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  • Ritholtz: Home Prices Vulnerable as "Foreclosure machinery ramps up"

    In his Sunday column for the Washington Post , Barry Ritholtz takes us through a brief history or banks and foreclosures over the last two years. After a review of robo-signings and other questionable-at-best practices brought about a slowdown in foreclosures--which followed an unprecedented increase in foreclosures--bankers seems to have fixed some of their procedural issues. "It takes a while for the creaky, wheezy, inadequate machinery of processing defaulted mortgages to rumble back to life," Ritholtz writes. But now it has. And Ritholtz expects it will make waves through home prices overall: That fortuitous set of circumstances appears to be over. Current foreclosure filings — default notices, scheduled auctions and bank repossessions — increased in May by 9 percent, according to the RealtyTrac monthly foreclosure report. Distressed homes tend to sell for about 20 percent less than non-distressed sales. The voluntary foreclosure abatement not only reduced the number of foreclosures, but also created the appearance of improving home prices. In reality, it was merely temporarily removed low-price, distressed properties from the overall pool of homes for sale. This was right on cue. With the abatements over, foreclosure starts are creeping up again. As the foreclosure machinery ramps up, the negative ramifications they bring will expand. More distressed sales, lower prices and increasingly tough comparable appraisals are likely over the next 12 months. To give you an idea of what is in store, consider this amazing statistic, courtesy of Laurie Goodman, housing analyst at Amherst Securities: 2.8 million Americans are 12 months or more behind on their mortgages. That degree of delinquency leads to an overwhelming percentage of foreclosure starts. It is reasonable to expect that 95 percent of these will end up as a foreclosure, distressed sale or walkaway. Read Foreclosure machinery creaks back to life here .
  • Christine Lagarde on Progress in Greece

    International Monetary Fund Managing Director Christine Lagarde tells Charlie Rose that, while a lot of hard work has been done by Greece's politicians and citizens, and Europe's policy leaders, there is much work to be done. And to avoid a deepening crisis the European partners, the private sector, and the Greek authorities have to work together. Here is an excerpt of Rose's interview with Lagarde: Watch the full interview here .
  • Rogoff on Greece's Future in the EU

    Following the announcement of the €130 billion ($171 billion) bailout of Greece, Der Spiegel interviewed Harvard economist Kenneth Rogoff . Like many economists, Rogoff believes Greece's leaders have a lot of work still to do. And he is firmly in the more austerity camp. He told Der Spiegel that he would recommend "The government in Athens should be granted a kind of sabbatical from the euro." In Rogoff's plan, Greece would still be in the EU, but out of the monetary union--at least until the country can lower its debt burden. Otherwise, he is not particularly optimistic that Greece will be able to remain in the EU. SPIEGEL: If Greece were to leave the euro zone, a wave of panic might engulf other countries struggling with debt, such as Portugal. How can we prevent the contagion from spreading? Rogoff: If Greece leaves the euro, the markets will demand sensible answers to two questions. First, which countries should definitely keep the euro? And second, what price is Europe prepared to pay for that? The problem is that the Europeans don't have convincing answers to those questions. SPIEGEL: What advice would you give Merkel and her counterparts? Should they tear the euro zone apart? Rogoff: No, certainly not. We are talking about bending not breaking, with one or more periphery countries allowed to leave temporarily in order to enjoy greater flexibility. There is currently no simple solution for this unparalleled crisis. The big mistakes were made in the 1990s. SPIEGEL: Does that mean the whole idea of the euro was a mistake? Rogoff: No, a common currency for countries like Germany and France was a reasonable risk, given the political dividends. But it was a grave mistake to bring all the south European states into the euro zone purely for reasons of political union. Most of them were not ready for it economically. SPIEGEL: That may well be, but the fact is that now they are part of the monetary union, and that can't simply be unravelled. Rogoff: Which is why there is only one alternative: Either the euro completely collapses -- with all the catastrophic consequences that would entail -- or the core members of the currency union manage to turn the euro zone into a genuine political union. Read the full interview here .
  • Terence Roth on the Bailout of Greece

    After twelve hours of meetings in Brussels, European Union leaders have agreed to a 130 billion euro ($170 billion) bailout of Greece . This was seen as a last minute deal to stave off Greek default. But there is much work to be done. As Dow Jones 's Terence Roth tells his colleague Nick Hastings , this agreement was essential because it gives Greece's leadership just enough time to do all it must do to avoid collapse.
  • Feldstein on Europe's Reluctance to Let Greece Default

    Martin Feldstein calls Greece's mix of overwhelming government debt and a free-falling economy an "otherwise impossible situation." Greece will default, as Feldstein argues that is the only way out. But after it defaults, will it leave the euro zone? Having its own currency just might open more options. Feldstein argues there are two reasons that the key influencers in the Euro zone (Germany and France) do not want Greece to leave. At least not just yet. From Project Syndicate : First, the banks and other financial institutions in Germany and France have large exposures to Greek government debt, both directly and through the credit that they have extended to Greek and other eurozone banks. Postponing a default gives the French and German financial institutions time to build up their capital, reduce their exposure to Greek banks by not renewing credit when loans come due, and sell Greek bonds to the European Central Bank. The second, and more important, reason for the Franco-German struggle to postpone a Greek default is the risk that a Greek default would induce sovereign defaults in other countries and runs on other banking systems, particularly in Spain and Italy. This risk was highlighted by the recent downgrade of Italy’s credit rating by Standard & Poor’s. A default by either of those large countries would have disastrous implications for the banks and other financial institutions in France and Germany. The European Financial Stability Fund is large enough to cover Greece’s financing needs but not large enough to finance Italy and Spain if they lose access to private markets. So European politicians hope that by showing that even Greece can avoid default, private markets will gain enough confidence in the viability of Italy and Spain to continue lending to their governments at reasonable rates and financing their banks. Read Europe’s High-Risk Gamble here .
  • Uncertainty in Europe over the Effects of Greek Default

    We are seeing more signs today of a pending Greek default . While some folks just want resolution , European policymakers in Germany and elsewhere may be delaying the inevitable in part because they are not yet certain of what the ripple effect of default will be. Dow Jones columnist Alen Mattich discusses the uncertainty throughout Europe:
  • Simon Johnson: 'Europe is again entering a serious economic crisis'

    At a meeting of G7 leaders this weekend, European ministers promised to keep pressure on Greece's government and make sure that country's debt problems won't spread and create larger financial problems around the continent. Simon Johnson , for one, is not calmed, and thinks that European leaders are "not being careful," and that the stronger eurozone nations--France, Germany--need to do more to fight off serious financial crisis. Here's Johnson writing at The Baseline Scenario : The IMF cannot help in any meaningful way. And the stronger EU countries are not willing to help – in part because they want to be tough, but also because they do not have effective mechanisms for providing assistance-with-strings. Unconditional bailouts are simple – just send a check. Structuring a rescue package that will garner support among the German electorate – whose current and future taxes will be on the line – is considerably more complicated. The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets. As this pressure mounts, we’ll see cracks appear also in the private sector. Significant banks and large hedge funds have been selling insurance against default by European sovereigns. As countries lose creditworthiness – and, under sufficient pressure, very few government credit ratings will hold up – these financial institutions will need to come up with cash to post increasing amounts of collateral against their derivative obligations (yes, the same credit default swaps that triggered the collapse last time). Read Europe Risks Another Global Depression here .