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European Union Issues Q&A On "War With Speculators"
From Reuters:
WHO ARE THE SPECULATORS EUROPE WANTS TO STOP?
Political leaders single out hedge funds as the culprits for snapping up default insurance on Greek debt, exacerbating borrowing problems and forcing European neighbours to agree a $1 trillion rescue package for weaker states.
They believe such buying exaggerated a price spiral of this insurance -- credit default swaps -- which was already rising in cost amid fears Greece could go bankrupt.
This in turn aggravating Athens' attempts to borrow money on the open market, forcing them to turn to their
European neighbours for help and triggering fears problems could spread elsewhere.
In particular, politicians denounced the buying of CDS by speculators who do not own the bond it insures.
HOW WILL NEW EUROPEAN RULES CHANGE HEDGE FUNDS?
The new law, which first needs the blessing of parliament and European countries, will open a new chapter for hedge funds by forcing them to reveal closely-guarded information about their investments and borrowings to supervisors.
It also gives the authorities -- under the eye of a new pan-European super watchdog -- the power to intervene by imposing borrowing limits on a hedge fund that it fears is taking risky gambles.
The new regime also imposes loose rules on how managers should be paid, demanding that pay is staggered over a number of years to prevent risk-taking for a big bonus.
The most controversial part of the draft law is that it would not give foreign funds a licence to do business across all 27 countries in the European Union.
Private equity groups too, many of whom borrowed heavily in the run up the crash to pay for multi-billion-euro company takeovers, will also be subject to stricter monitoring.
HOW WILL THE EU CURB THOSE WHO BET AGAINST STRUGGLING STATES LIKE GREECE?
Michel Barnier, the European commissioner in charge of an overhaul of financial services, will outline in June proposals to regulate trading of the derivatives that are often blamed for market price swings.
It would be the first rules for trading in instruments whose value is linked to an asset such as currency, a market which ballooned to roughly $600 trillion.
Barnier may propose capping the size of individual trades, giving watchdogs the power to police big deals in derivatives such as Greek debt default insurance.
Under a model which would resemble the approach in Washington, traders could be stopped from building up a large position that could let them swing prices in anything from oil to currency in their favour.
The new regime is also likely to demand the recording of derivative trades and gradually push the market onto exchanges or central warehouses and under the close watch of supervisors.
Greek Prime Minister George Papandreou has raised the prospect of banning this type of trading but Barnier is unlikely to do this.
WILL NEW EUROPEAN WATCHDOGS HAVE ENOUGH CLOUT?
Many experts believe the success of the EU's financial reform hinges on the strength of the new watchdogs being set up to police banks, insurers and markets.
As with hedge funds, Britain has fought hard to water down the watchdog's influence, and won a veto that could be used to overrule them. But parliament is fighting back, demanding the watchdogs get more clout.
They propose giving more direct powers to the supervisors which means they could overrule national watchdogs like Britain's Financial Services Authority in telling international banks in London such as HSBC what to do.
WHAT OTHER RULES COULD PUT A BRAKE ON RUNAWAY MARKETS?
Alongside a host of rules that span placing limits on banker pay to demand that lenders set aside more capital to cover the risk of recession, the European Commission is also examining curbs on credit rating agencies.
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Funny as hell. My first chuckle of the day, in a day sure to be full of much mirth and jocularity.
"Europe today officially fell off the stupid tree and hit every branch on the way down."
There's been a lot of that lately. Must be a virus or stomach bug going around.
Please make sure you thoroughly wash your hands with soap and water after meeting with Stupid. Thank you.
I have heard of being hit with a stupid-stick, but hit with every branch of a stupid-tree sums it up about right
This comes from having stupid people in high places. It's a feature of the system.
See? The universe really does make sense. I feel so much better now.
Best one-liner this week.
This behavior is a symptom. The bloated bureaucracies of centrally planned Europe are trying to block the signal that says loudly and clearly that they are doomed. FAIL. This will just suck a stonger vacuum under the overvalued securities they are trying to protect.
Gravity its a bitch!
Pass the blame, what a great example they are setting.
I fully agree with requiring a fund to hold an asset before it can buy insurance against it. Sorry.
judging by the junk you got either someone from SAC, JP&A or DTCC has strong feelings against that ... well ... fuck them in the ear ... i support your view ...
What if I buy insurance on my asset, and later decide my asset is pretty safe, and yet there is someone who'll buy the insurance policy on my asset for more than it is currently worth to me? You gotta problem with that too, I suppose...
ok, go read naked CDS ban again since obviously you dont know a difference between a CDS [standard hedge bought by the buyer of the bond] and naked CDS [a bet that the bond will see a credit event; no ownership necessary]
its a CDS bought and priced on the security you do not own. so it would be like you buying insurance on your house and your neighbor buying insurance on your house. then he puts all his effort in torching your house down and collecting the pay out while you battle with insurance company in the court.
Can I buy a CDS on the probability that that guy will torch his neighbors house?
yeah, buy a CDS on CDO squared
buy CDS on CDO squared tranche which holds both CDS ....
The hypothetical insurance policy on my hypothetical asset becomes naked when I sell said insurance policy to some third party who doesn't own the asset. Nevermind though, I see you are in the command and control business, philosophically.
As to the metaphor wherein a naked CDS would be like taking out insurance on a neighbor's house, giving an incentive to burn down said house. Well, every metaphor has its limits: The famously shitty debt produced by relaxed and even pychotic lending standards existed BEFORE anyone took out naked insurance against its default.
So, to fix your metphor, suppose that the neighbor's house is built out of hay and balsawood, with aluminum wiring and gas space heaters. Oh yeah, and the residents smoke and fall asleep drunk a lot. There's your greek sovereign debt, cheeky dude.
I dare you not take a sure-win bet by yet another neighbor that said tinderbox house won't burn down before the end of, say, the mortgage term. The counterparty to your debt would be very stupid to offer the bet, but you'd be stupid not take it if he is offering it, if you know the house absolutely will burn. Likewise, the counterparty and you and anyone knowing of the bet would thereafter be interested in the waning and waxing of risk of the house burning down over time. The neighbor might even hear about it, and possibly the fire marshall or social services might chime in. There'd eventually be gossip about the whole affair, and then lots of gnashing of teeth when and if the fire occurs. Still, the existence of the risky house and its risky residents predates the existence of the bet on it. And the bet itself focuses various interested elements of the community on the risk. The inevitable fire is not caused by the bet, nor by discussion of the risk, but rather by physics added to negligence.
Every crisis brings more government control; more government control brings ever more crisis.
The world must have been free from crisis at the start, musnt it?
the europeans are much smarter than americans, surely this will work <sarc off>
The majority of Europeans in fact had fuck all to do with it. In the same way as the majority of Americans have fuck all say over what happens in America, or in fact the populations of any other countries have any say over what happens.
+273
hahaha, does that make it zero instead of absolute zero?
interpret at will.
j/k.
you make a good point while all i can offer is a lame attempt at humor
:(
made me laugh, humour is a powerfull force. Cheers.
The majority of Europeans were educated by their governments. After more than a dozen years of propaganda, they get to vote.
Seriously. The smartest, longest educated Germans are likely to believe that America is ultimately doomed because its businesses cannot afford to pay pensions and health care, whereas German businesses will do fine because the government takes this burden off of them.
AS IF their governments don't first extract those costs from the private sector, and skim off alot to pay for their own cushy jobs before paying the related pensions and health care and what not.
The average American is less likely to be infected with STUPID (although 52% had a bad case in November 2008). In Europe on the other hand, just about every vote is for some degree or type of doomed "social" democracy.
Deathbed demographics, the ultimate doom of these societies, also sprang directly from this odd faith in central planning and big government.
The reaper is inbound, and no amount of trying to hide it or deny will stop its arrival.
repost from an earlier thread i posted this on:
You should tone down your empty rhetoric since currently 50 million Americans rely on food stamps [surviving only because of the gov] FED is buying all MBS [meaning all mortgages], housing is still subsidized [you aint gonna see that in Europe] etc etc. It is the adopted Anglo-Saxon model which is at fault here. Everyone in Europe wanted to follow Thatcher and her privatization bullshit [meaning only the big guns can enter that game, ramp up the prices and still make most of the profit from gov. subsidies]. And it was going great for a short period of time; until it didnt. Europe worked pretty well during times of domination of public-private partnerships [think France during Mitterrand where he made banks utilities; of course later reversed by Chirac]. Blame wild west capitalism which took over Europe in the early nineties for its downfall [and the federalist politics of unification which is slowly transforming into centralized exercise of power legitimized by an awful and anachronistic law system], and not, like you say, "fat socialist pigs". Socialism had nothing to do with this; Free Market Liberal Democracy did. All EU parties which call themselves socialist are calling themselves like that just to attract voters; economic policies are identical with the those of the parties on the right.
-----------------------------------------------------------
Taxation of Europeans has gone up due to these facts
- a) higher borrowing and debt servicing costs [fuck you American Rating Agencies and your USC pricing model]
- b) liabilities which were held on countries balance sheets even-though privatization was conducted [pensions etc etc]
- c) lowering of wages ["free market"] due to oversupply of labor and relocation of production areas due to free-market multi-lateral agreements and transformation of economic structure from industry to service based one
- replacing consumption which has fallen [adjusted for inflation] [see 3 to know why] with government spending to maintain growth
- servicing healthcare [which is a good and necessary thing; i would not want to live in some medieval system where i either earn enough money or die because i can not afford 4000$ for 6 pills ]
You see where im going with this; it is a death spiral. The only thing I wish to hear from the apologists of "free market/market knows best/there is an invisible hand in the market which i made up based on my theistic belief in the existence of order [better known as Adam Smith]]: "Adam Smith was wrong". I have explained from both a technical side and practical one why free market is a dogma, not much different from theological dogmas or metaphysics; but i got nowhere simply because i did not oversimplify my reasoning and proof, and people dismissed it because they function on static, non-changeable system of beliefs for which they would both die for and kill for. So i stopped talking about it. I will not, and it is not my intention to, impose anything on anyone. Truth is [and believe me when I say this]; i really dont care what happens to humanity or this system; since both are neither self critical enough, introspective enough or rigorous enough to question underlying principles [dogmas] upon which they function.Greenspan changed his mind. So did I.
"Only stupid people don't change their minds." Former President Bill Clinton.
Greenspan changed his mind. So did I.
"Only stupid people don't change their minds." Former President Bill Clinton.
I speculate that Europes' War on Speculators will end in a spectacular failure.
I dont think its stupid.
Again, oversimplifying by the MSM as usual.
Certified FINRA market makers and broker-dealers can lend a stock without delivering stock for a period no longer then 7 days, and in this uncertain market [across the spectrum] a shitload of really really bad things can happen in a 7 day period. Dude, you, of all people should know that 4 x float and more were known to be issued by market makers and broker-dealers wreaking carnage on the market; most [or least] known example is Bear when 6.xx x float was on the market. IMHO, the ban is right in every possible way imaginable. Fuck HFs in the ear.
I agrees with yooo.
cheeky
often I disagree with you. this is a good thing. shows europe is willing to take on the bankers for reform. of course initial will be to sell. It's where I'll be putting my money when dust settles. I'm tired of the crooked casino of the united states. MY god europe wants to level the playing field and not allow the big guys to have the fire power to blackmail governments into bailouts. they are doing stuff our congress and senate doesn't have the balls.
Hey DCB, in the US "business", if it were one entity, is indeed a lot bigger than governement here, but in Europe, it is the other way around. Government outweighs "business" even with business taken all together. Ergo, "business" pushing governement around is the tail wagging the dog over there. European governments are hugely invasive and pervasive. Their problems are mainly generated by the governments. In this particular crisis of sovereign debt crisis the cause of the problems is right there in the name. The private sector isn't doing this to the governements, it is just coping with it, reacting rationally to it.
Can't you essentially write a naked CDS contract just about in every other corner of the world?
What would stop Goldman (others) the incentive to facilitate the same transaction from an alternate jurisdiction of their own choosing?
Those who really want to speculate and bet stupid... will find someone more than willing to help them find the right place to do so.
That being said, the Germans are sending the right message. What's German for "not in my back yard"?
nicht in meinem Hinterhof
[comment removed by poster.]
War on speculators? War is a form of speculation. They are gambling that they can take out the gamblers and not ruin the game.
Lighting someone's house on fire for insurance money or selling things that don't exist is not gambling or investing, it's a criminal act. Unless we are talking about finance that is...
"War on speculators? War is a form of speculation. They are gambling that they can take out the gamblers and not ruin the game."
There, someone finally said it.
This is what drives people to play the market when it appears, to ordinary people at least, eventual suicide is all but guaranteed. The false sense that they know what they're doing and/or they're smarter than the next guy inevitably leads a large group of people right up to the edge.
Then when the bodies start falling into the abyss, everyone left alive runs around with their hands in the air claiming "It's not me, I didn't do it, I wasn't anywhere near the edge when they were pushed off'"
A game of Mutual Assured Destruction that both sides think they can win.
It starts with lending at interest, and ends with fiat money. It's all MAD. I'm not even sure about coinage; bits of metal of uncertain parentage with a guy's head stamped on it meaning what, exactly?
And this gold-is-a-store-of-value thing. I don't know about that. I value a sunny day not too windy down at the river fishing for dinner. Can use gold a a sinker I guess. Too soft for hooks though.
Yeah, I agree. I'm working to take a permanent vacation on the shore in the next couple years. I don't really need paper or shiny metal all that much. Thanks for the perspective.
cougar
I'm writing an essay for ZH publication on our collective insanity. Unfortunately it's growing in size quicker than the insanity I'm discussing. No one ever asks the primary questions, for to do so requires that we actually look at our own madness.
I finally decided to break the essay into smaller pieces for easier consumption and hope to be done with it soon. I will look forward to your comments because you often touch on this concept. This is actually the first time I've assembled my thoughts on this subject and applied them to the computer screen. It's even scarier when you look at it in it's entirety.
There is a way out, several in fact. But as long as the natives don't look within, the only choice they see is total and utter destruction. There are other ways out of this mess than thermonuclear war, economic or otherwise.
Very brave of you. You realize I think that you are creating the catalog of demons that devoured us all. They say that if you speak of evil, you only summon it down on you. I don't buy that at all. You have to speak the name of the demon before you can banish it.
Write from the truth. True words are true power.
When it is ready if you want me to comment you can ping me at efemadde_363@yopmail.com with the URL.
I know you guys write constantly about the inevitability of collapse and the fundemental flaw of monetary systems being rooted in compound interest and fiat money and I agree with you. However, when you take this large scale macro economic view it makes me laugh, because your responses are always the same no matter what the post is about. CDS Ban=economic collapse, tax increase= economic collapse, tax cut= economic collapse, gold=economic collapse, fiat money= economic collapse.
I just wanted to remind you that the sun is continually expanding as it uses up it's supply of hydrogen gas, and the internal pressure caused by fission outpaces the force of gravity. Eventually it will expand to the point where the surface of the earth will be liquified and the whole petri dish of a planet we live on will be sterilized. So why bother worrying about economic collapse?
I look forward to your article.
This is not entirely true. Well yes it is always about collapse. Because you know collapse is unavoidable. A careful reading of our posts will reveal that we have a lot of ideas on the direction the collapse will take depending on the latest screw-up. Is this a slow-motion train wreck, or did it just become a flight to the lifeboats? Are we going down in the Hudson River in a controlled descent without power, or did it just now become a death spiral into the Hellmouth?
See lots of things to discuss yet. But yes as you say we're doomed regardless.
I've written about a half dozen articles on ZH and I've never used the terms CDS ban, tax increase, tax cut and so on. In fact, I rarely talk in my articles about economics, at least not directly. I talk about psychology, the ego, consciousness, awareness and so on. So I would appreciate if you would not lump me in with "you guys".
Go ahead, read some of them.
http://www.zerohedge.com/article/end-empire-%E2%80%93-propaganda-and-american-myth
http://www.zerohedge.com/article/end-empire-waking-zombie-nations-psychology-consciousness-and-egoic-mind
http://www.zerohedge.com/article/how-start-populist-movement-under-three-minutes
http://www.zerohedge.com/article/avalanches-and-tipping-points
http://www.zerohedge.com/article/why-we-think-it%E2%80%99s-ok-cheat-and-steal-sometimes
http://www.zerohedge.com/article/call-%E2%80%93-fictional-look-25-minute-market-crash
Ya. Isn't it great. That's why I love playing YOUR FUCKED. No matter what move you make. It always ends the same!!!!!
LOL
Once you know what the scam is entirely about it's all just stupid choices with reasons that don't match what is REALLy happening.
That is the best comment of today.
What happened to hate the game not the player. CDS naked or otherwise or hedge funds buying your debt are great for nation states when the credit markets are healthy. But when leverage works against you, "you are going to take your ball and go home"
Fine, be that way
and that sucking sound is me selling Europe right now
I am confused.
Are they trying to put a brake on runaway markets or a brake on recovery?
If they were smart they would try to put a brake on recovery to buy us some more time before hitting the brick wall and sliding down hubberts peak.
ahhh...if I may answer your question by altering a verb you are using?
"brake on" >>> to >>> "break." n'est-ce pas?
never let a good crisis go waste....
blame everyone else..get stupid ( no pun intended) legislations passed.
Could someone explain to me what exactly is wrong with this? Didn't US taxpayers bailout Goldman 100 cents on the dollar through AIG because of CDSs? Isn't this part of the Wall Street problem?
THey should get rid of CDS's althogether. Everything seemed to work ok prior to their invent. Ditto with 95% of the other bullshit Wall Street invented to destroy the world.
impossible; yields on new floats would skyrocket and make borrowing more expensive. also it would make big problems in debt service.
Very true it would be painful. But the world would be a better place for our kids.
Black Wednesday redux ... wonder how much Soros is making on this deal.
I was more concerned, or perhaps puzzled, by the comment on "curbs on credit rating agencies". Serendipitously, I just received the draft report on the new and only ratings that will be allowed in Europe by the likes of Moodys, Fitch and S&P:
1) Rock Solid
2) Good as Gold
3) Not a Cough in a Carload
4) Better than Expectations
5) Just a Little Piece of Heaven
6) This Ain't Your Grandfather's Czarist Bond
+6
LOL
7) Turn your head and cough, please. Opps, looks like you have a problem.
There ain't no f**kin' "approach" in Washington. Just look at the massive naked short positions of banks like JPM in the PM's market. But I guess it's all good when Central Banks and their minions manipulate the market "in their favor".
The real problem is the massive money printing by the Central Banks, but I guess they don't like it when somebody uses the money they printed to bet against them. Well, to that I say, F**K OFF.
Anybody know why Gold just started rocketing? About $12 in 5 minutes.
No idea. But as I write the DXY is going ape-shit upwards. Moonshot. The EUR is dropping all over, even against the GBP.
Someone sure ain't happy.
safe harbor to weather the storm ....
Somebody found 3 coins that fell in a couch cushion at a european gold shop. Don't worry once those 3 are sold the price won't BUDGE.
If this is the beginning of reining in the ridiculous CDS market and all the abuses that have taken place there, then it is a good thing.
As best I understand, this isn't just polticical scapegoating, it's also legal CYA. Keep in mind the legal context for all this, in particular Articles 122-5 of TFEU. If Greece is simply undergoing a routine sovereign debt crisis generated by the usual sovereign overborrowing, then the EU's bailout package is clearly illegal under Article 125. But if the Greek state is actually fundamentally financially sound, honest, and the crisis is really the result of some kind of CDS malfeasance or a fit of collective insanity in the bond market - well, doesn't that sound like one of those "exceptional occurrences beyond [plucky little Greece's] control" that permits solidarity lending under the Article 122 get-out?
Similarly, if the ECB keeps repoing Greek government debt at a haircut that's much smaller than one would expect given the credit rating - when in fact other debt at that rating would receive a much deeper haircut from the ECB or just be rejected outright - then people might start muttering about the spirit or even the letter of Article 123, which forbids the ECB to extend any "credit facility" to EU public institutions. They might not fully understand that in fact the rating agencies have it all wrong, and that the rating implied by the ECB's haircut is in fact the correct one. A bit on the low side, even - but then the ECB is such a conservative institution. (Not. Making. This. Up.) If only there were a truly independent, properly European rating agency which could be relied upon to see things the ECB's way. In fact there would be no need at all for those /ad hoc/ adjustments to the collateral requirements which give such a misleading impression.
These arguments may sound like ... a stretch to you and me, but remember that they don't have to impress the EU's harshest critics. They just have to appear defensible in front of the EU's judicial institutions and among the EU's firm fans (some overlap there). And that's before you even consider the argument that there may be something to the EU's complaints about CDS.
well. This unwind is going to be interesting...