Monday, 22 November 2010

Ireland Surrenders

Baltic Dry Index. 2155 -09
LIR Gold Target by 2019: $30,000. Revised.

A Modest Proposal

For Preventing The Children of Poor People in Ireland
From Being a burden to Their Parents or Country, and
For Making Them Beneficial to The Public

By Jonathan Swift (1729)

Late yesterday, the Irish government surrendered and put the Irish taxpayers on the line for bailing out Europe’s banks. The EU and IMF, Great Britain and Sweden, are all going to lend money to the government of Ireland, who in turn will give it to the Irish banks, who will use it to repay 100 cents on the Euro to the British and European banks that were foolish enough to lend money to Irish banks. Thus are the Irish sold out by their representatives, in the cause of making European banksters whole. It’s not what the national treasury of for, nor will it work for long. With Irish property prices heading into freefall, a new wave of mortgage losses is about to hit Ireland’s banks. They’ll be back at some point next year, it seems. Our fiat currency has about reached the end of its utility. The benefits were all front loaded and long dissipated. Now comes the harsh reality as we inch our way to a final currency crisis and eventually sound money.

It is a melancholy object to those who walk through this great town or travel in the country, when they see the streets, the roads, and cabin doors, crowded with beggars of the female sex, followed by three, four, or six children, all in rags and importuning every passenger for an alms.

Ireland Seeks Rescue for Banks as EU Struggles to Stem Contagion

Nov. 22 (Bloomberg) -- Ireland sought international aid, becoming the second euro country to need a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency.

Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund, Irish Finance Minister Brian Lenihan told reporters late yesterday. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), would help Ireland avoid selling bonds.

“The banks were too big a problem for the country,” Lenihan said in Dublin. “The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector.”

The aid, which Irish officials said as recently as Nov. 15 they didn’t need, marks the latest blow to an economy that more than doubled in the decade ending in 2006. The bursting of the real-estate bubble in 2008 plunged the country into a recession and brought its banks close to collapse. With Irish bond yields near a record, policy makers are trying to keep the crisis from engulfing Portugal and Spain, the fourth-largest euro economy.

“Ireland had no choice,” said Nicholas Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for money managers. “The market will still be waiting for the details of the assistance and the conditionality, but there should be a relief rally.”

Ireland having punted into the next year, it’s Portugal’s turn to hog the Euro limelight, although they will soon share the billing with dodgy Spain. The euro seems destined to die a death of a thousand bailout crises.

"The secret of life is honesty and fair dealing. If you can fake that, you've got it made."

Groucho Marx

Portugal next as EMU's Máquina Infernal keeps ticking

The Portuguese seemed baffled - and pained - that investors should link their country in any way with Greece or Ireland. I am afraid they must come to terms very soon with some unpleasant facts.

By Ambrose Evans-Pritchard 6:00AM GMT 22 Nov 2010

So must Europe’s leaders, who comfort themselves that Greece is a special case because it cheated, and that Ireland is a special case because it allowed its "Anglo-Saxon" banks to go berserk. They have yet to acknowledge the deeper truth that monetary union has insidiously destabilised much of Europe and trapped a ring of largely innocent countries in depression.

In my experience it is hazardous for English-speaking journalists to write about Portugal without being accused of betraying the Aliança Velha, or pursuing a perfidious Palmerstonian agenda.

It is an article of faith - an Iberian trait - that Portugal is the victim of an orchestrated calumny intended to divert attention from a bankrupt Britain, or America. The rating agencies are deemed agents of Anglo-Saxon hegemony.

So with some trepidation, let me point out that Portugal will have a current account deficit of 10.3pc of GDP this year, 8.8pc in 2011, and 8.0pc in 2012, according to the OECD. That is to say, Portugal will be unable to pay its way in the world by a huge margin even after draconian austerity.

This is the worst profile in Europe. It requires a drip-feed of external funding that can be shut off at any moment, and undoubtedly will be unless the global economy goes full throttle into another boom. Or as the IMF puts it, "the longer the imbalance persists, the greater the risk the adjustment will be sudden and disruptive".

Note that Ireland - however wounded - will have a surplus of 0.7pc next year, and 3.2pc in 2012 as IT industries and pharma exports drive a rebound. The Irish "internal devaluation" may conceivably pay off.

---- Yes, Portugal’s public debt is manageable at 86pc of GDP - although even that figure is in question. Opposition leader Peder Passos Coelho said over the weekend that the real figure is 122pc, accusing the government of "fictitious" accounting. Be that as it, public debt is not the core problem. Private debt is one of the highest in the world at 239pc (Deutsche Bank data), and the events of the last two years have taught us that private excess lands on the taxpayer one way or another in a crisis. A chunk of this is owed to foreigners, and must be rolled over.

Portuguese banks have been well-behaved. There is no property bubble. But as the IMF points out in its Article IV report, the banks have a "heavy reliance" on external funding, equal to 40pc of total assets. It was a funding crisis that killed Northern Rock, not bad loans.

The IMF also says Portugal has the eurozone’s most rigid labour markets, and that social transfer costs have risen to 22pc of GDP from 18.5pc in 2005. Productivity is stuck at 64pc of the eurozone average, unchanged since the early 1990s. The promised EMU catch-up effect never occurred.


"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency.

At the Comex silver depositories Friday, final figures were: Registered 49.54 Moz, Eligible 58.73 Moz, Total 108.27 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today, more on the US securitized mortgage mess that threatens to generate the next Lehman. More and more it looks like the whole US RMBS sector was nothing but a giant scam foist on the unsuspecting rest of the world. Stay long physical precious metals. More and more it’s looking like Bank of America is leading the charge to be the next Lehman.

"If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."

Lloyd Blankfein. CEO Goldman Sachs. November 8, 2009

Countrywide Admits to Not Conveying Notes to Mortgage Securitization Trusts

Testimony in a New Jersey bankruptcy court case provides proof of the scenario we’ve depicted on this blog since September, namely, that subprime originators, starting sometime in the 2004-2005 timeframe, if not earlier, stopped conveying note (the borrower IOU) to mortgage securitization trust as stipulated in the pooling and servicing agreement. Professor Adam Levitin in his testimony before the House Financial Services Committee last week described what the implications would be:

If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever. The chain of title concerns stem from transactions that make assumptions about the resolution of unsettled law. If those legal issues are resolved differently, then there would be a failure of the transfer of mortgages into securitization trusts, which would cloud title to nearly every property in the United States and would create contract rescission/putback liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions….

Recently, arguments have been raised in foreclosure litigation about whether the notes and mortgages were in fact properly transferred to the securitization trusts. This is a critical issue because the trust has standing to foreclose if, and only if it is the mortgagee. If the notes and mortgages were not transferred to the trust, then the trust lacks standing to foreclose…

If the notes and mortgages were not properly transferred to the trusts, then the mortgage-backed securities that the investors’ purchased were in fact non-mortgage-backed securities. In such a case, investors would have a claim for the rescission of the MBS, meaning that the securitization would be unwound, with investors receiving back their original payments at par (possibly with interest at the judgment rate).


"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection or production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."

Friedrich Hayek, 1933

With St Andrews Day fast approaching, below a vital link for my fellow Scots.

The Whisky Shop (Inverness)

The monthly Coppock Indicators finished October:

DJIA: +204 Down. NASDAQ: +289 Down. SP500: +196 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. October is the fifth down month in a row.

No comments:

Post a Comment