Mish's Global Economic Trend Analysis

Deutsche Bank Seeks "Voluntary" 50% Haircut on Greek Debt, Resists Recapitalization Efforts
Property Developers Hurting in China; New Homes Sales Down 50% in Shanghai; Preposterous Prices Won't Last; Commodities to be Hit in Building Slump
Nigel Farage Calls Juncker a "Political Ostrich" in European Parliament, says Wake up to the misery you're inflicting on millions!
In One Day, Trichet Proves He is a Liar; IMF Proves it is Clueless

Deutsche Bank Seeks "Voluntary" 50% Haircut on Greek Debt, Resists Recapitalization Efforts

Posted: 16 Oct 2011 07:05 PM PDT

The Economic Times reports Deutsche Bank boss in talks over Greek debt

The head of Germany's biggest bank, Deutsche Bank, is conducting talks over a 50-percent write-down of Greek debt in his capacity as chairman of the global banking lobby, a newspaper reported Sunday.

Citing both government and banking sources, the mass circulation Bild said that Josef Ackermann was participating in negotiations on a voluntary "haircut" on Greek debt that could be as high as 50 percent.

European Union leaders are gathering next Sunday in Brussels and hope to present a comprehensive solution to the eurozone debt crisis that threatens to tip the 17-nation zone -- and the rest of the world -- into recession.

It is widely expected that leaders will announce that private investors will have to accept a greater loss -- or "haircut -- on their holdings of Greek debt. Speculation has focused on a 50 or even 60 percent write-down.

To prevent these heavier losses from prompting a bank crisis, EU leaders are also thought to be looking at ways to recapitalise the main lenders.

Ackermann spoke out on Thursday against a "forced" recapitalisation of banks, saying the debate was "counterproductive" because most banks had beefed up their capital resources on their own already.

The head of the eurozone finance ministers, Jean-Claude Juncker, however has insisted that cash must be pumped into banks "to ensure that there is no danger of contagion for the entire banking system."

Not "Voluntary"

For starters there is nothing voluntary about 50% haircuts. Second, a 50% haircut is not enough. Third, regardless of what Ackermann says, the entire European banking system is insolvent and thus in desperate need of recapitalization.

Banks passed stress tests only because there were no sovereign debt writedowns included.

We need to look beyond Greece to Portugal and Spain. More haircuts are coming and for countries other than Greece.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Property Developers Hurting in China; New Homes Sales Down 50% in Shanghai; Preposterous Prices Won't Last; Commodities to be Hit in Building Slump

Posted: 16 Oct 2011 12:21 PM PDT

Developers in China are struggling and it's about to get much worse because China Construction Bank Raises Mortgage Rates for first time borrowers according to the Wall Street Journal.

Channel News Agency Asia reports Credit crunch in China hurts property developers

The co-founder of SOHO China, one of the nation's leading developers, is worried Beijing's efforts to cool the sector are hurting sales and threatening to send some debt-laden property developers to the wall.

"In my sixteen years as a developer this is by far the most challenging year I've ever had, in terms of what we could sell," Zhang, chief executive of Beijing-based SOHO, recently told reporters.

Since the beginning of this year Beijing, fearing a bubble, has been trying to bring down dizzying prices by hiking interest rates and restricting lending to developers, making it nearly impossible for many to get financing, Zhang said.

Industry officials and analysts are worried that the measures are now squeezing sales so much that property developers who have borrowed heavily to fund new projects could be tipped into bankruptcy.

"A wave of newly completed property is about to hit the market. Developers are likely to find themselves holding large volumes of unsold property."

In Shanghai -- where the average cost for one square metre of downtown housing was 48,000 yuan (about $7,500) last year, about 12 times the average monthly salary -- home buyers have little sympathy for cash-strapped developers.

"Considering the high housing prices in Shanghai, a new flat is just a dream," said Qian Xueqi, a manager at an international hotel.

Housing Math in China

One square meter = 10.7639104 square feet
Cost per square meter = $7,500
Cost per square foot = $7,500 ÷ 10.7639104 = $696.77
An 800 square foot home (74 square meters) would cost $557,418

How many in China can afford that? Moreover, other than bubble mentality, there is no reason to pay such prices, even if one could afford it.

Commodities to be Hit in Building Slump

Home prices will not perpetually stay levitated above wages regardless of perceived shortages. Notice I said "perceived" shortages. Housing shortages in China are a mirage just as they were in Florida, Las Vegas, Phoenix, San Diego and other places in the US.

In China, bubble dynamics coupled with inane government intervention and growth policies make it appear as if there are shortages. The entire property sector in China will collapse as will the demand for commodities need to build those houses.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Nigel Farage Calls Juncker a "Political Ostrich" in European Parliament, says Wake up to the misery you're inflicting on millions!

Posted: 16 Oct 2011 09:46 AM PDT

Here are a couple of highly entertaining videos of Nigel Farage attacking the credibility of Jean Claude Juncker in front of parliament. The second video discusses the no vote by Slovakia's parliament that cost the Prime Minister her job.

Link if video does not play Nigel Farage: Wake up to the misery you're inflicting on millions!

Link if video does not play Nigel Farage: United States of Europe insane politics

In the second interview Farage immediately corrects the interviewer on how many nations actually passed the EFSF and other Eurozone bailout agreements.

Nigel Farage, we salute you.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

In One Day, Trichet Proves He is a Liar; IMF Proves it is Clueless

Posted: 16 Oct 2011 12:06 AM PDT

On Friday, outgoing ECB president Jean-Claude Trichet said the "ECB will not act as a lender of last resort". It took one day for Trichet to prove he is a blatant liar.

Please consider ECB to end bond-buying when markets stabilize: Trichet

The European Central Bank signaled on Saturday it would not abruptly end its bond-buying program now that the euro zone bailout fund EFSF has powers of secondary market intervention and would wait until financial markets stabilize.

"It is because we have the absence of financial stability in the euro area that we have to intervene to help restore a better transmission of monetary policy," Trichet said.

In plain English Trichet effectively said "ECB will be the buyer of last resort until financial markets stabilize."

Thus, it only took only one day for Trichet to contradict himself. I would love to be at a press conference and call him a liar to his face. Why the press lets him get away with these blatant lies is beyond me.

IMF Proves it is Clueless

This one is more subtle. See if you can catch it. Reuters reports IMF calls for pan-European deposit insurance

The International Monetary Fund called on Saturday for an EU-wide deposit insurance scheme and more coordinated regulation of the continent's banks to prevent contradictory national regulation from exacerbating its debt crisis.

A common bank crisis management system, a supra-national resolution regime and common deposit insurance rules would help significantly stabilize the banking system, said Ajai Chopra, the deputy director of the IMF's European Department.

The IMF believes a deposit insurance scheme should be introduced in parallel to an increased harmonization of deposit insurance schemes in the member states to ensure sovereign problems don't trigger destabilizing bank runs, he said.

The headline itself discloses the stupidity of it all. Insurance is not stabilizing, it is destabilizing.

In the United States, FDIC "insurance" protects deposits no matter what stupid things banks do. Scores of banks offered high interest rates attracting deposits simply because they were government insured. Banks took those deposits and made risky loans to condo development in Florida and Las Vegas, then blew up. Corus bank is a prime example. Larger banks were bailed out.

If there was not deposit insurance, these banks never would have gotten funding or if they did they would have failed early. Instead, they were able to attract deposits because deposits were insured, and only because they were insured.

Here is another example: Would money have flowed to Icelandic banks if governments did not guarantee the deposits? I assure you the answer is no. Ironically, Icelandic banks blew up in spite of the alleged insurance, when Iceland rightfully said "screw you".

Bank runs are only destabilizing when they are concentrated. It is far better to have a few isolated bank failures sporadically than none for a decade followed by 700 in two years.

Insurance coupled with AAA ratings on garbage entices people and lenders to take obscene risks in the belief nothing can go wrong. Insurance concentrates systemic risk until the whole mess blows up at once.

This has been proven in spades, multiple times, in multiple countries, and the IMF consists of a collective group of complete fools to not see the simple truth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Sunday, October 16, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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