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UBS Cranks Up The European M.A.D.
Building on yesterday's discussion of the lack of an integrated banking system and credible lender of last resort in Europe, UBS appears to have gone thermonuclear this morning. Their lengthy article 'What If Greece Goes?' outlines the contagion risk from an 'orderly' exit as markets, international trading companies, and bank depositors will all anticipate the consequences likely resulting in economic disorder. Their remains a great deal of complacency about the ability of firewalls to prevent this - but as they note - should bank runs begin, even a pan-European deposit guarantee scheme will not stop rational depositors extending bank runs instead of gambling on the probability of policy-maker actions. Laying out Greece's options (renegotiate austerity or default), UBS summarizes the situation more profoundly: "Integrate Or Die" as without a Euro confederation (in their eyes), continental Europe will cry 'havoc' once again.
UBS - What If Greece Goes
The flaw in the Euro
The Euro at once embodies too little and too much government. The single currency lacks many of the institutions generally assumed to be necessary in a functioning monetary union. At the same time, those institutions that do exist are structured in a particularly rigid manner, and do not exhibit the ability to adapt that would allow the changing circumstances of the Euro crisis to be managed.
Why an orderly exit becomes disorderly
We believe that Greece remains in the Euro, as the costs of departure are excessive to both Greece and the Euro area. If Greece even considers making an exit of the Euro, markets, international trading companies and bank depositors will all anticipate the consequences. This anticipation of exit would likely result in economic disorder. The anticipation, and not the act of leaving, will in all probability lead to a cessation of international trade in the conventional sense, the inability of the government to raise any finance in the markets, and bank runs.
The contagion risk
In the event of a Greek exit, contagion risks clearly exist. There seems to be a great deal of official complacency about the ability of firewalls to prevent this. The risk lies in the contagion of bank runs. Bank runs, if they occur, will likely arise because of existential risks about the Euro, rather than solvency or liquidity risks about banking systems. If this does occur, then pan Euro deposit guarantee schemes (however worthy and desirable) are unlikely to provide a remedy. The possibility of other economies joining Greece in a disorderly departure from the Euro must be assumed to be very high – and it is this risk that suggests rational policy-makers would not wish to gamble on the probabilities.
Greece’s options
Greece’s options from the current standpoint would appear to resolve into some careful renegotiation of the austerity plans (and potentially restructuring the current debt again), or defaulting with an effective repudiation of the debt. There is plenty of precedent for defaulting inside a monetary union of course, so exit should not be assumed to be automatic. A default would require a recapitalised banking system (that is currently in progress) and a “forced loan” approach to financing the primary budget deficit.
A Maastricht for modern times
If the Euro’s existential crisis continues to grow, steps will be required to prevent the contagion effects. One option may be to propose a modern Maastricht Treaty. Just as the original Maastricht set out a timetable to achieve monetary union, so a modern Maastricht could lay out the necessary steps to correct the dysfunctional monetary union that now exists. A credible plan of action that commits to the continued existence of the supposedly irrevocable monetary union could reduce the risk of politicians being overpowered by the centrifugal forces in the Euro area.
Integrate or die?
The Euro area faces some tough decisions. Either there is more Europe – integration within the Euro area and a subsuming of sovereignty into a commonwealth of some description. The alternative is a disorderly break-up. An orderly break-up is simply not an option, because to embark on an orderly break-up is to invite a disorderly break-up in anticipation of the end-game. Either we have a Euro confederation and a commitment to the integrity of the union of seventeen countries, or once again continental Europe will cry “havoc”.
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extending bank runs instead of gambling on the probability of policy-maker actions.
Is this really a choice?
Euro Group Working Group in action...
http://www.youtube.com/watch?v=YawagQ6lLrA
It's been my theory for years that this is how it gets done. Design by committee and enjoy the awesome flavor of failure. Oh well, gives the those with Art's, law and political science (ha! whatever..science) something to do.
No you know why someone like Adolph Hitler came to power..he did things...and people wanted things done..
so true. And it wasn't just Adolf, mussolini.... they where all over the place. And let's not forget that even before the war American leaders where behind their policies and even wanted to adopt it in the US to.
And the conspiracy that the US actually pushed Japan into the US war is also growing on me as something that is perfectly normal.
Why would they do that? Doesn't Greece have about the largest, probably unpaid, army in Europe excluding Russia?
Silly note. More likely this means a Greek exit means destruction for UBS, hence the panic in the note.
UBS is also exposed to bad loans/mortgages in Eastern Europe.
exactly....kinda like writing their own epitaph
and the countdown begins for the pan-European Bank Holiday
Ssshhh! You're going to spook the sheep.
right...hit them in the head with a fracking frying pan wouldn't trear them away from e-tv
"Integrate or die" --- To enforce this type of integration which no normal people ever wanted was the overlords' plan from the very beginning.
So, die EUSSR. It is time.
And Europe will have a chance to live.
Once you see the video of the last 1000 years of European history is the earlier post you can get a feel for the problem, they don't trust or like each other. Europe will need a new emperor but who will head it? I'm one of the few on ZH who think they'll do it but 'Who?' will be the biggest hurdle to jump.
The emperor will be whoever wants to co-sign the loans.
The only ones with any cash in their checkbook is Germany. Problem is a) nobody trusts them b) their own people don't want to run up the credit cards to buy Europe.
When you say "they'll do it" I'm hoping you are refering to the politicians/bankers. Only they see upside to this. Because it would appear that from the peoples stand point, this experiement has been a failure.
Holy Roman Empire, of course.
I'd buy one greek as butler and one Italian as gardener on discount sale.
The article talks about banks runs. Reading here it looks like the bank run in several countries has begun in earnest. I think the UBS scenario has already begun. What th EU does about it is another story.
".....even a pan-European deposit guarantee scheme will not stop rational depositors extending bank runs instead of gambling on the probability of policy-maker actions."
I almost laughed out loud when I read "rational depositors". Are there any rational people/depositors left who are still fully participating in this insanity?
They aren't worried about the ones who are fully participating in the insanity. The worry is about the ones who are tentatively participating.
The world is full of participants who are ready to jump ship and leave some other fool holding the bag.
I think think they mean people like Fizzlebook investors...lol
Those who only with draw a little at a time...
Santander was able to convice 70% to keep their money in a broken bank in the UK when the runs started. (or so they claim) It makes me wonder if the depositors aren't waiting for deus ex machina. How has that worked in the past? 1939.
Why are PMs not being smashed down?
"Integrate or die"
TRUST US, WE'RE BANKERS ;)
yes, if we invest with the notion to go against everything these pathetic bank analysts spout, then a greece exit will be an investment boon for all of us!!
"Disintegrate or try to survive"
TRUST US, WE'RE BANGERS. LOL
but, but .butt;
http://www.cnbc.com/id/47533609
aaaaaaaaaaaaaaaaaaaaad:
http://www.cnbc.com/id/47534151:
Kills the argument that Cramer-CNBC was putting out about $2 Trillion fund to protect the deposit holders. I ask when these elitists/democrats/socialists put out these numbers - WHERE IN THE HELL does the money come from? Oh ya, the US Tax payers, typical of the left use other people's money!!!
Typical banker fascism.
The euro doesn't need additional firewalss nor more integration, it needs governments to stop creating debts to fatten bankers and enslave the populations.
Cross border trade, a stable currency are the result of diplomacy and financial management. Federalism does not magically create fiscal restraint. The fruits of fascism blind the people, like continual dosing of mind altering drugs, hoping for the addicts to refuse more fantasy and accept the pain of real life is cruel leadership.
Gotta love the banksters. adopt and design a deeply flawed system, that allows too much leverage, and them to make huge amounts of money. Then when the flaws are exposed, don't fix it, just spend unlimited amounts of money propping it up.
I'm about to take my ball and go home for good
The dick would still follow you.
Integrate or die....
Because that has always worked so well in Europe.
Precisely
thought we had national Govts with brilliant people to solve all the problems of society and the economy... blow me if the Govts didn't wrack-up debts they had no plan to repay and end up looking like a bunch of idiots
and how are they doing at problem solving their debts? Why they're (buck) passing it up to EU level who are solving a debt problem with more debt
the higher you go in these ivory towers the more deluded and idiotic it gets
I hate to toss a grenade in the ointment, but if the peripheral governments knew the Euro was going to explode eventually and that they would never have to repay their debts, then running up the credit cards IS the rational act ...
Mr. Panos' joke about smacking Germany around for 'reparations' may have some truth to it since Germany was the only country to technically honor the principle of the agreement (while underwriting the loans). The bank that's being run is Germany. Question is whether they want to stick around to get stuck with the bill.
Bullseye! That is some concise analysis.
Seems like a M.A.D. scenario for UBS because of their exposure, but I think this is probably stating the obvious. Interesting, however, that they do not note this in their article.
question:
I'm new to stocks and am wondering about VXX and FAZ. Obv. pre mkt they are up today, so has the 'boat been missed' for me to get in, or do those trade in a certain range (FAZ up .69 right now)?
And does VXX go up only when stocks go down, or is it sheer up and down that is good?
http://www.zerohedge.com/news/how-faz-mobile-promises-lose-996-your-money-even-if-market-crashes-60
fazmobile = deathmobile
If you're new to stocks these may not be the ones to play. They can make a lot of money quickly but lose it just as fast. Take a look at their charts from last summer. Do you think you can time the up and down swings when they move 20% in a day? If so they can be great vehicles. On a steep decline the leverage will pay off. But you'll need to know when to sell because holding them will kill you. Their value decays rapidly with time in stable markets and even faster in up markets. If Bernanke says something about QE FAZ will lose 10% in five minutes and VXX will lose double. Ask your doctor if your heart is healthy enough before you buy them (still they could easily double in the next month or two). If you like betting on double zero at roulette you will enjoy these stocks. I do like 00 and have lost a fair amount on these stocks but think TZA is nicer.
Bank runs are the price you pay for having a fractional reserves banking system.
The only way for the Euro to survive is for its members to pool their gold, revalue it massively and then issue Eurobonds backed by that gold.
EU has little to no gold. Its all sitting in London and NY.
Won't work in practice because (surprise!) gold is also subjected to fractional reserve banking...
When people lose faith in fractional reserve banking you get bank runs, but when whole nations do it, you get wars.
And when you have whole nations with no militaries that can project force outside their borders since they were using the military to soak up unemployed youth and dispense largesse internally, you get alot of people typing out angrily worded memos as they do jack shit.
Its kinda hard to bomb someone when you lack bombs and cant afford the jet fuel.
they will send them in with sticks and rocks
If you didn't skip your history class you would've learnt that uncle Rothschild is always there to help a neighbour in need.
In other words you don't think if they knock all their teeth out and put them under their pillows that the Tooth Fairy will bring them enough money to take care of the debts?
UBS wants a "Euro confederation" to 'solve' the problem of Euro integration (of debt)... wasn't "going large" in Europe the start of the problems???
you can see why Davos is such a Mecca for village idiots
lol, that would make the hit parade in Medina! And in St Moritz.
ubs ubs ubs ; like usa, usa, usa. Its all the same name, ecstatic claim, of uber-alles game, smoke and mirrors and fatal flaw of hubris to save a face-book that launched a thousand ships on the internet. Come back to Mycenae and get your comme-uppance Agamemnon, after winning your war and bringing home your trojan squaw, she who squawked all nite long the same, sad song!
Europeans could always deposit their savings in the US Stock Market. We'll keep it safe...
Or US treasuries and US dollars. Or inflated PM's
Then when they all buy PM's, THEN you'll see rug really get pulled out ...
Nowhere but nowhere does UBS in this article address the structural problems in the EU. Forced integration does nothing to destroy the notion of living off the other guys euro with incentives to be lard asses and politburo (as in Brussels) members. It is either fly or die now...shit, even the birds know it.
At no point does this article address the root of the problem: The Corrupt Flawed Ponzi scheme that generated this fiasco.
The authors are not concerned with real solutions, only how to continue the corruption.
Duh, UBS is a bank. They will not talk about the Ponzi. EVER.
We are fast approaching the point where there are 50 people and only 20 chairs. When the music stops, it's going to be a fucking bloodbath.
All you are monies belong to us.
Hmmm...
Integration or havoc?
Hmmm...
I'll have the havoc please ...
One shot or two?
The EURUSD is at important technical levels. A potential reversal is ahead for the EURUSD as price action flirts with the 10 year trend line. www.marketoverflow.com
It would be a slow and gradual unwind of the ponzi and day by day people will realise they are either getting richer (few) or getting poorer (many).
OR a sudden collapse, which most of us want to see, if theres a public panic.
Theres nothing more to any predictation or modelling of the unwinding of global economy.
What was it Marc Antony said about this "cry havoc" thing?
http://www.youtube.com/watch?v=He82NBjJqf8
Apparently Big Computers aren't the solution to this problem...
There are probably three scenarios:
1) Rinse and Repeat: the EU continues to give Greece money, Greece builds up even more debt, Greece cannot pay so it restructures, and the process begins again….Spain follows suit
2) Arms Length Black Sheep of the Family: Greece remains in the euro, but is shut off from new funding; instead, the ECB assumes all Greek existing sovereign debt and prints to pay it off over the next twenty years, kind of an amortization…this is effectively a default within the euro, and unless Greece somehow can make itself competitive, its standard of living continues to decline
3) All Hell Breaks Loose: Greece defaults outside of the euro
1, 2 or 3, Spain is still there, in its role as the Ireland of Continental Europe (bad banks, better than average sovereign debt to GDP). Italy is just a bigger Greece, albeit with a far more competitive private economy.
I wonder how much skin in the Euro game UBS has - they protest too much. Greece was not politically ready for the Euro currency, inasmuch as it allowed their leadership to borrow with abandon without consequences for a period of time, greasing their way to power. With its own currency, and a jubilee for its debts, the fall in value of the drachma and the local rise in prices would at least serve as a more immediate feedback and brake on Greek government spending.
John Mauldin published a Niall Ferguson essay on why Germany and the European elites will keep the euro together here:
http://www.marketoracle.co.uk/Article34798.html
Ferguson always has something intelligent to say (even if not always correct). My guess is that Ferguson's analysis will be proved correct at least over the short term (as long as that is possible).
Ultimately, I think Europe comes apart. Resource depletion (oil) guarantees this eventually, because even Germany will not be able to sustain sufficient economic growth.
Just my two cents.
Thank you for posting this. I agree with Ferguson, Greece isn't going to implode the euro, Germany won't either. Simply for the reason that powerful interests on both sides don't want it to happen.
Ferguson lays out the powerful interests on the German side.
Syriza and Tsipras may be talking tough, but how do we know this isn't baked into the game plan to federalize Europe? Tsipras/Syriza are hardcore socialist for chrissakes, not nationalists. They could care less about sovereign rights of Greece, and this is proven with their stance on Macedonia, Thrace, immigration, and AOZ zones in the Aegean. What they really dream of is One Europe under Socialism.
I don't believe there is even one politician in Greece willing to take Greece out of the Euro and reintroduce the drachma. The only possible exception may be Mr. Kammenos. Everyone else fears the political cost.
And the politicians who have been in government for years have one more thing to fear: jail and possible hanging. I say this because the former defense minister Akis Tzahatzopoulos' private diary and papers have been siezed by authorities, and he is the equivialent of Artie Piscano in 'Casino': the one dumb mobster that kept records of his criminal activities. In his papers even George Papandreou is implicated in graft and kickbacks! So one can imagine this is the tip of the iceberg, and the elites want to keep the rest underwater.
Summary of Mauldlin-Ferguson : The European monetary union was implemented by the elites and banksters with the intended action goal of creating a huge financial and political crisis, which would become the overwhelming reason for the reaction creation of the federal United States of Europe. Breakup of the Euro zombie zone cannot be allowed, because that would lead to total anarchy and fascism. Supposedly, "Fascism is discredited in Europe." However, IMO the entire elites and bankster conspiracy plan is another jackboot step toward the fascist totalitarian EUSSR and eventually to the New World Order of the One World Government.
About fifteen years ago, I was writing and sending many handwritten letters to Princess Diana, for two years before the Paris car crash, and in one such letter I strongly suggested that Britain should stay out of the European Union. Unfortunately, the Government was spying on my letters, and somehow the London Sunday Times and the Economist magazine knew what I was writing to Diana; but now all part of the conspiracy coverup.
where's the image from the front page's thumbnail that looked like missiles flying!?
people have "money" in "banks" and may "run" to remove it?
others may Walk Don't Run The Ventures or simply leave their "deposits" or increase them
which is the more civilized behavior?
are those people who are "running" crazy? do they think someone is out to take their "money"? is there a psychosis loose?
will the peeps who are "walking" have delays and "consolidations" to deal with b/c they are fuking styooopid?
do you know if your zombie counterparty will "Still Love You Tomorrow"?