Three weeks ago we mocked, rightfully so, the utter joke that is Liebor, which had been unchanged for just over 3 months. Nobody cared, certainly not the British Banker Association. This was not the first time: our first allegations of Liebor fraud and manipulation started over three years ago. There were others too. Nobody certainly cared back then. Now, in the aftermath of the Barclays lawsuit, and "those" e-mails, everyone suddenly cares. And a few days after the first public exposure of Lie-borgate, the first victim has been claimed: as numerous sources report, Barclays' Chairman Marcus Agius wil step down immediately. From the WSJ: "Political and investor pressure has mounted on the management of U.K.-based Barclays since the settlement was announced Wednesday. The announcement of Mr. Agius's departure could come as soon as Monday, said one of the people. Mr. Agius, 65 years old, a British-Maltese banker who formerly worked at Lazard Ltd., has led the bank since 2007, steering Barclays through the 2008 financial crisis and avoiding the direct state bailouts that were needed by many of its global peers." While the sacrifice of a scapegoat is expected, what we don't get is why the Chairman: after all by the time Agius became Chair of the British bank, the bulk of the Libor fixing alleged in the FSA lawsuit had already happened. And of course, with Bob Diamond having succeeded John Varley as CEO in 2010, one can easily claim that in this first (of many) confirmed Liebor transgression there really is nobody at fault who can be held accountable. Of course, Barclays is merely the first of many. We fully expect Lieborgate to spread not only to other British BBA member banks, but soon to jump across the Atlantic, where CEOs who have been with their banks for the duration of the entire Libor-fixing term will soon find themselves under the same microscope.
In a development that is too hilarious for even the most hardened cynics to pass by, starting today, the rotating presidency of the EU will be handed over to... broke Cyprus. We learn this and much more about the onslaught of sovereign debt auctions out of Spain and France in the month of July (explaining the urgency to come up with any mechanism to keep Spanish and Italian bond yields below 7% as absent some deux ex, no matter how temporary, the whole charade may have ended as soon as 31 days from today) courtesy of the following calendar of key events out of Europe.
While we are still collecting various public polling results showing popular sentiment in the aftermath of the Supreme Court's surprising Obamacare ruling last week, the first results out of Rasmussen show that if Judge John Roberts' goal was to somehow restory credibility in the supreme judicial entity, following his alleged flip flopping on the ACA, whereby he passed the Individual Mandate in a format never intended by the Obama administration, he has failed. From Rasmussen: "A week ago, 36% said the court was doing a good or an excellent job. That’s down to 33% today. However, the big change is a rise in negative perceptions. Today, 28% say the Supreme Court is doing a poor job. That’s up 11 points over the past week."
Last week's false flag story of baseless Middle Eastern provocation refuses to go away. Even after, in a shocking turn of events, US intelligence confirmed this weekend that Syria's version of events surrounding the downed Turkish F-4 jet story was the right one all along, pulling the media narrative rug right from under Hillary Clinton's provocative feet (and making others wonder just which country is the only one that stands to benefit of NATO does pull Article 4 or 5 and does invade Syria on now invalidated and false premises), today we read that Turkey continues to try to escalate. From the BBC: "Turkey has scrambled six F-16 fighters jets near its border with Syria after Syrian helicopters came close to the border, the country's army says. A total of six jets were sent to the area in response to three such incidents on Sunday, although there was no border violation, the Reuters news agency quoted the statement saying. On Friday, Turkey said it had begun deploying rocket launchers and anti-aircraft guns along the border in response to the downing of its F-4 Phantom jet." Of course, without an actual confirmed provocation, such as the one Turkey itself pulled against Syria, it is left with the same media rhetoric that continues to expose just one side of the Syrian story - the Western media spun one. "Turkey has strongly criticised Syria's response to the 16-month anti-government uprising, which has seen more than 30,000 Syrian refugees enter Turkey." Fair enough, we do however wonder what Syria would say about Turkey's treatment of Kurdish minorities. Finally, confirmation that just as we first suggested two weeks, this whole incident has been nothing but a provocation stage test to get NATO involved without any of the facts being on the table, comes from no other source than US military intelligence.
While the Lieborgate scandal gathers steam not so much because of people's comprehension of just what is at stake here (nothing less than the fair value of $350 trillion in interest-rate sensitive products as explained in February), but simply courtesy of several very vivid emails which mention expensive bottles of champagne, once again proving that when it comes to interacting with the outside world, banks see nothing but rows of clueless muppets until caught red-handed (at which point they use big words, and speak confidently), the BBC's Robert Peston brings an unexpected actor into the fray: the English Central Bank and specifically Paul Tucker, the man who, unless Goldman's-cum-Canada's Mark Carney or Goldman's Jim O'Neill step up, will replace Mervyn King as head of the BOE.
Even as Spain, Italy and soon France are scrambling to break the link between sovereigns and banks, an unpopular move that until recently Germany was very much against as it permitted the culture of endless unsupervised bank bailouts on taxpayer dimes to continue, we get a fresh reminder of why any unconditional aid, entitlement, or backstop guarantees funded by "other people's money" is always inevitably a bad idea. Case in point: Spain, which just said that its economy will contract in Q2 even more than in Q1. This reminds us why any claims of "austerity" are a total mockery: only Keynesian priests seem unable to grasp that countries gain much more upside from pushing their economies to the brink only to be bailed out, than from engaging in real economic viability and sustainability programs: i.e., living within your means (something we proved empirically before). Finally, this is also a stark reminder that when one removes out all the bailout noise and the daily high-beta gyrations of sovereign debt, the real reason why sovereign bondholders should be buying Spanish debt - an actual improvement in its economy- continues to not only be absent, but by the very nature of endless now-monthly bailouts, becomes impossible as debt never fixed more debt.
In early December 2009, Haim Bodek finally solved the riddle of the stock-trading problem that was killing Trading Machines, the high-frequency firm he’d help launch in 2007. The former Goldman Sachs and UBS trader was attending a party in New York City sponsored by a computer-driven trading venue. He’d been complaining for months to the venue about all the bad trades—the runaway prices, the fees—that were bleeding his firm dry. But he’d gotten little help.
Brad DeLong makes an odd claim:
So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
Larry Summers? If we’re going to base our economic policy on trusting in Larry Summers, should we not reappoint Greenspan as Fed Chairman? Or — better yet — appoint Charles Ponzi as head of the SEC? Or a fox to guard the henhouse? Or a tax cheat as Treasury Secretary? Or a war criminal as a peace ambassador? (Yes — reality is more surreal than anything I could imagine).
Why Germany's TARGET2-Based Eurozone Preservation Mechanism Is Merely A Ticking Inflationary TimebombSubmitted by Tyler Durden on 06/30/2012 - 15:04
We have covered the topic of the German TARGET2 imbalances previously, both from the perspective of what catalysts can lead the Bundesbank to suffering massive losses (the one most widely agreed upon being a collapse of the Eurozone, which explains why even discussions of that contingency are prohibited in Europe), from the perspective of its being an indirect current account deficit funding mechanism, and from the perspective of what is the maximum size TARGET2 imbalances, funded primarily by the Bundesbank, can grow to before eventually causing irreperable damage to the Bundesbank. Still, there appears to be ongoing mass confusion about the topic, with numerous economists proposing contradictory theories, all of which supposedly rely on traditional economic models. Today, to provide some additional and much needed color, we once again revisit the topic of TARGET2, and this time we look at arguably the most critical question: what happens when the TARGET2 imbalance bubble ultimately pops. And here is where the true cost to Germans becomes apparent, because there is no such thing as a "borrowing from the future" free lunch. Which is precisely what TARGET2 does, only instead of a direct cost, the post-TARGET2 world will result in the now traditional indirect cost of all monetary experiments gone awry: runaway inflation.
The following fascinating chart from Tableausoftware shows the history of US unemployment by state since 1976, and specifically the difference from historical averages. What the chart shows is that as more and more people have migrated to populated coastal areas, or those areas hit hardest from the recent deleveraging mean reversion depression, it is the flyover states, typically considered the least interesting, that are actually performing by far the best, with some places like North Dakota, Nebraska, South Dakota, and Vermont paradoxically having better relative employment right now than during any time in the past 40 years! As the economy continues to revert to trendline along every possible axis, despite the Fed's persistent efforts to overrule nature, how long until reverse migration kicks in, and all those hopefuls who had trekked to the big coastal cities dreaming of better prospects, leave in disenchantment and head back to where they came from, and just how would that impact the future of US economic and demographic trends?
As details from Thursday's European Memorandum of Understanding, which has all the binding power of a 'highly confident letter' issued by a third tier investment bank, continue to be non-existent, the questions, and conditions, are accumulating fast. While the ESM passed with a solid majority in both the lower and upper houses of German parliament yesterday, its fate is now in the hands of the German constitutional court which as reported previously has requested extra time to study the bailout plan, before it gives the all clear for a presidential signature. Sound familiar? And barely did the ESM pass the ratification vote, before lawsuits alleging its unconstitutionality start pouring in. But probably more importantly, Focus magazine reported overnight that the first clear condition from Germany will be the enactment of a Financial transaction tax for all countries where the ESM would be operational in order to minimize the burden on German taxpayers. In other words, banks would effectively pool their profits, in order to fund the bailout of other banks (or their own). In retrospect, it does not sound like a bad idea. It may even pass the recently conceived "fairness doctrine" of the Great June Socialist Revolution. Most importantly, however, it appears that events over the past week may have been merely a gambit for something that Schauble and Weidmann have already hinted at: a popular referendum that decides the fate of Europe once and for all, washing Merkel's hands and letting the people decide if they want the European experiment to continue or not.
Given the rather weak near-term and long-term outlook for US coal demand, it’s not surprising that within such a capital-intensive business, a number of smaller coal producers were hit recently with bankruptcy rumors. Indeed, even large cap names like Arch Coal have seen an escalation of concern over debt levels. Accordingly, many have concluded that coal -- in an era of solar, wind, and natural gas -- has finally displaced itself due to its problematic extraction, distant transportation, and overall costs. Is coal finally going away as an energy source?
Not a chance.
Indeed, everything currently unfolding for coal in the United States is precisely what is not unfolding for coal globally. Prices to import natural gas to most countries via LNG remain sky-high, easily protecting coal’s cost advantage. And the demand for coal in the developing world remains gargantuan. Accordingly, just as with oil, lower US demand simply frees up supply to elsewhere in the world. The global coal juggernaut rolls onward.
I won a bet today.
A few weeks ago I wagered with a coworker that the United States Supreme Court would uphold the Affordable Care Act otherwise known as Obamacare. He reasoned that the federal government has no authority under the Constitution to force an individual to purchase a product from a private company. My reasoning was much simpler. Because the Supreme Court is a functioning arm of the state, it will do nothing to stunt Leviathan’s growth. The fact that the Court declared no federal law unconstitutional from 1937 to 1995—from the tail end of the New Deal through Lyndon Johnson’s Great Society—should have been proof enough. He naively believed in the impartialness of politically-appointed judges. For the first time he saw that those nine individuals are nothing more than politicians with an allegiance to state supremacy.
It was a tough but valuable lesson to learn.
With so much hollow and pointless discussion over the past week, month and year over such fundamentally trivial things as who will inject more money faster, who will be bailed out first, who will go back to their own currency before everyone else, it is easy to forget that reality actually matters. And the reality is not who has their CTRL-P macro stuck, but what does the future of the world truly hold when one sidesteps such idiotic flights of fancy that debt may be cured with more debt. In order to completely change the topic from what has become trivial and generic - i.e., the various encroaching forms of central planning: Fed, SCOTUS, G-8 through G-20; European Finance Ministers, and now, with the ESM passing German parliament, the German Constitutional Court, we focus on something few have discussed, yet all have a morbid fascination with: Robots... And China. And why the combination of the two just may be the most dangerous thing for China's several hundred million strong migrant labor force, which, on the margin may just be the deciding factor defining the engine of global growth for the next decade. Oh, and did we mention global structural unemployment which will only get worse as increasing automation leaves more and more millions collecting their 99 weeks of extended unemployment benefits.