Just what the hell is going on?

This whole Cypriot bailout story is plain insane (haircutting citizens, Russian money laundering, etc.). And it sounds like a terrible idea. Here is some commentary:

• This House Has No Confidence In Olli Rehn, Nor Anyone Else 
• More on the Russian angle 
• A muddled and risky approach to Cyprus

Of course Prof. Krugman has a couple of comments on the situation, here and here.

But so far my favorite comment has been by Duncan Black, as usual:

"Always dangerous to wish for revolutions, but people in Spain and Italy and Greece really should consider pulling all of their money out of the banks, both as a precaution and as protest. If a bank run happens, the banks will just be bailed out again, as magically more free money will appear. For the banks."

“Who gives a crap about some imbecile?”

Yeah, this kind of attitude and PR are really going to help your case:

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

How about a boycott of the Home Depot? (Marcus is one of the co-founders). I wonder if any of his customers are so-called "imbeciles"?

What kills me is that these people rail and rail about their taxes as if they couldn't possibly pay more, when historically taxes on income at these levels is at an all time low. Just give us all a break already.

All hail AMERICA!!!

Next time some flag waving neanderthal is berating you with chants of "USA, USA" pull up this link:

(AP) WASHINGTON - Squeezed by rising living costs, a record number of Americans — nearly 1 in 2 — have fallen into poverty or are scraping by on earnings that classify them as low income.

It isn't too complicated

Mysterious Europe

What I have never understood, and still don’t understand, is how European leaders think this is going to work out. What’s the plan? Or lacking a plan, what’s the story with a happy ending?

As I see it, the underlying eurozone story is pretty clear and simple. After the creation of the euro, investors developed a false sense of security about lending to peripheral economies; this led to large capital flows from the core to the periphery, and corresponding current account imbalances:

These capital inflows also caused a boom in the periphery that raised costs and prices dramatically compared with the core:

Now all of that has to be unwound. So how is that supposed to happen?

It seems obvious that spending cuts in the periphery have to be offset by spending increases in the core, and also that a way has to be found to make the required real depreciation in the periphery feasible. But eurozone policy is for austerity everywhere, and a low inflation target for the area as a whole, which means crippling deflation in the periphery.

So where is the story about how this is supposed to work?

As far as I can tell, European policy makers aren’t even thinking about scenarios. They’re just repeating the old slogans about stable prices and fiscal responsibility, with no narrative at all about how pursuing those virtues can be consistent with European recovery.

Even a few months ago I regarded a complete euro crackup as highly implausible. Now I’m having trouble finding a plausible story about how the thing survives.

In other news, Jean-Claude Trichet is the new chairman of the Group of 30. My congratulations. True, I have said some harsh things about his policies — but as Tessio said, it was only business.

Reading PA

Yes this is America:

READING, Pa. — The exhausted mothers who come to the Second Street Learning Center here — a day care provider for mostly low-income families — speak of low wages, hard jobs and an economy gone bad.
Ashley Kelleher supports her family on the $900 a month she earns as a waitress at an International House of Pancakes. Louri Williams packs cakes and pies all night for $8 an hour, takes morning classes, and picks up her children in the afternoon. Teresa Santiago takes complaints from building supply customers for $10 an hour, not enough to cover her $1,900 in monthly bills.
These are common stories in Reading, a struggling city of 88,000 that has earned the unwelcome distinction of having the largest share of its residents living in poverty, barely edging out Flint, Mich., according to new Census Bureau data. The count includes only cities with populations of 65,000 or more, and has a margin of error that makes it difficult to declare a winner — or, perhaps more to the point, a loser.
Reading began the last decade at No. 32. But it broke into the top 10 in 2007, joining other places known for their high rates of poverty like Flint, Camden, N.J., and Brownsville, Tex., according to an analysis of the data for The New York Times by Andrew A. Beveridge, a demographer at Queens College.
Now it is No. 1, a ranking that the mothers at the day care center here say does not surprise them, given their first-hand knowledge of poverty-line wages, which for a parent and two children is now $18,530.
The city had been limping for most of the past decade, since the plants that sustained it — including Lucent Technologies and the Dana Corporation, a car parts manufacturer — withered. But the past few years delivered more closings and layoffs, sending the city’s poverty rate up to 41.3 percent.
Jon Scott, president of the Berks Economic Partnership, which helps businesses looking to stay in the area or move here, said that some of the city’s job losses were in fact furloughs, and that many businesses were considering opening in Reading, including an industrial laundry company at the former Dana site.
According to Mr. Beveridge, employment in the city dropped by about 10 percent between 2000 and 2010.
One of Reading’s more entrenched problems is education. Just 8 percent of its residents have a bachelor’s degree, far below the national average of 28 percent.
“Without a bachelor’s degree, forget it,” said Ms. Williams, 28, who is taking classes to earn her G.E.D.. Only about 63 percent of Reading’s residents have a high school diploma, compared with more than 85 percent nationally.
Lower education generally means higher poverty. About a fifth of people ages 25 to 34 with only a high school diploma in the United States were poor last year, compared with just 5 percent of college graduates, said Yiyoon Chung, a researcher at the University of Wisconsin, Madison. For those without a high school diploma, the rate was 40 percent.
Ms. Santiago, 36, has an associate’s degree from a local community college, but said that employers wanted to see more from job candidates. She lost her last full-time job in 2007, and has worked in low wage jobs without benefits through a temporary agency ever since.
“They even want a degree to be a secretary,” said Ms. Santiago, picking up her 8-year-old son at the center.
This city has had a large influx of Hispanics over the past decade. They moved from New York and other large cities, drawn by cheaper rent and the promise of a better life. That raised the flagging population, but also reinforced the city’s already acute problems with education: Just 18 percent of Hispanics in Reading had some college education last year, compared with 30 percent of the city’s whites. Only 44 percent of Hispanics had a high school diploma.
Young men have been particularly hard hit. Because they are having trouble competing for jobs, they are dropping out of the labor force, leaving women to support the children.
Ms. Kelleher, 23, said she had been supporting her three children as well as the father of two of them. She would not be able to survive, she said, without the $636 a month she gets in food stamps.
“For the past five years, it has been me paying the bills,” she said at the day care center, still in her waitress uniform. She wants to get married someday, she said, but only to a partner who is financially stable.
Sixty-two percent of young fathers in the United States earned less than $20,000 in 2002, according to Timothy Smeeding, a professor at the University of Wisconsin, citing the most recent data available from the National Survey of Family Growth.
Even for young people with a bachelor’s degree, the economy is making life difficult. Vickie Moll, who runs the day care center, said the number of applications from teachers who have lost their jobs had grown as the waves of budget cuts washed over the state. “We have people in here with bachelor’s degrees making $8 an hour,” she said.
Social services feel the effects, too. The Greater Berks Food Bank — Reading is the Berks County seat — is on track to distribute six million pounds of food this year, up from three and a half million pounds in 2007, said Doug Long, manager of marketing.
Pat Giles, a senior vice president at the United Way of Berks County, said: “It has really started to snowball. We have a growing population of younger, less educated, less skilled people. On top of that you have the economy going upside down.”
Modesto Fiume, president of Opportunity House, the organization that runs the day care center, as well as a homeless shelter and a transitional living facility, said the number of first-time families in the shelter was up sharply: of 23 new entries in June and July, 18 were homeless for the first time.
“People are here because they honestly and truly can’t find work,” said Delia McLendon, who runs the shelters. “It didn’t used to be that way.“
In the mid-1990s, welfare reform resulted in more women joining the work force. At the time, jobs were plentiful, but now work is scarce and low-income families’ lives have become hectic balancing acts to keep the few benefits they have.
Ms. Santiago loses her subsidized day care if she is out of work for more than 13 days, she said. The loss would take months to reinstate, so she hurries to find any work, whatever it pays, every time her temp job ends. Earning more than $10 an hour means losing health insurance, she said, though her children remain covered through Medicaid.
And jobs just seem to pay less. Ms. Santiago recently took a temporary job at a candy factory where she had worked more than eight years ago, when she was still in her 20s, before she had completed her associate’s degree. At the time she was making $10.50 an hour. In her most recent stint, her hourly wage was $9.25.
“Eight years ago I said, ‘I don’t want to do this, I have to further my education,’ ” she said. “And now here I am, still packing candy, and making less.”

Trickle down economics...

That phrase was utter bullshit. I had an English professor in college who told us the only thing that trickles down is piss. That was a great line, and it was almost 20 years ago. I think what is trickling down now is bad behavior.

Check out this article:

Implosion of Foreclosure Mill Leaves 100,000 Cases in Limbo

Florida, as the ground zero of the foreclosure crisis, is arguably further along in seeing how some of the uglier aspects of this mess will work themselves out. The foreclosure mill abuses were so bad that even a not terribly venturesome AG, Bill McCollum, went after them, and his Republican successor, Pam Bondi, is reported to be keen to keep the heat up on mortgage arena miscreants.

As the cases against the big foreclosure mills have moved forward, clients have exited, and that is generally a death knell for a law practice. Normally, when law firms get in trouble, partners who have books of business not involved in the scandal plus senior associates capable of handling client relationships grab as much of the old business as possible and reconstitute under another name. But the foreclosure mills were very high leverage operations, with very few partners and much of the work handled by paralegals or junior attorneys. So there is no one to pick up the pieces when a firm like that falls apart.

The imminent closure of the biggest player in Florida, the Law Offices of David Stern, is leaving a lot of cases in the lurch. From the Palm Beach Post Money (hat tip Lisa Epstein):

The status of nearly 9,000 Palm Beach County foreclosure cases is in question following attorney David J. Stern’s announcement that he is closing his foreclosure shop at the end of the month and dropping the files.

Statewide, as many as 100,000 cases need to be officially withdrawn from by Stern attorneys, but with a decimated staff, Stern told judges in a March 4 letter that he simply doesn’t have the manpower to file the correct paperwork….Hundreds of employees were subsequently laid off, leaving the transfer of foreclosure files to new firms in disarray…

“Florida Rules of Civil Procedure require that attorneys file a proper Motion to Withdraw from any case which they no longer plan to represent,” said Eunice Sigler, a spokeswoman for the 11th Judicial Circuit Court in Miami-Dade County. “We are currently researching various options, including any remedies available through the Florida Bar.”

Palm Beach County Chief Judge Peter Blanc said this week he’s also trying to figure out how to proceed.

“Stern has provided notice he will no longer be attorney of record, but the court is unable to recognize it,” Blanc said. “I’m told we’re getting more stipulations of substitute counsel but not anywhere near the number we should have.”

Blanc said he’s never seen a move like Stern’s before – sending a letter to judges that says “treat the pending cases as you deem appropriate.”….

Foreclosure defense attorney Tom Ice, of Ice Legal in Royal Palm Beach, has about 100 former Stern foreclosure cases.

He said chief judges shouldn’t get involved in what to do with them.

“It’s entirely improper for Stern to be communicating with the chief judge and asking him to decide what to do with my cases behind my back,” Ice said.

There is a lot more to  it, and you have to read the comments. People are really angry about this crap - and they knew that the regular blue and white collar workers, the ones that these state governors (OH, IL, NJ, etc.) are all coming after, are taking the hit while the millionaires and billionaires walk away... It really is a sad commentary on our state of affairs.

General Growth Properties Files for Bankruptcy

This is pretty big news, and the story is across many levels - consumer spending, commercial real estate, mortgages, etc:

General Growth Properties, one of the largest mall operators in the nation, filed for bankruptcy early Thursday morning in one of the biggest commercial real estate collapses in United States history.

Despite bargaining for months with its creditors, General Growth faced increasing pressure to handle its more than $25 billion in debt, largely in the form of short-term mortgages that will come due by next year. The company has been severely wounded by the recession, which has wreaked havoc upon the retailers who inhabit its more than 200 malls in 44 states. Many stores have shuttered, depriving mall operators like General Growth of revenue.

What fascinates me going forward is what is going to happen to all these eventually abandoned properties. There is so much over capacity in America, so many millions (!) of extra square feet of retail space, that realistically there may never be a need for it. Especially as more and more people shop on-line. The closings/bankruptcies of retailers and whole malls will drive even more people to turn to the web (when consumption picks up). There is such a mess to unwind, it may be the story for the next several generations.

D.I.Y.

This is definitely going to be a growing trend - and I hope it will have long lasting benefits for American society as a whole - even if the short term affect is negative to some of the people providing these services:

A few months ago, as her family’s income fell, Laura French Spada, a real estate agent in Glen Rock, N.J., began dyeing her hair at home and washing the family cars herself. Her husband, Mark, started learning how to do electrical repairs.

Susan Todoroff, a personal trainer in Ann Arbor, Mich., has begun brewing espressos at home and cutting her hair and cleaning her house herself. And Tamar A. Zaidenweber, a health care market researcher in Astoria, Queens, is spending more time walking her dog instead of taking it to day care each week.

All of these consumers could praise themselves for their newfound frugality in the midst of an economic downturn. But every step they take toward self-reliance — each shrub they prune themselves, each cupcake they bake from scratch — hurts the people and small businesses that have long provided these services professionally.

Getting back to doing things for yourself, realizing that every "free" moment isn't about shopping, vacationing, gambling, getting drunk and watching TV, while paying someone else to do the little things in life for you that actually make up real life - I think this is an important step for Americans to take and perhaps a longer term silver lining in this economic disaster.

The heart of the matter

Largely because of what Mr. Hanson called the “widespread creation of wealth,” the number of domestic hotel rooms in the luxury segment almost doubled, to more than 80,000, in the last 10 years, according to Smith Travel Research. At the same time, luxury hotel companies were also planting their flags in every major city in the world.

Is this true? Was there really a “widespread creation of wealth,” - or was most of the world just involved in the biggest Ponzi scheme (Credit Default Swaps, etc.) ever for the last ten years? Unfortunately I think it was the latter. The excess capacity of luxury hotel rooms, luxury real estate, luxury retail stores, etc. (brought on by the former enormous excess of credit) will probably all have to be worked off in the coming years, and it could be a long and ugly time economically (and literally) as this happens.

Economy Lost 63,000 Jobs in February

The NY Times tells us today that "The economy shed 63,000 jobs in February... the fastest falloff in five years and the strongest evidence yet that the nation is headed toward — or may already be in — a recession."

What I can't get is how many news reports repeatedly call this kind of news "unexpected". What the hell were they expecting!

"This is a stunning fall"

From Bloomberg:

Feb. 5 (Bloomberg) -- U.S. service industries unexpectedly shrank in January at the fastest pace since the last recession as the housing slump deepened and consumer spending cooled.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 41.9, the lowest since October 2001, from 54.4 the prior month, the Tempe, Arizona-based ISM said. A reading of 50 is the dividing line between growth and contraction.

"This is a stunning fall,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. "If accurate, it's dire news on the economy.''

The momentum of reality is starting to wash across the landscape. The economy is in rough shape, credit is getting tighter, all sorts of loans are going bad, the labor market is weakening, and its the middle of winter!

I like how this article is framed as if this number was as surprise - I mean what the hell were they expecting?

S&P Mulls $500B in Mortgage Downgrades

NEW YORK (AP) — Standard & Poor's Ratings Services is considering slashing its rating on more than $500 billion of investments tied to bad mortgage loans, the ratings agency said Wednesday.
The massive downgrade would threaten a broad swath of the world's finance industry, S&P said, ranging from Wall Street's trading desks to regional banks to local credit unions.

This isn't going to end any time soon. The commercial real estate market has to follow, and the labor picture is sure to worsen also.

"which is also concerning to us."

From Calculated Risk:

"Another effect we're having has been a challenge with the media and with consumer groups; and with consumers willingness just to walk away from homes. We haven't seen anything like this since Texas during the oil bust and people just willing to declare bankruptcy and walk away. We are seeing a lot of that similar type social phenomenon occur, particularly in California, which is also concerning to us."

Mark Hammond, CEO, Flagstar Bancorp conference call.

This really is the tip of the iceberg. As this kind of behavior becomes socially acceptable, there is going to be an avalanche of foreclosures. These houses will eventually, some way, come back into a housing market that is already flooded with inventory. This is starting to feel more like a 3 to 5 year event than a 1 or 2 year event.

Update: I listened to this call myself and made some corrections to the transcript above. If you want to hear this quote it comes at about the final quarter of the call.

Good morning -

From the RGE Monitor this morning:

"A recession is usually defined as two consecutive quarters of negative growth. A different meaning is attached to the concept of global recession, in a world where China, Russia and India account for half of global growth and are growing at an annual rate of 11.2%, 7% and 8.5% respectively. A 2.5% rate of global growth qualifies as a global recession. Big investment banks like Citi now expect 2008 global growth at a weak 3.2% while the IMF just adjusted downward its 2008 growth forecast from 4.8% – as in the October WEO – to 4.1%, the slowest in five years. "

You Walk Away

This just leaves me speechless: YouWalkAway.com.

A couple of people have already made extensive commentary on it - so I won't add much more. One thing I think Steve Croft left out of his 60 Minutes report though was the fact that with these 100% (sometime 100% plus - which he did mention) mortgages is that the home "owner" has no equity in their property. Without that down payment - without real tangible loss, why wouldn't people just walk away?

Early morning/overnight news

Good morning. Since we are posting from Europe we can give you a round up of things from late yesterday and early this morning:

UBS: $14 Billion in Mortgage Write Downs That is a lot of money - and not the first write downs for UBS.

Bond Insurers Face Downgrade Despite Call for Delay This is not a good story. It probably has to happen - the house of cards must fall - but this will be a disaster.

F.B.I. Opens Subprime Inquiry Was there actual criminal activity in the whole subprime mess? Probably, but I think it will be a tough case for the FBI to prove.

The dollar was down a tenth of a penny in early morning trading.

A round up of business and finance headlines from the NY Times.

Is U.S. in Recession?

The Wall Street Journal has an interesting blog post up discussing this question:

"Stanford economist Robert Hall, chairman of the National Bureau of Economic Research committee that dates recessions, is far from announcing whether such an event has started. But he and his colleagues on the NBER’s Business Cycle Dating Committee have taken a key step: The usually dormant panel has started discussing the economic data."

They also have the National Bureau of Economic Research definition of a recession:

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

It is sort of amazing that the US is so accustomed to "constant growth" that a simple recession could be causing so much anxiety not only in the US but across the globe. I say simple recession here because it is not even confirmed we are in one, although most economists of all stripes are now agreeing we are heading towards one. The argument now is going to be how deep and long this coming recession lasts - but - again - I am still shocked at just how much a panic there seems to from the mere word. Recessions happen in capitalist societies/economies - they are normal and probably healthy. I think the real fear here is that people know or feel (even if they are not saying so) that there may be a realignment of the US economy to what I call a more mature economy - that is - an economy of slower growth and demand overall. With the ever rising price of energy costs and the end of cheap credit to American consumers (due to not only the crashing housing market but to tighter credit world wide), maybe the American economy in the next several years will look a lot more like the economies of the EU - and I don't think that would be such a bad thing.

Fed meeting today

Predictions are for fools - here's mine on today's interest rate decision from the Fed: they cut only a quarter point and the market sells off hard.

Anyway - the Fed is not supposed to be in the game of "saving" the market - whatever that means. Many people think that the recent inter-meeting three quarter cut was a mistake anyway, driven by world wide collapsing stock markets - that now in hindsight may have been partly caused by the Société Générale scandal (see this).

My idea of only a quarter point cut is not as solid as it was over the weekend- the terrible housing news from yesterday actually gave the stock market fuel (economy really bad, must cut rates more = (somehow!) good news for stocks). Of course it is only the traders that are going to profit from this - if we are in a recession, corporate earnings are going to continue to suffer and so will stock prices. Those who can move big or small piles around quickly (traders, both of the institutional and day variety) are probably the only ones that are going to profit from today's decision. An economy this weak (real or perceived) is not going to spring to life because cheaper money is floating around.