Tuesday, 23 November 2010

One Down, Four To Come.

Baltic Dry Index. 2179 +24
LIR Gold Target by 2019: $30,000. Revised.

That is what happened specifically in the origination of mortgages in the United States in the middle part of the last decade. You had a transition from a traditional method of issuing mortgages to people who could be reasonably expected to service them, to a method of originating mortgages that were sold off immediately, that were rated in a way that permitted them to be bundled and sold to fiduciaries, and where the issuer had no interest in whether the borrowers could pay or not. In fact, in some ways the lenders actively preferred people who did not intend to pay, because they could then inflate the value of the loan and earn a larger fee upfront for doing it.

James K. Galbraith.

Ireland down, Portugal, Spain, Italy and Greece to go. But first, North Korea seems to have attacked a South Korean island, in a new skirmish that could all too easily escalate. Already nervous stock markets aren’t likely to take the news well. While the markets complacently expect this to quickly blow over, I think it wiser to prepare for something more than just an incident. North Korea seems to have something to say. They very pointedly have just shown off their new nuclear enrichment plant to the west and now this. North Korea seems to want a crisis, and the danger is that they will escalate again. Stay long precious metals. As noted elsewhere, silver seems to be leaking away from the Comex depositories.

Now back to the Irish bailout that’s bringing down the government. It is by no means certain that the Irish austerity plan will pass the Irish parliament, but even if it does that markets recognise that it merely brings up Portugal and Spain, and right behind them, Italy and the tax and work shy Greeks again. Europe’s rescue plan seems to have Titanic written all over it. Stay long precious metals. To me at least, it looks as if the Euro in its present form is doomed.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

John Kenneth Galbraith

Ireland bail-out: Markets brand rescue package a failure due to lack of detail

Ireland's bail-out had been branded a failure by the markets owing to the lack of detail on the multi-billion euro loan

By Philip Aldrick 7:20PM GMT 22 Nov 2010

As the country descended into political chaos, hopes that the deal to pull Ireland back from the brink would stem contagion across Europe were also quickly dashed. The cost of insuring Spanish and Portuguese government debt rose, while the euro also closed down against the dollar and sterling.

"This is not a ringing endorsement as fundamentally no one is addressing the real issues," Marc Ostwald, interest rate strategist at Monument Securities, said. Simon Derrick, currency chief at the Bank of New York Mellon, added: "Rescue or no rescue, Ireland and the other peripheral nations face some difficult times ahead."

Failure to win over the markets could prove highly damaging for the euro area as Brussels attempts to shore up confidence in the embattled project. "Speculative actions against Portugal and Spain are not justified, though it can't be excluded," Jean-Claude Juncker, president of the euro group, conceded.

Ireland has agreed to a loan of €80bn-€90bn (£68bn-£77bn) to recapitalise the banks and set aside a contingency fund for government borrowing, making it the second eurozone member to need a bail-out after Greece. As part of the package, the government is doubling its austerity drive to €30bn, with €5bn of the additional measures coming from tax rises and €10bn from spending cuts.

Throwing the country into chaos, the Green Party – the ruling Coalition's minority partners – demanded an election in January and independents threatened to vote down some of the measures. The unsettling political mood sent jitters through the markets and comes just days ahead of Portugal's largest general strike in protest at its own deficit reduction plans.

Economists now expect Ireland to miss earlier economic targets. "The growth forecast for next year will be severely challenged simply because of confidence and credit availability," Amit Kara at UBS said. Credit rating agency Moody's said a "multi-notch" downgrade in Ireland's AA2 credit rating was "most likely" because the rescue package would increase the country's debt burden.


Irish Debt Crisis Forces Collapse of Government

By LANDON THOMAS Jr. Published: November 22, 2010

DUBLIN — The Irish government faced imminent collapse on Monday, only a day after it signed off on a $100 billion bailout, setting the stage for a new election early next year and injecting the threat of political instability into a European financial crisis that already has markets on edge.

Confronted with high-level defections from his governing coalition, Prime Minister Brian Cowen said he would dissolve the government after passage of the country’s crucial 2011 budget early in December.

His announcement capped a grim day for Ireland, as protesters tried to storm the Parliament building in Dublin, and Moody’s Investors Service, the ratings agency, lowered the rating on Irish debt by several notches.

In agreeing to new elections, Mr. Cowen seemed sure to become the first political casualty of the debt crisis in the 16-member euro zone.

The developments sent a chill through financial markets and political circles in the euro zone, where the severe austerity measures imposed to keep the currency union from fracturing have yet to be tested in general elections.

The impending collapse of the Irish government after an expensive bailout seemed only to reconfirm fears that the financial crisis was far from contained.

Analysts warned that deeply indebted countries like Portugal and Spain that are pushing through unpopular budget cuts may soon face an uncomfortable choice: punishment by financial markets that will hammer any laxity in deficit-cutting with exorbitant interest rates, or by an angry electorate annoyed by prolonged economic hardship.

“It will be the same story with all these countries — Ireland is just ahead of the game,” said Desmond Lachman, a former policy executive from the International Monetary Fund who is now with the American Enterprise Institute in Washington. “They all have a fixed exchange rate and have to make these massive adjustments, so people are asking whether they are on the right path.”



Irish Rescue Plan Shifts Focus to Portugal, Spain: Euro Credit

Nov. 23 (Bloomberg) -- Ireland’s plan to seek a European rescue risks escalating, rather than alleviating, the sovereign debt crisis as investors turn their focus to the high budget- deficit nations of southern Europe, led by Portugal.

----- Even as EU leaders said Ireland’s bailout will stem contagion in the euro region, investors are turning their attention to Portugal, which hasn’t cut government spending and has barely grown for a decade. A rescue of Portugal may increase pressure on its high budget-deficit neighbor Spain, whose gross domestic product is almost twice the size of Portugal, Greece and Ireland combined.

After Portugal “the next question would be Spain and then Italy and then France and then the EU,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “Spain is bit too big to be bailed out, the size of a rescue required would use up all the funds available and then you have Italy with contagion as well,” prompting “a situation where the euro itself is put into question,” he said.

---- Portugal’s debt amounts to 76 percent of gross domestic product, compared with 53 percent in Spain, 66 percent in Ireland and 116 percent in Italy last year. Spending by the Portuguese government, which lacks a parliamentary majority, continued to grow in the first 10 months of 2010, Finance Minister Fernando Teixeira dos Santos said on Nov. 17.


Greece May ‘Shut Down’ on Cash Shortage, High Frequency Says

Nov. 22 (Bloomberg) -- Parts of Greece’s government may be forced to “shut down” as early as next week if the country isn’t able to cover a revenue shortfall after its European Union partners delayed its next tranche of aid money, High Frequency Economics Ltd. said.

“With a big tax revenue shortfall, cash requirements are surely greater than the 6.5 billion euros ($8.95 billion) Athens was meant to receive next week,” Carl B. Weinberg, chief economist at Valhalla, New York-based High Frequency wrote in a note to clients today.

“Unless the government gets funds soon after Nov. 30, it will run out of cash,” Weinberg said. “If so, the government will have to shut down, at least in part.”


These are not times to be rash in the markets. Nothing is working out as the central banksters thought it would. The great ships of the fiat currency states are all at sea in uncharted waters, and smashing into reefs that the central banksters said weren’t there.

At the Comex silver depositories Monday, final figures were: Registered 49.18 Moz, Eligible 58.59 Moz, Total 107.77 Moz. Silver is once again leaking out of inventory.


Crooks and Scoundrels Corner.

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

Today, more on the growing scandal in America that threatens to give us “the next Lehman” at some point next year. Several hundred billion of residential mortgage backed securities sold worldwide look like they’ve become unbacked securities with income streams dependent on the goodwill of the mortgaged homeowner. My guess is that the holders will just put back the bogus security to the sellers. My guess is that they in turn will have to put up the “security” with the Fed in yet another bailout. A monstrous scandal to hit in 2011. Little wonder all the squids and banksters are looting the system via bonuses for all it’s worth before the roof falls in.

"The principal cause of the crisis was the dismantling of the system of regulation and supervision in the financial sector which had for much of the post-war period kept the most dangerous elements of that sector in check. In the absence of an appropriate system of effective supervision and regulation, what happens is that the actors in the system, who are intent upon taking the greatest degree of risk — including actors who are intent upon using fraudulent methods to increase their returns — come to dominate parts of the system.”

James K. Galbraith.

The Big Fail

posted by Adam Levitin

Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.

Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust. The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan. That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.

This opinion could turn out to be incredibly important. It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction: failure to properly transfer the mortgage meant that the mortgages were never actually securitized. The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.

---- Now here's the real kicker: there's no reason to think that the Kemp note was a unique, one-off problem. All evidence from actual foreclosure cases points to the lack of a chain of endorsements on the Kemp note being not the exception, but the rule, and not just for Countrywide, but industry-wide. Certainly on the non-delivery point (separate from the non-endorsement problem), Countrywide admitted that non-delivery was "customary." If either of these issues, non-delivery or non-endorsement is widespread, then I think we've got a massive problem in our financial system.

----- Federal bank regulators should be all over this; there is monstrous systemic risk potential. The new Financial Stability Oversight Counsel, as well as the OCC and the Fed and FDIC should all be doing very targeted examinations of the large trustee banks' collateral files to grasp the scope of the problem. I don't know what they're actually doing, but I'm afraid that they aren't undertaking the proper investigation. Fortunately, this particular issue is easily within the expertise of bank regulators: just go to the collateral files and start looking at a large sample of notes. See how many are missing complete chains of endorsement or lack signatures altogether. That will be a very quick way to tell if there is a problem.

---- If the mortgages weren't properly transferred, there could be a variety of securities law violations, including servicers' regular Reg AB attestations. There could also be securities law violations on behalf of the banks--if the assets weren't properly transferred, they are still on the banks' balance sheets (as are the losses) and should be accounted for as such.



There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

John Kenneth Galbraith

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.

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