Morning Report – Principal Mods on the horizon? Maybe 2/5/15

Markets are higher this morning as Greece and Germany spar over bailouts for the Greek banking system. Bonds and MBS are down.

In economic data, initial jobless claims rose to 278k, higher than expected, but still good. Productivity fell 1.8% while unit labor costs rose 2.7%. Finally the trade deficit increased by $8 billion, dashing hopes for a big upward revision in Q4 GDP.

Uber-dove Boston Fed President Eric Rosengren says they Fed can remain “patient” in terms of raising interest rates, given the deflationary winds from overseas. Rosengren is a non-voting member. Janet Yellen in the Dec FOMC press conference characterized “patient” as “more than two FOMC meetings away). So, if the Fed intends to move at the June meeting, that word will probably be gone in the March statement. Listen to the language of the different Fed heads going forward – if it starts disappearing from prepared statements, etc that fact is telling you something..

Grexit (the name for Greece leaving the Euro) will get a lot of discussion in the press, but it probably won’t happen. Voters in Germany and Greece both support Greece staying in the Euro. Exporters like Germany benefit from the drag Greece (and the rest of the PIIGS) put on the Euro. The issue is that Germany, Finland etc don’t trust the Greek government to make the necessary structural changes without the risk of being booted. In other words, much of what you will hear over the next few months will be posturing ahead of another bailout.

Mel Watt is considering principal mods for underwater borrowers with loans held by FHFA. However, any plan will be “narrow” and will have to be done without incurring costs to the taxpayer. Interestingly, by cutting MI premium and G-fees, he is effectively increasing costs to taxpayers by increasing the chance they have to bail out the fund. Given that we are within 5% of peak levels, according to the FHFA Home Price Index, Mel can probably make this problem disappear by running out the clock. Note that Mel says mass principal forgiveness would cost the government billions. The Congressional Budget Office disagrees that a mass principal forgiveness program would cost anything. Looks like not even the Administration buys that argument…

Standard and Poors agreed to pay $1.5 billion in fines, without admitting wrongdoing. They have been forced to stop saying the suit was in retaliation for their downgrade of US Treasuries. Moody’s – you’re next. Hopefully Mark Zandi said enough nice things about the Administration that you’ll get off easier…

8 Responses

  1. That time Brian Williams was under fire in New Orleans after Katrina.

    Dude’s a shit magnet.


  2. He was the Left Shark (h/t suekzoo on PL).


  3. Bouncing on the bottom, year 7.


  4. Revealing framing on Vox:

    “All of which is to say that the big question in state/local government is how to spend middle class people’s money wisely on services that are better provided collectively than on the free market. But the big question in the federal government is how much money to redistribute from the rich/young/healthy to the poor/old/sick. These are totally different questions, and Jeb isn’t even bothering to answer the second one.”

    I’ll bet you can assemble an electoral majority in America on the idea that the Federal government should be more about “how to spend middle class people’s money wisely on services” than “how much money to redistribute from the rich/young/healthy to the poor/old/sick.”


  5. Uh oh.


  6. Looks like NBC knives starting to come out for Williams.

    If Ms. Turness publicly expresses confidence in Williams he’s finished.


    • Interesting article on Judicial Supremacy at The Federalist:

      And in the beating-a-dead-horse category, I’ll note, for purposes of my old debate with Mark about the sovereignty of the states, that the article quotes from the Kentucky Resolutions, written by Jefferson in 1798:

      That the several states composing the United States of America, are not united on the principle of unlimited submission to their general government; but that by compact, under the style and title of a constitution of the United States, and of amendments thereto, they constituted a general government for special purposes, delegated to that government certain definite powers, reserving, each state to itself, the residuary mass of right to their own self-government, and that whensoever the general government assumes undelegated powers, its acts are unauthoritative, void, and of no force.


Be kind, show respect, and all will be right with the world.

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