The similarities between 2008 and today are growing even more eerily similar. We’ve seen a mega-bailout similar to Hank Paulson’s “Bazooka,” we’ve also seen short-selling bans and sovereign bailout rumors (China and Middle East for Wall Street in 2008 vs. China for Europe today).
Former Fed Member, And Guy Who Came Up With Idea To Sell Treasury Puts, Joins Morgan Stanley As Chief US EconomistSubmitted by Tyler Durden on 09/13/2011 09:29 -0400
Morgan Stanley continues to demonstrate just how badly it lags Goldman. While the vampire squid is mostly known for sending its employees to run such places as the US Treasury, the New York Fed and the ECB (in 2 short months), Morgan Stanley has to be content with the inverse, i.e. hiring former Fed apparatchicks, in this case former long-time Fed advisor Vince Reinhart, who among other things is best known for collaborating with Ben Bernanke on discovering that Operation Twist does not work, and, of course, proposing the currently overt Treasury manipulation operation (for those times when QE is not sufficient) which involves selling puts on Treasury futures (link).
Let’s be honest here. Neither China, nor the ECB, nor the Federal Reserve can stave off the collapse that’s coming. Indeed, the Fed spent $900 billion and nearly one year to prop the markets up… and we’ve wiped out ALL of those gains in just one month.
Europe Imploding (Again) Following Another Ugly Italian Bond Auction, WSJ Article Discussing French Bank NationalizationSubmitted by Tyler Durden on 09/13/2011 07:18 -0400
Despite another round of unsubstantiated rumormongering by the FT yesterday (more on this in a second), investors in this morning's critical round of Italian bond issuance were nonplussed and demanded 10 pounds of flash with every bond, which in turn sent 5 year BTP yields to the highest since the introduction of the zEURo. If the purpose of the planted Debtwire/FT story was to make this auction attractive, one can only conclude that it failed. The result is yet another"Europe is Open" type market session, where everything is tumbling on Greek default and contagion fear, further stoked by a front-page WSJ story which says what we have been warning about every single day for the past 3 weeks (those pretty Libor charts that go from the lower left to the upper right are not just there to make the place pretty): namely that banks, in this case French mega institution BNP, no longer have access to dollar funding markets. The result: yet another increase in the actual 3M USD Libor rate, nearly the 40th day in a row, which in turn makes the dollar lock out even more painful. From the WSJ: ""We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore. He's not the only one worried. Société Générale has lost 22.5% of its value since the beginning of the summer. In early September, BNP released a statement—in English, which is highly unusual—explaining that it has abundant dollar liquidity and that BNP has nothing to worry about, unlike other banks. France's three biggest banks have been the subject of whisper campaigns about their solvency throughout the summer." It gets worse: "Now that the situation is bordering on catastrophe, analysts are suggesting that the government is set to start nationalizing France's banks. The banks have remained silent on the matter, and the government denies this talk." Well, whatever good will the FT tried to create with its rumors,the WSJ destroyed with its facts.
A first attempt at brainstorming to get the ball rolling ...
One justification for bailing out Wall Street was that it would ultimately help Main Street. ast time we looked at the diamond price index for 1-ct diamonds. Today we investigate the effects of QE2 on that most Main Street of businesses--the high-end diamond retailer. At the prices quoted, a single diamond of this size would set you back about $110,000. Hopefully she's worth it. There are two significant periods of rising prices--early 2010, and November 2010 to June 2011, during which time prices rose about 30%. The official CPI (excluding food and energy) was 1-2% over the same interval. We note that this last interval corresponds approximately with the timing of QE2, and congratulate the Federal Reserve for aiding Main Street business.
The Republicans went along with the 2011 payroll tax cut of 2%. They will go along with the 3.1% payroll tax cut. You see, this is how politics works. Since the payroll tax was “temporarily” cut, whoever lets the payroll tax cut expire will be declared a tax hiker. Therefore, the “temporary” payroll tax cut will be extended indefinitely, further impoverishing future generations. Meanwhile, how many jobs did the first payroll tax cut create? How many will the extended and increased payroll tax cut create? None! Obama is using the George Bush tax rebate check method of destroying the country. Both decided to address a government spending problem by reducing revenues. This is par for the course and explains why the economy is teetering on the verge of collapse. The Obama plan consists of $225 billion to screw future generations so we can spend today. It also includes $62 billion to pay people who aren’t employed for 99 more weeks, even though Federal Reserve studies have proven that extending unemployment keeps the unemployment rate 1% higher. Paying people for almost two years while they are not employed is somehow supposed to “create” jobs. Then we have the traditional $70 billion transfer from our Chinese lenders to Timmy Geithner and then into the pockets of state government union workers across the land. Obama needs those votes in 2012. Why should states be required to adapt their budgets to reality when their sugar daddy can keep supplying the candy?
Something is brewing on this story. I can smell it.
The uptick in credit spending is entirely attributable to subprime auto loans and government-backed student loans, both of which are a mere extension of the same Ponzi-finance scam that put the global economy into cardiac arrest.
We’re heading into the END GAME for the markets. What’s coming will see debt defaults in Europe and the US, a stock market Crash that makes 2008 look like a picnic, civil unrest and more.
The global financial system is experiencing great stress as it adapts to the new, post-crisis rules of the game. Those new rules are both explicit and implicit. They call for more capital, reduced leverage, lower risk appetites, more thorough supervision, and stronger regulation, at both the systemic and individual institution levels. In this environment, open dialog is all the more important as we collectively reach a common understanding of how the new rules should work in practice.
All you need to read and some more.