Crisis Averted
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02/09/12

European Finance Ministers decided to go ahead with a meeting today in Brussels.  The stated purpose is to consider Greek politician’s agreement to conditions so a new round of rescue funds can be advanced before Athens faces default on March 20.  After all night negotiations were ended in the wee hours of the morning, no agreement was reached by representatives of the Greek government and leaders of the three political parties.

Late yesterday news was the political leaders had agreed on all of the cuts except pension reform.  The “troika” of lenders gave them 15 days to identify $393 million dollars in other cuts.

Greek Finance Minister Evangelos Venizelos left for Brussels without an agreement this morning.  Miraculously, while Venizelos was flying to Brussels, the Prime Minister of Greece called Mario Draghi with the ECB to tell him an agreement had been reached.

The $393 billion dollars in pension cuts are not part of the deal, and hole has not been filled with other cuts.  We will see if the Finance Ministers will accept this as compliance.  Past history suggests they will, and that Greece will not make the cuts after they secure the bail out money.

Chinese CPI increased to 4.5% in January.  This was higher than expected and tells us their economy is continuing to grow.  It also raises concern the People Bank of China may slow their credit easing plans.  The rise was blamed as a “one off event” because of the lunar holiday.  This creates demand for goods and services for traditional feasts, travel back to home towns and gifts.

The January rate of 4.5% is still an improvement over last July when the Chinese CPI was up 6.5%.  Food prices increased in January at a 10.5% rate, but again this was lower than the inflation in food costs last summer.  July 2011 CPI for food prices was 14.8%

Gangster government is back. In a blow to property rights this morning, President Obama, Attorney General Holder and HUD Secretary Shaun Donovan announced a $25 billion settlement with the nation’s five biggest banks over the “robo-signing” debacle that came to light late in 2010.

The agreement was also signed by 49 state Attorney Generals.  Shaun Donovan said “This historic settlement will provide immediate relief to homeowners, forcing banks to reduce the principle on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers.”

We wonder, what did foreclosure mistakes by banks have to do with the housing bubble and homeowners that didn’t pay their mortgages?  If there is a silver lining in this shakedown of the big banks, Moveon.org was urging states attorney generals to hold out for criminal investigations and a $300 billion settlement.

The New York Attorney General has sued three of the five banks in the settlement for relying on the Mortgage Electronic Registration System.  We wrote about the Mortgagegate Mess on 10/15/10 and the Scum Covered Pond of MBS on 10/18/10.  You may want to review these articles for background and to understand the beginnings of the foreclosure mess.

Guess which mortgage company is the poster child for botching foreclosures?  Today it is called Ally Financial, in 2010 it was GMAC.  The General Motors financial unit couldn’t make enough money financing Chevrolets and Cadillac’s, so they went into the sub-prime mortgage business.

The U.S. Treasury still owns 500 million shares of GM stock.  The government has not sold the stock because the price is too low to recoup the $25 billion dollars needed to make the U.S. government whole.  Thanks to U.S. taxpayers they can now pay states and dead-beat homeowners some of our tax money rather than pay back the U.S. government.  This comes on top of the “tax money” they spent on a Super Bowl ad for the Chevy Volt.  Going price for the ad was $3.5 million.  GM sold 603 Volts in January, to bring total sales since its introduction last year to 8,303.  This one ad cost $421 for every car they have sold.

Oklahoma Attorney General Scott Pruitt did not participate in the settlement.  He settled with the five banks separately for $18.6 million dollars to compensate Oklahoma’s victims of lending abuses.  The Oklahoma Attorney General’s office has received 86 complaints about mortgage practices since October 2010 that violated Oklahoma law.

The Republic reports ‘Pruitt says he chose to reach a separate agreement because he thought the national settlement had broadened to become an attempt to restructure the mortgage industry rather than an attempt to compensate victims of lending abuses.’

The market is trending higher, but has not reacted to the Greek settlement as enthusiastically as we thought it would.  Volume continues low.

Quote:
The free-market fundamentalist economic model is being thrown onto the trash heap of history.---Andy Stern, past president of Service Employees International Union (SEIU) and Obama confidant in the Wall Street Journal 12/1/11

The mailbag:
The market keeps going up and you seem to be very cautious. Did you miss this rally?---subscriber S.S.

John’s reply: Yes.  I would rather miss a rally than get caught in a bear trap.  We can’t justify jumping in now.   There are some trading opportunities, but investments at this point would be difficult to justify.  What matters is the end of the race, everything in between is entertainment.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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