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Van Rompuy And Barroso Announce €440 Billion EFSF Fully Functional; Now, How Do They Expand It To €3 Trillion?

Following the Slovak approval vote earlier, the EFSF is now fully functional, or so say Europe's two unelected leader Herman Van Rompuy and Jose Barroso (full statement here). Which is great, considering it only took Europe 3 months to ratify something that was supposed to be operational 2 months ago, and take over for the ECB's SMP declining bond purchases sometime in mid-September. And now, as Zero Hedge explained back in July, comes the hart part where the Eurozone realizes that the EFSF, which recently has found it has more uses than a Swiss Army Knife and can be used as a central bank, as a guarantor, as an insurance policy, as a CDO squared, cubed, etc, etc, or at least so the rumors go, has to be expanded from $440 billion to €3.5 billion. Recall: "slowly the sell side is coming to the realization that not only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa's Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain." That was two months ago. Finally, the governments, which back then religiously denied such reporting as scaremongering, are getting on the bandwagon. It was none other than Le Figaro, mouthpiece of the country that has the most to lose from the inability to ringfence a Greek fallout, that said yesterday: "The euro area reflects one of several options to increase by up to five times, or more than 2500 billion euros, the firepower of its relief fund for countries in financial difficulty (EFSF), said on Wednesday AFP European sources." In other words, the target number is now known, and nobody is ashamed to put it out there: between €2.5 and €3.5 trillion. The only question is what form it will take: yesterday it was a bank, today it is an insurance "fund", tomorrow who knows - gotta keep those rumors a surprise after all: they don't call the EFSF the modern version of the Swiss Army Bailout knife for nothing.



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30 Year Bond Prices At Record Low Yield As China Flees, Direct Purchases Soar

The "benefit" of Operation Twist for the long end shone through today as the Treasury priced $13 billion in a 30 Year reopening, which came at a record low yield of 3.12%: this was 4 basis points inside the When Issued of 3.16% so at first sight the auction was a stunning success, confirmed by the second highest Bid To Cover in the auction history of 2.94. Perhaps... The only problem is when one looks at the internals, where just like yesterday, the most prominent observation was the total collapse in the Indirect Bid, which accounted for just $3.7 billion of the take down or 28.7% of the total, less than the Direct portion which despite having plunged in all other recent bond auctions soared to a virtual record 29.5% of the total auction (less than just the 29.6% from March 2010). And now the question again arises: are the Directs merely London-based offshore entities doing China's bidding away from the Indirect bidder spotlight, or, is this some other operation that kicks in every time when a plunge in Indirects is expected, such as over the past two days with China seemingly doing all it can do show it is telegraphing a plunge in interest for US paper. We will know more today when at 4:30 pm the Fed discloses its most recent custodial Treasury holdings for the past week. In the meantime, the Primary Dealers and the Directs have the long-end firmly under control.



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Guest Post: Thailand: Not Letting A Good Crisis Go To Waste

Parts of Thailand have experienced terrible flooding lately, and much of the country’s production shut down as a result. Thailand makes everything from tire factories to hard disk drive manufacturers to rice… and given the slowdown in the economy, it couldn’t have come at a worse time. Not to worry, though, the government has a plan to fix it. Let me explain: Thailand’s central bank is sitting on roughly $212 billion in net foreign reserves right now. That’s up 37% from last year and nearly 80% from 2009. Curiously, it all starts with Ben Bernanke.



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Meet "Ben Pu" - The Aleynikov Sequel: Quant Powerhouse Citadel Arrests Former Employee For Stealing "Alpha" Code

Chicago hedge fund Citadel may not have the best of luck when it comes to running traditional financial businesses (it's recent disastrous foray into advisory and capital markets - nuf said), but when it comes to picking up nickels and dimes ahead of slower traders (yes there is a name for it, but for lack of immediate legal retaliation by an uber-sensitive Ken Griffin we will leave it to our readers' imagination) by virtue of faster computers and a massive collocated infrastructure, Citadel is second to none (well, except maybe now infamous Latour Trading). Which explains why it is so sensitive to any former employees "borrowing" its special sauce, aka the computer code that is the only thing that gives the hedge fund its fro... er, superior trading execution. It was only last year that the fund went all Friend-O on Misha Malyshev, whose Teza technologies was implicated as the future employee of one now legendary Sergey Aleynikov. Well, it is time for a redux. As Dow Jones reports, "a former technology employee of hedge fund manager Ken Griffin's Citadel LLC was arrested for allegedly stealing sensitive computer trade secrets from the company for his own personal use, the Department of Justice said. According to the complaint affidavit, 24-year-old Yihao Pu, also known as "Ben Pu," was found by Citadel's information technology department to have "downloaded several unauthorized programs," which allegedly allowed him to bypass Citadel's security protocols and transfer files or data from his Citadel computer to an external storage device."



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PrimeX Update: The Rout Continues

Stocks may go up, and stocks may go down, but Prime X knows only one direction...



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Raj Raj Gets 11 Years In Federal Prison

While Angelo Mozilo is working on his tan and pretending he did not engage in blatant 10(b)-5 fraud for years and years. Oh well, justice is served.  Don't look for the Gerson Lehrman IPO any times soon.

  • RAJARATNAM GETS 132 MONTH PRISON TERM FOR INSIDER TRADING. - BBG


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Slovakia Passes EFSF Expansion Vote

Well, that's that.

  • SLOVAK PARLIAMENT APPROVES EXPANSION OF EFSF RESCUE FUND, CONCLUDES RATIFICATION IN ALL EURO ZONE COUNTRIES -RTRS
  • 114 voted for the EFSF, 30 against and 3 abstained from 147 present (out of 150

Now: perhaps we can finally get some details of what will happen next instead of just blind short covering squeeze on rumor-based headfakes? Oh wait, we won't? Because there are no real details and it is all just rhetoric?



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Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test, €400 Billion Capital Shortfall

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related. To wit: "In our estimation of what could be the “new EBA stress test” there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report ‘The lost decade’ – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.



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Art Cashin On The Most Important History Lesson Of The Last Century

Today, instead of the traditional market observations by the Chairman of the Fermentation Committee, we share with readers a critical historical lesson from Art Cashin, focusing on an event that took place 89 years ago, which as Cashin says is "one of the most devastating economic events in recorded history and an important backdrop to Europe today. It all began with the efforts of a few, well-intentioned government officials." Many will know what we are talking about already...



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A Slovak Twist: Slovakia's Sulik Announces EFSF Vote Has To Be Adopted By Constitutional Court First

With everyone so certain the Slovak EFSF vote passage was just a formality, it was only a matter of time before Richard Sulik's SaS threw a wrench in the best laid plans.... Sure enough, as of a few minutes ago, Sulik has announced that he is considering getting the constitutional court involved, a process which if anything will create an indefinite delay in the EFSF ratification, even assuming there is no additional doublecrossing of the outgoing PM Radicova involved.



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How Obama Got His Groove (And Rating) Back

To think three years of soaring unemployment, central planning, political gridlock and relentless propaganda could have been fixed with just one well-timed punch...



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Step Aside #OccupyWallStreet; Here Comes #TheOccupationParty

Well, their list of demands may be slow in coming, but when it comes to organizing a block party for the "Awake and Inspired", it took less than a month...



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The Status Quo Is Back - UniCredit Halted, Down 7.8%

As we said earlier, "it was fun while it lasted." Now reality, and the pricing in of tomorrow's Berlusconi vote of "confidence" comes back with a vengeance. From Reuters:

  • UNICREDIT SHARES HAVE BEEN SUSPENDED FOR EXCESSIVE VOLATILITY, INDICATED DOWN 7.8%

Fear not! the imminent surge in Italian CDS means that the Boot will report infinite EPS once its bonds hits zero: thank you JP Morgan.



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Another Attempt At Paid Blogging Fails

It took FT Alphaville offshoot FT Tilt precisely 9 months to learn that charging £1,000 a head for widely available information may not be the best business model (unless one is that "other" and probably only profitable FT business line DebtWire, which actually does have "expert network" level information now and then). One wonders just how successful some other financial blogs would be if they were spun off from their publicly traded corporate parents.



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