Greece Surprises the World Again

Greek Prime Minister George Papandreou proposed a referendum on banks' debt deal with his country. The Fed began its official review of foreclosures caused by robo-signing and other inconsistencies. And construction spending increased slightly in September.

November 2, 2011
By Dees Stribling, Contributing Editor

George Papandreou. Courtesy Flickr user PIAZZA del POPOLO.

Just when euro-zone panjandrums were breaking out their metaphorical party hats, and investors worldwide were celebrating in the only way they know — buying equities in a hurry — Prime Minister George Papandreou upset things unexpectedly early on Tuesday (Monday in North America) by proposing a referendum on Greek participation in the debt deal negotiated between the euro-zone last week (that is, Germany, France and a number of banks). Reportedly the PM’s move was a surprise even to Greek Finance Minister Evangelos Venizelos, a circumstance that probably adds an extra measure of misery to what must be the most thankless job in Europe.

Greece is the birthplace of democracy, after all, as Papandreou pointed out. EU elites know the downside of popular elections well enough: It was only six years ago that no votes in France and the Netherlands derailed ratification of the European Constitution. Yet it’s entire possible that there will be no referendum, as much of Papandreou’s government is against it, not to mention members of the opposition that are out for the PM’s scalp. The Greek parliament is slated for a no-confidence vote on Friday, and confidence doesn’t seem to be running high.

For the moment, the main effect is, once again, a Greek-inspired mini-panic throughout the world. Equities markets worldwide hit the panic button on Tuesday, beginning in Europe, rippling through to Asia, and continuing into the Western Hemisphere. The Dow Jones Industrial Average dropped 297.05 points, or 2.48 percent, while the S&P 500 declined 2.79 percent and the Nasdaq was down 2.88 percent.

Foreclosure Reviews Get Under Way

Tuesday was the day that the federal government and the Federal Reserve formally began the review of as many as 4.5 million residential foreclosures to uncover mortgage holders who were “financially harmed” by robo-signing and other shenanigans in recent years. The nation’s 14 largest banks were compelled to hire outside consultants to do the reviews, as overseen by Office of the Comptroller of the Currency and the Fed.

It isn’t clear yet that anyone is going to be happy with this arrangement. Borrowers must petition for a review, and to receive compensation, the reviewer must determine that the borrower suffered “financial harm” from the foreclosure — beyond, presumably, being kicked out of one’s house. The idea is to ferret out those cases in which, for example, the bank had promised a mortgage modification but had foreclosed anyway just because that’s what banks do.

Naturally, banks are complaining about the time and expense of reviewing foreclosures, since the banks say that they’ve already checked and, by golly, most cases of foreclosure actually involve a borrower in default. On the other hand, borrower advocates are complaining that the reviews will allow banks to get off lightly for any excesses of the foreclosure-happy days of 2009 and 2010.

Construction Spending Sees Uptick

The U.S. Census Bureau said on Tuesday that construction spending, both residential and nonresidential, increased slightly in September when compared with August. Residential spending gained 0.9 percent month-over-month, while nonresidential spending was up 0.28 percent. Compared with the same month in 2010, residential construction spending eked out a scant 0.1 percent increase, but nonresidential spending was up 5.9 percent year-over-year.

The single-family variety of residential construction rose 0.5 percent between August and September, but it was hardly a sign of resurgence, since compared with the same month in 2010 the total amount of single-family construction was 0.1 percent less. The Census Bureau also calculates that the value of single-family home construction has dropped 66.25 percent since the peak of the housing bubble in 2006.

Private construction projects of various kinds were up marginally — 0.6 percent — in September, but public construction was down 0.6 percent. The federal government was the many component of the drop, spending 6.8 percent less for the month to reach its lowest monthly level of construction since January 2010.