Anglo Irish Tier 2 Debt Downgraded By S&P To CCC On Restructuring Concerns, As Bank Prepares To Receive Bail OutSubmitted by Tyler Durden on 09/29/2010 06:42 -0500
The EURUSD was last seen well north of 1.36. The reason for this strength certainly was not based on news flow out of Ireland, where Anglo Irish just saw its Tier 2 debt downgraded to CCC, on what the rater called a "clear and present risk" of a restructuring of this debt. Yet this is likely irrelevant in the grand scheme of moral hazard things: after all, as the FT reports, Ireland is about to unveil an "additional capital injection expected to be about €5bn (£4.3bn). That would bring the bail-out costs for Anglo Irish to €30bn, shy of the €35bn forecast by credit rating agency Standard & Poor’s." Nonetheless, Ireland’s cost of borrowing on Tuesday hit record levels with yields on 10-year government bonds jumping 25 basis points to 6.72 per cent. And to make things delightfully surreal, the Irish unemployment rate was reported to jump from 13.0% to 13.7% in one month.
I try to provide an inductive, critical and speculative analysis of the Fed`s (open market) operations to date. Although not quite as speculative as the typical bank loan of the past few decades.
Last week, the assorted regulatory freaks were busy patting themselves on the back, and our intrepid printer-in-chief himself made the rounds Thursday morning with appearance no. 2 of his Whip Deflation Now tour. Stay tuned to learn which deceased Fed Governor stated at the Sep *2002* FOMC meeting in no uncertain terms that there was in fact a housing bubble underway.
Greece's exit from the eurozone would be the "worst possible option", Europe's central bank chief said at the weekend amid concerns over the debt-stricken country's ability to pull itself out of crisis. Will Greece default and will this cause yet another global crisis?
Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006, was more directly responsible for the current Global Depression than even his worst critics realize. Here is the explanation why. —Gonzalo Lira.
In today’s Crony capitalist economy, the political system is bought outright by the large multinational corporations via various lobbying efforts/ corporate donations. These multinationals then receive kickbacks in the form of deregulatory policies and other tax loopholes, which permit them to further expand their power and influence.
I clarify my critique of Austrian/Libertarian theory and explain how monetary austerity is not necessarily the "right thing to do" going forward.
At least that is the question posed by Ambrose Evans-Pritchard in his column today, where he accurately points out that while a bankrupt Greece can get away with borrowing at 5% courtesy of the IMF bailout package, as of today Ireland's 10 year rate is 5.48%. Ambrose attributes this to the Greeks savvy knack of scaring the shit out of Europe by "dilly-dallying on the first set of austerity measures, and – not to be too diplomatic about it – by insulting the Germans with demands for war reparations" and also being on the verge of destroying its own country, by Molotov Cocktailing its own parliament, if its doesn't get its way. And the real kicker: as a member of the IMF, and a lender to its various soon to be multi-quadrillion last ditch rescue facilities, Ireland, whose borrowing cost is higher, is subsidizing the Greek interest and, therefore, way of life. Nuts you say? Ambrose agrees: " It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue." But such is life in the Keynesian endspiel, where the worst housing data ever recorded is sufficient for a green close: bizarro is now mainstream.
We live in interesting times. During the last two years, a financial virus spawned and infected the economic and social spheres as a matter of course. This isn’t just about money anymore. Our civil liberties, the foundation of free market capitalism and the quality of life for future generations are dynamically shifting as we traverse our current course. I once offered that Shock & Awe was a tipping point through a historical lens; as Baghdad blew-up on CNN, I somberly sensed America would never be the same. That’s not a political statement -- we don’t know what would have been if we didn’t invade -- it’s simply an observation. Almost overnight, world empathy turned to global condemnation. If we’ve learned anything through these years, it’s that unintended consequences tend to come full circle. Whether it’s the moral hazard of bailing out some banks, the gargantuan profits of a chosen few -- Goldman Sachs (GS), JP Morgan (JPM), Bank America (BAC), Morgan Stanley (MS), Wells Fargo (WFC) -- the caveats of percolating protectionism, or the growing chasm of social and geopolitical discord, times they are a-changin’ and it’s freaking people out. As speculators are vilified and hedge funds are perceived as acceptable casualties of war, financial fatigue will evolve in kind. We’ve already seen the burnout manifest in trading volume -- upwards of 70% of the flow are the robots -- and we’ve witnessed it in financial media, with reported ratings of some of CNBC’s marquee shows down as much as 25% year-over-year. Sun-tzu once said, “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight and if not, split and reevaluate.” As we navigate this socioeconomic maelstrom, an increasing number of people are weighing their options -- and some of the smarter folks I know are “going dark.” - Todd Harrison
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism (Final, Part 4)Submitted by Econophile on 08/17/2010 01:05 -0500
Until I began to examine the Dodd-Frank financial overhaul bill I had no idea that it would so significantly change the direction of the United States. It's scope is so vast and pervasive that it is difficult to grasp its totality. I wrote this article to try to explain this and why I believe it is so important for us to understand it. This is the final part of this four part series. I examine the consequences of Dodd-Frank.
A concise summary of the week's top bullish and bearish news items.
US And Greek Cities Refuse To Service Debt As Next Stage Of Solvency Crisis Shifts From Sovereign To Local GovernmentsSubmitted by Tyler Durden on 08/02/2010 04:32 -0500
Now that the Greek striking truckers have been placated and the obliterated critical tourist season can attempt to salvage itself with just one month left as gas is finally once again (partially) available, some were hoping for at least a brief return to normal in the ECB/IMF-subsidized country. Alas, no such luck, as Greece has now become an accelerated version of the US' own slow progress to all out insolvency. As the country's foreign debt hole has been plugged for the time being with limitless cash infusions, and the financial system lives day to day as Greek banks are allowed to pledge whatever trash they find in the dumpster to the ECB, the next flash point are defaulting local governments, the equivalent of our own state and municipal crisis. Late last week, Kathimerini disclosed that the Athens port town of Piraeus has decided to stop "all payments following a central government decision to stop funding the debt-ridden authority. Having seen the kind of moral hazardallowed to his sovereign equivalents, the mayor Panaytois Fasoulas essentially says he believes he is owed a preferential debt restructuring: "Fasoulas said his municipality was not seeking privileged treatment but wanted to renegotiate the payment of its debts, paying larger installments at a lower interest rate." Surely, he is fully entitled to his ludicrous demands after what happened in Europe in the first half of 2010, and in the US in the past two years. We are only surprised that our own bankrupt cities haven't figured out that the right approach is precisely this: refuse payments unless demands are met. In fact, as reported in St. Louis Today, the near bankrupt city of East St. Louis, which just laid off 30% of its police force, has announced it would not make a scheduled $500,000 payment. "On Friday, the city approved a proposal to defer bond payments until next year in order to free up $500,000." In realizing that creditors don't really have a loaded gun pointed at their heads, US cities are finally waking up to what has been all too obvious to Europe for many months now. Look for the domino chain of state and municipal failures to really pick up in earnest over the next several quarters now that the creditor vs debtor battle lines have been openly set.
Even as Bernanke is receiving his last minute briefing on what to say (everything, EVERYTHING, is good) and what to play dumb on (explaining the price of gold for example), a new report by the Center for Economic and Policy Research concludes that digging ourselves out of the current unemployment hole which is 7.5 million less people having jobs than did in December 2007, will take at least 4 years, and not occur prior to March 2014. However, this assumes a flat working-age population, something the Fed would love to be the case. Alas, the country is growing: and if one incorporates the effects of labor force growth into the above analysis, as the CEPR authors have done using CBO projections, then we may have a much larger problem on our hands: the study concludes that taking into account the approximately 14 million new job seekers in the future, then the December 2007 unemployment rate will not be met until April 2021! Welcome to the new normal. Of course, both of these analyses assume that the economy will immediately commence growing and generating jobs at the recovery rate seen in the 2000s, when about 166,000 jobs per month were being added. With every month that this does not happen the 2021 date will continue being pushed out further into the future. Perhaps one of the Senators today can ask a question of Bernanke just how he plans on reconciling this glaringly simple explanation for why the US economy will be underwater for a period of over a decade.
In the latest sign yet that things in the world are roughly 25% worse than expected (give or take), the FT reports that the IMF will seek an imminent rise in its lending cap from $750 billion to $1 trillion to build safety nets that could prevent financial crises. “Even when not in a time of crisis, a big fund, likely to intervene massively, is something that can help prevent crises,” Dominique Strauss-Kahn, the IMF managing director told the Financial Times. “Just because the financing role decreases, doesn’t mean we don’t need to have huge firepower ... a $1,000bn fund is a correct forecast.” At this point it is glaringly obvious that without the explicit support of the various central banks and of such fake international but really US organizations as the IMF, the already prevalent liquidity crisis would simply destroy the world. The troubling theme is that instead of taking away incremental worries, we have now gotten to the point where one bailout, like a butterfly in China, merely requires 10 more down the road. Alas, instead of a virtuous Keynesian dynamic, this is anything but.
Why isn't our economy recovering? I ask that question often and have written about it many times. Perhaps a better question is: what needs to happen in order to make our economy grow? I offer some solutions.