64 Banks Failed
Stocks collapsed (down 225) today as worries about Europe continued to hit home. My long term thoughts on stocks are that we are seeing a “cap” on stock prices as our leading indicators show a slow down (but no recession) in the economy coming up. We should see a GDP growth rate around 2% to 3% for the next couple of quarters. That would be a slowing economy compared to the 1Q 2010 and would reflect poorly on stock values.
The Euro collapsed today (down about 2 cents) driving the Dollar up, and creating a flight to safety. Bonds gained (lower interest rates) and is causing a near term low interest rate.
Gold, oil/gasoline all got hit in the downdraft of the Euro and the fear gripping the market.
In the news today……
Pending Home Sales – were up 5.3% in March. The $8000 tax credit scheme is undoubtedly pushing this number up, and spring is a good time to buy historically. I predict a slump in sales in early summer.
64 Banks Failed – so far this year with 8 more last weekend. The failures were very, very big and cost the FDIC $7.3B – that billion, this last weekend. The FDIC continues to go bankrupt and will need to be “bailed out” soon – and YOU will be the person with the bucket, bailing. Prior to last weekend, in order to put this into perspective, the total losses for the year had been $8.6B – so last weekend was a BIG one for additional losses. If you remember, the FDIC was going to raise $45B from new bank fees – and that money is pretty much wiped out right now. One very interesting aspect of these latest bank failures is that they give us insight into the “overvaluation” that each of these failed banks had on their assets. You see, the banks overvalued their assets so they didn’t look like they were failing from a casual point of view (they showed more assets than deposits, rather than the opposite). However, the FDIC re-values a bank’s assets when they are swept up as failures, and each bank had overvalued their assets between 90% to 125%. Not bad if you can get away with it. This should give you NO CONFIDENCE in your own bank……
Tonight’s Dinner Conversation……
Greek Culture – and I bet you were thinking “Parthenon, etc.” when I said that didn’t you? Now be honest!!!
I mean today’s culture. And, I think I am a decent expert on it. I worked a lot in Greece in my past profession, studying how arms sales were made, and how to do it legally (in the US) and successfully in Greece. In addition, my wife and I love to visit the Greek Islands, and we have had lots of Greek experiences recently. Here are some of them. Oh, by the way, the topic of Greek culture is hitting the topics of tax cheating, bribery and corruption. While you read this piece, think about the US, and what we could become. Is it possible that high taxes would push Americans into flagrantly cheating on taxes, or routinely bribing government officials? What is the future of our health care system? Read this article as a lesson on how nations perform, and consider what the Greeks are going through right now.
- My wife had to visit a doctor on our last trip to Athens, and we were successful in finding one, and followed the time honored tradition of a “fakelaki” or little envelope in which we paid the doctor under the table for his services. This practice is rampant in Athens and could be the only way you can get medical treatment.
- Greece is historically relevant in having very large bribes paid for major military purchases. Every so often, someone gets caught, but gets off by paying large sums of money to the right people. I can remember a major battle tank competitive bid being decided that way.
- Greece is the home of some of the world’s biggest arms dealers who buy and sell arms to third world countries. I remember having a pleasant meal with my wife on the cliffs on an island, and being told that the big yacht out there was owned by the world’s biggest arms dealer. And, then I saw a Greek Navy Frigate later that night, and knew that ship had some missile systems that I had been involved in selling to Greece. What a small world. Sales can be legal or illegal, and be done side by side.
Here is a recent news article talking about today’s Greece. It is truly eye opening. Read it and learn.
Yoray Liberman for The New York Times – 3 May 2010
ATHENS — In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools. So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools.
That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here.
Such evasion has played a significant role in Greece’s debt crisis, and as the country struggles to get its financial house in order, it is going after tax cheats as never before.
Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems.
“We need to grow up,” said Ioannis Plakopoulos, who like all owners of newspaper stands will have to give receipts and start using a cash register under the new tax laws passed last month. “We need to learn not to cheat or to let others cheat.”
On the eve of an International Monetary Fund bailout deal that is sure to call for deep sacrifices here, including harsh austerity measures, layoffs and steep tax increases, many Greeks say they feel chastened by the financial crisis that has pushed the country to the edge of bankruptcy.
But even so, changing things will not be easy. Experts point out that ducking taxes is part of a broader culture of bribery and corruption that is deeply entrenched.
Mr. Plakopoulos, who supports most of the government’s new efforts, admits that he and his friends used to chuckle over the best ways to avoid taxes.
To get more attentive care in the country’s national health system, Greeks routinely pay doctors cash on the side, a practice known as “fakelaki,” Greek for little envelope. And bribing government officials to grease the wheels of bureaucracy is so standard that people know the rates. They say, for instance, that 300 euros, about $400, will get you an emission inspection sticker.
Some of the most aggressive tax evaders, experts say, are the self-employed, a huge pool of people in this country of small businesses. It includes not just taxi drivers, restaurant owners and electricians, but engineers, architects, lawyers and doctors.
The cheating is often quite bold. When tax authorities recently surveyed the returns of 150 doctors with offices in the trendy Athens neighborhood of Kolonaki, where Prada and Chanel stores can be found, more than half had claimed an income of less than $40,000. Thirty-four of them claimed less than $13,300, a figure that exempted them from paying any taxes at all.
Such incomes defy belief, said Ilias Plaskovitis, the general secretary of the Finance Ministry, who has been in charge of revamping the country’s tax laws. “You need more than that to pay your rent in that neighborhood,” he said.
He said there were only a few thousand citizens in this country of 11 million who last year declared an income of more than $132,000. Yet signs of wealth abound.
“There are many people with a house, with a cottage in the country, with two cars and maybe a small boat who claim they are earning 12,000 euros a year,” Mr. Plaskovitis said, which is about $15,900. “You cannot heat this house or buy the gas for the car with that kind of income.”
The Greek government has set a goal for itself of collecting at least $1.6 billion more than last year — a modest goal, Mr. Plaskovitis believes. But European Union officials were so skeptical, Mr. Plaskovitis said they would not even allow the figure to be included in the budget forecast used in negotiations over the bailout package.
“They said, ‘Yes, yes, we have heard that before, but it never happens,’ ” he said.
Over the past decade, Greece actually lost ground in collecting taxes, even as the economy was booming. A 2008 European Union report on Greece tax shortfalls found that between 2000 and 2007, the country’s average growth in nominal gross domestic product was 8.25 percent. Its taxes grew at just 7 percent.
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,927 (down 225)
10 Year Treasury Bond – 3.61% (down 0.09%)
Euro – $1.3001
Gold – $1169 (down $14)
Oil – $82.75 (down $3.44)
Gasoline – $2.32 (down $0.11)
