Fail

The recent implosion of MF Global has reignited the debate over Too Big to Fail (TBTF) and the adequacy of U.S. regulatory safeguards. It has also contributed to a broader decline in investor sentiment, many of whom believe the market structure does not afford them sufficient protection and fair competition. Many MF Global clients still have assets frozen and even if they ultimately recover the money, the short-term consequences can be devastating.  Historically, when firms fail to generate a profit or when one division damages the revenue stream of the whole firm the unprofitable assets are divested.  Companies that can’t operate under the weight of their own size end up spinning off the parts that caused the pain. This is normal in the business cycle. The government has disrupted the business cycle of creative destruction by championing TBTF firms over a more competitive market.

So the EFSF is supposedly going to raise 1 trillion Euros… in an environment in which it struggles to even stage a five billion Euro bond offering?  Give me a break.

UPDATE: BTPs trading with an 88 handle!

All it took was 30 minutes of reality-soaked headlines from Cannes and Draghi's heroic efforts to hold 10Y BTPs below 450bps have failed. BTPs have reached almost 456bps over Bunds now - only 6bps tight of all-time intraday record wides.

We find it supremely ironic that one former Goldmanite, in this case the CFTC's Gary Gensler, takes credit (doing the people's work this time?) for allowing the failure of what is now a documented criminal enterprise, MF Global, run by another former Goldmanite, Jon Corzine, and claiming this was nothing less than an example of "Freedom To Fail". The NYT quotes Gensler: "This was an example of a financial institution having the freedom to fail,” he said in response to questioning from Senator Carl Levin, the Michigan Democrat who chairs the Permanent Subcommittee on Investigations. “I don’t think there’s any taxpayer money behind this.”" No, Gary, there is just client money behind this. Anywhere between $700 million and $1.5 billion. Money that was stolen, and had MF global been bailed out, you, the CFTC and the US Government would have been complicit in a prima facie felony. So please - no need for the pathetic pandering to the lowest common denominator that only years of Goldman tenure can hone to this level of perfection. The only question is whether the CFTC, together with that other corrupt regulator which oddly enough is not yet run by a third Goldman alum, has the "freedom to jail."

In our previous post we warned, indirectly through the IMF, that the biggest risk for Europe is the inability to reach consensus over anything from the most complicated, to the simplest matter. As noted previously, one of the main initial drivers of the market surge which has since translated into yet another short covering rally of epic proportions was the belief that Europe can actually come together in agreement over the simplest thing - like its own survival. Alas, it appears even that is not the case. As Bloomberg reports, "Germany and France are at odds over whether the European Financial Stability Facility should have limits on government bond purchases, Handelsblatt reported, citing an unidentified high-ranking European Union diplomat. France doesn’t want to restrict the EFSF on how much of its funds it can use for such purchases, the newspaper said in a preview of an article to appear in tomorrow’s edition. Germany wants to limit the amount EFSF can spend for bonds per country and is also considering whether there should be a time limit for bond purchases, Handelsblatt said." Said otherwise, here comes the latest cause of discord within Europe. Unfortunately, it also means that any rumor, innuendo and speculation that Europe has finally reached a coherent union over its own bailout can be promptly discarded. As if there was ever any doubt in the first place.

Two years ago we first covered the flip side of the Chinese real estate "boom" story by presenting the ghost city of Ordos. Today, on the two year anniversary of China's Keynesian miracle being exposed for the whole world to see, Al Jazeera goes back to Ordos to see if anything has changed. And while Paul Krugman may be shocked, shocked, that the Keynesian approach of building for the sake of building does not work not only in the US but pretty much everywhere, it will be no surprise to anyone, that as Al Jazeera concludes, "it's still pretty quiet, but here's the remarkable thing - the building has't stopped, somehow people are convinced that if you keep building, people will come. If not in a few years, then... eventually." And somehow we keep bashing the Fed as the only source of Einsteinian insanity, when it is the same cretins from the Princeton economics department in both the monetary and fiscal arena, who know one thing and one thing only - do whatever ultimately fails, just keep on doing it.

Jim Rogers was on CNBC earlier, discussing the recent intervention by the SNB and the overnight plunge in Europe, in the process generating yet another amusing episode of market "non-cheerleader" Bob Pisani attempting spin the global economic collapse in a favorable light on not one, not two but on three separate occasions, and being soundly rejected by the far more, informed shall we say, Rogers. Specifically, to Pisani's repeated attempt to get Rogers to admit the uber-secret of which stocks he is long (CNBC Ponzi playbook 101), the former Quantumanite responds that not only is he not long anything, he is mostly short stocks and very much long commodities for two simpler reasons: "if the world economy gets better i'm going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn't get better, Bob, you're not going to make any money in Toyota or IBM but you might make money in commodities because they're going to print more money. It's the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I'm short stocks but i don't expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection." And on some other topic like the Chairsatan, "Bernanke has been lying to us again", on the SNB intervention attempt: "This is a terrible mistake" and on what should happen to Europe: " It would be good for the world, though, if they let people go bankrupt."

(But yes, @Nouriel, we need central banks, and moral hazard and FRB did not exist before 1913...Q.E.D., right?)

The Merkel Sarkozy plans to centralize financial and economic governance in the EU has failed to calm markets and there is further weakness in stock markets today.  A key aim of the meeting was to restore confidence in the euro. In the short term this has not been achieved and it is highly unlikely that it will be achieved in the long term.  Centralised financial and economic governance will not be a panacea to the current debt crisis. It does nothing to address the root cause of the problem which is massive indebtedness and the saddling of taxpayers with massive liabilities incurred by banks. Concerns about currencies and currency debasement is leading to continued safe haven demand for gold.

The latest iteration of the "rip your face off rally" was fun while it lasted. And now, it is, once again, about to be replaced with the "face your rip off" version, after the FT reported that European regulators have failed to agree on a coordinated short-selling ban, "leaving France and other advocates of the curbs considering unilateral action to stem the recent sharp falls in share prices." This means that the last ditch effort to prevent the daily wipeout in the FTSE MIB has now been pulled off the table, and all those who otherwise would have been forced to cover their halted futures positions as cash soared, will now sit pretty and wait for the market to come to them. It also means that while Europe could have potentially stood united, if even for a few more days, divided it will fall. But not all is lost: there is a potential loophole, and if the Borsa opens limit down, it may well be the final recourse: "The new European Union market regulator, Esma, is trying to co-ordinate action by national regulators and more conversations could take place today. A Thursday evening conference call was unable to reach unanimity." That, however, now appears like a long shot.

Remember when way back at 3am EDT, the SNB "intervened" to keep the "massively overvalued" franc lower? Yeah, that lasted about 7 hours.

The only real solution to the Eurozone end-game is massive debt forgiveness and the resulting destruction of "too big to fail" banks, and a return to national currencies, which will enable structural imbalances to be resolved via currency devaluations. This will of course destabilize the German export economy; but that is inevitable. "Extend and pretend" is an endgame, not a fix.

To allay their concerns, the council took out a controversial clause, which said that any violation of the law would void a foreclosure sale...

"It is telling that, once again, a New York court is more interested in exposing fraud taking place right here in Palm Beach County than our own Florida courts, even citing to the investigation of the Florida Attorney General"

The farce continues: Moody's predicted 26 failures, Eurostat gives us 8. EBA says 5 Spanish, 2 Greek, 1 Austrian Bank fail as of April 30; EBA says 7 Spanish, 2 German, 2 Greek, 2 Portuguese barely pass. EBA says 16 of 90 banks had core capital of 5% to 6% and will have to take action to improve capital buffers. EBA says EU banks average CT1 7.7% in adverse Scenario, as of April 30. Looking forward to next year's Stress Test. As expected, risk is broadly on in the EUR, as the "sell the farce" moment approaches. The reason why the bank rollover is so urgently pushed is because two thirds of all Greek debt is held by Greek banks who then pledge it back to the ECB at par. Specifically, 67% of Greek debt is held by Greek banks, 9% by German banks, and 8% by French banks. Then these same Greek banks that "roll" their Greek sovereign debt receive even more cash handouts from the Greek central Bank, which in turn is funded from the ECB, while at the same time providing collateral to the standalone banks. Biggest Ponzi clusterfuck ever.