by Calculated Risk on 2/14/2010 09:18:00 AM

From The Economist: European finance ministers meet to discuss bailing out the Greek economy

EUROPE'S finance ministers meet for two days, beginning on Monday February 15th ... a vague promise of aid for Greece did little to lessen uncertainty, finance ministers will be expected to produce more concrete measures.

From The Times: Economic boost from Europe for Greece

GREECE was given fresh hope of a financial lifeline yesterday when Jean-Claude Juncker, chairman of Europe’s finance ministers, said action would be taken to support its beleaguered economy.
...
In an interview with a German newspaper, he said: “We have many instruments ready and will use them if necessary.”

Meanwhile, in a poll of Germans from Reuters: Germans say euro zone may have to expel Greece: poll

A majority of Germans want debt-ridden Greece to be thrown out of the euro zone if necessary and more than two-thirds oppose handing Athens billions of euros in credit, [in a Emnid poll for Bild am Sonntag newspaper] published on Sunday.

by Calculated Risk on 2/13/2010 10:16:00 PM

From Dina ElBoghdady and Renae Merle at the WaPo: Refinancing unavailable for many borrowers

The refinancing wave that swept the nation when mortgage rates hit historic lows last year is petering out, leaving behind millions of homeowners who could not qualify for the best rates.

Half of the nation's borrowers have mortgages with rates above 6 percent even though the average rate on 30-year, fixed rate mortgages has been about 5 percent for most of the past year, according to research firm First American CoreLogic.

Many of these homeowners have been unable to refinance because they have little or no equity in their homes (many have negative equity), some have lost their jobs and can't qualify, and others have been rejected because lenders have tightened standards.

The following graph shows the MBA seasonally adjusted Refinance index since 1990.

Click on graph for larger image in new window.

As the article mentions, there was a huge wave of refinance activity in 2003 when mortgage rates fell below 6%, and house prices increased sharply.

There was another refinance boom starting at the end of 2008 and through the first half of 2009 when mortgage rates fell below 5%.

Now, even with rates near 5%, it appears the recent refinance boom is mostly over. Those that can refinance already have - and those that can't are out of luck.

by Calculated Risk on 2/13/2010 07:18:00 PM

From Louise Story, Landon Thomas Jr. and Nelson D. Schwartz at the NY Times: Wall Street Helped to Mask Debts Shaking Europe. A brief excerpt:

In 2001, just after Greece was admitted to Europe’s monetary union, [Goldman Sachs] helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
...
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.
...
“Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it,” said Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies.

Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal.

The quote from Hardouvelis is on target. Many on Wall Street just care about short term fees and large bonuses, and politicians just want to push the problems into the future. A perfect match ... except for all the people who are eventually hurt by their actions.

by Calculated Risk on 2/13/2010 02:59:00 PM

Another view ...

Simon Johnson writes at Baseline Scenario: Greece Derails – Is Europe Far Behind?

Already facing serious difficulties – both internal and with regard to its EU partners (see our longer essay in Saturday’s WSJ) – Greece’s predicament just became substantially worse.

Speaking on national television this evening, the Greek Prime Minister – George Papandreou – lashed out at the European Union (presumably meaning mostly Germany) for creating a “psychology of looming collapse which could be self-fulfilling.” He also implied that Greece was being treated, in some senses, like a “lab animal.”
...
Greece is well down the path to becoming regarded more like Argentina – a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises, most of which do not shake the world.

Will the EU save Greece? Much will depend on how bad the situation could become in other “related” (in the eyes of the financial markets) places.

But destabilizing actions or inflammatory statements by Greece make an orderly rescue less likely and put another major international economic crisis firmly on the table.

Here is the piece in the WSJ from Simon Johnson and Peter Boone: The Greek Tragedy That Changed Europe Update: When I linked to it, the title was "How Much Does a Grecian Urn?"

Greece is just one of several global financial concerns right now ...

by Calculated Risk on 2/13/2010 11:30:00 AM

From CNNMoney: States to Senate: Send more federal aid

States are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call. ...

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them begins July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody's Economy.com.

To close this gap, governors and lawmakers will be forced to lay off state employees, cut services and postpone capital projects ...
Already, states laid off 44,000 workers in the 12 months ending in January, according to federal labor statistics.

If Zandi is correct the vast majority of state layoffs are still to come.