Germany Tells Greece To Go IMF Themselves

That headline wrote itself. This NY Times article took a somewhat more modest tack, although the body of the article made the point clearly. All emphasis added and commentary in brackets is from TILB.

As a quick aside, TILB views this as very positive for German Bunds:

March 18, 2010
Germany Backtracks on Europe Rescue for Greece
By MATTHEW SALTMARSH
The New York Times

The burden for resolving Greece’s financial crisis appeared to shift Thursday toward the International Monetary Fund as Germany distanced itself from supporting bilateral or European aid to the heavily indebted country.

Citing legal hurdles, a government official in Berlin said Thursday that Germany believed that any external financial support to Athens, if needed, would best be provided by the I.M.F.

“In the case that the Greeks get into really serious problems, we would support an I.M.F. solution,” said the official, who was not authorized to speak publicly on the matter.

Amid the uncertainty, the euro slipped against the dollar and was quoted at $1.3621 in New York afternoon trading, down from $1.3741 early in the session. European stocks also wilted. The Athens Stocks Exchange General Index ended 3.3 percent lower.

Germany is the euro area’s largest economy, so Berlin’s view on a bailout or other form of debt workout is pivotal.

European governments, including those of France and Germany, had previously signaled that any rescue of Greece, which has been punished by financial markets as a result of its surging deficit, would best be provided from within the euro area.

Berlin initially appeared reluctant to call on the I.M.F., preferring to resolve the matter within the currency bloc — even though some financial officials, like Jürgen Stark, a member of the executive board of the European Central Bank, had signaled their preference for an outside solution.

Since the euro’s inception in 1999, no member has sought support from the I.M.F., which nevertheless helped to bail out a number of East European economies at the height of the recent crisis.

An official from one of Germany’s euro-area partners said Greece might not be able to borrow enough money from the I.M.F. to fund its requirements, given that any loan would probably be limited to a multiple of the modest quota that Athens holds in the Washington-based institution.

Berlin’s about-face on aid to Greece has left some of its European partners scratching their heads about Germany’s intentions.

Daniel Gros, director of the Center for European Policy Studies in Brussels, said the change of heart had been prompted by two factors.

“The first is that this is for the domestic audience,” he said, referring to sentiment among many Germans that Greece should not be bailed out with their money.

“The second is that the strategy the Germans had in mind didn’t work,” Mr. Gros said. “The idea was that the mere political offer of support would be enough” to bolster investor confidence in Greek bonds.

...

The Greek government has been pushing for more clarity on what its European neighbors will do in the hope of bringing down its borrowing costs, which have risen as Greece’s debt troubles have become more acute. The yield on Greece’s benchmark 10-year bonds rose Thursday to 6.265 percent — a spread, or differential, of 3.14 percentage points over comparable German bonds, the European benchmark for safety.

While Berlin believes that Athens can live with the level of interest it is paying on its bonds — and that is not on the verge of a default — the Greek government thinks it should not have to pay so much to borrow, now that it has agreed to measures that are designed to cut its budget deficit to 8.7 percent of gross domestic product.

“The more the Greeks push for something concrete, the more they run into this brick wall,” Mr. Gros added.

Greece, meanwhile, has sought to leave its options open, while expressing frustration at the lack of a solid proposal from its E.U. partners.

Speaking to reporters after meeting E.U. lawmakers in Brussels, Prime Minister George A. Papandreou warned that the government would be hampered in its attempts to enact deficit cuts if the country is unable borrow money more cheaply. [TILB - hilarious. Greece basically threatens to sandbag their austerity "efforts" if they don't get a more equitable borrowing rate.]

An offer of E.U. aid “would be enough to tell the markets: hands off, no speculation, let this country do what it’s doing, let it in peace to be able to move ahead,” he said. [TILB: he must have accidentally left out the word "temporarily".]

If Athens relies on financing from the markets at high interest rates, “that undermines the actual measures that you are taking,” Mr. Papandreou said. “That money then goes to the interest of those who are loaning to you rather than the implementation of a program.” [TILB: ah, such is the nature of borrowing beyond your means.]

...

Speaking in Washington, Caroline Atkinson, the I.M.F.’s director of external relations, said Thursday that the fund had not yet been approached by Athens.

“We expect the euro-zone countries to want to and to plan to resolve this question by themselves,” she said. She added that the I.M.F. was ready to respond to a request from Greece for a loan.

...

On Monday, Jean-Claude Juncker of Luxembourg, who chairs the meetings of euro zone finance ministers, said that a European framework would be created to coordinate bilateral loans, if required, involving all 16 euro-zone members. He added, however, that the final decisions on any package would be made by E.U. heads of government.

As a reason for Germany’s apparent change of position, the German official pointed to Article 125 of the European Union’s governing treaty, which states that the European Union or individual members should not be liable for or assume the commitments of governments.

...

Still, the drip feeding of announcements from Berlin has left some politicians in Europe cold.

“I find what has happened, or rather what has not happened over the past few days and weeks, incomprehensible,” said Guy Verhofstadt, the former Belgian prime minister and the current president of the Liberal Democratic bloc in the European Parliament. “It is incomprehensible because it is precisely a European response that is the quickest and least costly solution.” [TILB: Least costly to whom, exactly? Certainly not to Germany.]

Officials in the German Finance Ministry also appeared to be unaware of their government’s shift in stance. Financial officials in other euro-zone countries were similarly baffled.

“The signals that one gets out of Germany have varied considerably,” said an official from another euro-area country, who was not permitted to speak publicly. “I fail to see what their line is.”

The official said the assumption among euro-area finance ministries is that Greece might require about €25 billion, or $34 billion, to cover near-term liabilities. Athens needs to borrow €53 billion in financial markets this year and must refinance around €20 billion of debt in April and May — at interest rates likely to be high.

The official added that Greece would probably be able to borrow between $12 billion and $14 billion from the I.M.F., assuming the same model used in recent rescues. For example, in 2009 the fund loaned Romania €13 billion, which was about 1,100 percent of that country’s quota at the fund. Greece holds just 0.38 percent of the fund’s quota, which is expressed as 823 million of the fund’s own unit of currency — Special Drawing Rights — each worth $1.53. [TILB: $14 billion ain't gonna be enough, long-term]

The official said other multilateral lenders like the World Bank or the European Investment Bank would not be in a position to lend Greece €10 billion or more. That would mean that the European Union — and Germany — might have to support Greece in any event, perhaps alongside the I.M.F.

He also said that legal impediments to E.U. support did not appear to be insurmountable, although some euro members might need to change national rules.

“We know how we could do it,” he said.

Still, Mrs. Merkel’s change of line will be welcomed by some. Mr. Stark of the E.C.B. told a German newspaper this month that joint financing “could become very expensive, would create false incentives and burden countries with solid finances.” During an interview last month, Otmar Issing, a former top official of the German and European central banks, warned that the Union could not “impose the kind of sanctions that would be needed, and it would make Brussels too unpopular.” “A better way,” he said, “is for Greece to approach the I.M.F. It is the only institution that can impose strict enough conditions.”

Matthew Saltmarsh reported from Paris and Stephen Castle from Brussels.

[HT: LB]

The Borg - I Mean Obama Administration - Intend To Pay Homeowners To Sell Their Houses

"Have you made a horrible decision and find your mortgage 70% underwater? Please let us give you $1500 of Chinese, I mean tax payer money as a reward! And we'll strong arm banks to let you out unscathed in the process. Congratulations on your hard won earnout."

Ah, the Borg, resistance is futile.

I am so happy they have not given up on their command and control efforts to manipulate our economy from their proverbial perch high up in the moral tower that is White House. What these puppeteers don't realize is the problem has little to do with insolvent homeowners not wanting to sell their homes via short sale and has everything to do with banks wanting to get paid back the money the lent (crazy, I know!).

The NY Times wrote about this on Sunday March 7th. Love the headline. All emphasis added [and TILB comments in brackets].

March 7, 2010
Program Will Pay Homeowners to Sell at a Loss
By DAVID STREITFELD
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year. [TILB - ah, the political truth...]

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. [TILB: I'm sure banks will sign up left and right to fore go their rights]

...

The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure. [TILB - The guy is SEVENTY PERCENT UNDERWATER; unless he wants to keep paying for his mortgage, he should have absolutely no say in this matter! What world do I live in? What is this, Russia? HOW IS THIS EVEN A QUESTION?]

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.” [TILB - Why does a guy that probably put close to no money down get a $1500 windfall but the lender gets ZERO?! Note, the $1000 goes to the servicer(s) of the loan(s), not the lender(s). This is crazy.]

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure. [TILB - Dear David Streitfeld c/o The New York Times: Use your brain. If the lender thought they'd get more back doing a short sale, they already have the ability to pull the trigger. This has zero impact on that reality.]

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes. [TILB - This must be heaven, because everyone wins! The lender, the borrower and the community! How exciting!]

...

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it. [TILB - Right. This should work. Let's see, we're going to pay a real estate agent to come up with a price. No matter what price he/she comes up with, the bank would be FORCED to sell at that price. I bet they'll err to the high side (stop laughing at me, it hurts my feelings).]

Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.” [TILB: This is the reason short sales are less common than one might expect. Second lien holders can obstruct the process. But that is okay, that is their contractual right. They are owed money by the borrower and he/she is trying to shirk, generally, 100% of his obligation to them. I might hold up the process too if someone were trying to stiff me and then ask me for a favor.]

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. [TILB: This is servicing] J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.” [TILB: Boom. Principled.]

But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.

Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.

Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.

“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”

Mr. Reddy still lives in the apartment complex where he bought that condo, but is now a renter paying about half of his old mortgage payment. Another benefit, he said: “The place I’m in now is nicer and a little bigger.” [TILB - the market at work.]

Thank Goodness For Food Stamps - These Job Seekers Would Do Anything For A Job If One Simply Existed

This past Sunday, The New York Times ran a front page article on the massive increase in people living off food stamps alone (no other income whatsoever).

Peppered with sad tales like that of Isabel Bermudex who went from a poor upbringing to earning $180,000 in one year as a real estate agent during the boom before falling back to nothing, the article is intended to tug at the heart strings. It emphasizes the desperate straights of these unemployed and incomeless folks and how badly they want an honest day's work.

Throughout the article, people talk about wanting - but not being able to find - jobs and the terrible situation they'd be in without government handouts.

We certainly don't doubt it.

What we do doubt is that the solution is more handouts; more government. Government interference is the problem - it is what prevents most people from finding gainful employment. We have a huge excess supply of labor that allegedly wants nothing more than employment (10% unemployed). Any income is better than no income, all else being equal. However, our strict minimum wage legislation prevents the natural market clearing mechanism from taking place. As any freshman econ major can tell you, virtually any amount of supply of goods or services that has positive value can be cleared at the right price. Further, because we pay people not to work when they lose their jobs, the hurdle for accepting new work is artificially raised by the government subsidy the individuals receive.

The minimum wage and welfare-type programs are painful legacies of the New Deal era that oontinue to wreak havoc today. The people in the article below continue to suffer from F.D. Roosevelt's mad science. TILB used to think the minimum wage level didn't particularly matter because during the long period of full employment it really didn't. However, during periods of economic downturn, minimum wage basically puts a chokehold on remployment - not allowing labor prices to reset and preventing companies from hiring.

In reality, the minimum wage and other cost raising government interferences like it are nothing but Chinese economic stimulus legislation.

As our policies make it impossibly uneconomic for Americans to be employed in America by American companies, the government is basically encouraging those same companies to send wages and much needed investment capital overseas to countries that have more friendly policies toward their populous - policies that don't legally prevent citizens from working for a wage they'd happily accept and worse, that pay people not to work!

Only a government official or tunnel visioned theoretical academician could come up with this foolishness. Sadly, we seem to have returned to this sort of thinking at our highest levels. It virtually guarantees that our country will struggle to reach a full recovery.

Sometimes we wonder if that underperformance and increase of government supplicants isn't actually the goal of the left; to enslave the underemployed and undereducated to resources provided by their friendly congressman.

Intentional or not, that is the outcome of these thoughtless laws.

Article excerpts below.

January 3, 2010
The Safety Net
Living on Nothing but Food Stamps
By JASON DEPARLE and ROBERT M. GEBELOFF

CAPE CORAL, Fla. — After an improbable rise from the Bronx projects to a job selling Gulf Coast homes, Isabel Bermudez lost it all to an epic housing bust — the six-figure income, the house with the pool and the investment property.

Now, as she papers the county with résumés and girds herself for rejection, she is supporting two daughters on an income that inspires a double take: zero dollars in monthly cash and a few hundred dollars in food stamps.

With food-stamp use at a record high and surging by the day, Ms. Bermudez belongs to an overlooked subgroup that is growing especially fast: recipients with no cash income.

About six million Americans receiving food stamps report they have no other income, according to an analysis of state data collected by The New York Times. In declarations that states verify and the federal government audits, they described themselves as unemployed and receiving no cash aid — no welfare, no unemployment insurance, and no pensions, child support or disability pay.

Their numbers were rising before the recession as tougher welfare laws made it harder for poor people to get cash aid, but they have soared by about 50 percent over the past two years. About one in 50 Americans now lives in a household with a reported income that consists of nothing but a food-stamp card.

“It’s the one thing I can count on every month — I know the children are going to have food,” Ms. Bermudez, 42, said with the forced good cheer she mastered selling rows of new stucco homes.

Members of this straitened group range from displaced strivers like Ms. Bermudez to weathered men who sleep in shelters and barter cigarettes. Some draw on savings or sporadic under-the-table jobs. Some move in with relatives. Some get noncash help, like subsidized apartments. While some go without cash incomes only briefly before securing jobs or aid, others rely on food stamps alone for many months.

...

A skinny fellow in saggy clothes who spent his childhood in foster care, Rex Britton, 22, hopped a bus from Syracuse two years ago for a job painting parking lots. Now, with unemployment at nearly 14 percent and paving work scarce, he receives $200 a month in food stamps and stays with a girlfriend who survives on a rent subsidy and a government check to help her care for her disabled toddler.

“Without food stamps we’d probably be starving,” Mr. Britton said.

A strapping man who once made a living throwing fastballs, William Trapani, 53, left his dreams on the minor league mound and his front teeth in prison, where he spent nine years for selling cocaine. Now he sleeps at a rescue mission, repairs bicycles for small change, and counts $200 in food stamps as his only secure support.

“I’ve been out looking for work every day — there’s absolutely nothing,” he said.

A grandmother whose voice mail message urges callers to “have a blessed good day,” Wanda Debnam, 53, once drove 18-wheelers and dreamed of selling real estate. But she lost her job at Starbucks this year and moved in with her son in nearby Lehigh Acres. Now she sleeps with her 8-year-old granddaughter under a poster of the Jonas Brothers and uses her food stamps to avoid her daughter-in-law’s cooking.

“I’m climbing the walls,” Ms. Debnam said.

...

But others say the lack of cash support shows the safety net is torn. The main cash welfare program, Temporary Assistance for Needy Families, has scarcely expanded during the recession; the rolls are still down about 75 percent from their 1990s peak. A different program, unemployment insurance, has rapidly grown, but still omits nearly half the unemployed. Food stamps, easier to get, have become the safety net of last resort.

“The food-stamp program is being asked to do too much,” said James Weill, president of the Food Research and Action Center, a Washington advocacy group. “People need income support.”

...

The expansion of the food-stamp program, which will spend more than $60 billion this year, has so far enjoyed bipartisan support. But it does have conservative critics who worry about the costs and the rise in dependency.

“This is craziness,” said Representative John Linder, a Georgia Republican who is the ranking minority member of a House panel on welfare policy. “We’re at risk of creating an entire class of people, a subset of people, just comfortable getting by living off the government.”

Mr. Linder added: “You don’t improve the economy by paying people to sit around and not work. You improve the economy by lowering taxes” so small businesses will create more jobs.

...

Kevin Zirulo and Diane Marshall, brother and sister, have more unlikely stories than a reality television show. With a third sibling paying their rent, they are living on a food-stamp benefit of $300 a month. A gun collector covered in patriotic tattoos, Mr. Zirulo, 31, has sold off two semiautomatic rifles and a revolver. Ms. Marshall, who has a 7-year-old daughter, scavenges discarded furniture to sell on the Internet.

They said they dropped out of community college and diverted student aid to household expenses. They received $150 from the Nielsen Company, which monitors their television. They grew so desperate this month, they put the breeding services of the family Chihuahua up for bid on Craigslist.

“We look at each other all the time and say we don’t know how we get through,” Ms. Marshall said.

...

Ms. Bermudez recently answered the door in her best business clothes and handed a reporter her résumé, which she distributes by the ream. It notes she was once a “million-dollar producer” and “deals well with the unexpected.”

“I went from making $180,000 to relying on food stamps,” she said. “Without that government program, I wouldn’t be able to feed my children.”