Any who have carefully perused my Pan-European Sovereign Debt Crisis series realizes that I have been stating the chances of a Grecian default are very high indeed -Nearly mathematically guaranteed, in a nutshell. I even went so far as to model various scenarios of the Grecian outcome, and the only way that Greece was to have a viable debt to GDP ration was to strategically restructure. See What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates. On that note, it appears that the Germans have been reading my blog.
The NY Times reports: Greece Debt Buyback Has Its Supporters
FRANKFURT — Analysts welcomed talk Wednesday that Greece might reduce its debt load by buying back its own devalued bonds, even though a German government spokesman denied reports that such a plan was in the works. Denials notwithstanding, economists said a buyback would make a lot of sense and could be an important step toward solving Europe’s sovereign debt crisis.
Greek bonds already trade on open markets at a steep discount to their face value. If Greece bought back the bonds with help from other euro-zone countries, the country would not have to pay back the full amount of the debt when the bonds reach maturity. “Ultimately it’s the return to some kind of stable debt path that will provide the biggest turnaround in confidence,” Mr. Cailloux said.
Goldman Sachs posted a 53 percent decline in quarterly profit, due in large part to the reversion to mean of their outsized trading profits over the last several quarters - as duly warned in the BoomBustBlog research reports. As per CNBC:
Fourth-quarter net income after payment of preferred stock dividends totaled $2.23 billion, or $3.79 per share, compared with $4.79 billion, or $8.20, a year earlier. Net revenue fell 10 percent to $8.64 billion.
Analysts on average expected profit of $3.76 per share on revenue of $9 billion, according to Thomson Reuters I/B/E/S.
Net revenue dropped sharply, as we anticipated as well.
Net revenue in fixed income, currency and commodities slid 39 percent from the third quarter to $1.64 billion, reflecting what Goldman called "generally low client activity levels."
The Goldman, et. al. story is not over yet. There is still a material amount of legacy assets (losses) to be recognized at market value. The market is not returning to the point of inception of this stuff, and the true extent of the losses have yet to be taken. I have been uber bearish from this perspective, yet market prices appeared to disagree. The problem was simply a matter of gross, coordinated misrepresentation (a fancy way of saying "lying, on a large scale - and with the cooperation of regulators"). I was absolutely correct, and now that the truth has come out, will there be any rule of law? Let's reminisce through referencing several posts from 2008 wherein I made clear that Goldman Sachs was much riskier than practically ANYBODY on the street and in the media recognized...
About 4 months ago, I claimed that Banks Will Be Forced to Forgo Certain Foreclosures, Even If the Borrower Has Admittedly Defaulted! In summary:
Without an economic incentive to foreclose, it would not be in the bank shareholders best interests to pursue foreclosure even though borrowers clearly defaulted & owe money to the lender. The economics of distressed assets in mortgage and commercial banking are quickly changing. I am quite open to discussing this in the mainstream media if any are interested in hearing the “Truth go Viral!” I want all to keep this in mind when pondering the release of reserves by the banks.
This was taken by many readers as sensationalist and unlikely. As a matter of fact, much of my writing is taken in a similar way, most likely due to the fact that I have an uncommon proclivity to state things exactly as I see them, sans the sucrose patina. This is not a pessimistic (bearish) outlook, nor an optimistic (bullish) outlook. It is simply called, the TRUTH! Realism! Something that is increasingly hard to come by in these days of media for a purpose and embedded agendas.
You see, the United States, much of Europe, and China have sever balance sheet issues that are ravaging their respective economic prospects. The media, analysts, and investors are gingerly mozying along as if this is not the case. Well, no matter how hard you ignore certain problems, no matte how hard you try to kick the can down the road - the issues really do not just "disappear" on their own.
With these points in mind, let's peruse this piece I picked up from the Chicago Tribune: More banks walking away from homes, adding to housing crisis blight: the bank walkaway.
Research to be released Thursday, the first of its kind locally, identifies 1,896 "red flag" homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.
Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can't recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren't completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.
"The steward relationship between the servicer and the property is broken, particularly in these hard-hit communities," said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and advocacy group. "The role of the servicer is to be the person in charge of that property's disposition. You're seeing situations where servicers are not living up to that standard." City neighborhoods where 80 percent of the population is African-American account for 71.1 percent of red-flag properties, according to Woodstock.
Don't fret, this is definitely not an "African American" thing. As a matter of fact, the reason that this is concentrated in this primarily "African American" community is that this is one of the demographic groups that have been heavily targeted by predatory lenders. You will see other demographic "concentrations" start to show similar attributes and behavior from the banks - lower income, lower educated, higher LTV, lower mean rental income, lower property value, higher mean time to disposition from commencement of marketing areas, etc.
I read this headline from the Financial Times and said to myself, "Okay Reg, Don't say 'I told you so'". Thus, you won't hear it from me, at least not this time. As reported today in the Financial Times: Goldman reveals fresh crisis losses and Goldman’s republished results present a new picture
Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. But Goldman’s regulatory filings and its executives’ comments to investors at the time pointed to about $8.5bn of losses arising from its investments in debt and equity, as markets were rocked by the turmoil.
Hmmmm! I walked through this in explicit detail in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“ and I did it without being privvy to Goldman's financial innards. It was more or less common damn sense. Goldman and its employees do not walk on water, they do not shit gold, and they cannot perform miracles. If one takes an objective approach to their equity analysis, and simple plug the numbers into a spreadsheet (objectively) you would have come up with the exact same conclusions that I gave my subscribers all of these years. Let's reminisce, shall we?
So, what is GS if you strip it of its government protected, name branded hedge fund status. Well, my subscribers already know. Let’ take a peak into one of their subscription documents ( Goldman Sachs Stress Test Professional 2009-04-20 10:06:45 4.04 Mb - 131 pages). I believe many with short term memory actually forgot what got this bank into trouble in the first place, and exactly how it created the perception that it got out of trouble. The (Off) Balance Sheet!!!
Contrary to popular belief, it does not appear that Goldman is a superior risk manager as compared to the rest of the Street. They may
the same mistakes and had to accept the same bailouts. They are apparently well connected though, because they have one of the riskiest
balance sheet compositions around yet managed to get themselves insured and protected by the FDIC like a real bank. This bank’s portfolio looked quite scary at the height of the bubble.
And back to the FT article...
The day after I posted "As JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It Was Not Obvious Years Ago That This Industry May Become The “New” Tobacco Companies" wherein I made clear my opinion that the legal and litigation risks that the banking industry faces is woefully underestimated, the Massachusetts Land Court Decision that invalidates foreclosures based on post sale assignments was up held by the Massachusetts Supreme Court. This is permanent, and precedent setting, absolutely justifies and vindicates my post from the day before, which also contained links to other posts which any declared sensational just a few days before, ex., The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! and As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. This is a very big deal since it actually unravels many thousands of foreclosures and sets precedent to be examined across the country (all 50 state's attorney generals are looking into fraudclosure issues) that will really cause material damage to the banks that are pursuing (have pursued) said foreclosures. As reported in the Massachusetts Law Blog:
Breaking News (1.7.11): Mass. Supreme Court Upholds Ibanez Ruling, Thousands of Foreclosures Affected
Update (2/25/10)–Mass. High Court May Take Ibanez Case
Breaking News (10/14/09)–Land Court Reaffirms Ruling Invalidating Thousands of Foreclosures. Click here for the updated post.
None of this is the fault of the [debtor], yet the [debtor] suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents any time it chooses. And who can say that problems won’t be encountered during this process?... Massachusetts Land Court Judge Keith C. Long
“[W]hat is surprising about these cases is … the utter carelessness with which the plaintiff banks documented the titles to their assets.” –Justice Robert Cordy, Massachusetts Supreme Judicial Court
Today, the Massachusetts Supreme Judicial Court (SJC) ruled against foreclosing lenders and those who purchased foreclosed properties in Massachusetts in the controversial U.S. Bank v. Ibanez case...
... For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.
A while back, I posted a piece aptly named “Doesn’t Morgan Stanley Read My Blog?”, wherein I lamented on the fact that I made very clear in 2007 that anyone who bought the Sam Zell/Blackstone flips were guaranteed to lose money. It was literally etched in stone for anyone with an objective view and a calculator. I actually believe it was a miracle that Blackstone didn’t lose their shirt. Well, guess who bought those buildings on behalf of their clients as they raked in the fees (see Wall Street Real Estate Funds Lose Between 61% to 98% for Their Investors as They Rake in Fees!). You guessed it. None other than Morgan Stanley. This purchase was a 100% equity loss. The entire client fund apparently lost about 61% of the shareholder’s money. See this WSJ article: Morgan Stanley Property Fund Faces $5.4 Billion Loss.
Well, Morgan Stanley's profitable (from a fee perspective) Real Estate division is in the news again. Bloomberg reports, Paulson Group Said to Seize Some CNL Hotels From Morgan Stanley:
In October, I posted The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008! and As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. Time will tell if I am correct, but the trends are still moving in my favor. From Bloomberg:
JPMorgan Chase & Co. and the biggest U.S. banks face billions of dollars in legal costs related to their role in the financial crisis, threatening their profits and the stock price gains they made in 2010, analysts said.
JPMorgan, the second biggest bank by assets, reported $5.2 billion of legal costs in the first nine months of 2009, compared with a gain of $10 million in the same period a year earlier. The costs would rise if the bank reserves for multibillion-dollar lawsuits by Lehman Brothers Holdings Inc. and the trustee liquidating Bernard L. Madoff’s firm.
... JPMorgan’s third-quarter net profit of $4.4 billion, up 23 percent from the year earlier, would have been larger if it hadn’t set aside $1.3 billion of pretax income for lawsuits and $1 billion for mortgage repurchases. Banks haven’t yet reported their results for the fourth quarter.
Of course, there are a few tidbits missing from this statement that can add to its accuracy. Let's see... Where did those profits come from? Again, you will find divergence between how BoomBustBlog reports and that of mainstream financial reporting. See JP Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can Be When They Say XYZ Bank Can Never Go Out of Business!!! Sunday, October 17th, 2010
In a Nutshell, JPM’s quarterly results were downright horrible – as we expected and warned of in our previous quarterly analyses (see notes at bottom of page)…
This mornings news flow is essentially a "Didn't Reggie tell us this in full detail up to two years ago" fest. Indebted Europe is falling apart for the new year just a day after the liquidity driven romp in equities. The Portugal T-Bill Yield Almost Doubles in Auction, from 3 months ago. The yield Portugal pays on its debt has increased 522% since this last year. This is after the Pan-European bailout fund was announced and implemented to put an end to such pressures. Alas.... The best laid plans. CNBC reports, as does Bloomberg:
Portugal sold six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. The government debt agency, known as IGCP, auctioned 500 million euros ($665 million) of bills repayable in July. The yield jumped to 3.686 percent from 2.045 percent at a sale of similar maturity securities in September, with investors bidding for 2.6 times the amount offered. A year ago, the country paid just 0.592 percent to borrow for six months.
Yeah, this is sustainable. What is so interesting that mathematically, a default is definitely in the Portuguese cards, but the mains stream media does not drill down on this. Why? We, at BoomBustBlog have literally given away a complete mathematical analysis that shows the default happening - in real time, and for free. See The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History Tuesday, December 7th, 2010 and The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog Monday, December 6th, 2010. The line of default demarcation has been drawn in the sand t 2013, but does anyone truly believe that all of these deeply indebted states will float for that long. Could you imagine your interest rates rising over 500% and continue to climb during YOUR time of need?
Zerohedge has brought attention (in their own very colorful fashion) to a Pimm Fox interview of Howard Davidowitz, chairman of Davidowitz & Associates Inc. on Bloomberg. It is well worth the 12 minutes of your time. Here are some choice quotes form the interview as excerpted by ZH:
In 2008 I gave explicit warning that an unprecedented swath of US municipalities were at risk of default. I was pooh poohed by many "experts" who consistently said that the history of default in the US muni bond market is slim to none. Well, my friends, that is history and this is now. The dearth of revenues from declining building permits, sales taxes in the absence of real sales, property taxes from depreciating properties, etc. - all built upon budgets that were carved at the peak of bubble economics groupthink combine to make a disastrous brew.
NYC, arguably the richest economic "city state" in the world and the mecca of banking and real estate is experiencing "applied austerity" programs, effectively going through the service and government payment cutbacks that the Europeans are "promising" to deliver. Keep in mind that NYC is comparable to, if not larger than, from an economic footprint perspective Greece and Portugal. I have accurately determined that the EU is in it very deep - deep enough that default of several nations is a foregone conclusion (see the complete Pan-European Sovereign Debt Crisis series for more on this).
Despite the nearly guaranteed default of the Euro-area nations, it ain't pretty over hear either, particularly as those eliminated services that have been taken for granted are needed, as in the post Christmas mini-blizzard. I say mini-blizzard because real New Yorkers know that 16 inches of snow is close to a regular occurrence. We get snowstorms nearly every year, but this one literally shut the city down - completely down.