Mish's Global Economic Trend Analysis

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JPMorgan, Bank of America Forgive Debts that No Longer Exist; Wonderful News! But For Whom? Posted: 29 Sep 2012 06:18 PM PDT In February, five of the nation's largest banks agreed on a $25 billion settlement over widespread, systemic mortgage fraud and related issues. The $25 Billion Deal, announced with huge fanfare, was supposed to help up to a million struggling homeowners, primarily via debt forgiveness. Let's flash forward a few months to see how debt forgiveness is working out in practice. Today, the New York Times notes Banks Forgive Debt That Isn't There. GREETINGS, unhappy homeowners! Here's some wonderful news: "We are canceling the remaining amount you owe Chase!" says a letter that JPMorgan Chase sent recently to thousands of home loan borrowers. "You are approved for a full principal forgiveness of your Home Equity Account," says another, from Bank of America. Jackie Esposito, of Guilford, Conn., got a letter like that. But she wasn't elated — because she doesn't owe the money anymore. She and her husband filed for bankruptcy three years ago. The roughly $64,000 they owed Chase has been legally wiped out. Others have received similar letters about phantom debts. A borrower in Florida received word this month that Chase was erasing $190,065.10 of debt that had already been wiped out. Bank of America told a Virginia resident that a $231,767 home equity loan was being forgiven, even though the debt was discharged last May. Are the banks' forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no. But Chase appears to be claiming to release a lien on Ms. Esposito's property that it does not hold. And under the mortgage settlement, it could receive a credit. As for Ms. Esposito, she said she found the bogus loan forgiveness letter from Chase especially upsetting because of the years she has spent trying to have the bank modify her first mortgage. She pays 9 percent on her loan and cannot refinance it into a lower-rate mortgage, given her recent bankruptcy. Chase won't help her modify her loan, Ms. Esposito said, but it is happy to help by forgiving a loan that has already been discharged and releasing a lien that is already gone. Wonderful News! But For Whom? If these events are happening on a broad scale, and I suspect they are, that $25 billion settlement will end up costing peanuts. Bear in mind, I have little sympathy for people who themselves purposely took out loans they knew they could never pay back, nor do I have sympathy for people who were willing partners in bank fraud. Regardless, I wondered at the time how the banks would take a $25 billion hit without getting crushed. Well, now we know. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

China New Export New Orders Decline At Fastest Pace in 42 Months; China's Precarious Rebalancing Act Posted: 29 Sep 2012 09:29 AM PDT HSBC China Manufacturing PMI™ shows Output falls at fastest pace since March. Key points New export orders fall at fastest rate in 42 months Output and input prices continue to fall Purchasing activity declines amid weak demand and lower production requirements Data in September signalled a stronger decline in Chinese manufacturing output, as the volume of new orders fell for the eleventh consecutive month. New export orders declined at the sharpest rate in 42 months amid reports of weak international demand, while lower workloads were linked to a fall in backlogs of work. After adjusting for seasonal factors, the HSBC Purchasing Managers' Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 47.9 in September, up slightly from 47.6 in August, and signalling an eleventh successive month-on-month deterioration in Chinese manufacturing sector operating conditions. However, the latest data signalled the rate of deterioration eased marginally. The rate of reduction in manufacturing output in China accelerated during September, signalling the strongest contraction since March. A number of respondents that reported a fall in production levels attributed this to lower order volumes as both domestic and international demand weakened. However, the rate of reduction in new export orders remained stronger than the decline in overall new orders. Panellists commented on tough trading conditions in a number of key trading markets. China's Precarious Rebalancing Act Discounting the continually over-optimistic comments from Markit economists in general, I would otherwise be puzzled by comments of Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC who said: "Chinese manufacturing growth is likely to be bottoming out. However, the sharper contraction of new export orders and the lingering pressures on job markets mean that Beijing should step up easing to support growth and employment. Fiscal measures should play a more important role in the coming months." What indication is there that manufacturing growth is bottoming out? In the first place, China manufacturing is in contraction, not growth. Moreover, the European recession is strengthening and a US recession is underway (just not recognized yet in my opinion). Thus it would be logical to assume China's export-driven economy is going to take another hit. Trade matters with Japan, and the debate over ownership of islands in the East China Sea are also unsettling. For a discussion, please see Japan PMI: Output and New Orders Contract Further Is Beijing going to step up and support employment and growth? I do not have the answer to that, but China needs to rebalance, and that rebalancing act will be painful. The transition to a consumer-led economy from an export and infrastructure-building economy will be slow and painful, but also very necessary. For further discussion of the need to rebalance and the problems facing China please see. The Dating Game: Michael Pettis Challenges The Economist to a Bet on China   12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?   By 2015 Hard Commodity Prices Will Collapse; Australia's Mining Boom Dies (and the Official Denials Start) Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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