to deposit cash directly with the ECB. 

Siemens’ move demonstrates the impact of the eurozone’s deepening sovereign debt crisis on confidence in European banks. It was not clear from which bank Siemens withdrew its deposits. A person familiar with BNP Paribas said, however, that it was not the bank involved.

According to Bloomberg, Lloyd's of London is also pulling money from the peripheral European countries banks — note that Bloomberg thinks the deposits Siemens withdrew were from SocGen, while the FT thinks it was from BNP-P:

Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution. [...] 

Siemens AG (SIE), European’s biggest engineering company, withdrew short-term deposits from Societe Generale SA, France’s second-largest bank, in July, a person with knowledge of the matter said yesterday. Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions.

According to the Figaro (in French, h/p blbl), Match.com is trying to do the same from Meetic.com's accounts. Meetic.com is a subsidiary Match.com took over last year. Here's a similar report I managed to find in English:

The new American owner of the site Meetic, Match.com, wants the games portal puts his money in a U.S. bank, and not French, said on Tuesday, the founder of the French group, Marc Simoncini, Radio BFM Business. As investors worried about the financial health of European banks, Marc Simoncini, who still holds 7% of the dating site he founded in 1995, reported that the French company had received an e-mail “this week -end “of Match.com who was concerned about where was the” cash for Meetic. ” 

In his email, the American owners’ suggested or imposed (…) to move the money from the French bank in which it is to a U.S. bank, “said he. Marc Simoncini is not specified, however, which bank was concerned. 

“There’s been no transfer of funds from one bank to another”, said Philippe Chainieux Tuesday, the director General Meetic, confirming however that the dating site had indeed received a request from its largest shareholder America. “Match.com has actually asked this weekend our cash position in the different banks that we use and pay conditions to compare with the conditions of pay in the United States,” said Philippe Chainieux. The review “has no connection with the solvency of European banks or not. It means not any panic,” assured Philippe Chainieux, refusing to give the names of financial institutions housing the Group’s accounts.

European Debt Crisis — The 2 min Video Which Explains Everything

I already posted this video back in July 2010 — about 15 months ago. As you can see, it's still very much a Zeitgeist, and nothing has been resolved:

Here's the YouTube link for those who do not see the embedded video.

G8 pledges to double their aid for Arab countries to $80 billions

My friend blbl sent me a link to this news, asking: "Where will they get the money from?"

Arab states that ousted their dictators got a financial shot in the arm Saturday with promises of tens of billion of dollars to help their rocky transformation into modern democracies.

G8 rich nations and institutions including the World Bank, the IMF, regional banks and the Arab Monetary Fund pledged nearly $80 billion in aid and loans over the next two years, doubling the amount promised earlier this year.

French Finance Minister Francois Baroin announced the massive increase at a Group of Eight finance ministers' meeting in Marseille, where close by up to 1,000 demonstrators gathered to protest against austerity measures.

Unfortunately, bankrupt money lending money to other bankrupt nations is generally not a great idea.

As usual, you can count on government to do exactly the opposite of what should be done and destroy any creative action taking place... These interventions from outside usually empties these actions of their spirit and legitimacy and creates even more corruption at a time of high instability.

While US Equity Futures Rally 5%, Greece 1Y Gov Bond Yield 97%

In less than 24 hours, the S&P 500 Mini Futures ES rallied more than [Update: 55 points] 40 points, and in the process, making me hit my stop (grrr). The good news is? Greece 1Y bond is trading with a yield of [Update: 97%] 93% now.

The massive one-two day rallies are very typical of bear markets. Sooner or later, the "buy the dip" and the "stocks are cheap" mentality will come to an end. But before than, investors losses will zoom. This is the mentality that allows for bear markets to continue their course, and for us, evil short sellers to make bundles.

Second Historical Chart Of The Day: Greek 1 Year Bond Yield At Above 80%

The year sovereign rate for Greece is above 83% now, which basically means that Greece is shut out of the debt market — a positive thing.

I won't bet against the market on this one, but it 83% is a sweet deal :-)

17 Banks Sued by the FHA — About $200 Billion at Stake

The FHA is saying that the banks misled Fannie Mae and Freddie Mac about the soundness of the underlying mortgages. REALLY? You think? How can banks defend themselves now, 5 years after the facts, when most of the skeletons in the closets have been found? I don't think there will many hiding places.

Not only are most of the banks on this list cash strapped and on the verge of collapse — specially, BofA and SocGen, according to the market action, but now, the lawsuits could precipitate their collapse.

Do you really think that these banks will have a cumulative $200 billion to hand bank?

Bank of America (including its subsidiaries ML, CFF) is on the line for about $50 billion. How big those $5 billion invested by Warren Buffett look like now? How clever does Warren Buffett look like now?

Of course, with $200 billion at stake, those making the profits will be the law firms. And these banks will obviously everything they can to delay and prevent the ruling from impacting them negatively.

Sept. 2 (Bloomberg) -- Bank of America Corp., Citigroup Inc. and JPMorgan Chase were among the 17 lenders sued by the Federal Housing Finance Agency for allegedly misleading Fannie Mae and Freddie Mac about billions of dollars of residential mortgage-backed securities. 

In lawsuits filed today in New York state and federal courts and in federal court in Connecticut, the agency also named as defendants Barclays Plc, Nomura Holdings Ltd., HSBC Holdings Plc Societe Generale SA, Morgan Stanley, Ally Financial, Royal Bank of Scotland, Credit Suisse Group AG, Deutsche Bank AG and First Horizon National Corp. The complaints say the banks misled Fannie Mae and Freddie Mac about the soundness of the underlying mortgages. 

FHFA is seeking to have some defendants refund the investments with interest and pay other damages, including punitive damages for alleged misconduct. “FHFA alleges that the loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities,” the FHFA said in a statement. 

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency. Billions in Securities The agency said in its filings that Fannie Mae and Freddie Mac bought $6 billion in mortgage-backed securities from Bank of America; $24.8 billion from Merrill Lynch, which Bank of America took over in 2008; $3.5 billion from Citigroup; $11.1 billion from Goldman Sachs and $4.9 billion from Barclays. The suits also cover $2 billion in securities from Nomura, $33 billion from JPMorgan, $883 million from First Horizon, $14.2 billion from Deutsche Bank, $14.1 billion from Credit Suisse, $1.3 billion from Societe Generale and $6.2 billion from HSBC. 

“The claims brought by the FHFA are unfounded,” said Frank Kelly, a spokesman for Frankfurt-based Deutsche Bank. “Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more, often after hand-picking the loans they now claim should not have been included in the offerings.” 

The FHFA sued UBS AG, Switzerland’s biggest bank, in July over $4.5 billion in residential mortgage-backed securities sold to Fannie Mae and Freddie Mac, claiming they misstated the risks of the investments. The suit seeks unspecified damages.