March 30

QOTD:

Won't it be cool if subsequent versions of QE are referenced with Roman numerals like the Super Bowl?
John Roque, WSJ.

The unbelievable truth about Ireland and its banks. BBC.

To prevent Irish banks toppling over one after another, the European Central Bank has lent 117bn euros to them and the Central Bank of Ireland has lent them a further 71bn euros. So that's 188bn euros of loans from the eurozone's taxpayers to Ireland's banks - which makes the 67.5bn euros lent directly by the eurozone and IMF to the Irish government look like peanuts. And a further 20bn euros of bank bonds - another form of bank debt - is still guaranteed by the Irish state through the Eligible Guarantee Scheme. So that is 208bn euros of taxpayer loans to Ireland's banks - equivalent to a remarkable 154% of GDP.

[Irish] Bank bailout cost (so far). Corner Turned.

The 'grand bargain' is just a start. Martin Wolf, FT.

It would be helpful – and honest – for the German government and the governments of other creditor countries to tell their people that they are rescuing their own savings in the guise of rescuing peripheral countries. The alternative is to write off loans and recapitalise their banks directly. To admit this would be to admit their policies have been at fault. That would surely be helpful.

Europe needs debt relief, not decades of austerity. The Guardian.

From Donegal to the Algarve, to the streets of Athens, voters on Europe's "periphery", as economists dismissively call it, are slowly waking up to a sobering truth – they face years of austerity, yet wage cuts, job losses and crumbling public services will not extricate them from financial crisis. In fact, by driving their economies into an ever deeper slump, it may even make things worse. The pain could just bring more pain....

Markets and voters across the eurozone have grown wearily accustomed to watching the cycle of a looming fiscal crisis as bond yields rocket, followed by just enough action from Brussels to jolt investors out of panic mode, followed by another bout of the jitters as they realise the rhetoric from euro leaders isn't matched by reality.

As Steen Jakobsen, chief economist at Saxo Bank, put it in a note on Friday: "It's clear that the electorates are beginning to realise that all solutions offered by the policymakers are based on the promise to do something in the future, and never right here, right now."

But time is running out, and Europe has two choices. It can continue hammering the economies of Greece, Ireland and soon Portugal deeper into crisis, while their already furious voters become increasingly resentful about the pain being imposed by their European "partners"; or it can accept that the scale of debts has simply become unsustainable, and open negotiations now about an orderly default.

As Obama and Congress fiddle, America liquidates housing sector. Chris Whalen.

the current national policy mix of more regulation, decreased government subsidies and, to add further urgency, a shrinking banking system, is the perfect storm for the housing, which is now down six months in a row. Despite my long-held desire to see market-based reform in the US housing sector, I think all parties need to be aware of the precarious situation facing the American economy and banks as home prices collapse for lack of credit....

The net, net here is that the available pool of credit available for the housing sector is shrinking and thus prices must also decline to adjust for that supply of credit. This fact of continued decline in home prices is going to have a chilling effect...

I estimate that Fannie and Freddie alone are hiding $200 billion worth of bad loans on their books simply because there is no market for these foreclosed homes. Ditto for the largest servicer banks such as Wells Fargo, Bank of America, JPMorgan Chase and Citigroup. To clean up this mess with finality is going to cost $1 trillion or so in round numbers. But nobody in Washington wants to go there.

Where the bailout went wrong. Neil Barofsky, NY Times Op-Ed.
As per James Kwak:

Back in late 2008 and early 2009, there was a lot of talk about how a true solution for the problems of the banking system would require a solution for the problems of homeowners, since the banks’ losses were largely the result of mortgage defaults. One of the major technical achievements of the administration was showing that it was possible to stabilize the financial system and restore the banks to short-term profitability without doing much for homeowners.

The Federal Open Mouth Committee is back in action. Pater Tenebrarum.

Hawks (relatively speaking) and doves within the Fed are busy trading slightly contradictory statements in public again, in a performance that is eerily reminiscent of the 'exit talk' (exit from unusual monetary accommodation measures that is) that proliferated about one year ago.....

led to this campaign of advance burying of 'QE3' by means of 'QE2' funeral eulogies. Surely 'QE3' won't be talked about so much anymore if even 'QE2' comes under official scrutiny. Since the current QE program is slated to end in June, market participants are given fair warning not to expect more 'coups de whiskey' for the stock and commodity markets immediately thereafter. This in turn means that the times are set to become slightly more interesting. Given that there is not the slightest evidence yet that private sector deleveraging has run its course, a cessation of excessive monetary pumping may end up stopping various bubble activities in their track in very short order. This is to say, both financial markets as well as the economy may slump again fairly quickly....

Helicopter pilot Ben Bernanke has been rather quiet, letting the rest of the board spread the message. Alas, we suspect he's personally still firmly in the pro easy money camp. At least this is what we would have to conclude considering his well known views on the Great Depression as well as Japan's post bubble era. His usual refrain was that policy makers were 'too timid' in these instances, but as it were, the BoJ is a veteran of two (now 2.5) QE programs as well, so if one wants to be 'less timid', then 'QE1' and 'QE2' alone obviously won't cut it. In that sense we would be inclined to discount the advance funeral rites for 'QE3' as just more hot air. Nevertheless, there will be a pause, and should the economy's momentum not falter again immediately, then we'd expect the 'exit' palaver to increase in both volume and frequency.

Surpluses, debt and depressions.... Randall Wray via Pragmatic Capitalism.

China's 5-year plan and global interest rates. Martin Feldstein.

Visualizing the food and energy crunch. Pragmatic Capitalism.

Debt: The first five thousand years. David Graeber.

The biggest urban legend in finance. Rob Arnott.

Fannie and Freddie hiding over $100 billion of losses? naked capitalism.


other fare:
Exceptional And Unexceptional America. Andrew Sullivan, The Atlantic.