SWIFT

One of the most ominous developments for us personally crawled out from under its rock in November. Again without any public debate, DHS unleashed its National Operations Center's Media Monitoring Initiative. Yep, it's exactly what it sounds like: The NOC's Office of Operations Coordination and Planning is going to collect information from news anchors, journalists, reporters, or anyone who may use "traditional and/or social media in real time to keep their audience situationally aware and informed." Thus Washington, D.C. unilaterally grants itself the right to monitor what you say. Doesn't matter if you're the New York Times, Brian Williams, a basement blogger, an online whistleblower, or known government critics like ourselves. They're gonna take note of your utterances and file them away for future use. Journalists are not the only targets, by the way. Also included among those subject to this surveillance are government officials (domestic or not) who make public statements; private-sector employees who do the same; and "persons known to have been involved in major crimes of Homeland Security interest," however large that umbrella might be....The larger speculation is: what's the endgame here?

If anyone is tired of the daily European soap opera with surrealistic tragicomic overtones, they can simply shift their gaze to the 8th largest economy in the world: the insolvent state of California, whose controller just told legislators has just over a month worth of cash left. From the Sacramento Bee: "California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today. The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June." ....uh, oops? But sure, fix the problem of excess debt by more "borrowing" why not. As for the math: "But Chiang said additional cash management solutions are needed because state tax revenues are $2.6 billion less than what Gov. Jerry Brown and state lawmakers assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on." Quick, someone come up with a plan that involves subsidies and tariffs on China, or something else that deflects from what the source of the problem really is. Because the last thing that anyone in America would want to bring up is this thing called "responsibility" for their actions, or, as in now becoming the default case, the lack thereof. And why do that, when time spent so much more productively scapegoating this, and blaming that for one's own massive errors of judgment.

When Morgan Stanley now agrees with most of what Zero Hedge has been saying (especially when it earlier announced that a short covering rally in the EURUSD is imminent, as we have been warning for the past two weeks), it may be time to get concerned. From Morgan Stanley: "Most investors I speak with concur with the view that growth is likely to be below trend for the next several years thanks to deleveraging and a more stringent regulatory environment. However, there is quite a bit of excitement over the probability of QE3 being implemented at some point during 2Q. Exhibit 5 shows just how excited stock investors seem to be getting over this prospect, especially in relation to their fixed income peers. But, this is almost always the case when animal spirits get going. The last time I pointed out such a divergence (October of last year), the SPX had a swift 10% correction over the proceeding 3 weeks. I have no idea whether we are likely to get such a correctly immediately, but I sure can’t rule it out and I am pretty confident you won’t be able to get out of the way unscathed. Just  another reason for why I want to be paired off right now." Also, this time will never be different: "Didn’t we learn anything from the Japanese experience of the past 20 years! I might be more on board with the program if I thought we were making real progress on the things that matter for sustainable organic growth. Unfortunately, I just don’t see it."

For months in a row, the core propaganda meme seeking to drag lambs into the ponzi, has been one of "ignore Europe - it is irrelevant." Naturally this "narrative" was primarily spread by expendable C-grade media elements whose careers will promptly terminate once this latest episode of artificial "decoupling" is over, as we have been warning for months (at a cost to the S&P of over 200 points). And judging by today's US Trade Balance, which came in at a whopping $47.8 billion on expectations of $45 billion, the widest gap since June, which was driven due a plunge in European exports as the European economy is shriveling in the grips of what is about to be a doozy of a recession, it may be time to polish those resumes as the inevitable decoupling approaches with every passing hour. Yet one of the best comments on what Europe really means for the world comes from none other than Bank of America. While we have discussed previously that BAC is doing its best to crush the market and to precipitate QE3, thus like everyone else, always having an agenda in its message, what it is saying is spot on. And it is as follows: "Europe matters, according to the most oft-heard arguments, because of its size and the euro’s reserve currency status. The Euro area’s systemic relevance (both in trade and financial terms) means that its governance crisis is a global menace. This narrative portrays Europe as a self-contained shock emitter, with the rest of the world cast as innocent bystander. Rather, much like the Lehman bust, the current Euro area crisis may be a symptom of faulty globalized finance. Europe is rightly being held to account for fiscal mismanagement, but there may be bigger cracks in the background." Spot on, and it gets even worse, which we urge everyone who still doesn't grasp the linkages between Europe and the US to read on.

Wonder why all bank earnings over the past 3 years are fake? Wonder why few if any banks ever dare to take major write offs and represent the true nature of their financials? Wonder no longer: Bloomberg's Jonathan Weil explains.

Is it right to crush free speech as long as the message is offensive to you personally?  Do peaceful protestors really present a legitimate threat to our national stability?  Are they truly more dangerous than a corrupt government hellbent on assassinating the legal protections of our natural rights which have existed for centuries?  Would any supporter of the jackboot methodology like to explain to me in a coherent manner why they believe their skewed world view should be shielded from sincere questions?  Please, I can't wait to witness the kind of ridiculous mental gymnastics required to make such arguments palatable.  If this kind of ignorance wasn't so destructive, it might actually be entertaining.

While we have long known that the drachma, and recently the lira, have seen significant "when issued" interest by institutional clients desiring to hedge their currency collapse exposure, and thus early markets by various trading desks, little did we realize just how destabilizing this fact to the system would be, at least according to SWIFT. According to the WSJ, this organization, best known for making an abrupt appearance any time one wishes to do a wire transfer, then promptly disappearing until the next such instance, ended up promptly shutting down any Plan B optionality when "at least two global banks took steps to install back-up technology systems that could handle trades in old European currencies like drachmas, escudos and lire... quickly found, is not so easy in a financial world that is trying to both exhibit confidence in the ailing euro and—just in case—plan for its possible demise. Technology managers at the banks contacted Swift, the Belgium-based consortium that manages the network used in financial transactions, said people familiar with the matter. The banks wanted Swift's technology support and the currency codes that would be necessary to set up the backup systems." And got promptly rejected: "Swift declined to provide some information for such contingency planning, including whether old codes could be used in the system, said the people familiar with the matter." The reason is that in Europe, the mere admission that Plan B is a possibility, apparently set off a chain of events that makes Plan B an inevitability: "...officials there feared that releasing the information could fuel further doubts and instability in the euro zone."... And the kicker: '"As soon as you start contingency planning   . . . it can become a foregone conclusion," said Alastair Newton, senior political analyst at Nomura PLC.  "But if things go wrong and you don't have plans in place, you're in trouble."

Update: We answer our own question: 30 minutes.

And right on cue, just like 2 weeks ago when the FT "broke" the news that China was about to bailout Europe (all over again), here they come again, reporting that the EU is "looking to [sic] swift recapitalzation of 16 banks." From the FT: :European officials look set to speed up plans to recapitalise the 16 banks that came close to failing last summer’s pan-EU stress tests as part of a co-ordinated effort to reassure the markets about the strength of the 27-nation bloc’s banking sector. A senior French official said the 16 banks regarded to be close to the threshold would now have to seek new funds immediately. Although there has been widespread speculation that French banks are seeking more capital, none is on the list. Other European officials said discussions were still under way. The move would affect mostly mid-tier banks. Seven are Spanish, two are from Germany, Greece and Portugal, and one each from Italy, Cyprus and Slovenia. The list includes Germany’s HSH Nordbank and Banco Popolare of Italy." And we are now taking bets on how long until this whole non-news, all rumor move is faded.

If Too Big To Fail was made into HBO namedropping comedy hour, this certainly deserves its own 90 minute, Bollywood produced, TheOnion directed, 3D motion picture:

• GREEK FINANCE MINISTRY SAYS S&P CREDIBILITY IN QUESTION
• GREECE SAYS S&P MOVE ISN'T JUSTIFIED

Pretty much says it all. Elsewhere, Greek prosecutors are "investigating" Der Spiegel. No Citigroup bond runs to be scapegoated this time...

Normally, discussion of the "Surveillance State" touches on Zero Hedge's core focus (finance) only tangentially. But every once in a while something significant bounces us radar returns in this sector. This definitely qualifies.

Jerry Moyes, who in late 2006 LBO'ed troubled transportation company Swift Transportation which has been on daily bankruptcy watch for as long as one can remember, just got a swift kick in the groin as his other business venture, the Phoenix Coyotes ended up filing for bankruptcy late last night.