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"Not Counted" Does Not Mean "Not There"

Tyler Durden's picture





 

Via Mark J. Grant, author of Out of the Box,

“Our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end. We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate.”
 
                                -Thoreau
 
I suppose one could reach this conclusion living in solitary bliss in the middle of the woods but the supposition or perhaps conclusion does not seem to be the way of things in the real world. There is always something to communicate, always a novel tale to be told and, these days, with the advent of virtually instant communication it is not the “shot heard ‘round the world” but the word or photo that may prompt action with mere seconds from its transmission to its reception. We are now living in an instantaneous world where action and then reaction is divided by the nanoseconds once only spoken of by physicists and the mathematically inclined.
 
Riots in Madrid or Athens are on our screens with an immediacy that could hardly be imagined just a scant ten years ago and the change to the way we make investments decisions and the skills and adroitness now necessary to keep your portfolios in-line with a world that has gone “live” is a new dynamic for those of us that have been on the Street for some years. When I began on Wall Street the ticker tape was still in existence, just barely but it was still there, and the gentleman of Wall Street began their day with the Wall Street Journal so that we could find out what happened overnight in America and the rest of the world. These are days gone, long gone, and different strategies must be employed as a result.
 
I write specifically this morning to those of you that presently occupy positions that I used occupy myself. You cannot be in a meeting and out of touch, out of contact any longer. You must devise some system that in the case of emergency that you can be found and the likelihood of events that could cause you to scramble is increased by two factors; the immediacy of news and the necessity of reacting to it. Real social unrest in Spain or Greece or the bombing of Iran or some black swan even that could massively move the markets are outliers no longer. You may not appreciate being disturbed in Board meetings or woken up in the middle of the night but if you are a senior decision maker you cannot afford to be tucked away in your solace any longer. The world is not just connected but now moves at a speed that could hardly be imagined when I arrived on Wall Street almost four decades ago and, like it or not, the winning of the Great Game now demands either being plugged-in or shut-out.
 
A Recent Announcement
 
Do not disregard or minimize the recent announcement by Germany, Finland and the Netherlands that was joined twenty-four hours later by Austria. The funding nations in Europe placed a line in the concrete when they rejected assisting legacy issues and loans. This group of nations vacated, in this one statement, all of the pleas and demands of the periphery countries that had lined up for aid and ever-more aid relying upon the pledges of the solidarity of Europe and they got an answer, a very Germanic answer which is not, I am quite sure, what they wanted to hear. The joint response was a “Nein” that threw the responsibility and the monetary contribution back to the individual sovereign nation so that it is just not “austerity” that will be demanded but the drain of the capital of a singular nation that lines up for help. It was quite clear, “your money first and then ours” which will increase and magnify the divide between the have and have-not countries on the Continent.

The announcement also nullifies, in part, the “save the world” tactic of Mario Draghi. The ECB will not move without EU approval he has said in setting the “condition” of any ECB action and it is now quite transparent that Germany and the rest will not be approving any ESM transferences until the nation asking for money has been bled dry and that Greece, Portugal, Ireland and perhaps Spain with their line of credit for their banks may not receive anything at all in the way of new loans. In the case of Spain, if the wall is hit, it will take all of the money in the current ESM to fund the country and any money for Italy, if it came to that, would have to come from an additional round of financing that I doubt is now politically possible in Europe.
 
The Rational Basis of my Skepticism
 
The ECB, as I quoted recently from their own published balance sheet, has $15 trillion in loans outstanding to Europe. They claim a $4 trillion balance sheet based upon not counting guaranteed loans by various nations and by not counting contingent liabilities. This is the same scheme that is used for calculating the debt to GDP ratios of the countries in Europe. The methodology is consistent. If a loan, a debt, is guaranteed by a nation or if the liability is “contingent;” it is not counted. This, of course, does not mean that possibility of having to fund or write-off something is not there; it just means it is not counted.

Furthermore all guaranteed loans or debts of any nation, including Greece, are deemed “risk-free” and so the balance sheet of not just the ECB but the banks in Europe are skewed, as in incorrect by American standards, by the methodology employed. What is the “Standard Operating Procedure” in Europe would be fraudulent in the United States and while you may think that everyone is entitled to their own manner of doing things it also must be said that the European invention allows for increased risks and leverage that could overcome the Continent at any point. “Not counted” does NOT mean “not there” and so the cause for my great concern.
 
European banks were supposed to be de-leveraging  in accordance with the Basel III rules but have grown by 7% according to recent data released by Eurostat. Target2 was supposed to be shrinking but has grown to almost one trillion Dollars. The loans at the ECB have been increasing and whether the credit line to the Spanish banks or the loans to the banks of many countries in Europe to buy their debt at auction keeps on growing. The risk factor is magnified so far past any margin of safety that I am fearful, more than fearful, that some event, some relatively minor event in fact could throw Europe off a cliff that will make our fiscal cliff look like a gently rolling hill in comparison.
 
I repeat and repeat again:

"NOT COUNTED" DOES NOT MEAN "NOT THERE!"

 


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Thu, 09/27/2012 - 09:27 | Link to Comment not fat not stupid
not fat not stupid's picture

The author needs a hug and a week in Hawaii.

Thu, 09/27/2012 - 09:36 | Link to Comment falak pema
falak pema's picture

he should take Mario and BEn with him and teach them to count. They don't have the same perception of what collateral is. 

Thu, 09/27/2012 - 10:50 | Link to Comment bonderøven-farm ass
bonderøven-farm ass's picture

"I suppose one could reach this conclusion living in solitary bliss in the middle of the woods but the supposition or perhaps conclusion does not seem to be the way of things in the real world."

Hey Mark, do yourself a favor a read Thoreau's works.  His writings and lectures had absolutely nothing to do with 'solitary bliss' you fuck.  Personal responsibility, civil disobedience, principle, and integrity were the foundation of his experiences.  Taking a quote out of context for your POS opinion piece is sub-par.  Please explain this 'real world' you're living in......pathetic....

"We are strictly confined to our men to whom we give liberty....." Thoreau 

Thu, 09/27/2012 - 09:38 | Link to Comment Dalago
Dalago's picture

So the underemployed, people forced into retirement and people that give up looking for work DO count after all.

Thu, 09/27/2012 - 11:22 | Link to Comment Ruffcut
Ruffcut's picture

I have been counted out of this for 20 plus years.

Please count me back in when I have to apply for food stamps. At least they will be bacon free.

Thu, 09/27/2012 - 12:51 | Link to Comment Apeman
Apeman's picture

Me too :-(

Thu, 09/27/2012 - 09:28 | Link to Comment LongSoupLine
LongSoupLine's picture

unless we're talking about Comex deposits....

Thu, 09/27/2012 - 09:29 | Link to Comment orangedrinkandchips
orangedrinkandchips's picture

1 word.....

 

ENRON

Thu, 09/27/2012 - 09:31 | Link to Comment GolfHatesMe
GolfHatesMe's picture

not even a word SPV

Thu, 09/27/2012 - 09:32 | Link to Comment LongSoupLine
LongSoupLine's picture

Speaking of "not there"...CIT's John Thain just rang the opening bell.

 

How's that for an omen?

Thu, 09/27/2012 - 09:32 | Link to Comment Broccoli
Broccoli's picture

Isn't it fraud if you have cosigned loans and don't report it on other loan applications?

Another example of an activity criminal for the common man, but just part of normally accepted government accounting rules.

Thu, 09/27/2012 - 09:45 | Link to Comment Ar-Pharazôn
Ar-Pharazôn's picture

can you explain me this thing? i dont know nothing about it

Thu, 09/27/2012 - 10:15 | Link to Comment Broccoli
Broccoli's picture

If person A cannot qualify for a loan, he can get someone, person B, who does qualify for the loan to "cosign" the loan. The person B who cosigned the loan is now liable for the loan balance if the person A who received the loan defaults on the loan.

In essence, person B guarantees the loan of person A similar to these contingent liabilities governments have.

It is criminal for person B to conceal the existence of cosigned loans, but it is normal accounting practice for governments to do the same. One set of rules for the ruled, no rules for the rulers. Welcome back to the Middle Ages.

Thu, 09/27/2012 - 11:01 | Link to Comment Urban Redneck
Urban Redneck's picture

A Loan Guarantee is fundamentally different from a Loan.  The biggest BS takes the form of improper, insufficient, and unrealistic loan loss provisioning for both loans and loan guarantees.  But to assume a 100% loan loss is just as irresponsible... unless one's loan poertfolio is 100% allocated to profligate PIIGS...  

Thu, 09/27/2012 - 09:34 | Link to Comment chubbar
chubbar's picture

Gee, "Not counted does not mean not there" sounds a lot like how the U.S. gov't handles SS, Medicare liabilities as well as the many overseas wars we seem to perpetually fight.

Thu, 09/27/2012 - 11:58 | Link to Comment donsluck
donsluck's picture

Incorrect. SS and Medicare are counted in the government's "unified" accounting, which counted their SURPLUS (up to now) as offsetting the deficit. This of course ignored the "trust" aspect, since those accounts needed to maintain their surplus while the country was young to provide for the entitlements when the population aged.

We are "entitled" because WE ALREADY PAYED FOR IT.

Thu, 09/27/2012 - 13:59 | Link to Comment chubbar
chubbar's picture

The out year obligations are not counted in the unified accounting budget, IIRC. The year to year budget deficit does count those items. Of course this idea that there is a stash of money somewhere to pay these obligations is a pipedream. My orginial comment stands.

Thu, 09/27/2012 - 09:37 | Link to Comment RSloane
RSloane's picture

Sorry, not counted exactly means not there. For reference, view US unemployment claims numbers.

Thu, 09/27/2012 - 10:13 | Link to Comment recidivist
recidivist's picture

When I saw the headline, I thought it was in reference to the unemployed versus those not working...

Another place where this theme runs is Wall Street fraud...no indictments = no crimes committed

Thu, 09/27/2012 - 09:39 | Link to Comment oleander garch
oleander garch's picture

What bosh!  Not counted does mean not there.  Not only is information instantaneous so is bonus pool enlargement ---- for this quarter.  The  mishaps which occur when the liabilities are 'counted' and do become 'there' are quite irrelevenat to motivation.  They have never imposed retrospective recoupment of bonus awards.  Instant gratification cohabitatate with instant information. 

Thu, 09/27/2012 - 09:50 | Link to Comment kaiserhoff
kaiserhoff's picture

you forgot the /sarc.   someone is still nursing a hangover;)

Thu, 09/27/2012 - 09:39 | Link to Comment Chief_Illiniwek
Chief_Illiniwek's picture

I've unsuccessfully tried this style of accounting with the IRS.  I wonder what the ECB knows that I don't?

Thu, 09/27/2012 - 09:44 | Link to Comment kaiserhoff
kaiserhoff's picture

I remember honest accounting.  I even remember when American financial markets were the envy of the world.

Lordy, I'm feeling old.                       HAIL TO THE ORANGE!

Thu, 09/27/2012 - 09:46 | Link to Comment Vincent Vega
Vincent Vega's picture

Perhaps there is 'always something to communicate' but what about the quality of the communication? I'm still a believer in the old axiom of some things are better left unsaid. Or as one of the quotes from one of my favorite movies goes: Don't you hate that? Uncomfortable silence. Why is it we feel it's necessary to talk about bullshit in order to feel comfortable. Tha'ts how you know when you have found someone special. When you can just shut the fuck up.

Thu, 09/27/2012 - 09:46 | Link to Comment AcidRastaHead
AcidRastaHead's picture

The "not counted therefore not there" is a key strategy for economists/banksters.  Just consider the unemployment rate.

Thu, 09/27/2012 - 09:48 | Link to Comment disabledvet
disabledvet's picture

Wall Street just looks at how their equity position in Time Warner et al is doing in order to determine how well informed they are...or are not of course. Obviously You and I are not well informed...but only a complete idiot says Wall Street isn't. They can be MISTAKEN however...and the second part of this article is quite good. Obviously there are trillions in Wall street bucks stuck in the EZ. Good luck with that...

Thu, 09/27/2012 - 09:51 | Link to Comment Yen Cross
Yen Cross's picture

 This sounds like that A-Hole Bob Pissani on CNBS, suggesting Spains unemployment rate isn't 25%, because they have a thriving "Black Market"!  What a tool! Thriving "black markets" are real good for "tax revenue"Bob? (NOT) That kind of thinking just exemplifies why Europe and the ECB , "balance sheet shenanigans", are so out of control!

Thu, 09/27/2012 - 09:52 | Link to Comment bigkahuna
bigkahuna's picture

All the ECB is going to do is to "transfer" or rebrand or rename the so called legacy debt to current debt, take these suckers money and refi the "current" debts. 

Thu, 09/27/2012 - 10:16 | Link to Comment neptunium
neptunium's picture

Spain's just been thrown under the bus, greece is already under the bus and Italy is waiting for the bus.

I think we might actually be approaching the level of unrest, anger, and infighting that causes Spain to get the fuck out. 

 

The mystery to me is how the populations of the Eurozone still largely vote in favour of it...

 

Thu, 09/27/2012 - 10:18 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Article speaks of the main 3 out of 4 'AAA' countries left in the eurozone, along with little Luxembourg:

« ... recent announcement by Germany, Finland and the Netherlands ... »

That's Europe's Super-Troika pulling levers deep inside the bigger Troika (EU, ECB, IMF)

Funny that now in Brussels there are buses and trams carrying an ad marketing 'Trojka' brand vodka

Not the best moment in Europe for that brand name, with demonstrators in Greece demanding 'Death to the Troika!'

Thu, 09/27/2012 - 10:33 | Link to Comment Zap Powerz
Zap Powerz's picture

Im really curious to see exactly how fucked up and out of whack this society and system is going to get before it totally collapses.

Im guessing the final event will be live human (likely virgin, if we can find any) sacrifices to the Bernak to show our fielty.

Anyone else get the feeling that dying a peaceful death surrounded by loved ones is becoming increasingly unlikely and that dying a violent death is becoming more likely?

Have a nice day.

Thu, 09/27/2012 - 10:53 | Link to Comment collon88
collon88's picture

Creative provisioning bitchez.

Thu, 09/27/2012 - 10:55 | Link to Comment walcott
walcott's picture

Hey Art - Buy a couple hundred turkeys have Thanksgiving with all 1.5 billion of them and all will be good.

Thu, 09/27/2012 - 11:00 | Link to Comment GeezerGeek
GeezerGeek's picture

Not counted does not mean not there is exactly how I look at my underwater (literally) precious metals investments. Ever since they accidentally fell overboard while I was transporting them by boat to my private island, I've ceased counting them as part of my net worth. That doesn't mean that all those pretty silver and gold coins and bars are not down there somewhere. I'm sure many ZHers will know what I mean.

Thu, 09/27/2012 - 11:56 | Link to Comment Nobody For President
Nobody For President's picture

When I read the title, I thought Mark was gonna talk about the 'No Longer In Labor Force' numbers and people, which is also a political/economic/public perception/headline BLS number fraud.

So many frauds, so much bullshit, so little time.

Thu, 09/27/2012 - 12:04 | Link to Comment Pubcoceo
Pubcoceo's picture

You can ignore reality, but you cannot ignore the consequences of ignoring reality. Ayn Rand (sorry i know hoe the board feels about her)

 

Fri, 09/28/2012 - 04:48 | Link to Comment Fort
Fort's picture

Ahh, he means the European (vingers in the ear, tongue out the mouth and yelling la, la, la, la, while wiggling the fingers) mentality. He has a point, you can only do that so long, at some point you have to face the reality. I have seen so many cards pulled out of sleeves in the last decade, that I'm convinced by now they'll still be doing la, la, la, la while Europe follows Atlantis and sinks in the Atlantic Ocean.

 

 

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