The U.S. Housing Market Crisis and the Faltering EU: The Bad Moon Keeps Rising

J. Robert Smith
Here at home, the Washington Post reports that President Obama intends to double-down on government-centered remedies (read "failures") to deal with the ongoing housing market depression.  Our illustrious president, never shy to use Uncle Sam's grossly overleveraged credit cards, wants to extend government assistance to homeowners and real estate investors (with some caveats) who are "excessively indebted." 

Meanwhile, the slow-motion dominoes continue to fall in the EU.  London's The Telegraph has Ambrose Evans-Pritchard opining about how EU's elites are further fueling an historic folly-in-the-making.  First, Greece, and now, very likely, Portugal are headed for crashes.  Can Spain and Italy be far behind?  And thereafter?        

Here's the gist of Evans-Pritchard's alarm:

Last month the European Central Bank exercised its droit du seigneur, exempting itself from loses on Greek bonds. The instant effect was to concentrate more loss on other bondholders. "This has set a major precedent," said Marchel Alexandrovich from Jefferies Fixed Income. "It does not matter how often the EU authorities repeat that Greece is a 'one-off' case, nobody in the markets believes them."

The ECB holds €220bn (£185bn) of Greek, Portuguese, Irish, Spanish, and Italian bonds. Its handling of Greece implicitly subordinates private creditors in each country. All have slipped a notch down the pecking order.

Ah, yes, yet more proof that Europe's powers-that-be are massively offloading losses on bondholders.  How's that for a confidence-boost in the bond markets? 

President Obama has begun down a similar road to Europe's by pushing to dump some real estate debt on banks (the $25 billion foreclosure-abuse settlement with banks, as a prime example).  But Mr. Obama is still glad to up Washington's enormous debt load in an attempt to stave off a potential pre-election disaster in the housing market.   

It's really hard to get one's arms around the magnitude of the folly unfolding in Europe and the U.S.  A very bad moon continues to rise. 

The real solutions to the U.S.'s and Europe's economic woes have nothing to do with fleecing bondholders or grossly indebting nations.  The real solutions in Europe and the U.S. are permitting acutely painful but necessary defaults, bankruptcies, and foreclosures to occur as quickly as possible to reset economies as quickly as possible.  Likewise, there needs to be comprehensive systematic reforms in favor of far less government here at home and in Europe to avoid future disasters.

Here at home, the Washington Post reports that President Obama intends to double-down on government-centered remedies (read "failures") to deal with the ongoing housing market depression.  Our illustrious president, never shy to use Uncle Sam's grossly overleveraged credit cards, wants to extend government assistance to homeowners and real estate investors (with some caveats) who are "excessively indebted." 

Meanwhile, the slow-motion dominoes continue to fall in the EU.  London's The Telegraph has Ambrose Evans-Pritchard opining about how EU's elites are further fueling an historic folly-in-the-making.  First, Greece, and now, very likely, Portugal are headed for crashes.  Can Spain and Italy be far behind?  And thereafter?        

Here's the gist of Evans-Pritchard's alarm:

Last month the European Central Bank exercised its droit du seigneur, exempting itself from loses on Greek bonds. The instant effect was to concentrate more loss on other bondholders. "This has set a major precedent," said Marchel Alexandrovich from Jefferies Fixed Income. "It does not matter how often the EU authorities repeat that Greece is a 'one-off' case, nobody in the markets believes them."

The ECB holds €220bn (£185bn) of Greek, Portuguese, Irish, Spanish, and Italian bonds. Its handling of Greece implicitly subordinates private creditors in each country. All have slipped a notch down the pecking order.

Ah, yes, yet more proof that Europe's powers-that-be are massively offloading losses on bondholders.  How's that for a confidence-boost in the bond markets? 

President Obama has begun down a similar road to Europe's by pushing to dump some real estate debt on banks (the $25 billion foreclosure-abuse settlement with banks, as a prime example).  But Mr. Obama is still glad to up Washington's enormous debt load in an attempt to stave off a potential pre-election disaster in the housing market.   

It's really hard to get one's arms around the magnitude of the folly unfolding in Europe and the U.S.  A very bad moon continues to rise. 

The real solutions to the U.S.'s and Europe's economic woes have nothing to do with fleecing bondholders or grossly indebting nations.  The real solutions in Europe and the U.S. are permitting acutely painful but necessary defaults, bankruptcies, and foreclosures to occur as quickly as possible to reset economies as quickly as possible.  Likewise, there needs to be comprehensive systematic reforms in favor of far less government here at home and in Europe to avoid future disasters.