The European Commission, the EU's executive arm, has 28 more cases to review after a wave of taxpayer-funded rescues following the credit crises, Competition Commissioner Neelie Kroes said today in Brussels. The commission is forcing banks that received state aid to sell assets to prevent them from gaining an unfair advantage. Today's "decisions all demonstrate that the commission takes seriously its role as guarantor of EU state aid rules and the single market, the fair level playing field," Kroes said at a news conference. "The restructuring of the banks will ensure their long-term viability." ... Kroes last week said she wasn't a "bank destroyer" and sought to change the "arrogant" culture of banks. Her office is reviewing restructuring plans for dozens of banks, including Northern Rock Plc and Royal Bank of Scotland Group Plc.
Today's "decisions all demonstrate that the commission takes seriously its role as guarantor of EU state aid rules and the single market, the fair level playing field," Kroes said at a news conference. "The restructuring of the banks will ensure their long-term viability."
...
Kroes last week said she wasn't a "bank destroyer" and sought to change the "arrogant" culture of banks. Her office is reviewing restructuring plans for dozens of banks, including Northern Rock Plc and Royal Bank of Scotland Group Plc.
Competition Commissioner Neelie Kroes said: "This plan effectively addresses the Commission's competition concerns and at the same time ensures the return of Lloyds Banking Group to long term viability. This decision once again demonstrates the important role that the EU's state aid rules play in facilitating sustainable bank restructuring whilst preventing undue distortions of competition. This is to the clear benefit of both customers and taxpayers". The Lloyds Banking Group is the entity resulting from the acquisition of HBOS by Lloyds TSB in January 2009. In 2008, HBOS was close to bankruptcy as a result of risky lending practices and high dependence on wholesale funding. In light of the systemic importance of HBOS to the UK financial system, the UK Government facilitated the takeover of HBOS by Lloyds TSB, notably by making a £17 billion (€19billion) capital injection in the bank, which gave the UK State 43.5% ownership of Lloyds Banking Group. ... The non-confidential version of the decision will be made available under the case number N428/2009 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News . See also MEMO/09/507 .
Competition Commissioner Neelie Kroes said: "This plan effectively addresses the Commission's competition concerns and at the same time ensures the return of Lloyds Banking Group to long term viability. This decision once again demonstrates the important role that the EU's state aid rules play in facilitating sustainable bank restructuring whilst preventing undue distortions of competition. This is to the clear benefit of both customers and taxpayers".
The Lloyds Banking Group is the entity resulting from the acquisition of HBOS by Lloyds TSB in January 2009. In 2008, HBOS was close to bankruptcy as a result of risky lending practices and high dependence on wholesale funding. In light of the systemic importance of HBOS to the UK financial system, the UK Government facilitated the takeover of HBOS by Lloyds TSB, notably by making a £17 billion (€19billion) capital injection in the bank, which gave the UK State 43.5% ownership of Lloyds Banking Group.
The non-confidential version of the decision will be made available under the case number N428/2009 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .
See also MEMO/09/507 .
Competition Commissioner Neelie Kroes said: " I am satisfied that the Dutch authorities have adapted the terms of the illiquid asset back-up facility via an additional agreement to bring them into line with EU state aid rules. The restructuring plan is adequate to restore ING's viability, ING is financing a significant share of the restructuring costs and distortions of competition caused by the aid measures are sufficiently addressed." ... The Commission's doubts as regards the illiquid asset back-up facility have been allayed by a series of commitments made by the Dutch authorities to bring the conditions of the measure in line with the Commission guidelines (see IP/09/322 ). In particular, The Netherlands made the commitment to increase the remuneration in relation to the transaction to be paid by ING by €1.3 billion via an additional payment. ... The non-confidential version of the decision will be made available under the case number in the State Aid Register on the DG Competition website . New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News . See also MEMO/09/507 .
The Commission's doubts as regards the illiquid asset back-up facility have been allayed by a series of commitments made by the Dutch authorities to bring the conditions of the measure in line with the Commission guidelines (see IP/09/322 ). In particular, The Netherlands made the commitment to increase the remuneration in relation to the transaction to be paid by ING by €1.3 billion via an additional payment.
The non-confidential version of the decision will be made available under the case number in the State Aid Register on the DG Competition website . New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .
Competition Commissioner Neelie Kroes said "The in-depth restructuring of KBC will restore its long-term viability and limit distortions of competition, while at the same time taking into account financial stability concerns. I am therefore satisfied that, through close cooperation with the Belgian authorities, we have managed to strike the right balance." ... KBC has received three aid measures: a recapitalisation of €3.5 billion a second recapitalisation of another €3.5 billion and an asset relief measure on a portfolio containing Collateralised Debt Obligations (CDOs). The Commission temporarily approved the first recapitalisation on 18 December 2008 (see IP/08/2033 ) and the other two measures on 30 June 2009 (see IP/09/1063) , while simultaneously opening an in-depth investigation into several aspects of the asset relief measure. The final approval of the measures was conditional upon the presentation of a restructuring plan capable of restoring the long term viability of the bank without continued state support. ... The non-confidential version of the decision will be made available under the case number C18/2009 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News . See also MEMO/09/507 .
KBC has received three aid measures:
a recapitalisation of €3.5 billion
a second recapitalisation of another €3.5 billion and
an asset relief measure on a portfolio containing Collateralised Debt Obligations (CDOs).
The Commission temporarily approved the first recapitalisation on 18 December 2008 (see IP/08/2033 ) and the other two measures on 30 June 2009 (see IP/09/1063) , while simultaneously opening an in-depth investigation into several aspects of the asset relief measure. The final approval of the measures was conditional upon the presentation of a restructuring plan capable of restoring the long term viability of the bank without continued state support.
The non-confidential version of the decision will be made available under the case number C18/2009 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News .
banning men from banking for ten years would probably do more for the world economy than anything else, pace helen... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
In the construction sector, seasonally adjusted production 1 decreased by 1.1% in both the euro area 2 (EA16) and the EU27 2 in September 2009, compared with the previous month. In August 3 , production rose by 0.1% in the euro area , but fell by 0.1% in the EU27 . Compared with September 2008, output in September 2009 dropped by 8.0% in the euro area and by 9.4% in the EU27 . These first estimates are released by Eurostat, the Statistical Office of the European Communities .
Compared with September 2008, output in September 2009 dropped by 8.0% in the euro area and by 9.4% in the EU27 .
These first estimates are released by Eurostat, the Statistical Office of the European Communities .
Compared with September 2008, output in September 2009 dropped by 8.0% in the euro area and by 9.4% in the EU27
We could cushion the impact of another big downward shock by a lot more deficit spending--unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government's money is as good as anybody else's. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer 2030. The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments. We could cushion the impact of another big downward shock by recapitalizing the banks again. But the failure of the Fed and the Treasury in the aftermath of Lehman to grab a share of the upside from its capital injection and purchase operations for the public in the form of warrants means that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system: the right thinks it is an unwarranted intervention in the free market, the left thinks that it is a giveaway to the undeserving and feckless superrich, and the center is bewildered because it is an enormous and poorly-structured intervention in the market, it is a giveaway to the undeserving and feckless superrich, and the optics are terrible. So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do?
We could cushion the impact of another big downward shock by recapitalizing the banks again. But the failure of the Fed and the Treasury in the aftermath of Lehman to grab a share of the upside from its capital injection and purchase operations for the public in the form of warrants means that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system: the right thinks it is an unwarranted intervention in the free market, the left thinks that it is a giveaway to the undeserving and feckless superrich, and the center is bewildered because it is an enormous and poorly-structured intervention in the market, it is a giveaway to the undeserving and feckless superrich, and the optics are terrible.
So if another big bad shock hits the U.S. economy, what could the Obama administration possibly do?
the perfect crime, the sequel is inevitable, the future's treasury is theirs for the taking, until the regular joes and janes have had enough of the 'treatment'.
the dollar will be worth 30 eurocents and pols swinging from the lamp-posts within 2-3 years unless reason returns to finance and they come off this drug of illusionary power peoples' sustained support and most importantly trust has given them these last decades.
meanwhile the machine just grinds on... while we we mentalise about how to try to put in a new tranny. hard to see how to do this till it comes to a shuffling or shuddering halt?
how much of the castle foundation of the world economy is built on bedrock, how much on sand? ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Governments could decapitate them by just cancelling their operating licences, but the chances of that happening are rather slim... In the long run, we're all dead. John Maynard Keynes
... the system is set up right now they will only die after having killed us all.
Somebody has it RIGHT !!!
Enough of this "the system will change ... the bad guys will die" senseless optimism. How many times do I have to say this ... now pay attention ...
You are nothing but CATTLE to them !!
Dangerous cattle if you ever got organized but still cattle. In the end, might makes right. Nothing has changed since the caveman.
we've greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it's all confounded in their minds with the deeply unpopular bailouts.
That's OK, Sarah Palin will come along and start World War III. We'll either have a recovery with that or the world will be obliterated. Either way, it is a win-win situation. "Beware of the man who does not talk, and the dog that does not bark." Cheyenne
:) ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Like widespread debt defaults by companies bought by private equity firms:
Joshua Kosman, Predicting The Next Credit Crisis : NPR
Joshua Kosman: Private investors this decade, for these private equity firms, used the same cheap credit that caused the housing bubble to buy 3,100 U.S. companies. Those companies employ one out of every 10 Americans, about seven and a half it was 10 million people. They've resold some of those companies, so say today it's about seven and a half million people. So private equity firms are the largest employers in the country when you combine the companies they own by a mile, bigger than Wal-Mart, bigger than anybody. The cheap credit that was used to buy these companies, a lot of the debt on that is starting to come due just now, and it will do so over the next few years. The Boston Consulting Group, a pretty conservative organization, predicts that half of those companies will default on their debt by the end of 2011. If that comes to pass Terry Gross: That's half of the companies that were purchased by private equity firms? Joshua Kosman: That's right. That's right, so half of that exactly. So if half of those companies, so roughly 1,500 U.S. companies, end up filing for bankruptcy, and those companies fire about 50 percent of their workers, not the most aggressive estimates, you've got about 1.9 million people unemployed. That's a huge hit. Now, beyond that, you know, and that obviously reduces consumer spending, means more home foreclosures, all sorts of problems, the companies that are will be falling into will be defaulting owe about $1 trillion in debt. And if a significant amount of those loans become worthless, that'll cause a freeze in lending. <...> Terry Gross: So has there been any problem yet? Have people lost money on their CLOs, or is this something that you think might happen sometime in the future, maybe? Joshua Kosman: I think mostly this is something that very likely will happen and is starting to happen but has not happened yet. I mean, this year kind of quietly, for the last 12 months, we've had an 11 percent default rate in this country. That's near-historic highs. And half of the companies that have defaulted, it's about 175 companies so far, have had private equity involvement. Those are companies like Chrysler, like Reader's Digest, like Simmons mattress that we talked about before. So unfortunately, the tsunami of defaults is already starting.
Joshua Kosman: Private investors this decade, for these private equity firms, used the same cheap credit that caused the housing bubble to buy 3,100 U.S. companies. Those companies employ one out of every 10 Americans, about seven and a half it was 10 million people. They've resold some of those companies, so say today it's about seven and a half million people.
So private equity firms are the largest employers in the country when you combine the companies they own by a mile, bigger than Wal-Mart, bigger than anybody.
The cheap credit that was used to buy these companies, a lot of the debt on that is starting to come due just now, and it will do so over the next few years. The Boston Consulting Group, a pretty conservative organization, predicts that half of those companies will default on their debt by the end of 2011. If that comes to pass
Terry Gross: That's half of the companies that were purchased by private equity firms?
Joshua Kosman: That's right. That's right, so half of that exactly. So if half of those companies, so roughly 1,500 U.S. companies, end up filing for bankruptcy, and those companies fire about 50 percent of their workers, not the most aggressive estimates, you've got about 1.9 million people unemployed. That's a huge hit.
Now, beyond that, you know, and that obviously reduces consumer spending, means more home foreclosures, all sorts of problems, the companies that are will be falling into will be defaulting owe about $1 trillion in debt. And if a significant amount of those loans become worthless, that'll cause a freeze in lending.
<...>
Terry Gross: So has there been any problem yet? Have people lost money on their CLOs, or is this something that you think might happen sometime in the future, maybe?
Joshua Kosman: I think mostly this is something that very likely will happen and is starting to happen but has not happened yet. I mean, this year kind of quietly, for the last 12 months, we've had an 11 percent default rate in this country. That's near-historic highs. And half of the companies that have defaulted, it's about 175 companies so far, have had private equity involvement. Those are companies like Chrysler, like Reader's Digest, like Simmons mattress that we talked about before. So unfortunately, the tsunami of defaults is already starting.
The numbers above are nominal prices, and then adjusted for inflation using some governmental measure presumably. One appears to be based on median prices, and the other on total transactions.
This method ("housing price / household income" ratio) has the advantage of integrating the effects of inflation and the general household revenues growth over the past decades and really illustrate the proportion of their income the French people must "devote" to housing.
The green plot is the "number of home sales with respect to their long term trend", and the black plot is "existing home sales price divided by household available income".
Friggit noted that over the past fifty years this ratio has been within plus or minus 10% of its long term trend (immediately nicknamed "the Friggit tunnel"), until 2002. The ratio peaked above 1.7 in 2007 and, after some hesitation, is now firmly plunging back.
You'll also note that the green plot (number of transactions) has historically anticipated the black plot (sale price vs income), and it's been firmly in coyote-over-the-Grand-Canyon mode for two years now.
We know where the housing prices are headed for the next couple of years. A large number of French households who have acquired their home at bubble inflated prices with thirty years plus mortgages, fueled by cheap credit, now run the risk of negative equity should they have to sell in emergency.
Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.
Bernard:
if you plotted price against volume and represented the time coordinate by labelling the points of the curve, you would observe the system moving counter-clockwise in the diagram. This is typical of all bubbles.
Well, waddya know: there are such "escargot" diagrams available (we French love fancy graphs as much as the next guy, non mais! :)
Here's one from 1985 to 2005 (inflation adjusted), from the Bulle Immobilière forum; it mostly shows the 1990's bubble:
And a more recent one, up to e/o 2008:
If you like Jacques Friggit's work, you'll find all his documents in English on this page, including international comparisons with the UK and the USA (sadly, not with Spain). Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.
And the price increase was purely in Zonedland, but when you average it it doesn't look as big as it was.
OK, I'm channelling Krugman here, but that's the idea. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
One would think I would realize this, having moved from the San Fernando Valley to a Mid-South vacation and retirement area where the cost of real estate was ~20% of that in Northridge. But then, does not France and the U.K. also exhibit Flatland and Zonedland differences? Why are the leveling effects so pronounced only in the US? As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
The bulk of France population-wise is indeed Zonedland: major metropolitan areas, especially in the Southern half of the country.
The previous RE bubble in the 90's was mostly limited to the Paris metropolitan area. This bubble is more egalitarian (progress at last!): all medium and large cities and associated exburbs were affected.
Meanwhile, in Germany, there was no RE bubble at all. Property prices have even slightly decreased if I'm not mistaken. Europeans think a hundred miles is a long way. Americans think a hundred years is a long time.
FT.com / China / Economy & Trade - Fears of China property bubble
Urban property prices in 70 big and medium-sized Chinese cities rose 3.9 per cent in October from a year earlier, accelerating from September's 2.8 per cent rise, according to government figures.Price rises in top-tier markets such as Beijing and Shanghai have been much faster. Analysts say the rebound has largely been driven by an unprecedented government-led expansion of bank lending. It is also being driven by government policies, including tax breaks, low interest rates and smaller down-payment requirements. Investment in real estate development, a key driver of economic growth, rose 18.9 per cent in the first 10 months of the year on a year earlier, a marked acceleration from 17.7 per cent growth in January-September.Ms Zhang said the current speculation should be a serious warning for the industry and the general economy."In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers," she said.
Urban property prices in 70 big and medium-sized Chinese cities rose 3.9 per cent in October from a year earlier, accelerating from September's 2.8 per cent rise, according to government figures.
Price rises in top-tier markets such as Beijing and Shanghai have been much faster. Analysts say the rebound has largely been driven by an unprecedented government-led expansion of bank lending. It is also being driven by government policies, including tax breaks, low interest rates and smaller down-payment requirements.
Investment in real estate development, a key driver of economic growth, rose 18.9 per cent in the first 10 months of the year on a year earlier, a marked acceleration from 17.7 per cent growth in January-September.
Ms Zhang said the current speculation should be a serious warning for the industry and the general economy.
"In Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky is falling, but in Pudong [the central business district in Shanghai] vacancy rates are as high as 50 per cent and they are still building new skyscrapers," she said.
On my street, there are a ridiculous number of real estate offices, literally one every two or three storefronts, with a dozen or so young agents sitting in each of them, mostly doing nothing, except surfing the web, chit-chatting, having a smoke. It's surreal.
Then again, what do Chinese people have to do with their savings? Real estate, the stock market, or the mattress. The Chinese stock market is temperamental to say the least, but some people are still putting there money for lack of alternatives. There is gold. And more recently there is art as investment. But real estate is definitely benefiting unnaturally and dangerously from this general lack of investment options, or so it seems to me.
And while the coastal urban areas are very different from the still poor interior of the country, this place definitely smells a lot like Tokyo circa 1987 or 88. La Chine dorme. Laisse la dormir. Quand la Chine s'éveillera, le monde tremblera.
The West largely failed to introduce Christianity to Japan and China, but they succeeded to install the Real Estate and even the Stock Market religions everywhere.
Deflation in a fractional reserve banking system means policymakers have, for all intents and purposes, lost control of the economy. It would also impact the top-tier of the societal spectrum tied to financial...assets, which would be problematic for politicians and the constituencies that bankroll them. Election aspirations, however, may be the least of the concerns; this economic maelstrom is bigger than any particular political agenda. Policymakers understand the enormous stakes given our derivative-laced finance-based economy. They've postured, positioned and proffered assurances, pulling out all the stops in an attempt to flush the system with liquidity despite the clear and present danger of a total system unwind, with currency markets possibly providing the release value. .... As the world reserve currency lost 38% since 2002, foreign holders of dollar-denominated assets have grown increasingly frustrated with the status quo. Liu Mingkang, chairman of the China Banking Regulatory Commission, and Don Tsang, Chief Executive of Hong Kong, are among the latest leaders to voice displeasure, warning of "unavoidable risks" and "the next global crisis," respectively. .... Asset classes continue to trade as a monolithic monster on the other side of the dollar. We call this dynamic "asset class deflation vs. dollar devaluation"...and while both sides of the equation can decline, they would be hard pressed to rally in sync. That's important to remember, particularly as the carry trade becomes part of the mainstream lexicon.
Policymakers understand the enormous stakes given our derivative-laced finance-based economy. They've postured, positioned and proffered assurances, pulling out all the stops in an attempt to flush the system with liquidity despite the clear and present danger of a total system unwind, with currency markets possibly providing the release value.
....
As the world reserve currency lost 38% since 2002, foreign holders of dollar-denominated assets have grown increasingly frustrated with the status quo. Liu Mingkang, chairman of the China Banking Regulatory Commission, and Don Tsang, Chief Executive of Hong Kong, are among the latest leaders to voice displeasure, warning of "unavoidable risks" and "the next global crisis," respectively.
Asset classes continue to trade as a monolithic monster on the other side of the dollar. We call this dynamic "asset class deflation vs. dollar devaluation"...and while both sides of the equation can decline, they would be hard pressed to rally in sync. That's important to remember, particularly as the carry trade becomes part of the mainstream lexicon.
Goldman Sachs, which lately has been caught in a toxic spiral of potential misrepresentations (courtesy of the SIGTARP report which plainly refuted the firm's claims that it was not on the hook vis-a-vis AIG, and by the way, Ms. Tavakoli, we are waiting for you to retract your apology to the 85 Broad team) and horrendous PR (first Blankfein apologizing for something, then Gasparino telling Lloyd he should step down), may be the final straw that finally breaks open the Fed's "book of death" (for the middle class, f/k/a "book of life" for the banker cartel). Ahead of tomorrow's hearings on various Fed transparency initiatives, Rep. Elijah Cummings is calling for a complete tear down of the existing Fed structure, and demands an overhaul to the "minimal accountability" that the Fed is subject to courtesy of the current Wall Street perpetuated (and lobbied) status quo. .... ...it would be sadly ironic if it ends up being Goldman Sachs that gets the fed into the pickle of complete transparency. At the end of the day, if we want to even have a chance of preventing another system collapse, one of the two has to happen: i) Goldman has to be dismembered, with the very least being its prop trading being ripped apart from the firm's agency core operations, or ii) the Fed has to be not only audited, but to provide constant information on who it is that is the recipient of generous taxpayer bailouts day in and day out, as well as what securities make up the collateral the various bail out programs, as well as what marks these securities are ascribed by the Fed's less than spectacular trading desk. No exceptions. If neither of these changes, and the status quo persists, then another occurrence of an AIG type blow up is not a question of if but when.
...it would be sadly ironic if it ends up being Goldman Sachs that gets the fed into the pickle of complete transparency. At the end of the day, if we want to even have a chance of preventing another system collapse, one of the two has to happen: i) Goldman has to be dismembered, with the very least being its prop trading being ripped apart from the firm's agency core operations, or ii) the Fed has to be not only audited, but to provide constant information on who it is that is the recipient of generous taxpayer bailouts day in and day out, as well as what securities make up the collateral the various bail out programs, as well as what marks these securities are ascribed by the Fed's less than spectacular trading desk. No exceptions. If neither of these changes, and the status quo persists, then another occurrence of an AIG type blow up is not a question of if but when.
