crossposted with Ataxingmatter

Increasing taxes on the rich – Sometimes a few letters to the editor can restore one’s faith in the sensibleness of fellow Americans.  I particularly like Jerry Trupin’s Nov. 25, 2010 New York Times letter responding to Nicholas Kristof’s article on hedge funds.  In A Hedge Fund Republic, New York Times, Nov. 18, 2010, Kristof noted that the US has long surpassed familiar "banana republics" in rampant inequality, with plutocrats in the top 1%  controlling 24% of American income in 2007.  In that context, it simply doesn’t make economic sense, Kristof says, for Congress to plan to give $700 billion in tax cuts to the wealthiest amongst us for the next ten years and yet not be willing to extend unemployment benefits for the long-term jobless as a result of this recession.  The richest 0.1% of taxpayers would get an average tax cut of $370,000–no way, Kristof says, that they will hire enough new groundskeepers and garage maintenance personnel to make that a good way to jumpstart the economy,  compared to getting money in the hands of those at the bottom. Tax cuts didn’t work to create jobs in the Bush II regime, and they’re not going to work now.  Getting money into the hands of the poor and middle class–especially the unemployed–does. 
BP to Sell Pan American Stake for $7.06 Billion – BP PLC said it is selling its stake in Argentina-based oil and gas company Pan American Energy for $7.06 billion as part of a divestment plan designed to pay for the Gulf of Mexico oil spill.  BP will sell its 60% interest in PAE to Argentina’s Bridas Corp., which already owns 40% in the venture. The deal, which is expected to be completed in 2011, brings BP’s total divestments since the spill to $21 billion. The deal is the latest in a series of asset sales aimed at raising money to cover the estimated $40 billion cost of the Gulf of Mexico oil spill. It is also another step in the expanding influence of Chinese companies in the energy sphere. Bridas Corp. is 50-50 a joint venture between the international arm of China National Offshore Oil Company, called Cnooc International Ltd., and Bridas Energy Holdings, which is owned by Argentina’s Bulgheroni family. Cnooc acquired its 50% of Bridas Corp. for $3.1 billion in March.

All The Latest On The Irish Bailout – Up To €17.5 Billion Of Rescue To Be Funded By Irish Pension Fund Contribution Redirection – Follow along as we track the news avalanche: Official release from ECOFIN as paraphrased by the CEU: Euroarea financial support will be provided to Ireland.Three pillars: 1) an immediate strengthening of the banking system, 2) an ambitious fiscal adjustment to restore to fiscal sustainability, 3) growth enhancing reforms in the labor market, to allow return to sustainable growth. Financial package will cover needs up to €85 billion: €10 billion for immediate recap measures, €25 billion on a contingency basis for banking system support, and €50 billion for budget needs. €17.5 billion will be financed by an Irish contribution from banking system and its pension fund (the NPRF). The remainder €17.5 will ceme from EFSF, UK, Scandinavian countries, and the IMF.  Interest rate at about 5.8% Precise interest rate to be in line with standard IMF pricing practices, and will be come next week. Olli Rehn: "Senior debt of bank bondholders will not be involved"

Olli Rehn: No Haircuts For Senior Bondholders – So here is the Irish bailout in a nutshell: senior bondholders impairment: zero; Irish pensioners impairment: about 100%. Olli Rehn just confirmed during the press conference that senior bondholders will not be impaired. Irish taxpayers and pensioners to be overjoyed. Additionally, the maturity of the Irish IMF loan will be 7.5 years. This also means that the maturity of the Greek loans will likely be extended. Club Med will now exist indefinitely on life support, or until the euro is dissolved, whichever comes first. Lastly the pathologically lying sociopath just said that Europe will rerun its stress tests again next year… And as many times as needed until faith in Europe is restored, and 300 million austere Europeans finally believe their corrupt, thieving, fat ass politicians.
The Irish Non-bailout – So, a credit line at 5.8 percent interest. Considering that Ireland was able to borrow at that rate as recently as mid-September, and was falling off a cliff then, why is this supposed to solve the problem? What’s the Gaelic for “You’ve gotta be kidding”?
Is Housing Messing Up Inflation Measures? Yes, But … Here’s the simplest argument in favor of the Fed’s decision to restart quantitative easing:  the economy is struggling, inflation appears tame, and the Fed is the only game in (Washington) town. Items (1) and (3) are, I suspect, not controversial. Moderate economic growth is moving us in the right direction, but has done little to create jobs or reduce the yawning output gap. And given the Republican’s election gains, it’s hard to imagine a new round of fiscal stimulus (except an extension of the expiring tax cuts – a form of anti-anti-stimulus). Item (2), however, is highly controversial. Some commentators argue, for example, that it’s not appropriate to focus on core measures of inflation, which exclude volatile food and energy prices. Others argue that the government systematically (and, perhaps, intentionally) understates inflation.I will leave those old debates to the side today and focus on a third, more contemporary question: Is housing messing up inflation measures?

Note 1: BLS tracks four costs of shelter: rent of primary residence (for renters), owners’ equivalent rent of residences (for homeowners), lodging away from home, and tenants and household insurance. Lodging and insurance account for only 3.5% of shelter, so it didn’t seem worth the trouble to strip them out to get a housing-only measure. You will sometimes see analysts do this comparison using the BLS measure of housing costs. Housing is about one-third larger than shelter because it includes household energy and utilities purchases, furnishings, and other household operations. For that reason, I think shelter is a better measure for exploring the relationship between the housing market and measured inflation.

Note 2: According to BLS, food comprises about 14% of consumer expenditures, energy about 9%, and shelter about 32%. So the core CPI less shelter covers about 45% of consumer expenditures. So use it with care.

Europe Goes "Completely Mad" At Suggestion Of Irish Default Demanded By 57% Of Irish Population – Today the myth of a popular, democratic government in Ireland collapsed for good. After an impromptu poll of 500 people nationwide found that a "substantial majority" of the people, or 57%, wants the State to default on debts to bondholder, what it ended up getting was precisely the opposite. Why? "Last night that the Irish delegation negotiating with the EU-IMF last week raised the issue of default. "The Europeans went completely mad," a senior government source said." Of course, this is a reason for the Europeans not to want an Irish default, not for the Irish. And last time we checked, the Irish government represented its people, not the interests of Brussels. As America showed all too well, we expect every banker in the world to threaten perpetual damnation for Ireland should they decide on doing what is right for its people (and so very wrong for another year of record banker bonuses). Then again, with elections in Ireland imminent, it is almost certain that there will be a massive popular overhaul of the government, and all bets at that point will be off whether the ECB can dictate terms to a brand new, and far more loyal, government.

The plank in Schäuble’s eye From the look of it, the Irish bailout is taking another chunk of another one of FT Alphaville stalwart Neil Hume’s weekends. From Peston European finance ministers are struggling to reach agreement on the interest rate to be paid by Ireland for the €85bn of rescue finance it is set to receive from the EU and IMF – although they appear to have reached a settled position there should not be losses imposed on providers of senior debt to Irish banks. The rate Ireland pays for its bailout is to be announced very soon, apparently after some wrangling between the UK government, which wanted 5%, fearing 7%+ was unaffordable, and can see a total bank exposure UK to Ireland of around EUR200Bn, plus trade, and the German government, which, according to their finance minister Wolfgang Schäuble feels that any rescue loans should not look like cheap money, but should be charged at an interest rate that contains an element of punishment for the reckless borrowing spree of Ireland’s banks, which took the Irish economy to the brink of bankruptcy. Umm, who gets punished, exactly? And who gets off?? And whose banks??? Is Schäuble perhaps confused about the nationality of the well-known not-particularly-Irish bank, DEPFA,

Why is Greenland so rich these days? It said goodbye to the EU – If you think that leaving the EU would be catastrophic, take a look at Greenland. By rights its people ought to be poor. Their island is isolated, suffers from freezing weather, has a workforce of only 28,000 and relies on fish for 82 per cent of its exports. But it turns out that since leaving the EU, Greenland has been so freed of EU red tape and of the destruction of the Common Fisheries Policy, that the average income of the islanders today is higher than those living in Britain, Germany and France. Greenland’s politicians realised that the fisheries policy was ruining their fishing industry. They had the guts to stand up against the all the prophets of doom and let their people vote in a referendum on leaving the European Community, as the EU was then called. On January 1, 1985, it became independent of Brussels – the only country ever to do so.


EU Outlines Bond Restructuring Plan – Creditors of euro-zone countries that face insolvency after 2013 will see their bond holdings restructured—and may be forced to take losses—under a proposal agreed by the leaders of France and Germany, and top European Union officials, according to people familiar with the matter. Finance ministers, meeting Sunday in Brussels to approve an international rescue package for Ireland valued at about €85 billion ($110 billion), will also discuss the proposal. The proposal to make private-sector creditors bear part of the burden of future troubles was agreed earlier Sunday by German Chancellor Angela Merkel, French President Nicolas Sarkozy, EU President Herman Van Rompuy and European Central Bank chief Jean-Claude Trichet, people familiar with the matter said.


EU Ministers Race to Complete Aid Package for Ireland – Ireland’s negotiations over an 85 billion-euro ($113 billion) aid package came down to setting the interest rate it will pay on emergency loans as European finance ministers battled to contain the fiscal crisis.  A “staff-level” accord on Ireland’s aid will be endorsed today, European Union Economic and Monetary Commissioner Olli Rehn said today in Brussels. French Finance Minister Christine Lagarde said Ireland’s interest rate is the only “little detail” to be nailed down.  With 10-year bond yields averaging over 7.5 percent in Greece, Ireland, Portugal, Spain and Italy on Nov. 26, European leaders are fighting to prevent the spread of Ireland’s fiscal woes from threatening the survival of the 12-year-old euro.

In The Name Of Oil, Ghana Is Already Swimming In A Flood Of Debt – Ghana shall soon be owned by the Asians:  Since ExxonMobil’s $4 billion offer for Kosmos Energy’s 23.5% stake in the Jubilee field was rejected last month, Asian national oil companies have been rounding about in Accra, aiming to become GNPC’s financier and operating partner. Kosmos, however, is contemplating a listing of its shares as an alternate way to go ahead with the project. ExxonMobil abandoned its offer on 17 August, opening the way for a GNPC bid backed by the China National Offshore Oil Corporation. Sources at GNPC told Africa-Asia Confidential that the deal would include a $5 billion loan to the GNPC. CNOOC would take a 10% stake, another major oil company 10% and GNPC 3% of Jubilee, which is estimated to hold more than 1.2 billion barrels of oil. CNOOC is in good terms with Accra due to previous promises by the China Development Bank to bankroll Ghana’s oil infrastructure with billions of dollars in preferential loans.

EU finance ministers agree deal on Irish rescue package – The European Union has approved an €85 billion rescue package for Ireland which, if drawn down in its entirety today, would attract an average interest rate of 5.83 per cent. Of this €10 billion will be used to immediately to recapitalise the banks to bring them up to a core tier 1 capital ratio of 12 per cent, with a €25 billion contingency. Further injections of capital for the banks will take place in the first half of 2011, as needed. The remaining €50 billion will be used to meet the budgetary requirements of the State. Ireland has also secured an extra year – until 2015 – to meet its target of reducing its budgetary deficit to 3 per cent.

WSJ: The Tail Wags the Foreclosure Dog – The Wall Street Journal’s economics blog had a poorly thought-through take on foreclosures. The main point of the piece was that the time from default to foreclosure has grown much, much longer. (Not noted is that the timeframe varies significantly by state).  The piece has scant analysis, but it’s conclusion is that longer times to foreclosure makes strategic default more attractive as in lengthens the time a home-owner can remain in the home and consume housing for free.  The blog concludes that therefore we need to speed up foreclosures.  This really gets the strategic default problem backwards. It has the tail wagging the dog. The problem is that the homes are underwater, not that foreclosures are taking too long, and strategic default actually plays a very important role in market clearing on housing prices.  If homes weren’t underwater, the time to foreclosure matter very much.  Indeed, even when a home is underwater, I’m quite skeptical that the marginal difference in time to foreclosure from say 244 to 492 days is actually swaying anyone’s decision to default. The WSJ piece certainly doesn’t present any evidence that it matters…

Irish Cutbacks Pile It on for ‘New Poor’ —A church-run soup kitchen here symbolizes the human cost of Ireland’s crisis: Middle-class homeowners, squeezed by rising debt and falling incomes, line up for food parcels alongside foreign asylum-seekers and the long-term unemployed. As Ireland plans its economic bailout with austerity measures, the number of people living on the streets in Dublin rises. Video courtesy of Reuters. These are Ireland’s "new poor"—ordinary people with houses and jobs laid low by years of austerity, and now facing even tougher times as the government slashes public-sector jobs, raises taxes and cuts social welfare. This week, the Irish government unveiled a new four-year belt-tightening plan to repair public finances broken by recession and the cost of propping up the country’s beleaguered banks. It is a key precondition of the estimated €85 billion bailout Ireland is currently negotiating with the European Union and the International Monetary Fund.

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