Moments ago, members of the Greek government, which likely won't last long once the thorny issue of "math" returns and not even selling Bills to local banks (which promptly repo said Bills back to the Greek central bank) so the country can fund its payment to the ECB via an ECB guaranteed ELA payment from a Greek central Bank (confused yet) satisfies the New Normal ponzi math, made a strong statement: the country will not let any more public workers go:
- VENIZELOS SAYS STICKS TO PLEDGE NO LAYOFFS IN PUBLIC SECTOR
- KOUVELIS SAYS CAN'T ADD MORE UNEMPLOYED TO RANKS
The reason for this pledge is obvious: the last thing the country's new rulers need is more anger in the ranks as people demand a new government, which in turn will bring back Drachma redenomination risk. So what is the Greek solution instead? Simple: enter the labor pool, or the Greek version of the Permanent Paid Vacation, or akin to America's 99 weeks of unemployment benefits.
Eventually — because the costs of the deleveraging trap makes organicy growth very difficult — the debt will either be forgiven, inflated or defaulted away. Endless rounds of tepid QE (which is debt additive, and so adds to the debt problem) just postpone that difficult decision. The deleveraging trap preserves the value of past debts at the cost of future growth. Under the harsh discipline of a gold standard, such prevarication is not possible. Without the ability to inflate, overleveraged banks, individuals and governments would default on their debt. Income would rapidly fall, and economies would likely deflate and become severely depressed. Yet liquidation is not all bad. The example of 1907 — prior to the era of central banking — illustrates this. Although liquidation episodes are painful, the clear benefit is that a big crash and depression clears out old debt. Under the present regimes, the weight of old debt remains a burden to the economy.
- Monti Warns of Euro Breakup as Tussle Over Spain Aid Hardens (Businessweek)
- Italy doesn't need German cash, Monti tells Germans (Reuters) - at least we know who needs whose cash...
- Spain has time to Wait for Clarity on EU Aid -Econ Min (Reuters) - which came first: the Spanish bailout request or the denial to need a Bailout request? Ask the Spanish 2 year...
- Bundesbank Weidmann’s opposition to a proposed new wave of ECB bond purchases has support of Merkel’s CDU - Volker Kauder
- China media tell U.S. to "shut up" over South China Sea tensions (Reuters)
- Top Chinese Leaders Gather in Annual Summer Conclave (WSJ)
- Greece Agrees With Troika on Need to Strengthen Policy (Bloomberg)
- Coeure Says ECB Should Look at Getting Loans Into Real Economy (Bloomberg)
- Italy Central Banker Sees Potential Rate Cut as Euro Economy Slows (WSJ)
- A Dose of Dr. Draghi's 'Whatever It Takes' (WSJ)
- Greek bank head sent savings abroad (FT)
Rather than give the people a voice, democracy allows for the choking of life by men and women of state authority. When Occupy protestors were chanting “this is what democracy looks like” last fall, they wrongly saw the power of government as the best means to alleviate poverty. What modern day democracy really looks like is endless bailouts, special privileges, and imperial warfare all paid for on the back of the common man. None of this is to suggest that a transition to real democracy is the answer. The popular adage of democracy being “two wolves and lamb voting on what’s for lunch” is undeniably accurate. A system where one group of people can vote its hands into another’s pockets is not economically sustainable. Democracy’s pitting of individuals against each other leads to moral degeneration and impairs capital accumulation. It is no panacea for the rottenness that follows from centers of power. True human liberty with respect to property rights is the only foundation from which civilization can grow and thrive.
Since closing last night, the stock of Knight Capital has moved by nearly 100%, touching on under $2 in the after hours session, and now trading well over $3. The catalyst: a report by the WSJ that the firm has obtained a line of credit. Is this surprising? Not at all, and in fact is standard operating procedure by any firm which is buying hours of life in exchange for usurious lending costs. The lender is most likely a firm which will be a key participant in the forthcoming 363 asset sale, who has obtained a supersecured lien on all the firm's assets, and is also priming all of the other creditors of Knight. The question is whether the lender will be happy with what they find as a result of this 24 hour life line. If not - they simply pull the line of cash and the firm files. Think of it as an advance glance into Knight's books. And that glance will likely not reveal much. With rumors that even JPM has now ended lines with Knight, the New Jersey market maker is simply a closed box: no trades coming in or out, and only has housekeeping cash outflows on its books to keep its employees employed and systems running. We wish them luck. They will need it. None of this would have happened if, as we hoped 3 years ago, proactive steps had been taken to eliminate the threat of HFT.
- VIRTU OUT OF BIDDING FOR KNIGHT CAPITAL
- KNIGHT’S JOYCE CONSIDERING BANKRUPTCY REORGANIZATION
- KNIGHT LOOKING AT ‘363’ REORGANIZATION TO SELL ASSETS
- KNIGHT LOOKING TO EMERGE AS VIABLE COMPANY
363 Asset sale? This is what we said earlier when we reported on the rumors of a sale to Virtu: "Will it happen? Maybe. Although we doubt it - why pay for equity value when one can pick up the functioning assets in a Chapter 363 asset sale which also sticks the creditors with all the crappy assets?" Sure enough. Sadly, what this means for the company 1,500 employees is that about 80% them will be out of a job due to an algo gone wild. And to then we have been warning about the impact of HFT for the past 3 years.
Earlier we said that Knight better sell itself today or it's lights out. Sure enough, here come the rumors via the WSJ:
Knight Capital is in talks with Virtu Financial, a big player in high-speed trading and "designated market maker" on the NYSE, about a potential merger or infusion of capital
And more from Dow Jones:
- WSJ: Knight in Discussions About Possible Deal With Electronic-Trading Firm Virtu — Sources
- WSJ: Talks Also Involve Silver Lake Partners, An Investor in Virtu — Sources
- WSJ: Talks in Early Stages and No Deal Guaranteed — Sources
- WSJ: Knight Also in Talks With Other Potential Funders, Partners — Sources
Will it happen? Maybe. Although we doubt it - why pay for equity value when one can pick up the functioning assets in a Chapter 363 asset sale which also sticks the creditors with all the crappy assets? Just like Barclays did with Lehman for millipennies on the dollar.
The blunt trauma that JPMorgan was implicated in the missing millions from segregated accounts in Jon Corzine's bankrupt MF Global may have passed but the memory lingers, especially for all those whose cash is still locked up somewhere in vapor space. Yet one event that may tear the scab that patiently was healing, courtesy of a Copperfield market full of distractions such as JPM's CIO fiasco, Lieborgate, oh and, Europe, right off is the recent bankruptcy of Peregrine Financial, aka PFG, whose story we first broke, and which just as we suspected, has promptly become the second coming of MF Global, as at least $200 million has "evaporated." It is thus with little surprise that we find that the first party of interest is none other than JPMorgan, which together with various other banks, will be the target of a subpoena by the PFG trustee. How shocking will it be to find that Dimon's company is once again implicated in this particular episode of monetary vaporization.
The Moody’s outlook change on Germany lets us know that this time around the debate is more than political posturing. If Germany loses its AAA status, then it’s GAME OVER for the EU: the German population, already outraged by the EU bailouts, and now facing a recession will NOT tolerate a credit rating downgrade.
As I’ve stated many times, Germany is THE REAL backstop of the EU. And it’s comprised its own solvency as a result: the country is only €328 billion away from reaching an official Debt to GDP of 90%, the level at which national solvency is called into question. Moreover, that €328 billion has already been spent via various EU props. Indeed, when we account for all the backdoor schemes Germany has engaged in to prop up the EU, Germany's REAL Debt to GDP is closer to 300%.
"September will undoubtedly be the crunch time," one senior euro zone policymaker said. "In nearly 20 years of dealing with EU issues, I've never known a state of affairs like we are in now," one euro zone diplomat said this week. "It really is a very, very difficult fix and it's far from certain that we'll be able to find the right way out of it."
How can such a small country blow through so much money?
And another country falls to the Egan Who juggernaut.
Synopsis: Italy and its regional governments need to rollover approximately EUR183B in 2012 and EUR214B next year and is likely to experience increasing yields and restricted access without external intervention. Yields on the 10 year bonds are near 6.5%; rates have been rising despite prior ECB purchases. Future intervention by the ECB and IMF will provide some liquidity but might subordinate existing creditors. Italy cannot support all of its debt if the EU economy falters. Debt/GDP will continue to rise and the country will remain pressed. We are downgrading from " B+ " to " CCC+ " , with a neg. watch
Look for the "reputable" raters such to follow suit in downgrading Italy in 2-3 months.
With GGB prices, down 53% from post-PSI, plunging to all-time lows (offering Greywolf more opportunities to add to its 'no-brainer' trade) it appears Europe's ever-hopeful self-perpetuating banks are turning tail and realizing that the truth will set them free. In a turnabout from a late May note detailing 'why Greece will not leave the Euro', Credit Suisse now expects a return to some form of local currency for Greece within one year (an event they now assign a probability greater than 50%). The reason for their change of view is the slowness of structural reforms/privatizations and the lack of available capital to bail out the increasing number of distressed euro zone countries. It seems almost impossible for Greece to pull itself out of the contractionary hole it's in without additional support that few are politically able or willing to provide. Expecting another round of PSI - extending to ECB losses - and ending the ridiculous state of affairs that exists currently whereby the euro area is providing funding to Greece to enable them to repay the ECB. Ominously, they note, against the backdrop of the situation in Spain, we believe that such a development in Greece will have a highly negative impact on sentiment, further putting into question the sustainability of the euro area as a whole.
Just as the summer finally arrives in Northern Europe, the Eurozone crisis is heating up once again. With an increasingly flat (heading to inversion) yield curve, and spreads at record wides, Spain appears to be in a downward spiral of market turmoil that might require a full-fledged TROIKA bail out. However, as UBS points out, rather than taking the country off the market, the program would have to allow Spain to keep borrowing from private investors. Any bail out of Spain would have to be designed in a way that would also be applicable to Italy. Spain has been the most recent crisis focus, and looks to intensify further with nothing immediately in sight that could reverse the trend. We, like UBS, have argued for some time that a full-fledged TROIKA program will ultimately be unavoidable and the following six reasons briefly explain why anything else is a pipe-dream - as we remember Draghi's recent shift: "creditors should be part of the solution of the crisis. It is a matter of limiting the involvement of taxpayers. They have already paid a great deal."