channel this morning. I believe it to be my duty to throw some facts
amid this boiling cauldron of fiction, fantasy, propaganda, marketing
and straight up lies. First up (yeah, you guessed it), those gosh darn
Merkel Say Action Urgent on Sovereign Swaps Market, Short-Selling [Oh
June 9 (Bloomberg) — France and
Germany called on the European Union to speed up curbs on financial
speculation, saying some bets against stocks and government bonds should
be banned as markets suffer a resurgence of “strong volatility.”
In a joint two-page letter, French
Sarkozy and German Chancellor Angela
Merkel sought proposals from European Commission President Jose
Manuel Barroso on a ban on so-called naked short sales of
“certain” stock and bonds, as well as on naked credit-default swaps on
sovereign bonds. They call for proposals to be ready by the middle of
next month rather than October as had been planned.
The letter shapes a common position
between the leaders of Europe’s two largest economies after Merkel last
month caught other EU leaders off guard when she unilaterally banned
naked sovereign credit-default-swaps within Germany. She argued the
actions of “speculators” exacerbated the European debt crisis that has
rattled markets and driven the euro to a four-year low.
“The return of strong
volatility in the markets makes it necessary to question certain
financial methods and certain products such as naked short-selling and
credit default swaps,” the leaders said in the letter, e-mailed by their
respective offices in Paris and Berlin today.
While Sarkozy made greater market
regulation one of his main rallying cries since the start of the
financial crisis, he has so far refused to follow Merkel’s lead and
instead pushed for EU-wide measures.
about financial condition and using swaps (you know, that same category
of instruments you would like to ban investors from using) to manipulate
your the perception of you liquidity and solvency! That will go a long
way in quelling volatility and quashing those sharp downward leaps your
securities may suffer from as we “speculators” pile in short positions,
puts and swaps. Reference “Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!” as we query…
Let’s place bans on Portugal
before we ban investors and “so-called speculators”…
Portugal has also been known for years to take advantage of derivatives
contracts to dress up its budget numbers in the late 1990s.
In a recent press article (Debt Deals Haunt Europe) Deutsche Bank’s spokesman
Roland Weichert commented that the bank has executed currency swaps on
behalf of Portugal between 1998 and 2003….
Let’s place bans on France before we ban
investors and “so-called speculators”…
In 1997, the French government received an upfront payment of
£4.7 billion ($7.1 billion) for assuming the pension liabilities for
France Telecom workers in return. This quick cash injection helped bring
down France’s deficit, helping the country to meet the pre-condition
to join the Euro zone. You may reference the Laurent_Paul_and Christophe_Schalck_study for a
background on the deal. I don’t necessarily concur with their
conclusions, but it does provide some info
bans on Greece before we ban investors and “so-called speculators”…
According to people familiar with the
matter interviewed by China Securities Journal, Goldman Sachs Group Inc.
did as many as 12 swaps for Greece from 1998 to 2001, while Credit
Suisse was also involved with Athens, crafting a currency swap for
Greece in the same time frame.
Under its “off-market” swap in 2001,
Goldman agreed to convert yen and dollars into euros at an artificially
favorable rate in the future. This helped Greece to use that “low
favorable rate” when it recorded its debt in the European
accounts-pushing down the country’s reported debt load.
Moreover, in exchange for the
good deal on rates, Greece had to pay Goldman (the
amount wasn’t revealed). And since the payment would count
against Greece’s deficit, Goldman and Greece came up with another
twist: Goldman effectively loaned Greece the money for the payment, and
Greece repaid that loan over time. And the two
sides structured the loan as another kind of swap. So, the deal didn’t
add to Greece’s debt under EU rules. Consequently,
Greece’s total debt as a percentage of GDP fell from 105.3% to 103.7%,
and its 2001 deficit was reduced by a tenth of a percentage point in
GDP terms, according to people close to Goldman.
Another action that smacks of Hellenic
manipulation, at least to the staff of BoomBustBlog: for years it
apparently and simply omitted large portions of its military-equipment
spending from its deficit calculations. Though, European regulators
eventually prevailed on Greece to count everything and as a result, in
2004, there was a massive revision of Greek deficit figures from 2000
(a budget deficit of 2.0% of GDP in 2000 to beyond the 3% deficit limit
in 2004), by then Greece had already gained entrance to the euro. As
in my trying to prepare for the coming sovereign debt crisis, timing is
everything, isn’t it???
bans on Italy before we ban investors and “so-called speculators”…
As discussed in a recent ZeroHedge
article, a 1996 Italian currency swap, arranged by J.P. Morgan,
allowed Italy to receive large payments upfront that helped keep its
deficit in line, with the downside of greater payments later.
In addition, to curbing their current
deficits, countries are now using these swap agreements to push off
their loan liabilities (related to swap agreements) to a later date
through securitization, and Greece is one such example.
Under the 2001 deal brokered by Goldman,
Greece swapped dollar- and yen-denominated debt for Euros at
below-market exchange rates. The result was that the country got paid
€1 billion ($1.35 billion) upfront on the swap in exchange for an
obligation to buy the swaps back later. In 2005, this obligation was in
turn securitized as part of a 20-year debt issue, further pushing off
the day of reckoning.
Moreover, one of the key reasons why such
manipulations continued is the apparent ignorance of the EU’s
Eurostat, which knew enough about these deals to tighten the rules
governing their accounting-albeit only after they had served their
purpose – the Ponzi! When Italy’s then-Prime Minister Romano Prodi
miraculously achieved a four-percentage-point improvement in Italy’s
budget deficit in time to usher the country into the common currency,
Italy’s use of accounting gimmicks was widely discussed, and then
promptly ignored. As at that time, everyone was only too eager to look
the other way in the drive to get the single currency up and running.
It wasn’t until 2008-a decade after the
deals became popular-that Eurostat was able to revise its rules to push
countries to include swaps in their debt and deficit calculations.
Still, till date too little is known about countries’ continued
exposure to the deals that are already out there.
Overall, though there is less evidence to
support that there are more such swap deals that happened during the
late 90’s till early part of this decade, the data below showing a
sharp decline in interest payments as a percentage of GDP particularly
for Belgium (apart from Greece and Italy), hints that there are
considerably more of these deals to be discovred. The questions is,
will they be discovered before or after the respective sovereign issues
record debt to the suckers
sovereign fxed income investors.
Notice the extremely
supercalifragilisticexpealidocious reductions Belgium, Greece and Italy
have made in their interest payments from 1993 to 2000 in this graphic
made pre-2000. If one didn’t know better, one would have thought
theses countries actually used magic to make such reductions. Hell,
Italy practicaly cut their debt service (projected, of course) in half.
It really makes one wonder. I’m just saying…
According to DERIVATIVES AND
PUBLIC DEBT MANAGEMENT by Gustavo Piga, “The
political stakes of the 1997 budget package were enormous. Therefore,
it was no surprise that many countries were accused of ‘creative
window-dressing’ in their budget through the use of accounting tricks
to reach the desired goal. One contentious item was interest
expenditure, which is the interest expense that governments sustain to
finance their deficit and roll over their debt. Interest expenditure
represents a high percentage of public spending and GDP in the European
Union. It is highly variable over time, especially when compared to
other components of the budget. Because of its relevance and because it
is subject only to minimal scrutiny during budget law discussions (and
many times even after its realization during the fiscal year),
interest expenditure is an ideal target for reaching fiscal
stabilization goals without incurring excessive political protest or
Says Global Risks Are Rising, Policy Makers Have Limited Room to Act [Duhh!!]
Challenging Rules in Vienna Find an Ally in Sovereign Debt Crisis
[Hey, we'll admit we're not lending if you tighten our reigns as
opposed to pretending we're lending when we're really not. Come on
people, you don't need new regulation, you need proper enforcement of
existing regulation. Make the rampant fraud a criminal offense that
forces one to do time, and enforce it, and problems will cease in 30
Default Seen by Almost 75% in Poll Doubtful About Trichet Is
my blog finally starting to get some circulation. Have you finally read
Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on
Fire! and Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!?
Says Unemployment Unlikely to Fall Quickly : Because we have not
organically pulled out of recession yet. The government literally “PAID”
for the GDP points printed, and they overpaid as well. Spendign $1 to
get 75 cents of GDP print is not progress, nor the stuff jobs are made
Passing Growth Peak Insufficient to Tame Prices Is this what they
are calling inflation nowadays?
- BofA Sells $212 Million Loan at Discount to
Developers: WSJ Link Mumbai Plans to Hire Rat Killers as Rodents Surge: This
is one way to lift employment! Should I introduce my Indian friends to