Category: zerohedge

The New Yorker’s Andy Borowitz unleashes his satirical tongue after Jeb’s departure from the Presidential race…

Baghdad – Thousands of Iraqis poured out into the streets to celebrate in the early hours of Sunday morning, as the threat of a third Bush Presidency was declared over at last.

 

 

Iraqis, on edge about the prospect of another Bush in the White House since former Governor Jeb Bush entered the race last year, had been watching returns from the South Carolina primary with a mixture of anxiety and cautious optimism.

 

Moments after the first evidence of Bush’s dismal finish began trickling in, however, Iraqis roared with glee as spontaneous festivities erupted across the country.

 

Observers were stunned to see Sunnis, Shiites, and Kurds dancing together in the streets, putting aside their enmity to celebrate an outcome that they never dreamed possible.

 

“You must understand, we Iraqis have been living with the fear of a third Bush Presidency for months now,” Sabah al-Alousi, a Baghdad shoemaker, said. “Now we can begin to think about a future, for ourselves and our families.”

 

Asked about the possibility of a Trump Presidency, he waved off the question. “This is the greatest day for my country,” he said. “I will let nothing spoil this day.”

Fact or Fiction?

via Zero Hedge http://ift.tt/20OMU5e Tyler Durden

Over the past two months, Europeans have become completely fed up with the wave of refugees streaming into the bloc from the Mid-East.

After demonstrating a remarkable degree of restraint and tolerance in the wake of the attacks that left 130 people dead in Paris in November, the string of sexual assaults that swept Cologne, Germany on New Year’s Eve was the last straw for a German populace that had, until this year anyway, largely remained supportive of Angela Merkel’s “yes we can” approach to settling the 1.1 million asylum seekers that the country took in last year.

That’s not to say that there aren’t still large swaths of the German population that support the migrant cause. It’s simply to note that the general consensus is no longer teddy bears, water bottles, and hugs. Discontent with the Iron Chancellor’s approach is growing and the tension is palpable. Renewed support for PEGIDA is emblematic of the direction in which the country is headed and this weekend we got the latest evidence that Germany’s patience with migrants is wearing increasingly thin.

Residents of Bautzen (in Saxony) cheered on Saturday night as a planned migrant center burned in what very well may have been an arson. “Some people reacted to the blaze with derogatory comments and undisguised joy,” Deutsche Welle notes, before adding that “the incident in Bautzen comes shortly after a mob shouting anti-migrant slogans blocked a bus full of refugees in Clausnitz, also in Saxony.” Here’s the video of the Clausnitz incident:

Reports indicate that a number of witnesses in Bautzen attempted to prevent firefighters from extinguishing the blaze.

Saxony’s chief minister, Stanislaw Tillich, called both incidents “disgusting and hateful.“

Yes, “disgusting and hateful,” which is precisely what the German people are saying about the string of sexual assaults and the threat of Islamic terrorism.

Needless to say, when German citizens are actively attempting to keep firefighters from curtailing a blaze, it says something profound about public opinion. Then again, we suppose this isn’t anything new. As Deutsche Welle goes on to report, “there were more than 1,000 arson attacks on planned and completed refugee shelters across Germany in 2015.”

Perhaps support for Merkel’s open-door approach was never that strong in the first place.

via Zero Hedge http://ift.tt/20OMTOE Tyler Durden

Back in March of last year, the FHFA warned that Fannie and Freddie may well go bankrupt at which point taxpayers would once again be on the hook for subsidizing their own bad mortgage debt.

As you might recall, the Treasury changed the rules when it came to the GSEs a while back.

Whereas previously, the companies paid a dividend to the government on the preferred stock Washington owned, the Feds decided instead to implement a quarterly profit sweep. As Bloomberg notes, “the payments count as a return on the U.S. investment and not as repayment of the aid, leaving no existing mechanism for them to exit government control.” That’s irked equity investors who swear they’re being illegally swindled by the government.

On Thursday, we learned that Fannie was set to pay the Treasury some $3 billion after reporting $2.5 billion in profit for Q4. The company – which has received more than $116 billion from US taxpayers since 2008, has paid the government $147.6 billion to date.

“Fannie Mae’s 2015 net income was $11 billion, down from $14.2 billion in 2014,” Bloomberg wrote on Thursday. “One reason for the decline was higher income in 2014 following settlement agreements on lawsuits related to private-label mortgage-related securities.”

Because of the arrangement which prevents Fannie from holding onto its profits, the company’s capital buffer could be completely wiped out by 2018, CEO Tim Mayopoulos warns. “At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership.”

So ironically, the government’s attempt to extract payments from the GSEs in perpetuity has left them without a capital cushion which in turn will force them to … wait for it… ask for another government bailout. 

This is reminiscent of the rather absurd scenario the companies were in before Washington transitioned to the profit sweep model. Previously, when Fannie and Freddie owed the Treasury a dividend on the government’s preferred shares but didn’t make enough money to cover it, the Treasury would loan the GSEs the money they needed to make the payment. Obviously, that’s completely absurd but as you can see from the above, the alternative (forcing taxpayers to bail the companies out again because the government commandeers the entirety of the companies’ profits) is equally ridiculous. 

“The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital,” Fannie’s top regulator, and FHFA director Mel Watt said.

As FT recounts, Fannie CEO Tim Mayopoulos said “a range of options for solving the capital problem were available, such as allowing Fannie Mae to retain earnings, changing the terms on what gets Treasury support via preferred stock purchases, and taking it out of conservatorship so it could be recapitalised in another way.”

Of course all of that is politically sensitive. Taxpayers aren’t exactly excited about seeing these bastions of cronyism and outright waste and corruption privatized again and allowing them to hang onto a porition of their profits is the first step in that direction. 

Whatever the case, Americans should probably go ahead and come to terms with the fact that both Fannie and Freddie will be drawing from the Treasury over the next few years. Housing finance reform isn’t exactly moving at a breakneck pace and it’s not at all clear that income guarantee fees can offset losses from the decline in the GSEs’ retained portfolios. 

As for what further bailouts would mean for the health of the US housing market, we close with the following passages from Watt:

“Future draws would reduce the overall backing available to the Enterprises, and a significant reduction could cause investors to view this backing as insufficient. It’s unclear where investors would draw that line, but certainly before these funds were drawn down in full.”

 

“Investor confidence is critical if we are to have, as we do today, a well-functioning and highly liquid housing finance market that makes it possible for families to lock in interest rates, obtain 30-year, fixed-rate mortgages, and prepay a mortgage if they want to refinance or need to move. If investor confidence in Enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers.”

*  *  *

Full comments from Watt to the bipartisan policy center

Thank you, Secretary Cisneros, for your opening remarks and introduction.  I also want to thank the Bipartisan Policy Center for extending the invitation for me to speak today on our work at the Federal Housing Finance Agency (FHFA).  I think all of you will agree that the things I am going to talk about deserve bipartisan attention and collaboration like we have seldom seen in recent years.     

This speech has two parts, an easy part and a difficult part.  Both parts reflect a philosophy that I hope all of you agree we have tried to encourage since I became the Director of FHFA – a philosophy of open, honest, and transparent discussion and decision making that helps demystify what FHFA, Fannie Mae, and Freddie Mac do and how those things relate to housing finance stakeholders.   

The first part of my speech is easy because it looks retrospectively at some of the things we have accomplished and how we have managed Fannie Mae and Freddie Mac (the Enterprises) in conservatorship to accomplish them.  By saying that this part of the speech is easy, however, I want to be careful not to suggest that all the decisions I will highlight were easy or noncontroversial when they were being considered.  It has been my experience that when decisions produce positive results down the road, we tend to forget how controversial or complicated these decisions might have been at the time they were made.   

The second part of the speech is difficult, both because it looks forward – something I have shown much less inclination to do up to this point in my time as Director of FHFA –  and because looking forward is inherently more difficult and almost always tends to generate more controversy.  After two full years as Director of FHFA, however, I think it’s timely for me to talk not only about our accomplishments, but also about some of the challenges and risks we face, some of which will surely become more difficult for us to control the longer the conservatorships continue.  While my primary responsibility as conservator may be to manage the Enterprises in the present as I have said on a number of occasions, I believe that I have an obligation, both in my role as conservator and in my role as regulator, to be frank and transparent about our challenges and risks.  By doing so, I hope these remarks will ignite some dialogue that could well be difficult, but I believe is also critically needed.    

The Unprecedented Conservatorships of Fannie Mae and Freddie Mac
Some background is necessary to frame both parts of the speech.  Congress established FHFA in 2008 during the height of the financial crisis, and one of the Agency’s first acts was to place the Enterprises into conservatorship.  Under the Senior Preferred Stock Purchase Agreements (PSPAs), the U.S. Department of the Treasury (Treasury Department) has provided essential financial commitments of taxpayer funding to support the Enterprises’ compromised financial status.  During the first four years of conservatorship, the Enterprises drew a total of $187.5 billion from Treasury, but neither Enterprise has made a further draw since 2012.  Fannie Mae has approximately $118 billion of its PSPA commitment remaining, and Freddie Mac has approximately $141 billion remaining.  Since the beginning of conservatorship through the end of 2015, the Enterprises paid approximately $241 billion in dividends to the Treasury Department.  Under the provisions of the PSPAs the Enterprises’ dividend payments do not offset the amounts drawn from the Treasury Department.

Virtually everyone would agree that today we have a much safer and more stable housing finance system than when FHFA placed the Enterprises in conservatorship.  I also think that most people would attribute a significant part of these improvements to decisions made in conservatorship.  Guarantee fees have increased by two and a half times since 2009, and our review last year concluded that overall guarantee fee levels are now appropriate.  Stronger credit standards have removed unsound risk layering and, in a manner consistent with safety and soundness, we have increasingly focused on how to support sustainable access to credit for homeowners, one of the Enterprises’ statutory obligations.  

Delinquencies and foreclosures have gone down on the Enterprises’ legacy books of business, and the number of REO properties held by the Enterprises has decreased significantly.  The number of HARP refinances has surpassed 3.3 million and the Enterprises have taken more than 3.6 million other actions to prevent foreclosures.  The Enterprises’ retained portfolios have decreased by over half since March 2009, and their portfolios are now more focused on supporting their core business operations.  The Enterprises’ multifamily programs had strong performance through the crisis, and they continue to share risk with private investors.  Their multifamily purchases provide needed liquidity for the general multifamily market, with an increasing focus on affordable rental housing.

We have completed efforts to revamp and improve the Representation and Warranty Framework, and we have strengthened counterparty standards for mortgage insurers and non-bank Seller/Servicers.  We have started and significantly ramped up credit risk transfer programs at both Freddie Mac and Fannie Mae, with both Enterprises now regularly transferring substantial credit risk to private investors on over 90 percent of their typical 30-year, fixed-rate acquisitions.  We have a target for Freddie Mac to start using the Common Securitization Platform (CSP) in 2016, and a target for the Single Security to go into effect with both Enterprises using the CSP to support their major securitization activities in 2018. 

In all of these things, we have also placed greater attention on diversity and inclusion in the Enterprises’ business operations, consistent with legal standards and with projections that the future composition of homeowners, renters, and the country as a whole will be more diverse.    

FHFA’s Role as Regulator and Conservator.  As this list highlights, FHFA’s role as conservator of Fannie Mae and Freddie Mac has been unprecedented in its scope, complexity, and duration – especially when you consider Fannie Mae and Freddie Mac’s role in supporting over $5 trillion in mortgage loans and guarantees.  This is an extraordinary role for a regulatory agency also because we are obligated to fulfill both the role of supervisor and the role of conservator at the same time, and because we are now approaching eight full years of having these obligations.  So let me also describe briefly how FHFA has managed these dual responsibilities.  

Like other federal financial regulators, FHFA conducts safety and soundness supervision with a deliberate distance between FHFA and the Enterprises.  Members of our supervision staff, many of whom are located onsite at Fannie Mae and Freddie Mac, conduct examinations that focus on areas of highest risk to the Enterprises.  They produce reports of examination and make findings as to whether the Enterprises need to make corrective actions in particular areas.  

In contrast, our role as conservator involves a different kind of relationship with the Enterprises.  Under the Housing and Economic Recovery Act of 2008, FHFA has the full authority of the Enterprises’ boards of directors, management, and shareholders while the Enterprises are in conservatorship.  This means that FHFA has ultimate authority and control to make business, policy, and risk decisions for the Enterprises, and the Enterprises’ boards know that their job is to meet our expectations.  

However, managing these Enterprises in conservatorship requires much more of a joint effort than would occur under a normal regulatory relationship.  For example, while an examiner would review board or management minutes after the meetings have taken place, members of FHFA’s Division of Conservatorship team attend management and board meetings as part of our conservatorship functions, and I personally attend and preside at executive sessions of Enterprise board meetings.  

FHFA’s Management of Fannie Mae and Freddie Mac in Conservatorship.  There are four key approaches that we use to manage the unique nature of these conservatorships.  Using these approaches, we have been able to fulfill our statutory obligations to ensure safety and soundness, to preserve and conserve Enterprise assets, to ensure liquidity in the housing finance market, and to satisfy the Enterprises’ public purpose missions.  

First, we set the overall strategic direction for the Enterprises in FHFA’s Conservatorship Strategic Plan and in annual scorecards that outline our policy expectations.  We set quarterly and year-end milestones for our scorecard objectives, and we conduct regular evaluations of whether the Enterprises are on track or behind in meeting our targets.  Our final scorecard assessments at the end of each year factor into the compensation calculations for Fannie Mae and Freddie Mac executives. 

Second, we delegate the day-to-day operations of the companies to their boards and senior management.  With over 12,000 employees at the two Enterprises and considering the nationwide scope and technical nature of their businesses, we can’t pull every lever and make every day-to-day operating decision.  If we tried, I’m quick to acknowledge that their operations would grind to a halt.  Under conservatorship, the Enterprises continue to operate as business corporations with boards of directors subject to corporate governance standards.  The Enterprise boards are responsible – like boards of directors at other companies – for overseeing their business activities.  They review budgets and set risk limits.  They examine business plans and oversee senior management.  

When FHFA first placed the Enterprises into conservatorship, FHFA selected new chief executive officers, reestablished their boards of directors, and approved new board members.  FHFA has continued to approve all new CEOs and board members throughout conservatorship, and they are responsible for meeting our expectations and effectively running the companies.  I meet several times a month with the CEOs of Freddie Mac and Fannie Mae.  In addition to my attendance at board meetings, I have regular conversations and engagement with each Enterprise’s board chair to help elevate issues that need to be resolved.    

Third, we have carved out actions that are not delegated to the Enterprises that require advance approval by FHFA.  Deciding which items we should delegate to the Enterprises and which should require FHFA approval is a judgment call and finding the right balance is an ongoing process.  There are decisions that are obvious choices for FHFA to make, such as setting the core components of the guarantee fees charged by Fannie Mae and Freddie Mac.  Others are closer calls.  While we retain the authority to step in and make the call on any issue, even ones that we previously delegated, we have found that providing as much clarity as possible about roles and responsibilities serves everyone better. 

The fourth prong of our conservatorship model is oversight and monitoring of Enterprise activities, and this is something that happens on an on-going basis – it’s probably not an overstatement to say this takes place constantly.  In addition to attending meetings of the management committees, FHFA staff members engage in regular dialogue with the management and operational teams at the Enterprises, regularly review information submitted by the Enterprises, and take action where appropriate. 

Managing the Enterprises in conservatorship through this four-step approach – with regular adjustments to account for changing circumstances – has worked well.  FHFA’s conservatorship decisions have helped navigate the Enterprises through a financial crisis and, despite the substantial negative impact of the crisis, helped prevent it from being far worse.

?The Challenges and Risks of a Protracted Conservatorship
However, an eight-year conservatorship is unprecedented, and managing the ongoing, protracted conservatorships of Fannie Mae and Freddie Mac poses a number of unique challenges and risks.  This leads me to the more difficult part of these remarks.  

I have consistently stated that our responsibility and role at FHFA as conservator is to manage in the present.  However, as we work to appropriately manage challenges and risks in the present, we also have a responsibility to assess when these challenges and risks may escalate to the point that they negatively impact the Enterprises and the broader housing finance market in the future.  By giving this speech today, I am signaling my belief that some of the challenges and risks we are managing are escalating and will continue to do so the longer the Enterprises remain in conservatorship.  Consequently, I believe that I have a responsibility, both as regulator and as conservator, to identify and discuss this concern more openly.

Enterprises’ declining capital buffers.  The most serious risk and the one that has the most potential for escalating in the future is the Enterprises’ lack of capital.  FHFA suspended statutory capital classifications when the Enterprises were placed in conservatorship, and Fannie Mae and Freddie Mac are currently unable to build capital under the provisions of the PSPAs.  The agreements require each Enterprise to pay out comprehensive income generated from business operations as dividends to the Treasury Department, and the amount of funds each Enterprise is allowed to retain is often referred to as the Enterprises’ “capital buffer.”  This capital buffer is available to absorb potential losses, which reduces the need for the Enterprises to draw additional funding from the Treasury Department.  However, based on the terms of the PSPAs, this capital buffer is reducing each year.  And, we are now over halfway down a five-year path toward eliminating the buffer completely.  

Starting January 1, 2018, the Enterprises will have no capital buffer and no ability to weather quarterly losses – such as the non-credit related loss incurred by Freddie Mac in the third quarter of last year – without making a draw against the remaining Treasury commitments under the PSPAs.  There are a number of non-credit related factors that could lead to a loss and result in a draw on those commitments: interest rate volatility; accounting treatment of derivatives, which are used to hedge risk but can also produce significant earnings volatility; reduced income from the Enterprises’ declining retained portfolios; and, the increasing volume of credit risk transfer transactions, which transfer both the risk of future credit losses as well as current revenues away from the Enterprises to the private sector.  A disruption in the housing market or a period of economic distress could also lead to credit-related losses and trigger a draw.    

It is, of course, impossible to predict the exact ramifications of future draws of funds from the PSPA commitments.  But let me offer a few observations.  

First, and most importantly, future draws that chip away at the backing available by the Treasury Department under the PSPAs could undermine confidence in the housing finance market.  The remaining funds available under the PSPAs provide the market with assurance that the Enterprises can meet their guarantee obligations to investors in mortgage-backed securities even while they are in conservatorship and don’t have the ability to build capital.  In effect, the Treasury Department’s financial commitment to each Enterprise under the PSPAs is a source of capital that supports mortgage market liquidity.  However, under the terms of the PSPAs, these funds can only go down and cannot be replenished.  Future draws would reduce the overall backing available to the Enterprises, and a significant reduction could cause investors to view this backing as insufficient.  It’s unclear where investors would draw that line, but certainly before these funds were drawn down in full.

Investor confidence is critical if we are to have, as we do today, a well-functioning and highly liquid housing finance market that makes it possible for families to lock in interest rates, obtain 30-year, fixed-rate mortgages, and prepay a mortgage if they want to refinance or need to move.  If investor confidence in Enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers.  

Second, future draws could lead to a legislative response adopted in haste or without the kind of forethought it should be given.  I have been clear that conservatorship is not a desirable end state and that Congress needs to tackle the important work of housing finance reform.  However, because of the intricacies of our housing finance system and the extremely high stakes for the housing finance market and for the economy as a whole if reform is not done right, I continue to hope that Congress can engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or a crisis of any other kind.  While it’s not my place to meddle in political discussions, I’m also not hearing much discussion of housing finance reform in any of the presidential campaigns.  

The role of market discipline in conservatorship.  A less discussed, but related, challenge posed by a continuing conservatorship is Fannie Mae and Freddie Mac’s insulation from normal market forces that would otherwise inform their operations and business practices.  There are differing views about the Enterprises’ business models leading up to the financial crisis, but in conservatorship the responsibility to create a regime of market discipline and appropriate competition falls squarely on FHFA’s shoulders.  The longer the Enterprises remain in conservatorship, the greater and more complicated this responsibility becomes.    

This challenge presents itself in multiple decisions, including pricing.  Although the Enterprises are not building capital while they are in conservatorship, FHFA expects Freddie Mac and Fannie Mae to determine their pricing as though they were holding capital and seeking an appropriate economic return on this capital.  This is something that was very important to FHFA as we started to review and make adjustments to guarantee fees.  We worked with the Enterprises to review the cost of capital as part of our assessment of the correct level of overall guarantee fees charged by the Enterprises.  Without such an approach, it would be challenging to decide what guarantee fee levels to approve.  Through our 2016 Scorecard priority to finalize a risk management framework, we are working to further our ability to evaluate these kinds of Enterprise business decisions. 

Another challenge related to market discipline is the question of how the Enterprises should or should not compete against one another.  As I discussed earlier, we have consciously structured the conservatorships of Freddie Mac and Fannie Mae so they continue to run as going concerns.  We want them to continue to innovate and to compete on the kind of customer service they provide to lenders and on the quality of their business practices.  We believe that competition in these areas is healthy for the Enterprises, good for the housing finance market, and good for borrowers.  

However, we have also made a number of decisions that require the Enterprises to adopt aligned standards in certain areas, such as aligned counterparty requirements, to avoid excessive risk being placed on taxpayers.  In conservatorship, we carefully determine when to allow competition and when to require alignment, requiring, of course, that all operations be executed in a safe and sound manner. 

Planning amidst an uncertain future.  A final challenge that being in protracted conservatorships forces us to face is how to manage and plan for the future when there is tremendous uncertainty about what the future holds.  Experience demonstrates that it is difficult to manage the Enterprises in the present without establishing some kind of plans for the future.  Here, I’m not talking about plans for housing finance reform, but plans for everyday operations, including strategic planning that every well-run business does and project planning that’s necessary to continue key initiatives.  Without looking somewhat down the road, FHFA and the Enterprises would both lose their momentum and jeopardize day-to-day success.  The key dilemma when you have an uncertain future, however, is how far down the road to look and how to retain the necessary talent to implement either short- or longer-term plans.   

This challenge drove my decision to authorize the increases in compensation for both Enterprise CEOs that proved to be so controversial.  First, I recognized that our delegated model relies heavily on strong management teams to uphold their side of conservatorship.  Second, I decided that to be responsible we needed to have the Enterprises engage in operations-focused strategic planning over a three-to-five year horizon.  To do both of those things, we needed to ensure continuity by retaining senior-level staff and having reliable succession plans that minimized disruptions.   

Of course, we have implemented the legislation that Congress passed to reinstate the prior CEO compensation limits, and it is not my intention here to debate the wisdom of the decision that Congress made.  Having served in Congress, I understand that it was an easy political decision.  However, the issue of reliable succession planning is another example of the many challenges presented by a long-term conservatorship.  The fact is that the Enterprises run businesses that rely on a highly specialized and technically skilled workforce.  Retaining that workforce is essential to the Enterprises’ success and to FHFA’s success as conservator.  With continuing uncertainty about conservatorships of indefinite duration and what role the Enterprises will play in the future of housing finance, retaining skilled employees will be an increasing challenge.  

Conclusion 
We have made these ongoing conservatorships work thus far through the dedication of staff at FHFA and the staffs of both Enterprises and we, of course, remain committed to continuing this task.  We know that the stakes are high for the housing finance market and for the broader economy.  However, as I have indicated in my remarks today, there are substantial challenges and risks associated with the unprecedented size, complexity, and duration of the conservatorships of Fannie Mae and Freddie Mac.  After more than two years at FHFA, I can assure you that these challenges are certainly not going away, and some of them are almost certain to escalate the longer the Enterprises remain in conservatorship.

via Zero Hedge http://ift.tt/1TuumXy Tyler Durden

While the “developed world” is only now starting its aggressive push to slowly at first, then very fast ban the use of physical cash as the key gating factor to the global adoption of NIRP (by first eliminating high-denomination bills because they “aid terrorism and spread criminality”) one country has long been doing everything in its power to ween its population away from tax-evasive cash as a medium of payment, and into digital transactions: Greece.

The problem, however, is that it has failed.

According to Kathimerini, “Greek businesses are not ready for the expansion of plastic money through the compulsory use of credit and debit cards for everyday transactions.”

Unlike in the rest of the world where “the stick” approach will likely to be used, in Greece the government has been more gentle by adopting a “carrot” strategy (for now) when it comes to migrating from cash to digital. The government has told taxpayers that they will have to spend up to a certain amount of their incomes via bank and card transactions in order to qualify for an annual tax-free exemption.

This appears to not be a sufficient incentive however, as a large proportion of stores still don’t have the card terminals, or PoS (Points of Sale), required for card payments, while plastic is accepted by very few doctors, plumbers, electricians, lawyers and others who tend to account for the lion’s share of tax evasion recorded in the country.

Almost as if the local population realizes that what the government is trying to do is to limit at first, then ultimately ban all cash transactions in the twice recently defaulted nation as well. It also realizes that an annual tax-free exemption means still paying taxes; taxes which could be avoided if one only transacted with cash.

For the government this is bad news, as the lack of tracking of every transaction means that the local population will pay far less taxes: a recent study by the Foundation for Economic and Industrial Research (IOBE) showed that increasing the use of cards for everyday transactions could increase state revenues by anything between 700 million and 1.6 billion euros per year, and that the market’s poor preparation means that the tax burden has been passed on to lawful taxpayers. As a reminder, in Greece, the term “lawful taxpayers” is not quite the same as in most other countries.

via Zero Hedge http://ift.tt/1WC9kWf Tyler Durden

Even The Economist is forced to admit to all the misplaced faith in the economic-healers…

 

 

Via @TheEconomist

via Zero Hedge http://ift.tt/1T0qYoX Tyler Durden

Prosthetic eyeballs go for anywhere from $2,000 to $9,000 at an ocularist. You’ll be thanking me for this information, as the US election ramps into high gear and the deluge of political propaganda, I mean advertising, puts sane people everywhere at severe risk of stabbing their own eyes out with knitting needles.

Controlling the thoughts of over 300 million people takes some doing. For the last few decades the choice of medium has been the idiot box, specifically mass media.

But mass media costs mass money.

If you’re wondering how much, recent estimates by Kantar Media, an ad tracking firm, suggest that the price tag for political TV ads will clock in at $4.4 billion for the 2016 circus. This is up from $3 billion in 2012. Hey, what’s another 1.4 billion amongst friends?

When it comes to politics, controlling the media is all-important since the media is the all important leverage into the populace’s minds. Amassing power and personal fortunes begins with grabbing attention.

Our bent here is not to follow the political campaign, or to bother trying to figure out which podium doughnut gets the clown crown at the end of the charade. As far as I can tell, leading political candidates are selected for having no manners, no humour, no humility, and the sort of IQ commonly found in farmyard animals.

Those are the good ones. The bad ones are pure psychopaths and if I had my way they’d be thrown into cells sans plumbing or heating and forced to eat only what they can cultivate in their body hair. Predicting the outcome of this circus impresses me as a waste of time. It’s a good thing they’re performing for a populace, the majority of which have no intellect at all. 

The political process formula, like most things that work well, is simple. Mass media distracts mass populace and mass populace in turn votes for all manner of absurdity.

The Controlling Elite

Contrary to popular belief, there’s no conspiracy of a group of grumpy old men in smoky rooms, sipping Chivas, wearing stripy cardigans and pushing the buttons; but rather there’s a distributed elite group of people who went to the right schools, joined the right organisations, who understand how things work and employ lobby groups to further their interests.

Nothing formal but rather the elite who’ve managed to figure out the system for their benefit and who use their influence to create ever more influence. Power clusters under the system and those who acquire power manipulate more of the system accruing ever more power in a continuous repetitive cycle.

The GFC provided some insights into how the system works.

Investment bankers managed to defraud first pension funds and institutions and, when caught out, managed to coerce the tax payer to pay them bonuses.

As I mentioned in last week’s post when discussing the criminal activities by Wall Street in the GFC.

“The bankers involved should all have landed up in jumpsuits, allowed out of their cells only for a moments man-love in the showers. They, of course, didn’t and instead paid themselves billions in bonuses.”

So the system never changes from the inside no matter what any of the political groups may promise.

Nope, change comes always from the outside; from left-field, from the unexpected to those who are caught in the trees without understanding they’re in a forest.

What the Arab Spring taught us was the tidal wave like power of a what disruptive technology can do. Social media not only undermined mass media but completely usurped it.

Just as the Berlin Wall fell with the disruption brought about by the fax machine, the great enabler that is technology is changing the political landscape in the US under our very eyes.

How so?

Attention has been found in mass media, specifically television, and newspapers.

What the elites haven’t yet figured out is that these are antiquated forms of communication. Youtube, Twitter, Facebook, Snapchat and the likes are competing. These channels allow for EVERYONE to have a voice, no permission needed, no filters, and instantaneously.

Resisting technology is as futile as the East German police resisting the populace once they had access to a different set of information. Change becomes inevitable. The elites have built centralized systems because centralized systems concentrate power. And when centralized systems come up against decentralized systems they are overwhelmed due to simple laws of distribution and economics.

The Arab Spring taught us this. The Washington Post explained it succinctly:

“During the week before Egyptian president Hosni Mubaraks resignation, for example, the total rate of tweets from Egypt — and around the world — about political change in that country ballooned from 2,300 a day to 230,000 a day.  Videos featuring protest and political commentary went viral – the top 23 videos received nearly 5.5 million views. The amount of content produced online by opposition groups, in Facebook and political blogs, increased dramatically.”

Trump understands this new game and doesn’t even bother trying to play the old game, spending millions on political advertising.

Bernie spends a few million on political ads. Trump just tweets.

Bernie waits for the political debate to end, then spends money on delivering his message via mass media as a follow up. Trump live tweets on the fly.

Poor Bernie can’t keep up.

Mass media costs a ton of money but the distribution laws have changed. The barrier of money to participate is being eroded.

Trump also understands the value of “shock and awe” better than George Bush ever could.

What shock and awe?

Megyn Kelly, a reporter from Fox News, isn’t going to be inviting the Don over for dinner anytime soon.

Shock value?

You bet.

Tell me, would you re-tweet Trump calling someone any of the above or would you re-tweet Bernie discussing immigration reform or tax policy? Be honest now.

The truth is, the more vile, the more shocking, and the more crazy and offensive Trump becomes the more his message goes viral. Couple that with his political insensitivity and he makes for a character so clearly different from all of his opposition. Many who disagree with him still see him as bit of breathe of fresh air as he plays by his own rules and ostensibly at least appears not to be bought and paid for:

“Trump raked in nearly 13.5 million Twitter mentions since Dec. 30, according to SocialFlow, a social media publishing platform. This put the real estate developer well ahead of virtually every major celebrity in the United States including Justin Bieber who brought in roughly 8 million, Kanye West with 6.2 million and Rihanna with 5.7 million.”

The elites are mad and sneer and jibe. Trump doesn’t care. He’s not playing by their rules.

The age of disruption is here and mass media will not be spared.

Begging for disruption is the financial mass media.

We have some thoughts around that which I’ll be discussing on an up-and-coming podcast for subscribers.

– Chris

via Zero Hedge http://ift.tt/1oVRCT3 Capitalist Exploits

Submitted by Claire Bernish via TheAntiMedia.org,

Ted Cruz’ eligibility to run for president has been put to a test of legality. On Friday, the Circuit Court of Cook County in Chicago heard questions in a lawsuit challenging the Texas senator’s legal qualifications to determine if his bid for the nomination can continue.

Illinois attorney Lawrence Joyce sued after his previous attempt to dispute Cruz’ placement on the ballot with the state’s Board of Elections was dismissed on February 1.

Joyce reportedly supports Ben Carson in the race for president, and he maintains he has no connections to Donald Trump, who has also threatened to take action over questions of Cruz’ eligibility.

“The child of a U.S. citizen born abroad is a U.S. citizen,” Cruz asserted in response to questions. Born in Canada to a noncitizen father and U.S. citizen mother, Cruz emphasized the issue of such eligibility dates back to the founding of the country. “Indeed the very first Congress … wrote the very first laws on citizenship,” he said. “And they explicitly defined the child of a U.S. citizen born abroad as a U.S. citizen.”

According to the Washington Times, Joyce’s concerns with Cruz hinge on the potential that he could garner the nomination, only to be challenged in court by the Democratic Party — when it would be too late.

“At that point, all of his fundraising would dry up. And his support in the polls would drop dramatically,” Joyce said. “He may be forced at that point to resign the nomination.”

At the heart of the issue is the term “natural-born,” the technicalities of which academics, politicians, and scholars of the Constitution have not agreed upon. Vox, which has published a detailed account of the minutiae in this debate, explained one potential avenue for resolution:

“Congress could at least stick some kind of bandage on the question by passing a ‘sense of the Congress’ resolution — that’s what it did in 2008 to affirm the eligibility of John McCain, who landed in the ‘natural-born’ gray zone for different reasons from Cruz. But the Senate has made it clear that it intends to do no such thing for Ted Cruz. This probably is less because they don’t think Cruz is natural-born than because Senate Republicans really don’t like Ted Cruz, but it’s a problem for him nonetheless.”

There were no reports indicating an expected date for the court’s ruling on the matter.

via Zero Hedge http://ift.tt/1oCFZR0 Tyler Durden

After refusing to even consider the possibility of a recession in the US for over a year, the first cracks in Goldman’s armor are starting to appear. Over the weekend chief equity strategist David Kostin said that while the probability of a recession according to GS economists remains low, saying that “their model suggests the US has an 18% probability of recession during the next year and 24% likelihood during the next two years”, Goldman’s clients and investors “continue to inquire about the impact a contraction would have on the US equity market.”

Displeased with this inquiry into the worst case scenario, one which nobody at Goldman predicted as recently as a few months ago, Kostin is forced to present Goldman’s sensitivity “of our existing earnings and valuation forecasts to a US recession scenario.” Here is Goldman’s take of what may be the worst case scenario for stocks in a recession:

We estimate the S&P 500 index will generate $117 in EPS in 2016, a rise of 11% from last year, although EPS growth excluding the Energy sector will equal just 5%. Our baseline earnings forecast assumes the US economy expands by an average of 2.0% in 2016 while world ex-US growth averages 3.6%. We forecast sales, margins, and earnings for each sector of the S&P 500 based on assumptions for US GDP growth, global GDP growth, inflation, interest rates, crude oil, and the US Dollar. 

 

From a sensitivity perspective, we estimate a 100 bp shift in US GDP growth will affect our S&P 500 EPS forecast by roughly $5 per share. For example, holding other macro variables constant, if US GDP growth averages +1.0% then EPS would equal approximately $111.

And here the humor begins:

However, if the US falls into recession and GDP actually declines by 1.0% (300 bp below our baseline forecast) then EPS would equal just $100 per share, a decline of 6% from last year and a 13% drop from the recent EPS peak of $115 in 2014. Coincidentally, the median  peak-to-trough fall in EPS around the 13 recessions over the past 80 years equals 12%. Most investors find the sensitivity of our EPS forecast to shifts in GDP growth much smaller than they expect.

Perhaps it has something to do Goldman’s absolutely abysmal forecasting track record – as we reported before, 5 of Goldman’s top 6 trades for 2016 – all of which were bullish – were closed out at a loss just 6 weeks into 2016.  Maybe “investors” are finally warming up to Goldman’s “predictive” powers.

That however doesn’t faze Kostin who says that “simply put, many sectors have low economic sensitivity. The profits for Telecom, Utilities, Health Care, and Consumer Staples firms are relatively immune to swings in GDP.”

Right, and just exclude energy, materials, and everything else that is nearing the biggest default wave since 2008, then just apply Tesla’s Non-GAAP adjustment, and all shall be well.

It gets better: apparently not only are investors overly worried about GDP growth, they are also panicking about EPS:

As is the case for changes in GDP growth, the EPS sensitivity to interest rates is much smaller than most investors expect. While the sensitivity of profits of Financials stocks to interest rates is high, with each 100 bp change in bond yield affecting the sector’s EPS by roughly 4%, the impact on EPS of other sectors offsets about 60% of the Financials’ change (see Exhibit 3). The sensitivity of our 2016 S&P 500 EPS forecast to changes in crude oil price has a similar offsetting impact between profits of the Energy sector and earnings of the other nine sectors. We estimate that every $10 shift in the average price per barrel of crude oil has a 29% change in Energy EPS but just a 0.8% or $1.00 per share impact on overall S&P 500 EPS. Our baseline assumption is that Brent averages $44 per barrel (18%  below last year). If oil averages $34 per barrel, our EPS estimate would be $116.

We are #timestamping that and we promise to revisit in one year what EPS will be if (and when) oil averages $34 (or less).

And while we are amused by Goldman’s relentless optimism according to which even a recession will barely impact the US economy, we were truly amazed by the following:

If the US falls into recession and GDP actually declines by 1.0% (300 bp below our baseline forecast) then EPS would equal just $100 per share, a decline of 6% from last year and a 13% drop from the recent EPS peak of $115 in 2014. Coincidentally, the median peak-to-trough fall in EPS around the 13 recessions over the past 80 years equals 12%.

Sure, if one assumes that the recession will be just an “average” one, then Goldman is spot on. What however Goldman ignores is that every single recession since the 1981 one has been the result of the Great Moderation’s kicking the can even farther with monetary policy, resulting in declines as follows: 11%, 21%, 32% and 57%. The trend here is obvious, and for an obvious reason: each prior recession was the bursting of a Fed-induced bubble, one which was planted to supplant the prior burst bubble, and as a result each subsequent recession was more violent and more acute than the prior.

As a result, we wonder if instead of an average recession, the next one won’t be the most violent one yet, one in which the faith of central banks themselves is wiped out, and leading to a near complete decimation in profits. As such the question for the chart below is: the median line or the progression arrow?

And then this:

The US has experienced 13 economic recessions since 1937 with the average downturn lasting four quarters (see Exhibit 4). The EPS  peak and trough are typically within one quarter of the start and end of the recession. The median S&P 500 index decline around recessions equals 21%. The minimum drop was 4% during the 1945 downturn while the maximum occurred in the 2007-09 financial crisis when EPS plunged by 57%. The index typically peaked nine months before a recession started and bottomed six months before it ended. S&P 500 peaked at 2131 in May 2015 (nine months ago). A 21% fall from the peak implies a level of 1680, 12% below today.

 

Once again: average or progression, because if extrapolating the trend from the past 4 recessions is any indication, then the 2016/2017 recession will see a collapse of roughly 75% peak to trough, putting the S&P somewhere just around 500.

Finally, it wouldn’t be Goldman if the bank wasn’t desperate to unload some terribly underperforming product to go alongside its rose-colored glasses sunshine call, and sure enough it is.

Stocks with the highest combined price sensitivity to the US economy and the S&P 500 have sharply underperformed the broad market YTD. Our “Dual Beta” basket has dropped by 17.1% YTD versus 5.9% for the S&P 500, a gap of 1,130 bp in just seven weeks (Bloomberg ticker: GSTHBETA). The plunge in share prices of the 49-constituents in the sector-neutral basket reflects investor fears of a recession and negative EPS revisions greater than the market. The basket is specifically constructed to have high sensitivity to changes in economic growth and now trades at a P/E discount of 2 multiple points (14x vs. 16x for the median S&P 500 stock). The typical stock has 26% upside to the GS analyst price target compared with 9% upside to our year-end S&P 500 target of 2100. Investors who subscribe to our view that a US recession in the near-term is unlikely should focus on this basket from a macro and micro perspective (see Exhibit 5 for list of constituents).

And here, dear investors who subscribe to Goldman’s view that “a recession in the near term is unlikely”, is what Goldman is desperate to sell to you. In fact, Goldman’s prop desk has a whole lot of this GSTHBETA to sell to any remaining clients, which of course assumes that Goldman still has clients who are still alive after the “Top 6 trades of 2016″ fiasco.

We, for one, would take the other side, just as we would take the other side of that other collapsing product which Goldman is so desperate to offload to muppets, one which as we reported last week it is even making into an ETF to assist its hedge funds’ offloading it to clueless retail investors: the GS VIP basket.

We wonder which of Goldman’s prime brokerage clients are so desperate to unwind their top hedge fund positions to anyone, that Goldman was forced to make this index into an ETF to “make it easy” for retail investors to load up.

via Zero Hedge http://ift.tt/1QTHgta Tyler Durden

Just as the government did in the lead up to The Scottish Referendum in 2014, it appears David Cameron is already unleashing resorting to the so-called Project Fear. As The Telegraph reports, following Boris Johnson's lack of acquiescence to Cameron's call for no Brexit, more than a dozen of the country's most senior military leaders will argue that Britain should vote to stay in the European Union because of its importance to national security.

The Daily Telegraph understands that Downing Street is organising a letter stating the importance of the EU to Britain's national security to combat the growing threat of Isil and increasing Russian aggression.

Those likely to sign the letter include Admiral Lord Boyce, General Lord Stirrup and Field Marshal Lord Bramall, three former Chiefs of the Defence Staff, and General Sir Peter Wall, a former Chief of General Staff.

 

Lord Stirrup told The Daily Telegraph: "I don't carry a torch for the European Union at all but one has to look at the realistic alternative not just the World as we wish it to be. In light of the current threats like Isil, Russia and other threats that might emerge you have to think about how we secure our society."

 

Lord Bramall said: "I have always felt that a strong Europe in political terms is infinitely stronger if it has Britain inside it.

 

"If Britain left it would be a much weaker Europe and therefore it would affect the whole balance of power and equilibrium in the Western World.

 

"That affects not just security, but the political side. The negotiations. It is important to have a match for the various power blocs – China, Russia – it's complementary to Nato. I am sure America would very much want us to be in."

However several other former military chiefs are struggling to reach a decision because they are weighing their concerns about national security against their instinctive euroscepticism.

General Sir Mike Jackson, a former head of the army, is among those who are undecided about whether to sign the letter.

He said: "Yes there is a security dimension to the EU but in my mind it is more of a policing and judicial matter rather than a military matter. The military dimension is provided by Nato."

The letter is likely to be published this week and comes as both David Cameron and Michael Fallon put Britain's national security at the heart of their arguments for remaining in the European Union.

However it is likely to lead to accusations from eurosceptic campaigners that the Prime Minister is resorting to "Project Fear" to make the case for staying in the European Union.

Michael Fallon, the Defence Secretary, said in an article for The Sunday Telegraph that Vladimir Putin, the Russian President, wants Britain to leave the European Union.

 

He said: "It is not scaremongering to ask which result Putin would favour. If we left, the European Union for the first time in its history would be smaller and weaker. That's obviously in Russia's interests."

 

The challenges of Russian aggression and international terrorism are global and transnational and Britain "cannot afford" to be alone, he said.

So be afraid Brits, without the help of your Brussels-led 'comrades' you are a defenseless, weak island nation facing the threat alone of ISIS and Russia. We sure have come a long way from "we'll fight them on the beaches…"

via Zero Hedge http://ift.tt/1SLfTaP Tyler Durden

It appears it’s time to teach Hillary’s old lap dogs a new trick…

 

 

Source: Investors.com

via Zero Hedge http://ift.tt/1RgNpT5 Tyler Durden