Bank Of International Settlements Warns To Ignore Banker "Doomsday Scenario" Fearmongering And RacketeeringSubmitted by Tyler Durden on 05/31/2010 - 21:24
Over the past two years, the one strategy that has elicited the greatest amount of anger in the general population has been the traditional resolution to the "lowest common denominator" strategy of fearmongering or racketeering by the financial elite, any time it was faced with a status quo extinction event. The primary example is the Fed and Clearinghouse Association's threat that should the Fed be forced to disclose the details of its bailout of various banks (as two courts have already ordered it to do), the result would be the greatest run on US banks in history: "If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great." This is nothing but the patronizing of the broader population by those who seek to preserve their millions in bonuses, while disguising their hypocrisy in bluster, and hoping that the topic will be promptly forgotten. Curiously one entity that has decided to take on this "fire and brimstone" head on and to warn the general population to ignore the bankers "doomsday scenarios" is the bankers' bank, the BIS. As the FT reports, according to a soon to be released report by the bank's Chief Economic Advisors Stephen Cecchetti, "Banks are exaggerating the economic effects of the regulations they are likely to face in the coming years." While his focus is on the implications of the passage of the Basel III treaty, and to preempt counter lobbying by the bank themselves, his argument can be extended to ever instance in which banks present scenarios of collapse should they not get their way: as Cecchetti points out: "the banks’ “doomsday scenarios” were based on their assuming “the maximum impact of the maximum change with the minimum behavioural change.” This is a huge point, as it means that even the failure of the TBTF banks could have been mitigated in the context of a controlled (and even uncontrolled) bankruptcy, and the only reason they were bailed out was to preserve the equity interests and the existing management team, period. This also means that the Fed and Treasury are nothing but vehicles for perpetuating Wall Street's status quo, as we have claimed from the very beginning.
The Netherlands has experience with controlling water: 2,000 miles of dykes preventing the sea from flooding the country's nether regions have taught the Dutch a thing or two about hydroisolation and spillover control. Unfortunately, as the last 40 days or so demonstrate so amply, neither the US nor the UK have the faintest clue how to stop the GoM oil spill which is now entering into the realm of the surreal. Which is why it may be time to learn from those who do know something about the matter. Zero Hedge has received the following proposal from Van Den Noort Innovations BV, which asserts it can get the GoM oil spill under control within days, and it doesn't even involve nuking the continental shelf.
In this brief interview with Morningstar, Doubleline's star MBS analyst, and the bane of TCW's existence, Jeff Gundlach, points out the glaringly obvious: i.e., that "if Citigroup was too big to fail, then so much greater is the risk for asset managers at a multiple of that market cap." Obviously the mortgage expert here is contemplating asset manager behemoths such as PIMCO and BlackRock, which have quietly become even more institutionalized within the fabric of the financial markets, than some of the TBTF banks. And without access to the Fed's discount window, liquidity threats to firms like PIMCO are exponentially greater than even for a bankrupt POS like Citigroup. No wonder Gross was offloading European sovereign debt with gusto as of last check. With total assets of over $1 trillion, saying that a failure by PIMCO, and by extension its Fed-unmoderatable counterparty risk, would have huge implications on the US financial system, is so obvious, that it is completely understandable that there is not one single provision in the Senator from Countrywide and the Congressman from Fannie's FinReg proposals on how to tackle this most recent threat to capital markets.
Greece siding with Turkey - the end is nigh. Reuters reports: "Greek police fired teargas on Monday at demonstrators protesting outside the Israeli embassy in Athens over Israel's storming of a Gaza-bound aid flotilla and the killing of pro-Palestinian activists. "Dozens of protesters tried to break a police cordon, and police responded with teargas," said a Reuters witness. About 2,500 protesters rallied outside the embassy, police said, chanting "Hands off Gaza".
"Our Navy commandoes fell right into the hands of the Gaza mission members. A few minutes before the takeover attempt aboard the Marmara got underway, the operation commander was told that 20 people were waiting on the deck where a helicopter was to deploy the first team of the elite Flotilla 13 unit. The original plan was to disembark on the top deck, and from there rush to the vessel’s bridge and order the Marmara’s captain to stop...During the commotion, another commando was stabbed with a knife. In a later search aboard the Marmara, soldiers found caches of bats, clubs, knives, and slingshots used by the rioters ahead of the IDF takeover. It appeared the activists were well prepared for a fight. Some passengers on the ship stood at the back and pounded the soldiers’ hands as they attempted to climb on board. Only after a 30-minute shootout and brutal assaults using clubs and knifes did commandoes manage to reach the bridge and take over the Marmara. It appears that the error in planning the operation was the estimate that passengers were indeed political activists and members of humanitarian groups who seek a political provocation, but would not resort to brutal violence. The soldiers thought they will encounter Bilin-style violence; instead, they got Bangkok. The forces that disembarked from the helicopters were few; just dozens of troops – not enough to contend with the large group awaiting them." Ron Ben-Yishai
The ECB just can't make up its mind these days. First it launches a preemptive form of QE, then its directors write lengthy essays against those (cough, Germany, cough) who say its policies are flawed and inflationary, and now after flooding the market with cash, it continues to rush to take the extra liquidity out of the market. As announced earlier on its website, the ECB will withdraw another €35 billion in liquidity in the form of a one-week variable-rate tender capped at 1%, to be conducted on June 1 at 11:30 am. This is the same as the amount of government bonds purchased by the bank in the prior week, thus undoing all temporary QE benefits in the span of 7 days. This is the third and so far largest "sterilization" tender conducted in the past three weeks: the first and second were for €16.5 and €26.5, respectively.
The Israel Defense Forces (IDF) - Naval Forces has released a recording, and their summarized version of events that transpired in real-time on board the assaulted Turkish ship early this morning. Obviously, this is just one side of the story - we would certainly appreciate Wikileaks' or some other independent arbiter's perspective on how the other side was interpreting the situation as it was developing, and resulting in over 16 casualties so far. One wonders how many Israeli soldiers were killed during the clash? Warning: video is graphic.
"This action, totally contrary to the principles of international law, is inhumane state terrorism. Nobody should think we will keep quiet in the face of this" - Tayyip Erdogan
Someone sure isn't drinking the 63 out of 63 trading days Crissy in East Hampton on this sunny morning. Spiegel reports that German president, and former IMF head, Horst Kohler has resigned effective immediately, "a shock announcement that comes as the latest in a series of blows to Chancellor Angela Merkel." The cause for the resignation is the fierce criticism of comments he made about Germany's military mission in Afghanistan. More importantly, this will merely add to the instability in an otherwise already politically ravaged Germany. Got Bund, Bobl and Schatz?
Global Community Condemns Israeli Actions As Crowds Of Protesting Turks Scream “Long Live Global Intifada”Submitted by Tyler Durden on 05/31/2010 - 10:39
Things for Israel are getting from bad to worse. The Israeli attack on 6 Turkish ships carrying aid to Gaza, which has left 19 dead and 36 wounded according to latest estimates by Israel's Channel 10 TV, has drawn a wave of global outrage, resulting in "widespread international condemnation of Israel, with Israeli envoys summoned to explain their country’s actions in several European countries" according to the NYT. Additionally, Turkish website World Bulletin has formally branded Israel's attack "privacy" (no, not another stab at Google killer du jour Facebook, but a reference to government authorized attack on foreign shipping). Turkey's foreign minister Ahmet Davutoglu has said he will create an international legal case against this case of piracy and that "Israel's attitude has hurt the conscience of all humanity." Also, Turkey has joined the bandwagon of countries condemning the Gaza blockade, and is now openly supportive of the Hamas cause: "We hope that Israel learns lessons from this incident. Israel's blockade on Gaza is against laws and is not legitimate, Davutoglu said." Prime Miniter Erdogan also voiced in, saying: "by attacking innocent civilians, Israel displayed to the whole world its disregard of human values." The head of the Turkish Grand National Assembly’s Foreign Affairs Commission said, “We are going to see in the following days whether Israel has done it as a display of decisiveness or to commit political suicide.” Making a strong case for the latter, minutes ago Reuters reported that Israel PM Netanyahu has canceled plans to meet president Obama on Tuesday as was previously scheduled.
Even as futures are feeling buoyant as a result of the JPY drop following the collapse of the Japanese ruling coalition (which in itself will likely spell serious JGB troubles in the days ahead), Middle-east geopolitical issues have once resurfaced... or technically submerged as the case may be. The Sunday Times reports that "three German-built Israeli submarines equipped with nuclear cruise missiles are to be deployed in the Gulf near the Iranian coastline." Presumably, this a defensive move: "The first has been sent in response to Israeli fears that ballistic missiles developed by Iran, Syria and Hezbollah, a political and military organisation in Lebanon, could hit sites in Israel, including air bases and missile launchers. The submarines of Flotilla 7 — Dolphin, Tekuma and Leviathan — have visited the Gulf before. But the decision has now been taken to ensure a permanent presence of at least one of the vessels." We are not sure Iran will take the news with the required dose of stoic acceptance. But at least we now have confirmation that Israeli subs are not being used by the Obama administration as a means of delivering nuclear armaments to the continental shelf (unless this too, is another Criss Angelesque Emmanuel Rahm masterpiece).
Goldman's Erik Nielsen has yet to disclose if he is joining his Euro-pal Jim O'Neill in declaring all out war on the bears (for those unsure about the reference see here, and FYI Jim, the grizzlies send their love... and in keeping with the animal references, they don't really give a rats ass about the occasional dead cat bounce). What he has no problem disclosing, however, is his latest round of rose-colored ebullience, even as other, "slightly" more objective europundits see the end of the Eurozone as ever more imminent. It is stunning how cognitive dissonance can lead two people to the following diametrically opposite conclusions: Erik Nielsen: "The European recovery continues to look pretty good and solid to me" and Ambrose Evans-Pritchard: "[the Pan-European austerity package] can end only in two ways. Either Germany tolerates massive monetary reflation by the ECB or Spain will be forced out of EMU, setting off a catastrophic chain-reaction through north Europe's banking system." Of course, when one is in the business of perpetuating ponzies, while another has a page view quota, the truth likely is somewhere inbetween. Then again, "inbetween" two polar opposites is a wide range. Anyway, since we will likely see a lot more pain "on the plain" shortly, here are some soothing words for all those who are still long and strong and need goal-seeked analyses.
Our earnings are robust, our compensation has returned to its naturally high levels and, as a result, we have very nearly regained our grip on the imaginations of the most ambitious students at the finest universities — and from that single fact many desirable outcomes follow. Thus, we have almost fully recovered from what we have agreed to call The Great Misfortune. In the next few weeks, however, ill-informed senators will meet with ill-paid representatives to reconcile their ill-conceived financial reform bills. This process cannot and should not be stopped. The American people require at least the illusion of change. But it can be rendered harmless to our interests. - From Wall Street's Man In Washington
The world has been fighting the financial crisis by using every possible trick according to John Maynard Keynes‘ playbook. But, as The Great Depression taught us, extreme government spending tends to cause about as much problems as it solves. Perhaps it’s time to put Keynes back on the bookshelf, and pull out the 200 year old theories of David Ricardo.