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Wednesday, November 2, 2011

Mish's Global Economic Trend Analysis

Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum?
Hilarious Video of Eurocrats in Action, Ripping Off Taxpayers and Running Into Walls to Avoid the Cameras
Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse
EFSF Bond Sale Postponed Because of Market Conditions; Fake Haircuts, Fake Help
In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Brilliant Moves by Papandreou; EMU Mentions Eurozone Exit Possibility First Time Ever; Who the Hell is Merkozy to Dictate Terms of a Greek Referendum?

Posted: 02 Nov 2011 06:20 PM PDT

As the days progress, the strategy of George Papandreou has become increasingly clear. He does not like the terms forced on him by Eurozone bureaucrats especially French president Nicolas Sarkozy and German Chancellor Angela Merkel.

Not only is he fed up with Eurocrats, he is fed up with Greek protests as well as pressure from political opposition.

I talked about this previously in my post In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Who the Hell is "Merkozy" to Dictate Terms of a Greek Referendum?

The reaction to Papandreou's referendum proposal was swift and severe, not only in the markets, but also at the emergency meeting Cannes between Merkel, Sarkozy, and Papandreou.

Sarkozy and Merkel proclaimed the Referendum was about an exit from the Eurozone.

Really? I ask again, Really?

Who the hell is "Merkozy" to dictate terms of a Greek referendum?

That said, I appreciate the fact that Merkozy now accept the simple fact that an exit from the Eurozone is possible.

This is a major step in the right direction, even if it constitutes effective blackmail on Greece.

Blackmail by IMF, Merkozy

The IMF upped the ante saying Greece will not get the next tranche of money until after the referendum. Hmmm. It seems the IMF and EMU should have thought about that before the last release of funds.

By the way, this helps explain the timing of Papandreou's announcement.

Papandreou's Timing Perfect

Papandreou cleverly waited until he had the funds and anti-Papandreou sentiment was extreme before announcing his referendum ploy.

What transpired immediately following his announcement was a series of on-off-on referendum announcements culminating with Papandreou convincing his cabinet to go along with the idea (please see Greek Referendum Off or On? Who is in Control? Anyone?)

That was an incredibly gutsy but also exceptionally well-timed move by Papandreou.

Yes or No, But to What?

With the above backdrop, please consider Greece to Decide Euro Membership in December Vote as EU Cuts Aid Payments

European leaders cut off aid payments to Greece and said a referendum in five weeks will determine whether the debt-strapped nation becomes the first to exit the 17-country euro area.

Crisis talks ended in the French resort of Cannes late yesterday with German Chancellor Angela Merkel and French President Nicolas Sarkozy withholding 8 billion euros ($11 billion) of assistance and warning Greece it will surrender all European aid if it votes against a bailout package agreed upon only last week.

"The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?," Merkel told reporters. Sarkozy said Prime Minister George Papandreou's government won't get a "single cent" of aid if voters reject the plan.

The Greek premier declined to say how the referendum will be worded, saying it "is not the moment" to give the exact language, only that "the question is not just about a program but do we want to be in the eurozone." More than seven in 10 voters said they favored Greece remaining in the euro, a poll last week of 1,009 people published in To Vima newspaper showed.

"Markets will remain very nervous, but with the hope that this hard stance will get to more clarity on Greece's situation soon," Marco Annunziata, chief economist at GE Capital in San Francisco, said by phone. "The EU is casting this as a stark choice on Greece's part rather than reopening discussions on the bailout package."

Who Has the Upper Hand?

Quite frankly that Bloomberg headline is nothing but bullsheet until Papandreou relents. But why should he?

Who is it that has the upper hand?

I encourage Papandreou to go "All In". He has nothing to lose. He will not win the next election and he is tired of playing puppet to Merkozy.

Bear in mind Greece desperately needs reforms. However, the manner in which the IMF, EMU, and Merkozy have forced various issues is in a manner that helps only Greek and French banks, and not Greece at all.

Most Greeks would agree with that assessment, whether it is truer or not. That is the likely reason Papandreou's cabinet went along with the referendum idea, after initially rejecting it.

In short, this was a brilliant series of perfectly timed maneuvers that shoves the ball smack back into the face of of the arrogant Merkozy coalition.

Stuff the Ball Down Merkozy's Thoat Until they Puke

Papandreou's next move should be to stuff the ball down the throats of Merkozy so hard that both of them puke.

All he has to do to accomplish that would be to go ahead and word the referendum how he wants. In short, the referendum needs to include a proposal to stay in the Eurozone, as well as a proposal to reject the terms of the EFSF as presented.

Look at the beauty of this setup from the point of view of Papandreou.

Assuming the proposal to stay in the Eurozone passes but approval of the terms of the EFSF does not, Merkel and Sarkozy will have to do one of two things:

Kick Greece out of the European Monetary Union
Renegotiate terms of the EFSF

Either way, Papandreou wins.

Explanation of My Position

Please do not read any more into this than exists. The facts of the matter are French, German, and other European banks made stupid loans to Greece, Portugal, Spain, Ireland, etc.

Banks that make stupid lending decisions (and not taxpayers) should pay the price for those actions.

Greece desperately needs reforms, particularly in the public union area. I support those reforms.

However, I do not support the bailing out of banks. Unfortunately, all this alleged "help" to Greece is nothing more than an obvious attempt to bail out banks at the expense of Greece and European taxpayers in general.

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

Hilarious Video of Eurocrats in Action, Ripping Off Taxpayers and Running Into Walls to Avoid the Cameras

Posted: 02 Nov 2011 12:17 PM PDT

The following must see video shows Eurocrats in action, ripping off taxpayers and inadvertently running into walls to escape the lights of the camera. The video is in German but has English subtitles. A second video follows with French Subtitles.

The YouTube link Expense Allowance Abuse by MEPs contains additional noteworthy information.

Hans-Peter Martin and RTL in the fight against abuse of expense allowances:

A Member of the European Parliament (MEP) in Brussels earns approx. 14,700 euros per month (~£11,587), according to this RTL Report (in German with English subtitles). How much the MEPs have to work (or don't work) for their €14,700 is the subject of this on-site RTL investigation in Brussels. The video is about MEPs who sign in on attendance lists and then disappear immediately for their weekend. RTL investigating journalists were thrown out of the EU building in Brussels during their work.

Some MEPs try to justify themselves, some to invent excuses, again others flee before the camera and dash off to lifts or also in their confusion bump into the wall (German MEP of the Green Party)!

One-man crusader Hans-Peter Martin, MEP from Austria:
"A Member of the European Parliament earns on an average more than the German Chancellor Frau Merkel and one wants to hide this from the electorate. Therefore, one obviously must get rid of reporters investigating this."

French-Speaking readers may be interested in a similar video French subtitles.

I got the links from Swiss blogger Olivier Crottaz, who has a blog in French, La Chronique de Crottaz Finance.

Inquiring French readers may wish to check it out.

Matter of Perspective

Ironically, the only thing worse than paying outrageous sums of money to these worthless MEP officials for not showing up to work is paying them to show up to work.

Europe would be better off if these guys did nothing at all and the parliament building sold or turned into condos.

Addendum:

Linus from Switzerland writes ...

Switzerland also faced a number of so called EU turbos whose main objective was to join the EMU. Luckily we have constitutional referendums that allowed people to express their opinion. The result was a decision to not to join this most undemocratic structure that will make people hate each other much more than when they were on their own with their own country and currency.

If stupidity hurt, I think Brussels would be one great crying city.

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

Europe Undeniably in Recession; Germany Manufacturing PMI Contracts for First Time in Two Years, New Orders Collapse

Posted: 02 Nov 2011 10:26 AM PDT

Berlin halved its 2012 German economic forecast for 2012 to one percent. What does that say for the rest of Europe? Will Germany even grow at all?

While pondering those questions please note German manufacturing shrinks in Oct for 1st time in 2 years

Germany's manufacturing sector contracted in October for the first time in more than two years as new orders fell for a fourth month in a row, data showed on Wednesday in the latest sign Europe's bulwark economy is set for a sharp slowdown.

Markit's Purchasing Managers' Index (PMI) fell for a sixth consecutive month in October to hit 49.1 -- just above an initial estimate of 48.9 but below the key 50 line that divides growth from contraction.

It was the first time activity had shrunk since September 2009 and it was the lowest PMI reading since July 2009. The sub-index for new orders fell to 45.1, showing the outlook is darkening for the German economy, which recovered from the financial crisis faster-than-expected and outperformed its peers over the past year.

The reading for export orders fell even further in a fresh sign that weakness in key markets abroad and uncertainty due to the euro zone debt crisis is hurting German trade.

Berlin last month nearly halved its forecast for 2012 growth to 1 percent due to weaker expectations for exports.

Trend Not Your Friend

Unless you are hoping for recession, the trend is not your friend as this table of October Final Manufacturing PMI shows.

Europe Undeniably in Recession

With China slowing, the US slowing, and much of the rest of Europe in widely-recognized contraction, the vaunted German export machine has a shrinking pool of able and willing buyers.

Europe is clearly in recession now, including Germany. Expect a dramatic and escalating turn for the worse, because it's coming.

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

EFSF Bond Sale Postponed Because of Market Conditions; Fake Haircuts, Fake Help

Posted: 02 Nov 2011 09:46 AM PDT

When was the last time the Fed postponed a US treasury sale due to market condition? I cannot find one although it is possible it happened at some point in a debt ceiling issue.

Today Bloomberg reports the EFSF Delays 3 Billion-Euro Bond Sale simply because it does not like market conditions.

Europe's bailout fund is delaying a 3 billion-euro ($4.1 billion) bond sale after Greek Prime Minister George Papandreou's request for a referendum on the rescue pact for his country roiled markets.

The European Financial Stability Facility is putting off the 10-year issue "due to market conditions," according to Luxembourg-based spokesman Christof Roche. The fund may wait for the outcome of the Nov. 3-4 Group of 20 summit in Cannes, France before selling the bonds, according to a person with knowledge of the matter.

"The developments around the G-20 in Cannes will have a big impact on the pricing of any issue," said Christophe Herpet, a Paris-based fund manager at AXA Investment Managers, which oversees about $735 billion of assets.

The EFSF will use the proceeds of the bond sale to help finance Ireland's rescue. The nation was the second euro-region country to be bailed out, after Greece and before Portugal. The fund said on Oct. 31 that it hired Barclays Capital, Credit Agricole CIB and JPMorgan Chase & Co. to manage the new issue.

Fake Haircuts

In response to the action by the EU on EFSF bonds, Peter Tchir at TF Market Advisors pinged me with this set of statements.

The EFSF pulling a 3 billion bond sale due to market conditions is pretty bad. These bonds are cleaner and safer than the binary default options the EFSF plans to be selling in the future.

Shouldn't the EFSF generally be expecting to issue in choppy market conditions?

It's like a fireman showing up at a house and refusing to fight the fire because, ah, um, ah that house is on fire and could be dangerous. Regling should spend some time focusing on the blocking and tackling of the EFSF. So far markets (equities in particular) are doing a good job of ignoring this, but not being able to sell at a decent rate, 3 billion of straight debt, doesn't bode well for selling a trillion of complex debt.

IIF is still working on the haircut - heck they even called Greece. It is now almost a week since the grand plan and all we know about the IIF deal is that it will be a 50% NPV reduction and help Greece's debt to GDP by 2020.

How about for every 100 euro of Greek debt you get 25 euro of some new Greek 4% coupon 5 year bond and 25 euro of a new 4.5% Greek 10 year bond? That is a real haircut and is easy.

At first I thought the IIF was tricking Merkozy but I now think they were in on the joke - just Greece and the citizens and Geithner fell for haircut headlines.

My only quibble with that analysis is that Geithner did not fall for fake haircuts, he actively promoted them. Otherwise it is spot on.

Fake Help

And note the preposterous and often repeated hype in the Bloomberg article the bond sale is to "help" Ireland.

No, it's not unless I add a few word to the sentence such as "the bond sale is to help rape Irish taxpayers". Ireland would be far better off right now if it had taken the Icelandic approach, calling for a national referendum, giving its voters the chance to tell the EU and IMF to go to hell.

I am sure they would have done so, just as Icelandic voters did.

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

In Praise of Papandreou's Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards

Posted: 02 Nov 2011 02:15 AM PDT

I do not know what motivated Greek Prime minister George Papandreou to call for a voter referendum on the Greek bailouts (and no one else does either) with the exception of Papandreou himself.

However, there are some rather interesting possibilities (as well as a simple explanation).

The Slog outlines a scenario that Papandreou's bailout referendum bombshell was inspired by Merkel in order to trigger major losses in French banks, causing France to lose its AAA rating, culminating in a total Merkel victory and German revenge over France.

Wow.

As convoluted and conspiratorial as that sounds, it makes for highly entertaining reading (and it's also well presented). On the other hand, my readers know I am a firm believer in "Occam's Razor" which suggests the simplest explanation (the one making the fewest assumptions) is likely to be the correct one.

Certainly, one should never rule out stupidity when that is one of the possibilities. An even simpler explanation is that Papandreou is simply tired of the beatings, and the meetings, and the riots, and has simply decided to "walk away" from the mess by handing the decision over to the voters.

I believe that is the "most likely" explanation even though The Slog presents a very good case that Papandreou Planned this Referendum in Advance with help of his interior minister.

However, planning for a referendum and being prepared for one in advance (if necessary) are two different things. Thus, I suggest (and so would Occam's Razor) that Papandreou saw a potential need for a referendum down the road, and that potential need turned into reality.

One final puzzling aspect to this mess is that just three days ago Papandreou affirmed his commitment to the EU/IMF Troika solution. So what's up with that? Once again no one knows except Papandreou but I will stick with the assessment there is a simple explanation that is not readily apparent right now.

In Praise of Democracy and Choices

With that backdrop, and with the statement I do not like Papandreou personally, I praise Democracy, and by implication, Papandreou's decision.

Is there any reason Greek voters should not be given a choice? I think not. They may not make a wise choice but what is the likelihood that political hacks and political opportunists will?

Iceland Referendum a Winner

Take a good look at Iceland. In repeated attempts, political hacks (with banker's interests in mind) attempted to sell Icelandic citizens into debt slavery. A referendum saved the day. Sadly, voters were forced to repeat the referendum, and once again voters made the correct decision.

Iceland is now in full recovery simply because it told the EU and IMF to go to hell.

No Easy Way out for Greece

Greece does not have an easy way out. However, its problems are no doubt far worse than if it told the Troika to go to hell two years ago.

Greece should have gone bankrupt long ago. Heck, Greece should not be in the European Monetary Union (EMU - Eurozone) in the first place, and EMU bureaucrats are primarily to blame even though Greece lied to get in.

Speaking Against Political Hypocrisy

Peter Tchir at TF Market Advisors (and one of the best authors on Zero Hedge) also praises democracy. Yesterday he pinged me with this set of comments.

If a leader in the Middle East finally gave into months of protest and decided to give the people a real say on an important issue, the Western leaders would be rejoicing. Obama would have a podium and be uttering his support for the Courage of the people who stood up and give the Arab spring his full blessing.

But if a fellow Western leader dares let his people express their wishes more directly than via "their representatives" they are all shocked and outraged. In the meantime other Greek politicians are busy taking advantage to gain power rather than helping their citizens.

Eloquent Praise for Democracy

Pater Tenebrarum at the Acting Man blog eloquently discusses democracy in his post Papandreou Calls For Referendum On Bailout

Embattled Greek prime minister Papandreou has found a way to stick it to the eurocrats in a most elegant manner: instead of continuing to serve as everyone's favorite whipping boy, he has decided it is time to let the Greek people themselves speak out on the future of their country. In a surprise announcement yesterday, he told parliament that Greece is to hold its first referendum since 1974 and that the population would be asked whether it wants to accept the conditions of the bailout plan or not.

The eurocracy is at its heart deeply undemocratic – if it were up to the 'technocrats' leading it, national subsidiarity would have long ago become a relic of the past and democratic interference with their plan to erect a socialist super-state would be kept to a bare minimum.

This can be seen by the fate suffered by previous referendums: when the Irish and French e.g. said 'no' and 'non' respectively to the Lisbon treaty, the referendums were simply repeated to get the 'right' result. As Stalin once sagely remarked, it doesn't matter who votes for what anyway – what matters is who counts the votes. So far, the eurocrats have always gotten the results that they wanted, by hook or by crook. Lately this has become a bit more difficult, as evidenced by recent decisions of the German constitutional court, whose chief justice Andreas Voßkuhle even went as far as demanding a referendum for German citizens as well if the government wanted to cede any more of its fiscal sovereignty to the eurocracy in Brussels.

Greece is the cradle of Western democracy - it is only fitting that it should upset the EU applecart by means of actually practicing it.

Eurocrats are Terrified of Democracy

Tenebrarum certainly hit the nail on the head and so did Daniel Hannan on The Telegraph with his post Eurocrats are Terrified of Democracy

Shall I tell you the truly terrifying thing about the EU? It's not the absence of democracy in Brussels, or the ease with which Eurocrats swat aside referendum results. It's the way in which the internal democracy of the member states is subverted in order to sustain the requirements of membership.

George Papandreou, the luckless Greek leader, is the latest politician to find himself being chewed up because he stands in the way of the Brussels machine. On Monday afternoon, Papandreou announced a referendum on whether to accept the EU's bail-out terms. He had evidently had enough of the antics of the opposition party, New Democracy, which kept insisting that Greece remain in the euro, while opposing all the austerity measures necessary to that end – an outrageous stance given that New Democracy ran up the deficit in the first place. Papandreou hoped to force his opponents off the fence: in favour of the spending cuts or against euro membership. Perhaps he also hoped to put pressure on the EU to offer more generous terms.

I wish I could convey the sheer horror that his proposal provoked in Brussels. The first rule of the Eurocracy is "no referendums". Brussels functionaries believe that their work is too important to be subject to the prejudices of hoi polloi (for once, the Greek phrase seems apposite). Referendums are always seen as irresponsible; but, at a time when the euro is teetering on the brink, Papandreou's proposal was seen as an act of ingratitude bordering on treason.

Eurocrats are prepared to pay any price rather than admit that the single currency was a mistake – or, more precisely, to expect their peoples to pay, since EU officials are exempt from national taxation. The peripheral countries are to suffer poverty, unemployment and emigration, the core countries perpetual tax rises, so that supporters of the euro can save face.

It's chilling to write these words, but EU leaders are evidently prepared to vitiate Greek democracy and wreck the Greek economy rather than allow the euro to break apart. Yet even if they succeed in Greece, they may find that their efforts are for nothing. Italian bond spreads yesterday were back at the level that usually triggers bail-outs. We are about to see quite how far the Brussels apparat will go in defence of its privileges.

Parade of Cowards

In contrast to Hannan, Tchir, and Tenebrarum, the parade of bureaucratic cowards terrified of democracy is nearly endless. Here are some prime examples.

French President Nicolas Sarkozy said in a rare televised address on the steps of the Elysee palace in Paris. "The plan ... is the only way to solve Greece's debt problem." (Reuters)
Daniel Knowles writing for The Telegraph has this story headline - Peace in Europe lasts just five days as Greece turns to blackmail
Dutch Prime Minister Mark Rutte said he would try to prevent the referendum plan, saying he would "attempt to see that it doesn't happen." (AP)
Socialist deputy Hara Kefalidou said "I cannot back a referendum which is a subterfuge by a government that appears unwilling to govern." (AP)
French lawmaker Christian Estrosi said on France-Info radio that the move was "totally irresponsible." "I want to tell the Greek government that when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities," Estrosi said. (AP)
Nicolas Sarkozy's spokesman described Papandreou's announcement as "irrational and dangerous" (Telegraph)
Constantine Michalos, the president of the Athens Chamber of Commerce, called the proposal "an act of political blackmail" (Telegraph)
Antonis Samaras, the leader of New Democracy, vowed – with splendid disregard for his party's name – to prevent a referendum "at all costs" (Telegraph)

Ultimate Irony: Papandreou a Fervent Euro-Enthusiast

Here is one more clip by Daniel Hannan on The Telegraph worth reading.

Euro-enthusiasts in Brussels and in Athens are ready to bring down an elected government rather than allow a referendum. Yet the funny thing is that Papandreou is a Euro-enthusiast. He fervently wants to remain in the euro, and had been planning to campaign for a Yes vote. His sin, in the eyes of Brussels, was not to hold the wrong opinions, but to be too keen on democracy. Leninists had a term for people who, while they might be committed Bolsheviks, none the less behaved in a way which endangered the movement. They were called "objectively counter-revolutionary". Poor Papandreou finds himself in this category.

Help?! What Help?

Of all the cowards, the statement by French lawmaker Christian Estrosi is the most galling: "when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities."

Whose Skin Are We Saving?

No eurocrat or politician outside of Greece gives a rat's ass about helping Greece. The only skin they want to save is their own.

That realization coupled with my earlier proposal that Papandreou was tired of beatings, meetings, and riots is by far the most likely reason Papandreou decided to "walk away" from the mess via referendum.

It's a pity he did not do so long ago.

Addendum:

Reader Jeff Miller, Associate Professor NSU Oklahoma College of Optometry writes ...

I am also a firm believer in Occam's Razor and I think Hanlon's Razor also applies: "Never attribute to malice that which can be adequately explained by stupidity."

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

Tuesday, November 1, 2011

Mish's Global Economic Trend Analysis

Dutch Government Calls Timeout on Euro Bailout Deal
LPS Mortgage Monitor: Over 4 Million Loans 90+ Days Delinquent or in Foreclosure, 72% in Foreclosure Not Made Payment for at Least 1 Year
Greece Replaces Top Brass in Army, Navy, Air Force in Surprise Move; Is Papandreou Preparing for a Military Coup or Afraid of One?
Greek Referendum Off or On? Who is in Control? Anyone?
EU Deal Unravels from Many Sides; Italy, France Bond Spreads Hit Record High vs. Germany; Bund Yield Drops Most on Record; All Out Bond Crisis
Greek 1-Year Bond Yield Hits 205%
GM Sales Barely Rise, Chrysler's Up 27%; What Does It Mean?
Regulators Investigate MF Global for Missing Customer Money; MF Global Goes Bankrupt Before Making 1st Interest Payment; Corzine's Achievement Sheet

Dutch Government Calls Timeout on Euro Bailout Deal

Posted: 01 Nov 2011 11:04 PM PDT

Although there is no formal requirement for the Dutch parliament to approve the EFSF bailout deal, members of the prime minister's coalition are having second thoughts about the deal following the Greek referendum proposal.

Amusingly, members of the opposition are pleased with the referendum stating a preference for tossing "the whole rescue package into the trash bin".

Please consider Dutch govt wins time on euro bailout deal

The Dutch government won time on Tuesday to get parliament's backing for last week's euro zone rescue plan, promising details on the package and facing demands to have a strong budget commissioner and more IMF involvement in the debt crisis.

Despite anger among coalition and opposition parties about Greece's plan for a referendum on the rescue plan, the Dutch parliament agreed to wait for details how the euro zone rescue fund EFSF would work and what powers the commission will get to enforce budget rules before reaching a view.

The package negotiated last week does not need the formal approval of euro zone national parliaments.

But with the cabinet's main ally outside the ruling coalition, Geert Wilders' anti-immigration Freedom Party, strongly opposed to such bailouts, Prime Minister Mark Rutte relies on help from the opposition.

The opposition party Labour, whose support is crucial for securing majority support for the minority government, called Greece's referendum plan a "deal breaker" and "spontaneous self-incineration".

"The package is not strong enough, and it is effectively wiped off the table now that Greece has placed a bomb under it," Labour MP Ronald Plasterk said in parliament.

Plasterk called for strong budget supervision to prevent Italy's Prime Minister Silvio Berlusconi from "throwing a party on the costs of the EFSF fund".

Wilders, who dislikes last week's deal and wants Greece to leave the euro zone, told reporters he was pleased about the referendum because it would mean "the whole rescue package can go into the trash bin".

Right now this delay appears to be a mere formality. However, politics can take a U-turn at any time as we have seen.

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

LPS Mortgage Monitor: Over 4 Million Loans 90+ Days Delinquent or in Foreclosure, 72% in Foreclosure Not Made Payment for at Least 1 Year

Posted: 01 Nov 2011 09:00 PM PDT

Inquiring minds are reading the latest LPS Mortgage Monitor, released today.

Foreclosure timelines continue to increase across the board - almost 40 percent of loans in foreclosure have not made a payment in two years, and 72 percent have not made a payment in a year or more. New problem loan rates increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days delinquent or in foreclosure.

Here are a few charts from LPS.
Click on any chart for a sharper image.

Over 4 Million Loans 90+ Days Delinquent or in Foreclosure

Delinquencies and Foreclosures

39% of Loans in Foreclosure Not Made Payment in 2 Years, 72% for 1 Year

Take a good look at that chart. There has not been a decrease in the no payment for over 2 years category ever. At the beginning of 2011 it was 28%. It is now 39%. At the beginning of 2010 it was 12%.

Foreclosure Starts Outnumber Sales by Factor Over 3:1

If things are improving, it's not by much.

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

Greece Replaces Top Brass in Army, Navy, Air Force in Surprise Move; Is Papandreou Preparing for a Military Coup or Afraid of One?

Posted: 01 Nov 2011 05:05 PM PDT

Greek prime minister George Papandreou pulled a second major surprise move in two days. Yesterday he rattled the markets with a bombshell voter referendum proposal on the EU bailout (see EU Deal Unravels from Many Sides; Italy, France Bond Spreads Hit Record High vs. Germany; Bund Yield Drops Most on Record; All Out Bond Crisis).

Greece Replaces Top Brass in Army, Navy, Air Force in Surprise Move

Today in another surprise move, Greece Replaces Top Brass in Army, Navy, Air Force

In a surprise move, on Tuesday evening the defence minister replaced the country's top brass.

An extraordinary meeting of the Government Council of Foreign Affairs and Defence (Kysea), which comprises the prime minister and other key cabinet members, accepted Defence Minister Panos Beglitis' proposal that the following changes be made to army, navy and air force and the general staff:

General Ioannis Giagkos, chief of the Greek National Defence General Staff, to be replaced by Lieutenant General Michalis Kostarakos
Lieutenant General Fragkos Fragkoulis, chief of the Greek Army General Staff, to be replaced by lieutenant general Konstantinos Zazias
Lieutenant General Vasilios Klokozas, chief of the Greek Air Force, to be replaced by air marshal Antonis Tsantirakis
Vice-Admiral Dimitrios Elefsiniotis, chief of the Greek Navy General Staff, to be replaced by Rear-Admiral Kosmas Christidis

It is understood that the personnel changes took many members of the government and of the armed forces by surprise.

Is Papandreou Preparing for a Military Coup or Afraid of One?

I can only think of two reasons for this latest surprise announcement.

Papandreou or the Defense Minister is Preparing for a Military Coup (to stay in power if he does not survive the vote of confidence)
Papandreou or the Defense Minister is Afraid of a Military Coup

Take your pick. It's one or the other but it could be both.

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

Greek Referendum Off or On? Who is in Control? Anyone?

Posted: 01 Nov 2011 01:45 PM PDT

The stock market rallied in a spurt around 12:30 Central when a Dow Jones Newswires reported that a Greek Socialist Party official said the plan to have voters approve the rescue is "basically dead."

Then, about an hour before the close came news from a Greek government spokesman that the referendum was back on and the S&P slid back towards the lows of the day.

Finally, in a bit late buying the S&P surged 12 points to close down about 35 points, roughly 2.8%.

S&P 500 Futures, 3-Minute Chart

The question is: Who is an control? Better yet, is anyone in control?

One thing we know is Papandreou's call for a vote of confidence is on. We also know his fragile coalition holds an extremely slim 3 margin majority in Parliament.

I believe on these announcements, he will lose that vote of confidence. If so, we do not know who will replace him. If the call for voter referendum is not binding, then it is likely the next Greek parliament or prime minister will cancel it.

There are a lot of open questions here in regards to both the vote of confidence and the voter referendum, yet I see them posed nowhere else. Is there a Greek constitutional expert around?

Meanwhile Merkel and Sarkozy will meet in Cannes November 3 to discuss the Greek crisis in yet another EU 20-member summit.

If the referendum is on, the EU is no longer in control of a Greek default. More specifically, the EU was never in control, it only appeared that way.

Mike "Mish" Shedlock
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EU Deal Unravels from Many Sides; Italy, France Bond Spreads Hit Record High vs. Germany; Bund Yield Drops Most on Record; All Out Bond Crisis

Posted: 01 Nov 2011 10:35 AM PDT

In the wake of Papandreou's Call for Voter Referendum on EU Debt Deal sovereign debt yields plunged in Germany and surged higher in most other European countries, but most notably Italy and France.

Bloomberg reports Italian Bonds Slide, Premium to Bunds Reaches Record, Amid Greece Concern

Italian bonds led declines among the securities issued by Europe's most indebted nations after a Greek plan to hold a referendum on its international bailout added to concern the region's financial turmoil will deepen.

Italy and France's 10-year borrowing costs climbed the highest levels relative to benchmark German debt since before the creation of the euro in 1999. Bund yields fell the most on record, with the securities outperforming all their euro-area peers, as investors sought the safest assets.

"The run-up will put the European Central Bank, European Union and International Monetary Fund in a tough position regarding disbursements to Greece," El-Erian wrote. The EU deal "appears to be unraveling from many sides."

The ECB was said by three people to have bought Italian debt today as it tries to stem financial-market contagion to the euro area's biggest bond market. Two-year note yields still rose 75 basis points to 5.75 percent, the highest since 1997. The five-year rate rose to more than 6 percent, a premium of more than 5 percentage points compared with similar-maturity German debt.

European Sovereign Debt Spread Table 10-Year Bonds

Country	10-Yr Yield	Spread vs. Germany
Germany	1.77	0.00
France	2.96	1.19
Belgium	4.40	2.63
Spain	5.52	3.75
Italy	6.19	4.42
Ireland	8.21	6.44
Portugal	11.80	10.03
Greece	24.65	22.88

European Sovereign Debt Spread Table 2-Year Bonds

Country	2-Yr Yield	Spread vs. Germany
Germany	0.41	0.00
France	1.09	0.68
Belgium	2.77	2.36
Spain	4.02	3.61
Italy	5.28	4.87
Ireland	9.27	8.86
Portugal	20.30	19.89
Greece	87.28	86.87

Italy yields are well off the highs of the day after the ECB stepped up Italy bond purchases.

Italy 10-Year Government Bonds

Italy 2-Year Government Bonds

For some reason Bloomberg charts do not match intra-day figures but the summary section on the left is accurate. Note the explosion in Italy's 2-year bond yield, at one point up .76.

Meanwhile, the German 10-year yield fell 26 basis points and the 2-Year yield fell 13 basis points.

Thus at one point today the German 2-year spread vs. Germany widened by a massive 89 basis points.

The deal is certainly "unraveling from many sides" with force, so much so that Europe is in the midst of an "all out sovereign bond crisis".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greek 1-Year Bond Yield Hits 205%

Posted: 01 Nov 2011 09:24 AM PDT

I have been wondering when Greek bond yields would top 200%.
Today is the day.

Greece 1-Year Government Bond Yield

Congratulations to anyone selecting this target date.

However, predictions made yesterday in the wake of Papandreou's Call for Voter Referendum on EU Debt Deal do not count.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GM Sales Barely Rise, Chrysler's Up 27%; What Does It Mean?

Posted: 01 Nov 2011 09:06 AM PDT

Nearly lost in the European carnage this morning, GM Sales Barely Rise, Chrysler's Up 27%.

Chrysler Group LLC's October U.S. auto sales rose 27% while General Motors Co. climbed just 1.7% amid a mixed picture for the largest U.S. auto makers.

GM suffered declines in all its brands except Chevrolet, the Detroit auto maker said on Tuesday. Its dealer inventory was up 15% from a year ago and up 6.1% from September.

The auto maker reported total sales for the month of 186,895 vehicles. Its Chevrolet sales rose 6% while Cadillac sales fell 11.9%, Buick declined 7% and GMC sales dropped 4.6%. Overall, GM's retail sales were up 2.6% ...

Sales down and dealer inventory up 15% at GM.

The key takeaway from last months "good" GM sales report is it was largely based on channel stuffing. "Sales" get reported when cars are shipped to the dealer and cars are stacking up at GM dealers.

This does not bode well for jobs, production, or GDP looking ahead, unless consumers put on their shopping hats. I do not believe they will.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Regulators Investigate MF Global for Missing Customer Money; MF Global Goes Bankrupt Before Making 1st Interest Payment; Corzine's Achievement Sheet

Posted: 01 Nov 2011 12:31 AM PDT

Today I Congratulate Jon Corzine, CEO of MF Global, for an unheard of combination of rare "achievements".

Corzine's Achievement Sheet

After being forced out as CEO of Goldman Sachs, Corzine spent a record $62 million of his own money on a US Senate campaign and won. The prior record was $28 million.
During the senate campaign, Corzine refused to release his income tax return records citing a confidentiality agreement with Goldman Sachs.
In 2000, Corzine denied having paid off African-American ministers, when in fact the foundation controlled by him and his wife had paid one influential black church $25,000.
While Senator, Corzine decided he would rather be governor of New Jersey and spent $38 million buying the governorship.
As governor, Corzine spent some $200,000 of his own money on advertisements to promote a referendum on the 2007 New Jersey ballot to borrow $450 million to fund stem cell research. The referendum was rejected although $270 million had previously been approved to build stem cell research centers.
Corzine, in attempting to pass the 2007 fiscal year budget, said that he would not accept a budget that did not include a hike in the sales tax from 6% to 7%.
After the legislature failed to pass Corzine's budget by the deadline of July 1, 2006, he signed an executive order that immediately closed down all non-essential state government services.
Corzine lost his reelection bid to Republican Chris Christie. It takes rare talent for Democrats to lose in New Jersey.
In 2010 Corzine was named CEO of MF Global and used 40-1 leverage on foolish bets on European bonds driving the company into bankruptcy.
MF Global is the first company to go bankrupt in three years while still rated investment grade by rating agency S&P. The previous company was Washington Mutual.
MF Global is one of very few companies ever to go bankrupt before making its first bond payment.

Corzine in Bed with Union Leaders, Literally

Many of the above facts were from Wikipedia. Here is a lengthy snip on influence peddling.

In the spring of 1999, when Jon Corzine was running for the United State Senate, he met Carla Katz, the then president of Local 1034 of the Communications Workers Corzine and Katz were soon dating, and they began appearing in public as a couple in early 2002, shortly after Corzine's separation from his wife Joanne. The Corzines divorced the following year. For more than two years Corzine was romantically involved with Katz. She lived with him at his apartment in Hoboken from April 2002 until August 2004.

After Corzine's breakup with Katz, their lawyers negotiated a financial payout in November 2004. According to press accounts, the settlement for Katz exceeded $6 million, including cash (in part used to buy her $1.1 million condominium in Hoboken), a college trust fund to educate her children, a 2005 Volvo sport utility vehicle, and Corzine forgave a $470,000 loan that he had made to Katz in 2002 so that she could buy out her ex-husband's share of their home in Alexandria Township.

Corzine later admitted that he had also given $15,000 to Carla Katz's brother-in-law, Rocco Riccio, a former state employee who had resigned, after being accused of examining income tax returns for political purposes. At the time, Katz was president of the Communications Workers of America Local 1034, which bargains on behalf of many state employees.

In the fall of 2006, during an impasse in contract negotiations between the Corzine administration and the state's seven major state employee unions (including the CWA), Katz contacted the governor by phone and e-mail to lobby for a renewal of the negotiations. Their relationship and the financial settlement Katz received after their breakup led to criticism of potential conflicts of interest in labor negotiations while Corzine was governor.

A state ethics panel, acting on a complaint from Bogota mayor Steve Lonegan, ruled in May 2007 that Katz's contact with Corzine during negotiations did not violate the governor's code of conduct.

Separately, New Jersey Republican State Committee Chairman Tom Wilson filed a lawsuit to release all e-mail correspondence between Corzine and Katz during the contract negotiations. On May 30, 2008, New Jersey Superior Court Judge Paul Innes ruled that at least 745 pages of e-mail records should be made public, but Corzine's lawyers immediately appealed the decision.

Corzine won his case on appeal, and on March 18, 2009, the New Jersey Supreme Court ruled that it would not hear arguments in the case, effectively ending the legal battle to make his e-mails with Katz public. Corzine spent approximately $127,000 of taxpayer funds to keep the e-mails secret. Despite these efforts, on August 1, 2010, The Star-Ledger published 123 of the Corzine-Katz e-mails, revealing the extent of their personal contact during negotiations over a new state workers contract in early 2007.

Corzine Perfect Fit for MF Global

In spite of that background, (or do I mean because of it), MF Global thought Corzine was a perfect fit.

Indeed, those looking for reckless behavior, massive risk taking, and willingness to bet the farm on marriage, in politics, and in life, Corzine represented rare "impossible to pass up" talent.

MF Global Bonds Fail to Make First Payment

In a rarely achieved feat, MF's Corzine Key Man Bonds Fail to Make First Payments

Bond investors lent MF Global Holdings Ltd. (MF) $650 million three months ago in a bet Jon Corzine would succeed in turning the futures broker into a mini-version of Goldman Sachs Group Inc. The firm filed for bankruptcy before making its first interest payment on the debt.

The former New Jersey governor and Goldman Sachs co-head was deemed so key to the broker's success that bondholders demanded an extra percentage point of interest if he left for a post in the Obama administration.

On Oct. 24, Moody's lowered the firm's credit ratings in part on concern that the company wasn't sufficiently managing risk. A day later, the broker reported its largest-ever quarterly loss and disclosed how much its exposure to bonds sold by Italy, Spain, Belgium, Portugal and Ireland had grown.

Assurances that all the European debt MF Global had invested in would mature by December 2012 and that the company had financed the transactions through the life of the bonds didn't stop its shares from falling 66 percent in four days to $1.20 a share. The broker tapped almost all of a $1.2 billion credit line.

Bondholders are now in line with creditors owed $39.7 billion, according to Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan.

Corzine's Fault

"The fact that Jon Corzine, the ex-head of Goldman Sachs, was at the helm for MF Global gave the company a lot more ability to extend their reach than they ordinarily would," Sean Egan, president of Egan-Jones Ratings Co., said yesterday on Bloomberg Television's InBusiness with Margaret Brennan.

The balance sheet reached 40 times the firm's equity, Egan said.

"They should have been levered in the area of maybe about six-to-one," he said. "Having only 2.5 percent equity to assets is ridiculous. That means if you have a 2.5 percent downdraft in the balance sheet, which is very likely, then they're bankrupt."

MF Global Bankruptcy: The Biggest Losers

The Wall Street Journal reports on MF Global Bankruptcy: The Biggest Losers

1) Fidelity funds, 13.9 million shares or 8.44% of common stock

2) Guardian Life Insurance Co., 12.9 million common shares, or 7.8%

3) Fine Capital Partners, 21.5 million shares, 7.37% *(In a recent SEC filing, Fine Capital reporting owning 12.16 million shares, for a 7.4% stake in MF Global.)

4) Cadian Capital Management, 10.2 million shares, 6.17%

5) TIAA-CREF, 9.5 million shares, 5.77%

Corzine swept in last year to lead MF Global, and he had ambitions to remake the company in the image of his former company, Goldman Sachs. Instead, Corzine's optimism about investing MF Global's money in European sovereign debt — over the objections of others, according to today's Wall Street Journal story — helped imperil the firm.

Over the summer, bond investors apparently thought highly enough of Corzine that they demanded a richer payout from MF Global if Corzine left the firm for a high-ranking government job. Today, such a "key man" clause seems like an antique.

Apart from a dent to his reputation, Corzine also stands to lose financially from the MF Global bankruptcy filing. Corzine's compensation last year was $14.2 million, including stock options MF Global valued at $11.1 million. Those options pay off at a share price of $9.25, which means they are very likely to be worthless now.

Volcker's Campaign Against Proprietary Trading

Bloomberg reports MF Exposes Risk Volcker Wants to Curb

Jon Corzine's risk appetite helped destroy his firm. It also provided an object lesson for Paul Volcker's campaign against proprietary trading on Wall Street.

Nineteen months after former New Jersey Governor Corzine became chairman and chief executive officer, MF Global Holdings Ltd. (MF) yesterday filed for bankruptcy. Corzine's decision to boost risk-taking, including a $6.3 billion wager with the firm's own money on European government debt, triggered the collapse.

"In the wake of 2008, when we all should have learned a lesson, Jon Corzine told me himself that it was a relatively staid, not risk-oriented firm and he needed to ratchet up the risk," William Cohan, author of "Money and Power: How Goldman Sachs Came to Rule the World," said on Bloomberg Television. "Well, he does that and it blows up in his face and for the first time he can't unwind the trade. Honestly I'm still shocked and it should not have happened."

Corzine, 64, learned the strategy of making big trading bets during his 24 years at New York-based Goldman Sachs, which he ran from 1994 to 1999 before being forced out.

While Corzine sought to recreate the Goldman Sachs that he remembered, the firm's current management was reducing risk- taking -- in part in response to the Volcker rule. It closed Goldman Sachs Principal Strategies, a prop-trading team that bet primarily on equities, and the Global Macro Proprietary Trading desk, which wagered on bonds, currencies and commodities.

The Volcker rule also will require Goldman Sachs to reduce investments in private equity and hedge funds to no more than 3 percent of each of the funds -- or 3 percent of Goldman Sachs's Tier 1 capital. In the latest quarter, such investments were responsible for the firm reporting its second quarterly loss since going public in 1999.

The Volcker rule, as written in the Dodd Frank Act, had "so many different exemptions and exceptions and loopholes that it almost became nearly impossible for the regulators to fashion a rule that can live up to its original intent," said Barofsky, a Bloomberg Television contributing editor.

Regulators Investigate Missing Money

The New York Times DealBook reports Regulators Investigating MF Global for Missing Money

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers' funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.

Neither MF Global nor Mr. Corzine has been accused of any wrongdoing. Lawyers for MF Global did not respond to requests for comment.

DealBook stated "the inquiry threatens to tarnish further the reputation of Mr. Corzine".

Short of uncovering fraud, is that possible?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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