Archive - Nov 5, 2011
Laissez-faire: The Best Fed Policy Is To Stand Pat
Submitted by EconMatters on 11/05/2011 23:06 -0500Laissez-faire or 'leave it along' is what needs to happen for the greater good of the consumer economy vs. the Wall Street "trader economy".
G-20 Demands German Gold To Keep Eurozone Intact; German Central Bank Tells G-20 Where To Stick It
Submitted by Tyler Durden on 11/05/2011 22:49 -0500Going back to the annals of brokeback Europe, we learn that gold after all is money, after the G-20 demanded that EFSF (of €1 trillion "stability fund" yet can't raise €3 billion fame) be backstopped by none other than German gold. Per Reuters, "The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion)." And who would be the recipient of said transfer? Why none other than the most insolvent of global hedge funds, the European Central Bank...There are three observations to be made here: i) when it comes to rescuing insolvent countries, Germany is delighted to sacrifice euros at the altar of the 50-some year old PIIGS retirement age; ask for its gold however, and things get ugly; ii) the Eurozone, the ECB and the EFSF are dead broke, insolvent and/or have zero credibility in the capital markets, and they know it and iii) due to the joint and several nature of the ECB's capital calls, while Germany may have had enough leverage to tell G-20 to shove it, the next countries in line, especially those which are already insolvent and will rely on the EFSF for their existence once the ECB's SMP program is finished, may not be that lucky, and in exchange for remaining in the eurozone, the forfeit could well be their gold.
ICE Follows In CME Footsteps, Lowers All Initial Margins
Submitted by Tyler Durden on 11/05/2011 18:51 -0500And so another exchange decides to follow in the CME's (clarified) footsteps, and lowers Initial Margins for all in order to facilitate the onboarding of just clients with orphan MF exposure. Probably more important is that the ICE demonstrates how this can be done in a way that does not generate speculation and confusion, and avoids follow up clarifications, due to the counterintuitive nature of increasing initial leverage in the aftermath of an exchange filing bankruptcy due to excess leverage. And as usual, the real question is what would happen in the counterfactual? Would the market really tumble and would liquidations truly be pervasive on Monday is the contract transfer price is not lowered? Is liquidity in the market (and hence leverage) really that low (high)?
REAL Capitalists Move Our Money from Big Banks to Credit Unions
Submitted by George Washington on 11/05/2011 16:17 -0500Believe in free market capitalism? Then move your money ...
ECB Issues Ultimatum To Italy, Threatens To Halt Bond Purchases
Submitted by Tyler Durden on 11/05/2011 15:03 -0500Three months ago, in exchange for the ECB's expansion of its sterilized monetizations of bonds to include Italian BTPs, allegedly the only backstop that has prevented Italian bonds from experiencing an all out collapse to date, Italy was presented with a list of strict "austerity" demands, among which were spending cuts, higher revenues and labor reform. Since then none of these has occurred... or will occur, simply because Berlusconi has no control over the government, yet neither does anyone else, although everyone in the local government enjoys having a scapegoat for the total chaos. It appears that the ECB has just made it clear that the status quo is about to end, unless Italy does in fact push with something. And unlike other cases, where politicians on both sides of the table are happy to spout rhetoric while knowing well that nothing will change, in this case, courtesy of Italy largely untenable debt profile in which €166 billion in debt and interest are due in 2012, the ECB will have no choice but to play hard ball. Reuters has just confirmed that, reporting that The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said. "If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday. In other words on Monday the market will have to not only digest the implications of what the implications of the Greek vote of confidence are (last we checked G-Pap is still PM, and likely will be for quite a while), but also what happens now that the ECB has issued an ultimatum to Berlusconi to get his house in order. The problem is that he can't. Not without stepping down, that is. At that point the Italian pseudo stability that everyone has been taking for granted knowing full well it is nothing but an illusion, will fall and expose all the rot underneath. At that point we will truly see just how "hedged" all those Primary Dealers are, who have perfectly offsetting short positions to all their longs.
Europe. Is. Finished.
Submitted by Phoenix Capital Research on 11/05/2011 14:54 -0500Europe is finished. The region’s entire banking system is insolvent (with few exceptions). European non-financial corporations are running massive debt to equity ratios. And even EU sovereign states require intervention from the ECB just to meet current debt issuance, to say nothing of the huge amount of sovereign debt roll over that is due over the next 14 months.
Extreme Poverty Is Now At Record Levels
Submitted by ilene on 11/05/2011 14:23 -0500Yes, times are going to get harder and an economic collapse is coming.
Trouble Ahead: Employment, Inflation, And The Fed
Submitted by Econophile on 11/05/2011 14:11 -0500We are at a critical point as the worlds' economies continue to decline. Continued high unemployment and a stagnant economy will put pressure on the Administration and the Fed to do something. The implications are not good.
CME Issues Clarification On Margins: To Usher More Risk, Less Liquidity In MF Aftermath
Submitted by Tyler Durden on 11/05/2011 13:37 -0500Yesterday, in what is the worst-phrased and most misleading press release to ever come out of the CME, the exchange issued a notice that going forward all Initial margin would be equal to Maintenance margin. Our gut interpretation was that "Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product." Judging by the broad response, our initial reaction is what a prudent, logical human being would assume: after all, it is precisely the undercollateralization of customer accounts, and general underfunding at MF Global that is what brought that particular company down. Well, we wrong wrong. The CME, it appears has taken a page right out of the European playbook, and less than a week after an exchange-cum-Primary Dealer collapsed due to excessive risk taking, the CME has followed up its vague press release from yesterday by inviting even more risk in lowering the initial margin. Why is this a cause for even greater concern? As the CME itself says, "Initial margins are set to provide an additional buffer against future losses in the account" - so going forward that buffer has been reduced by about 30%. But what is the reasoning provided by CME: "The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them." So basically the CME is implicitly putting all of its existing and current clients and customers at further risk by onboarding the accounts of those clients who, like lemmings, held on to their MF Global accounts until after it was too late. Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky.
Guest Post: The Collapse Of Our Corrupt, Predatory, Pathological Financial System Is Necessary And Positive
Submitted by Tyler Durden on 11/05/2011 12:01 -0500I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system. Our first stop is modern finance itself. Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free. That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.
You Can’t Spell Tooth Faeries Without EFSF
Submitted by Tyler Durden on 11/05/2011 11:02 -0500
The EFSF reminds me of the tooth fairy – there are those who believe because they are told it will work, and those who try to figure out how it will work, and come out on the non-believer side. This week, we are supposed to start seeing some real details, although they are already down-playing that. The prong that lends money to Greece, Ireland, and Portugal, so that they can pay back the people who lent them money in the first place, should be pretty straightforward. Borrow money in the markets, lend it to those countries, those countries pay the banks that own their debt, so that those banks can buy more EFSF bonds, the next time EFSF has to lend money to the PIGs to pay back the banks to free capacity to buy EFSF bonds – straightforward doesn’t mean it isn’t bizarre....So the EFSF is offering €250 billion of binary CDS in some form to entice the market to buy €1 trillion of Spitaly paper. I think Greece, Ireland, and Portugal are too far gone (the bonds trade at such a low % of face) that first loss protection does little to help them get new deals done. The first prong will have to suffice for them. While the bulls are all eagerly anticipating this tide of liquidity they are ignoring the fact that the EFSF pulled a deal this week! They were supposed to do €5 billion of 15 year bonds, which became €5 billion of 10 year bonds, which became €3 billion of 10 year bonds, which because a statement saying the deal was pulled because of market conditions. For clarity, these are straightforward, non-leveraged, EFSF bonds, where 3 similar issues already exist, and the deal was pulled! I am sure it was a matter of price, but still, how well does that bode for their bigger and far more convoluted scheme?
Meanwhile In Greek "Coalition Government" News... Or Goodbye G-Pap, Hello L-Pap?
Submitted by Tyler Durden on 11/05/2011 10:05 -0500It appears we may have hit a modest coalligned snag:
- GREEK MAIN OPPOSITION LEADER SAMARAS REPEATS CALL FOR ELECTIONS
- SAMARAS SAYS PAPANDREOU REFERENDUM GAMBIT MADE MATTERS WORSE
- SAMARAS SAYS PAPANDREOU REFERENDUM GAMBIT BLOCKED 6TH TRANCHE
- SAMARAS SAYS ASKED FOR TRANSITIONAL GOVERNMENT
- SAMARAS SAYS ASKED FOR PAPANDREOU TO STEP DOWN
- GREEK PRESIDENT TO SEE GREEK MAIN OPPOSITION LEADER TOMORROW
So according to Europe a cabinet between the socialists and the right wing populist LAOS (to be politically correct) is still considered satisfactory? And even if G-Pap does step down, which we still believe is highly improbable, who will be he replacement? Say hello to L-Pap, the lateset Fed puppet in Europe
Jobs, Greeks, Silver and Groupon
Submitted by Pivotfarm on 11/05/2011 10:04 -0500The U.S. jobless rate unexpectedly fell in October while employers added the fewest workers in four months, reinforcing Federal Reserve Chairman Ben S. Bernanke’s prediction of a “frustratingly slow” recovery.
Are RBS And NatWest The First Victims Of "Bank Transfer Day"
Submitted by Tyler Durden on 11/05/2011 09:45 -0500
Earlier today we received the following email from a reader: "RBS systems are down today - ALL of them. I asked whether they knew that HSBC was down yesterday - replied yes - I suggested that they might do well to make an announcement to stop people from getting the right idea 8). The reason for the outage was given as "an update which did not go as expected" Some update - took out ALL their systems I was told. Pongs worse than the old Billingsgate fish market." We now have confirmation this is the case. From BBC: "RBS and NatWest customers have been unable to check accounts online because of problems caused by maintenance work, the Royal Bank of Scotland has said. Problems arose after the maintenance work went wrong and meant account balances were not updated overnight. Some accounts have not been credited when they should have been and there have been problems for some customers making withdrawals from cash machines. In a statement, the bank apologised for "any inconvenience caused". The Royal Bank of Scotland hopes to resolve the issue within hours." We find it odd how not only one but two banks are down on a Saturday, the same day that is incidentally Bank Transfer Day. So: who will be doing "maintenance work" next?










