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The Greek Crisis has become a major political crisis for Europe.

• Due to populace pressure against bailouts, politicians are proposing draconian cuts for Greece with vague promises of aid.
• It’s possible that Euro politicians keep increasing demands on Greece in order to dissuade Greece from accepting an EU bailout.
• Due to populace pressure, Greek politicians cannot make the EU-demanded socialism cuts.
• Euro opprobrium toward Greece and Goldman due to their scheme to conceal Greece’s true budget deficit might be manifested in sanctions against the deceitful duo.

The Greek Crisis highlights:

• The implosion of western socialism due to unserviceable sovereign debt, exacerbated by the massive transfer of wealth to Asia
• The impetuous creation of the Euro (a throttling condition for the reunification of Germany)
• The lack of an enforcement mechanism for Maastricht violations
• Greece as the guinea pig for future European crisis
• Sovereigns have been concealing the truth about their deficits, financial & economic conditions.
• Sovereigns will divert attention from their venality by conducting an inquisition of speculators.

Reuters: Eurozone gives Greece 30 days to show good on deficit  … Greece had 30 days to prove its plans were off to a convincing start and he said that Athens could count on unspecified support if that was not the case and markets refused to give it breathing space…. Greece’s Socialist government is fighting an uphill struggle to get its finances in order, restore credibility in other capitals and financial markets alike, and prove that the data it publishes on its economy is no longer what Swedish finance minister Anders Borg described as “basically fraudulent.”…

http://www.reuters.com/article/idUSTRE61E3E920100215

The Strait Times: European Central Bank (ECB) president Jean-Claude Trichet castigated the Greek government for its accounting and said other European nations would strictly monitor the recovery plan put in place by the socialist government in Athens.

The ECB also wants finance ministers to demand greater budget cuts than those already offered by Greece, whose public deficit has hit 12.7 per cent of gross domestic product and debt of about 300 billion euros (S$577 billion) is now 113 per cent of GDP.

http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_490602.html

BN: Greece should lose voting privileges in the European Union if it gets a bailout from the 27-nation bloc, said the head of the business caucus of German Chancellor Angela Merkel’s Christian Democratic Union…

http://www.bloomberg.com/apps/news?pid=20601110&sid=ax9I0FD1YxgU

BN: Greece’s Goldman Sachs Swaps Spawn EU Dispute on Disclosure
A dispute is unfolding about how long European Union officials have known that Greece used derivatives to conceal its growing budget deficit…

http://www.bloomberg.com/apps/news?pid=20601110&sid=aZom2jvtHvWk

Last month, we noted that the St. Louis Fed had declared in their charts that the recession was over (Dude, Where’s My Recession Bar?).

Now, it appears that with the latest G17 release on Industrial Production, the Federal Reserve is making the same assumption. They make note of this referring to several charts (below) stating:

“The shaded areas are periods of business recession as defined by the National Bureau of Economic Research (NBER). The last shaded area begins with the peak as defined by the NBER and ends at the trough of a 3 month moving average of manufacturing IP.”

They are referring to the technical definition of contractions (recessions) as starting “at the peak of a business cycle and end at the trough (as defined by the NBER).

Ron Griess observed the 3 month MA of the MANUFACTURING index:

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Hence, as the following charts reveal, the Fed is marking the Recession over as of Q2′s end, based upon industrial production bottom.

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Industrial production, capacity, and utilization

Industrial production and capacity utilization

Hat tip Bob Dieli.

One of the oddest things to come out of the entire credit crisis, recession and muddling recovery has been the sudden re-emergence of deficit hawks.

While a few honest deficit hawks are out there — the Peterson Institute is a good example of a group looking at long term structural issues, not immediate fiscal concerns — the vast majority of born again fiscal hawks are political hypocrites. They voted for all manner of budget busting programs — unfunded tax cuts, new entitlement programs (i.e., prescription drugs), an expensive war of choice (Iraq).

How is it that they only learned of the evils of deficits after they lose power? How very convenient.

The current group of anti-deficit spenders are pro-cyclical, rather than counter-cyclical. This means that during an expansion, they have no problem with expanding deficits, running big spending programs, giving generous tax cuts. During a recession is where they suddenly rediscover fiscal prudence.

This is ass backwards. During an economic expansion, with employment gaining and GDP growing is when you should be thinking about saving for the next rainy day. Counter-cyclical spending means that governments should watch the budget carefully during the good times, but spend spend more freely during the downturns. What we are hearing from this crowd is the exact opposite of what should be.

Many people believe the government’s early withdrawal of depression stimulus after the early 1930s is what caused another downturn circa 1938-39. But few people realize that Japan made the exact same mistakes in 1997 and 2001.

That is the lesson SocGen’s Albert Edwards points to in Richard Koo’s book about Japan’s balance sheet recession, The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession:

The crux of his analysis is that governments have no option but to stimulate
aggressively all the while the private sector is de-leveraging. ANY attempt at fiscal cuts simply results in renewed recession and a further loss of confidence, thus making it even harder and more costly to sustain any subsequent recovery and hence the budget deficit ends up bigger than before (e.g. see chart below). This is exactly the outcome I expect.

Koo argues that the premature fiscal tightening by Japan 1997 and 2001 weakened the economy, reduced tax revenue and ultimately made the fiscal deficit even bigger:

Premature Fiscal Reforms in 1997 and 2001 Weakened Economy, Reduced Tax Revenue and Increased Deficit

Source: Nomura Securities

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There are few things more annoying the a drinker who just discovered sobriety: Hence, those who have spent the past decade getting drunk on government spending are now suddenly proselytizing a belated sobriety. These calls are occurring exactly when government largesse would do the most good.

I can’t tell what motivates these new deficit hawks — are they merely ignorant, unaware of the historical analogs? Or are they hoping for another recession as part of a debased power grab? (I don’t know).

What I am sure of is that calling for fiscal temperance RIGHT NOW is essentially calling for another recession . . .

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Sources:
The Age of Balance Sheet Recessions:  What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005
Richard C. Koo, Chief Economist
Nomura Research Institute
Tokyo, March 2009

KOO’s “Good News”
Welling, September 11, 2009
http://welling.weedenco.com/newsletterdownload.aspx?newsletterpictureid=1803 (PDF)

Richard Koo books:
The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession
Wiley 2009

Balance Sheet Recession: Japan’s Struggle with Uncharted Economics and its Global Implications
Wiley, 2003

See also:
Caving to Congress Creeps Into Market Views on Obama
Rich Miller and Mike Dorning
Bloomberg, Feb. 16 2010

http://www.bloomberg.com/apps/news?pid=20601109&sid=aDAeDq0lg0Rw&

Judging a Stimulus by the Job Data Reveals Success
DAVID LEONHARDT
NYT, February 16, 2010

http://www.nytimes.com/2010/02/17/business/economy/17leonhardt.html

The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005
Richard C. Koo
Chief Economist
Nomura Research Institute
Tokyo, March 2009

Richard Koo Presentation

No surprise here:  The elder statesmen of Wall Street favor the Volcker rule:

“Put aside for a moment the populist pressure to regulate banking and trading. Ask the elder statesmen of these industries — giants like George Soros, Nicholas F. Brady, John S. Reed, William H. Donaldson and John C. Bogle — where they stand on regulation, and they will bowl you over with their populism.

They certainly don’t think of themselves as angry Main Streeters. They grew quite wealthy in finance, typically making their fortunes in the ’70s and ’80s when banks and securities firms were considerably more regulated. And now, parting company with the current chieftains, they want more rules.”

When folks like these support something that current CEOs oppose, its easy to figure out the differences between the two groups: The senior players want to see Wall Street have a more robust infrastructure that handles risk better, and is more survivable in a crisis. The current CEOs are driven primarily by profits.

I am in the senior camp — the Volcker rule would not have prevented this crisis, but it would reduce taxpayer exposure to Wall Street speculation. It also might stop the next crisis.

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Source:
Elders of Wall St. Favor More Regulation
LOUIS UCHITELLE
NYT, February 16, 2010
http://www.nytimes.com/2010/02/17/business/17volcker.html

That’s the name of Charlie Gasparino’s new book, The Sellout.

And its also what his colleagues over at CNBC might be thinking — as several readers noted over the weekend, Charlie jumped ship and has signed a multi-year deal with Fox Business Network.

Back in his early days as a reporter for the WSJ, Gasparino was nominated for the Pulitzer Prize in beat reporting in 2002, and won the New York Press Club award for best continuing coverage of the Wall Street research scandal.

During the run up to the credit crisis, he had terrific access to the leading figures of Wall Street. But that closeness sometimes led him to defend CEOs against accusations of malfeasance or foolishness. Most famously, Gasparino steadfastly defended then Lehman Brothers CEO Dick Fuld against the likes of David Einhorn and others.

He has since moved into a hybrid of opinion and reportage.

I have an odd relationship with Charlie — I like him personally, but think he can be a putz sometimes (See this as an example)

In many ways, the move to Fox Business is a good fit politically. Charlie has had some run ins with his fellow anchors on CNBC, and the combative feisty anchor might find the atmosphere at Fox more to his political likings.

There is a substantial research piece out by S&P looking at distressed mortgages (better late than never).

You can read the entire piece, but I’ll save you some time and give you the conclusion:

We believe that the recent constriction in the supply of foreclosed homes on the market is a temporary one. Loan modifications and the observed extension of time distressed loans remained as such may simply have delayed the inevitable, creating the demonstrated shadow inventory of troubled loans. Ultimately, the majority of the properties these distressed loans represent will likely have to be liquidated.

Our estimate of $473.4 billion in loans that will eventually need to be liquidated corresponds to approximately 1.75 million individual properties. This number represents almost 50% of the existing homes available for sale as of December 2009

Moreover [this] only accounts for expected defaults for mortgages outstanding in the private securitization market (which makes up less than a third of the total securitization market and less than 5% of the total mortgage market).

While we do not expect all of these distressed properties to liquidate at the same time, the significant percentage of the current supply that these distressed loans represent does reveal the potential future increase in housing supply. An influx of liquidated properties is likely to prompt a decline in prices if unaccompanied by a comparable increase in demand

As discussed earlier today, there are many more foreclosures coming . . .

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Source:
The Shadow Inventory Of Troubled Mortgages Could Undo U.S. Housing Price Gains
Diane Westerback, Brian Grow, Mike P Dougherty
http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245206147429

Shadow Inventory – housing overhang article

http://www.ritholtz.com/blog/wp-content/uploads/2010/02/Shadow-Inventory-housing-overhang-article.pdf

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Interesting website that compiles analyst commentary and media coverage on stocks:

Street Pulse, finds comments by sell-side, industry and credit research analysts and melds those with comments from respected bloggers in an effort to answer the question “what do key opinion leaders have to say…” about a given company.

Deal Pulse* compiles the latest news on rumored, announced and completed M&A transactions. Uncovers deal ideas and rumors from all corners of the web.

Weak Pulse* displays news articles and blog posts that highlight distressed companies, such as those “seeking strategic alternatives,” announcing layoffs, filing for bankruptcy or restructuring

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click for website

http://www.alacra.com/products/pulse.asp