Monday, June 27, 2011

Wall Street rises amid encouraging signs from Europe

NEW YORK — Signs that a widespread European debt crisis could be averted helped send stocks up sharply Monday.

French banks agreed to accept slower repayment of Greece's debt. That would give Greece more time to meet its other immediate financial obligations. French bondholders hold about $21.3 billion in Greek government debt. Greek lawmakers are also debating austerity measures that must pass before the country can receive another financial rescue package to help avoid default.

The U.S. government, meanwhile, said that spending by consumers decreased in May, after adjusting for inflation. April's figures were also revised downward, revealing the first decline since January 2010. Consumer spending accounts for 70 percent of economic activity.

Gas prices nearing $4 per gallon in late April and early May curtailed spending on retail goods such as televisions and clothes. Since then, gas prices have fallen to a national average of $3.57 per gallon. Oil prices have declined steeply over the last few weeks, which should eventually translate into even lower pump prices. Lower gas prices could help boost consumer spending in other areas in the coming months.
Read the rest here.


Ps-Iosifson said...

I'm glad usurious lenders are finally getting a haircut on their bad investments. Hopefully the same can happen in Ireland, as well. There's no reason governments alone should bear all the burden of bad loans that never should have been made. I see no reason to encourage loan sharks by allowing them to escape from their sins so easily - even if that means giving a bit of a break to profligate borrowers. In simple loan transactions with common sense, affordable (non-"usurious") terms the borrower is 'more' duty bound to repay. In complex, highly usurious credit agreements the lender must accept far more fault if and when the transaction goes bad. Not to allow such a haircut is socializing the risk of a transaction and meddling in markets that improperly managed the risk of the loans they made.

Visibilium said...

Look on the bright side. Paying interest and principal on her bonds will impose the kind of financial discipline wherein expenditures must be exceeded by revenues. What a novel thought!

The Anti-Gnostic said...

All this is premised on Greeks working harder and paying more taxes to save German and French bondholders.

Ps-Iosifson said...

The difficulty is that the other premise is that Greeks borrowed money, got the benefit and are now willing to simply not pay back what they owe. Bonds are simply loans. Now, the argument becomes one of usury and whether blood must be squeezed from a stone. The "Greek bailouts" are really bail outs of the banks so heavily on the hook for bad loans made to Greece. This is a bank bail out. That's why it's good the banks are stepping up and taking at least some of the losses they earned. The question is how important the banks are to the health of the European and global economies (can they fail without an even larger economic catastrophe being caused that hurts even more people), and what the ones bailing out the banks are going to demand of the banks and bankers in the future, e.g., greater capital reserves, greater regulation, a break up of banks too big to either fail or save, a division of traditional banking services the economy relies on [e.g., commercial banking, retails checking and savings, mortgages] from riskier activities like investment banking, private equity, prime brokerage, proprietary trading, etc.).

Visibilium said...

Bondholders should be paid back.

If you think that throwing around the term "usury" makes me think, even on a knee-jerk level, that your argument has merit, forget about it. Usury doesn't apply to sovereign debt, where willingness to pay is the all-important variable and ability to pay is a constant.

When Greece defaults, she'll find out how high lending rates can go. She ain't seen nuthin' yet. For the rest of us, it'll be an ideal time to pick up that Greek vacation home for a song.

Ps-Iosifson said...

I don't disagree that bondholders 'should' be repaid. The problem is that lenders 'should' have been kept from indebting a nation far beyond what it could afford to borrow. Regulators, too, including those in charge of the euro 'should' also have better controlled the way member nations borrowed and spent. There are a lot of shoulds, but it isn't like bonds (even sovereign debt) is FDIC insured. Interest is paid based on the risk involved, and risk means there is always the possibility borrower will default. The Greek nation should feel the pain of default because that's what they've done, but so, too, should investors who made bad investments and didn't properly measure the risk involved in lending to a nation able to borrow at will, hide its debt/revenue imbalances via Goldman Sachs necromancy, and without its own currency. That is, all parties should feel the pain.

Usury isn't just about excessive interest rates, it's also excessive lending in general. Sure, Greece and its political and economic leaders are to blame for borrowing, but usury has always depended on the greedy, grasping and stupid patsy. Greece is in the wrong, but that doesn't mean its lenders are in the right.