C&L Opening Bell, 11-23-10
- The big news of the day was in Ireland, where the Irish government finally acknowledged that bailing out its banks has rendered it insolvent. Taoiseach Brian Cowen said that he plans to dissolve Parliament and call for new elections juuuuuust after the sure-to-have-its-ass-handed-to-it Fianna Fáil coalition passes its next budget.
And what a budget it's expected to be! In exchange for a loan of up to €90 billion from the European Union and the International Monetary Fund, Ireland will have to implement further austerity measures that involve raising taxes and cutting services. And whose services are getting cut, you're wondering? Do you even have to ask?
Deep cuts to the minimum wage and welfare benefits loom as part of the price the country pays for its huge emergency bailout loan as Brian Cowen insisted he was "not the bogeyman" who had led Ireland to financial crisis.
So the poorest people in the country are essentially paying to bail out the Irish banks' creditors. Pretty remarkable.
- Zero Hedge points us to the following video from Jim Rogers that lays out an alternative plan for the Irish: Just declare bankruptcy and restructure your debt already:
Here's the key part:
This is ludicrous. This will cripple the Irish economy for years to come. In the future Ireland will be crippled because everything they earn will go to pay off old debt. There is no reason why taxpayers around Europe or in Ireland should pay for other people's mistakes. The bondholders and the stockholders of banks should lose money.
And this is what we should keep in mind when we hear about "bailing out Ireland." It's really about bailing out the Irish banks' creditors.
- It also goes without saying that this situation blows a hole in the meme that austerity is the best way to head off a recession. The Irish implemented spending cuts and tax increases long before most of the other PIIGS (Portugal, Ireland, Italy, Greece and Spain) ever did. The result was the country was still deeply in debt and in need of a rescue. More than anything, though, this crisis shows that there are structural flaws in the Eurozone single currency that are probably impossible to resolve. I can't really see anyway for countries to be able to issue their own debts but not their own currencies.
- Over in the States, meanwhile, things aren't exactly better. The banks' fraudulent foreclosure activity (which our own Susie Madrak has covered extensively) has created a buttload of anxiety in the housing market:
The ongoing controversy surrounding foreclosures is taking its toll as homebuyers refused to look at distressed properties in October, and foreclosure sales suffered from delays, according to the latest Campbell/Inside Mortgage Finance Monthly Survey. [...]
News reports that major servicers were pulling REOs off the market, including some already under contract, spooked would-be homebuyers. The monthly survey found that 14% of owner-occupant homebuyers and 6% of investors refused to view foreclosed properties in October. Homebuyer fear was worse for short-sale properties where 30% of owner-occupant buyers, and 20% of investors refused to view these homes.
As I told two friends who were looking to buy a home, you'd have to be N-U-T-S to think of buying a foreclosed home right now.
- On the somewhat-happier side of things, the FBI raided two hedge firms yesterday as part of its sweeping investigation into insider trading. The Wall Street Journal got the scoop on this probe over the weekend:
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.
The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.
The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
Reading those words gave me a tingly feeling in my pants. I do hope this investigation is legit and that the government won't just take a wad of "We're Sorry!" Cash from the banks and call it a day. We have a wealthy criminal class in this country that never pays for its crimes and is often rewarded for them at taxpayer expense. If we want to keep living in a democracy, this sort of thing will have to stop.
- News of the hedge fund raid sent key financial stocks down today, as Bank of America's shares were down 3%, JP Morgan's were down 2.25% and the Vampire Squid was down nearly 3.5%.
- And finally, let's take a look at what I call the "WE'RE ALL GONNA DIE!!!11!!!" index of key measurements to see how much investors across the world are crapping themselves with fear. Basically, it goes like this: When U.S. Treasury yields go down and the price of gold goes up, that means investors are fleeing risky assets for things they consider to be safe investments. If the reverse is happening, then investors are likely feeling they can handle more risk on a given day.
Gold futures rose 0.4% to $1,357.80 yesterday.
10-year Treasury yields fell 1.41% to close at 2.80% on the day.
In other words, the chances of the world exploding just got greater. Have a happy day!