Yahoo’s! Daniel Gross on Greek Default: “It’s Pretty Much Already Happened”

Daniel Gross, editor and columnist at Yahoo! Finance and the Megapanel debate whether France and Germany can agree to fund a Greek bailout.  You can check out Daniel on Twitter, as well as at his Yahoo! Finance blog Contrary Indicator.  

Following days of violent and fiery protests, it’s shaping up to be yet another crucial week for the Eurozone debt crisis. The talk now is about more than doubling the size of the bailout for the banks — not just the European banks, but also the Western banks have extended a wide variety of credit to a lot of Western Europe.

There’s a lot of additional speculation on top of that as to who will pay for what, and instead of $600 billion, Greece now says they need $1.3 trillion. Any bailout is almost certain to be coupled with austerity matters, and could be coupled with tax hikes and debt restructuring.  As one Greek trader told a Business Insider, “the painful problem of austerity hasn’t even hit yet. Nobody in Europe has any idea what’s going on, and social strife, if it seems bad now, will become a daily issue.”

When looking at the Greek debt crisis, Daniel says making a comparison to 2008 in the U.S. is worthwhile. “It’s kind of useful to compare what we did here in ’08 and ’09. There’s a lot of criticism of how things went down. Basically, the Federal Reserve came in and said, “we will guarantee everything in sight, stop running from the banks, the government said, we’ll do some stimulus, and both said to the private sector, we’ll keep rates low, but you’ve got to get your house in order. Take some losses, fire people, restructure.”

“But a lot of that is now behind us,” says Daniel. “The TARP money came back, banks are back to doing their thing — in Europe, someone needs to do that.  Guarantee everything.”

Daniel says that the ECB has to take the reins and do that, but it won’t be without challenges.  He also doesn’t mince words when it comes to his take on European leadership.

“The problem is then, “get your house in order.” Because America’s companies are pretty ruthless about firing people, shutting down a division, offshoring. Europe’s government, I mean, Italy? They’re going to get their house in order? They’ve got a 75-year-old satire running the show. Greece is going to get their house in order? That is the problem. People say the ECB hasn’t done what needs to be done. They come in and say, we will guarantee, no one has to worry about anything, we will print as much money as needed, but the thing that has to happen after that is structural reform in these government-run countries to get their house in order,” says Daniel.

Panelist Tim Carney asks, “So to what extent are the bailout talks focused on actually saving the banks and not just preventing a disorderly collapse?”

Daniel says “This is motivating the whole thing. The Germans will say, you know, that the Greeks, they have done wrong, and they need to be punished and they have to feel the pain. It’s all about Angela Merkel not having to bail out her own banks. If Greece says, you know what, we’re all going to pay 40 cents on the dollar, all of a sudden, all these large German banks– and they pick up the phone, and they call the government. which then has to do a taxpayer bailout for their own domestic banking industry, Which is far more unpopular, and that’s not politically tenable.”

Is Greek default inevitable? Daniel says that  “I think it’s pretty much already happened. They can’t borrow on the private market. They can’t go out to the public markets and say, you know, we’d like to borrow a few billion dollars. And the debt that trades, it trades at interest rates that would make a loan shark blush. In other words, the interest rate on the one- and two-year government debt is 70%, 80%.”

He concludes, “It’s like the Monty Python skit, what we have here is a defaulted bird.”

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They Keep Stealing – Why Keep Paying?

This article was first published on the Huffington Post on June 24, 2010 12:04 PM.

The dire straits of the middle class of America has made it near impossible for our politicians to keep up the pretense that our current government truly works for the “people.” Between the multiple overt and secretive bailouts, the massive bonuses and the circular use of our tax money to lobby for these continued handouts, you can no longer hide from the evidence.

When Senator Durbin said “The banks… frankly own this place,” you realize it was not in jest.

Couple this with recent protections handed by the Supreme Court to corporations to directly influence elections and it can make things seem hopeless for those not on Wall Street or their chosen politicians. Favored CEOs and now even foreign countries get all the printed money they need, leaving us paying both our bills and theirs.

And now nearly a quarter of all Americans are currently underwater in their mortgage because of that steadfast honor.

If you are one of them, chances are you didn’t do anything wrong. Almost all of you were not subprime borrowers or speculators, but merely people buying a house that they thought they could afford at the time. You were just unlucky in that you bought a house during a time when an outdated Wall Street and their complicit politicians decided to use housing to regain the income they lost due to the Schwabs and Etrades of the internet age.

You didn’t cause this mess. They did.

Now you are struggling to make the same payments on this mortgage on your now overpriced home even in light of a crashing economy and massive deflation, all while the government does everything in its power to help Wall St. keep the bonuses coming.

Well, it is becoming time to take matters into your own hands… I suggest that you call your lender and tell them if they don’t lower you mortgage by at least 20%, you are walking away. And if they don’t agree, you need to consider walking away.

It probably doesn’t feel right to you.

That is because you probably are a good person. But your mortgage is a business deal, and it is not immoral to walk away from a business deal unless you went in to the deal with the intention of defaulting.

But somehow, even though the corporations are pumped to exercise their new rights, former bankers like Henry Paulson, current ones like Jamie Dimon and — get this — now even Fannie Mae execs want to keep you from exercising your rights.

But before you let them (or anyone commenting below) force you into paying that $500k mortgage on a $300k house, ask them if they’ll push Jerry Speyer into “honoring his obligation” by breaking into his $2 billion personal piggy-bank to keep paying for Stuyvesant Town?

Or how about asking Hank and Jamie to lecture fellow bailed-out CEO John Mack about how “you’re supposed to meet your obligations, not run from them”? Maybe make him use some of his $50+ million for those buildings he bought in San Francisco?

And before shaming and punishing American homeowners, did they nag Steve Feinberg about helping “teach the American people…not to run away” by writing a check out of his billion-dollar pocket to cover all the stiffed landlords and vendors at Mervyn’s? After all, at least you aren’t single-handedly putting 1,100 employees out of work when you walk on your mortgage.

As part of the deal for your house, your mortgage holder gets interest payments from you and they also use the note to your house for their capital reserves. In return, they take the risk of a foreclosure. In many states, you paid extra to have a non-recourse loan where the lender just gets the house back if you stop paying — your interest rate would’ve been much lower if you were held personally liable like a student loan. But if you still feel bad, then donate the money saved to charity instead of to their bonuses. And when someone tries telling you why it is so wrong, here are some answers:

– Yes, it might seem selfish, but you are actually going to help fix our country the right way, through the use of pure capitalism. There are 3 parties involved in your mortgage — the mortgage holders, the servicing bank and you. You probably want to stay in your house. Most of the people who actually own your mortgage also want you to stay in your house, preferring a mortgage reduction that you keep paying instead of the total loss of a foreclosure. But the major banks (BofA, Wells Fargo, JP Morgan, Citi, etc.) that underwrite and service the loans don’t care about either of you. They (with the aid of their government) just care about hiding their true financial condition for long as possible so they can continue to bonus themselves outrageously. The credible threat of you walking away from your mortgage en masse is the only market-based solution that will force these banks to work with the mortgage holders on your behalf.

– No, you will not “hurt” your neighbors — certainly not near the scale of the banksters. Chances are someone just as nice will you will move in and (unlike you) pay a fair, non-inflated price for the house. Encourage your neighbors to fight back against the banks and ask for their own mortgage reductions as well.

– Yes, it might make getting a loan harder for everyone. Considering the spate 0% down NINJA loans over the past decade, that probably isn’t a bad thing.

– Yes, it might hurt your credit. But with time, people bounce back from having foreclosures on their record. Search online and then talk to a lawyer about the repercussions, which vary by state.

– No, the banks won’t necessarily pass the losses on to customers. They already make a lot of money. If costs are passed on to every consumer without banks competing on price, that’s a sign of illegal collusion or a monopoly. Let’s fix that instead of just letting banks ruin our lives. They might, however, not all make $145 billion in bonuses next year doing something fundamentally so easy that it is an unpaid job in Monopoly.

Meanwhile, our captured government has made it clear that they want to further reward these banksters because there are clearly better ways to “save” the economy without rewarding those most responsible for the damage.

Instead of claw backs for the past theft and strong financial reform for the future, they choose to cover-up the gross misuse of our tax money, making our country worse by helping the criminals on the backs of the most honest.

But thankfully, in this country we still have the tools to fight back and regain our country. Our vote, our voice, our laws and what we choose to do with every penny we have that doesn’t go to taxes are the benefits of our hard-fought freedom, and in this battle we must use them all to fight back. It’s time for the citizens to once again own this place.

Banksters Revealed Again!

Doc Holliday said, “My hypocrisy knows no bounds” in the movie Tombstone. The same apparently is true for our current crop of Bankster Politicians, many of whom today voted against extending unemployment benefits even after they voted in 2008 for a bank bailout.

Yes, these Corporate Communists not only voted for billion dollar bailouts for companies that were about to fail due to their own terrible decisions, but then subsequently have done nothing to prevent the ongoing and future theft. By destroying this very tenet of capitalism — that the losers actually lose so that new ideas, people, companies can become winners — they have now crippled our economy and kept millions out of work.

Now when faced with giving a pittance of support to many of the same people tossed from employment by their cronyism, they have all of a sudden found ideology. Of course, considering that many of these Bankster Politicians are going to lose their jobs for this, they will try to make excuses like the following:

Unemployment needs to be paid for out of current spending!

And for some reason the bank bailouts did not? But even letting bygones be bygones, I have a suggestion — let’s use clawbacks to pay for unemployment, considering this financial crisis (a) was caused by these people and (b) is why there are no jobs.

But unemployment pays people not to work!

Well, bailing out these banks is even worse — it’s the government literally paying people ungodly sums to destroy our country. Like I’ve said before, there’s a reason why banking is an unpaid job in Monopoly — it is basically a utility rendered unprofitable by modern technology. These bailed-out banks are dangerous casinos gambling with the well-being of America, and America is losing.

Mind you, I don’t even agree with the current unemployment program in this country. I believe people should have to volunteer for a non-profit for 10-20 hours a week to qualify for unemployment. However, our vote-loving politicians like to keep their jobs by giving future generation’s money away for nothing in return.

TARP was to keep people working!

Really? Well then it’s done a terrible job of keeping people working, because unemployment is actually getting worse. The only place it’s actually saved “us” is in the imaginary crony-ist utopia of those who benefited. Their jobs plan is a lucky few of you cleaning the pools built with their $145 billion in 2010 bonuses.

TARP was just a loan and has been paid back, with interest!

I suggest you all familiarize yourselves with THE BIG TARP LIE… and make sure the politicians and media that continue to spout it become familiar as well.

But I was lied to about TARP!

Then do your job. Those people who lied to you were often under oath. They should be investigated and put in jail if found guilty.

So without further ado, I present to you the list of today’s Banksters — those who voted “Yes” for Bankster billions and “No” for their victims. Please check to see if your Senator is on the list:

BANKSTER PARTY

Lamar Alexander [B-TN]
Robert Bennett [B-UT]
Christopher Bond [B-MO]
Richard Burr [B-NC]
Saxby Chambliss [B-GA]
Thomas Coburn [B-OK]
Bob Corker [B-TN]
John Cornyn [B-TX]
John Ensign [B-NV]
Lindsey Graham [B-SC]
Charles Grassley [B-IA]
Judd Gregg [B-NH]
Orrin Hatch [B-UT]
Kay Hutchison [B-TX]
John Isakson [B-GA]
Jon Kyl [B-AZ]
Richard Lugar [B-IN]
John McCain [B-AZ]
Mitch McConnell [B-KY]
Lisa Murkowski [B-AK]
Ben Nelson [B-NE]
John Thune [B-SD]
George Voinovich [B-OH]

A Goldman Rebuttal

The following includes questions and commentary for Goldman Sachs as the company defends itself against charges of fraud:

Dear Lucas,

Since I haven’t been able to get you or anyone from Goldman Sachs to appear on my show in months, perhaps we can just try corresponding in writing. Thank you for your press release. I have submitted my follow-up questions in bold:

Press release:
Goldman Sachs Makes Further Comments on SEC Complaint
April 16, 2010

The Goldman Sachs Group, Inc. (NYSE: GS) said today: We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact. We want to emphasize the following four critical points which were missing from the SEC’s complaint.

Goldman Sachs Lost Money On The Transaction.

Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.

But what about the other “transactions”… You know, the one where you may have potentially shorted this exact transaction with AIG for a lot more than $90 million? You remember AIG, right? It’s where the taxpayers paid you 100 cents on the dollar for a company that you helped blow up.

Extensive Disclosure Was Provided.

IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.

There must be a big difference between “extensive disclosure” and “complete disclosure,” because if you provided “complete disclosure,” you probably would have mentioned to your customers that the entire product was funded and selected by someone who was betting on it to fail. You know, kind of like you did for your coworkers at Goldman Sachs, but forgot to do for your customers!

ACA, the Largest Investor, Selected The Portfolio.

The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.

Not to mention their incentive to be Goldman and Paulson’s unwitting patsy

Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor.

The SEC’s complaint accuses the firm of fraud because it didn’t disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

True, but Goldman also never represented to ACA that Paulson was planning on shorting the same product that Paulson & Co. created in the first place!

Background: In 2006, Paulson & Co. indicated its interest in positioning itself for a decline in housing prices. The firm structured a synthetic CDO through which Paulson benefited from a decline in the value of the underlying securities. Those on the other side of the transaction, IKB and ACA Capital Management, the portfolio selection agent, would benefit from an increase in the value of the securities. ACA had a long established track record as a CDO manager, having 26 separate transactions before the transaction. Goldman Sachs retained a significant residual long risk position in the transaction.
IKB, ACA and Paulson all provided their input regarding the composition of the underlying securities. ACA ultimately and independently approved the selection of 90 Residential Mortgage Backed Securities, which it stood behind as the portfolio selection agent and the largest investor in the transaction.

The offering documents for the transaction included every underlying mortgage security. The offering documents for each of these RMBS in turn disclosed the various categories of information required by the SEC, including detailed information concerning the mortgages held by the trust that issued the RMBS.

Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities ended in the reference portfolio or how they were selected.

The transaction was not created as a way for Goldman Sachs to short the subprime market. To the contrary, Goldman Sachs’s substantial long position in the transaction lost money for the firm.

No, it was created as a way for Paulson & Co. (and maybe you), to short your customers… you know, the same customers that you apparently forgot to mention that little fact to

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

And you’re welcome for that. Sincerely, the U.S. taxpayers.

Media Contact:
Lucas van Praag
Tel: 212-902-5400Investor Contact:
Dane Holmes
Tel: 212-902-0300

Thanks Lucas, hope we can chat again soon. Maybe next time about exactly how a then-28-year-old Goldman Sachs junior executive did this with no apparent supervision?

Dylan

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