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Posts tagged ‘Debt’

Arrears and the Paradox of Aggregation

By David Mc Williams

So we have arrived at the day when the State has to deal with the consequences of the housing binge on the balance sheet of the ordinary person. A few years ago, people who warned this day would come were dismissed as doom-mongers. Now we see what was clear all along: the real merchants of doom were those who harassed a generation of people into debt, condemning them to negative equity and unpayable mortgages. This problem has to be fixed because the economy, burdened with such huge levels of debt, cannot grow.

It’s a simple equation. If people are paying back debt, they are not spending on other things. The economy runs on the basis that, in the aggregate, my spending is your income and your spending is my income.

Therefore, if people are not spending because they are paying back debt, everyone’s income eventually falls…………………………………………

full article at source: http://www.davidmcwilliams.ie/2013/03/14/arrears-and-the-paradox-of-aggregation

Debt deal is jiggery pokery dressed up as a game changer

By David Mc Williams

The news that the State has secured a deal to push out Ireland’s debt repayments represents a victory for the Government’s – or more accurately the EU’s – giant “delay and pray” strategy. The deal would see the repayment of a significant chunk of the €40bn troika loan pushed out for another 15 years. What we have executed is in effect a “gentleman’s default”. We won’t pay what we said we’d pay and the creditors won’t get what they expected to get and we’ll see how we are all fixed after a dozen or so years. Let’s look at the details to see what this means.

It appears that €10.5bn of EFSF/EFSM debts, which were due to be repaid in 2016, will now be kicked out to some future date. This will ease repayments. There was going to be a dramatic spike in the amount of money due in the next few years. With the economy fragile at best, there was no guarantee that the Irish State would manage to squeeze more cash out of us. From the EU’s perspective, a fresh Irish bond crisis must be avoided at all costs. Yet a bond crisis may have been the most sensible outcome. Debts that can’t be paid won’t be paid……

full article at source: http://www.davidmcwilliams.ie/2013/03/07/debt-deal-is-jiggery-pokery-dressed-up-as-a-game-changer?utm_source=Website+Subscribers&utm_campaign=41ac1cc0e8-22112012&utm_medium=email

WHAT DOES YOUR HOME MEAN TO YOU?

Your Home, your Emotional Wellbeing and Security, that is what the Courts affect when they facilitate the Banks by ruling in their favour at repossession hearings, in almost 100% of cases the entire merits of the case are decided on three simple questions,

  1. Did the borrower, borrow the money?
  2. Is the Borrower making payments?
  3. If not, when was the last payment made?

That is it in a nutshell, the process is started by the Bank’s with the sole objective of steering the Court proceedings to a point where the Borrower is either not present or stands in the intimidating environment of the Court, alone, unprepared and unrepresented. There is not a snowball’s chance in hell of the outcome being anything other than the Borrower losing their home.

The Judge will not consider any evidence, motion or pleading which is not presented to him in a certain fashion which complies with the Court rules, so hope on the part of a borrower is non-existent.

Now we must consider the Bank, which is applying to the court for an order to take the home from the distressed Borrower, the very Bank which was complicit in creating the conditions which gave rise to the domino effect of degenerating personal finances and eventual inability to pay that culminated in the Borrower being in Court

full article from our friends over at “Awaken Longford” link here http://awakenlongford.wordpress.com/2013/02/04/what-does-your-home-mean-to-you/

 

‘The Grip of Death’

By Michael Rowbotham

“The financial system used by all national economies worldwide is actually founded upon debt. To be direct and precise, modern money is created in parallel with debt…

The creation and supply of money is now left almost entirely to banks and other lending institutions. Most people imagine that if they borrow from a bank, they are borrowing other people’s money. In fact, when banks and building societies make any loan, they create new money. Money loaned by a bank is not a loan of pre-existent money; money loaned by a bank is additional money created. The stream of money generated by people, businesses and governments constantly borrowing from banks and other lending institutions is relied upon to supply the economy as a whole. Thus the supply of money depends upon people going into debt, and the level of debt within an economy is no more than a measure of the amount of money that has been created.”

 

Now all the stages are set for bloody battle of suburbs

A NATIONAL debt crisis, such as the one Ireland is now suffering, tends to follow a four-stage pattern. We see these stages playing out in every episode of national bankruptcy — whether in Latin America, Asia or Western Europe. In Ireland, we are moving towards the third phase.

There is no escaping this pattern because the mathematical corollary of a housing boom is a debt bust. It is only a matter of time.

Now those suggesting that the endgame will be debt repudiation are taking the flak. But it will happen.

Let’s briefly examine the four stages of national bankruptcy.

The first phase is rapid: highly leveraged banks go bust alarmingly quickly. This leads to massive state intervention to prevent a bank run, political upheaval and inklings of just how deep the mess might become.

The second stage is a period of unusual calm. The remedial action taken by the State calms things down, banks don’t collapse, there is no run on the banks and the economy settles in to the grinding reality that falling incomes and too much debt don’t mix.

During this period, vested interests, powerful “insiders” in society, move to protect themselves. Supposedly binding agreements are signed. Likewise, the banks do deals with debtors in the hope that they can postpone the day of reckoning.

………………………….

full article at source: http://www.davidmcwilliams.ie/2012/10/04/now-all-the-stages-are-set-for-bloody-battle-of-suburbs?utm_source=Website+Subscribers&utm_campaign=100ad2f1af-03102012&utm_medium=email

Vulturecrats

by Golem XIV

A horrid thought has been incubating for the last few days.

I don’t know how many of you know much about Vulture Funds, what they do and how they do it, but it forms the basis of my horrid thought.

Nations issue debt. After it is bought, it often gets re-sold on what is called the secondary market. The price of debt on the secondary market changes much as stock prices change. The market is big.

When a nation looks like it might default the price of its debt begins to sink. What was bought for full price is offered for sale at a reduced price – say 60 cents on the dollar. Buyers and sellers have to decide if they think the nation will proceed to default or avoid it. The decision is, sell now and accept a loss but avoid a potentially larger loss later, or buy now at a discount and if the nation avoids default, profit as the value of that cheaply bought debt recovers its original value.

But then there are the vulture funds. They follow a quite different path. They are creatures of the law not of finance and there are not many. One of the biggest, most notorious and best connected is Elliot Associates of Manhattan. They have very close links with the Republican Party and to Mitt Romney in particular ( They are large donors to his campaign). Another is FG Capital management. These companies are financial companies all founded and largely owned by Wall Street  lawyers. FG Capital Management was founded by a former Morgan Stanley consultant.

Vulture funds buy the bonds others have given up on. They buy what is often referred to as ‘distressed debt’. That is debt that has been defaulted upon and is, for the ordinary bond manager, worthless. The vulture buys it and then sues the defaulting nation. It is a very specialized area of the law and of finance. As an IMF study from 2003 said of vulture funds,

“Investors in this market posses specialized knowledge of bankruptcy law and international litigation and are willing to hold out for many years before seeing any recovery”

full article at source: http://www.golemxiv.co.uk/author/golem-xiv/

Spain: The Ultimate Doomsday Presentation (zerohedge tell us)

A graph showing the economic data from Portuga...

A graph showing the economic data from Portugal, Italy, Ireland, Greece, Spain (PIIGS), the United Kingdom, Germany, the EU and the Eurozone for 2009. Data is taken from Eurostat: Most data: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-22042010-BP/EN/2-22042010-BP-EN.PDF GDP growth: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-12022010-BP/EN/2-12022010-BP-EN.PDF Ireland growth (preliminary): http://www.cso.ie/releasespublications/documents/economy/current/qna.pdf (Photo credit: Wikipedia)

by Tyler Durden

1. Spain’s national debt is 50% greater than the headline numbers

Spain’s debt-to-GDP balloons from 60% to 90% of GDP with regional and other debts

2. Spain’s housing prices will fall by an additional 35%

Spain built one house for every additional person added to the population during the past two decades; the fall will decrease GDP by ~2% each of the next two years

3. Spain has “zombie” banks with massive loans to developers and to homeowners

Banks have not begun to realize losses and are vastly undercapitalized

4. Spain’s economy has not stabilized and will continue to deteriorate

Spain has the highest unemployment in the developed world, one of the highest overall debt loads, and the most uncompetitive labor market in Europe

5. The EU will not have the firepower or political will to bail out Spain

Rescue fund headline numbers are misleading and count capital that is not yet committed

And here are the problems that will manifest themselves over the next 12 months:

  • Spain’s true debt burden will pass the 90% “tipping point” identified by Rogoff and Reinhart
  • Housing prices will fall further and faster than anticipated (consensus is 15%; CAM estimate is 35%)
  • Banks underestimate the residential real estate loan defaults (consensus estimate is 2.8% vs. CAM estimate of 11%)
  • Expected housing price depreciation and loan defaults will deepen Spain’s recession (additional 2% contraction in 2012 and 2013)
  • Spain will need to refinance €186.1 Billion in 2012 alone

full article at source: http://www.zerohedge.com/news/spain-ultimate-doomsday-presentation

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