Spreads exploded wider today across all markets as contagion from Europe smashed risk appetite everywhere as broad-based macro/index selling/hedging was clearly in play. So many record-breaking moves and breathless dealers that we are a little stunned still by today's action but to be clear, credit was leading equity down out of the gate, did not crash and bounce anything like stocks late afternoon, but closed at 10-month wides in IG and six month wides in HY.

We have been informed by sources in the US Army Corps of Engineers, Federal Emergency Management Agency (FEMA), and Florida Department of Environmental Protection that the Obama White House and British Petroleum (BP), which pumped $71,000 into Barack Obama's 2008 presidential campaign -- more than John McCain or Hillary Clinton, are covering up the magnitude of the volcanic-level oil disaster in the Gulf of Mexico and working together to limit BP's liability for damage caused by what can be called a "mega-disaster." Obama and his senior White House staff, as well as Interior Secretary Ken Salazar, are working with BP's chief executive officer Tony Hayward on legislation that would raise the cap on liability for damage claims from those affected by the oil disaster from $75 million to $10 billion. However, WMR's federal and Gulf state sources are reporting the disaster has the real potential cost of at least $1 trillion. Critics of the deal being worked out between Obama and Hayward point out that $10 billion is a mere drop in the bucket for a trillion dollar disaster but also note that BP, if its assets were nationalized, could fetch almost a trillion dollars for compensation purposes. There is talk in some government circles, including FEMA, of the need to nationalize BP in order to compensate those who will ultimately be affected by the worst oil disaster in the history of the world.

In a historic development, we may be on the verge of the Senate passing amendments that will bite off the Wall Street hand that has fed the Senate, Congress and all politicians for decades. The Huffington Post reports that "Harry Reid will make sure that an amendment to break up megabanks and cap their size comes up for a vote, the Senate majority leader said. He added that he was leaning heavily toward voting for the amendment, cosponsored by Sens. Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del.). Reid will also support an amendment from Sen. Bernie Sanders (I-Vt.) that will authorize an audit of the Federal Reserve." In an ironic twist, the president may be the last party remaining to protecting Wall Street's interests, as democrats wholesale turn their back on their former masters. Should the critical Brown/Kaufman and Sanders amendments pass it will be game over not only for Goldman Sachs and the Federal Reserve, but to the entire financial oligarchic/kleptocratic status quo that has controlled this country for decades. The next inevitable logical progression is the passage of the McCain amendment which essentially returns Glass-Steagal. Should that happen, look for all fin stocks to trade at about 25% of their current levels.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 06/05/10

In the past two weeks, borrowings under the ECB's "discount window" equivalent, the Marginal Lending Facility, have jumped substantially. Where on April 25th just E2 million was outstanding, it has subsequently jumped all the way to 2.6 billion on May 3 (yes, for Americans these sums are paltry, but for European, and especially Greek banks, half a billion could mean the difference between life and death). And with the O/N-3M repo spread blowing out, the ECB could be once again becoming the lender of first and last resort. One of the rumors for the jump in borrowings has been that Greek Piraeus bank was on the verge in the last days of April after a full blown bank run, and only a last-minute MLF borrowing helped it stave off bankruptcy. The MLF dropped to E1.3 billion yesterday, although this could be merely a liquidity shift from one source to another. Keep a close eye on the ECB's daily MLF report to determine if there is a backdoor bailout occurring of one of the more troubled European banks. We will also provide details later on today, when the data becomes available, on whether the Fed has disclosed any FX swaps having taken place in the prior week.

Listening to ECB President Jean-Claude Trichet who said default is not an option for Greece while the single currency attacked the $1.27 figure at the moment when he called it a safe store of value I cut my observations of the ECB council meeting here. Mr. Market seems to have a differing opinion. BTW, interest rates are on hold despite the latest uptick in inflation to 1.4%.

I stumbled upon this ECB legal document that runs to the contrary and strangely has found no media attention.

While promoting the Euro as a safe store of value the ECB opts for tight limits on cash transactions in Greece, limiting the role of cash Euros as a medium of exchange, one of the fundamental functions of a currency.

Stating the objective to limit tax evasion the ECB recommends that all business transactions above €3,000 and all consumer expenses above €1,500 Euros shall be paid for in all other forms than cash. - Toni Straka, The Prudent Investor