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Forget "austerity"and political theater--the only way to truly comprehend the Eurozone is to understand the Neocolonial-Financialization Model, as that's the key dynamic of the Eurozone. In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony's resources and labor to enrich the "center," i.e. the home empire. In Neocolonialism, the forces of financialization (debt and leverage controlled by State-approved banking cartels) are used to indenture the local Elites and populace to the banking center: the peripheral "colonials" borrow money to buy the finished goods sold by the "core," doubly enriching the center with 1) interest and the transactional "skim" of financializing assets such as real estate, and 2) the profits made selling goods to the debtors.

In essence, the "core" nations of the E.U. colonized the "peripheral" nations via the financializing euro, which enabled a massive expansion of debt and consumption in the periphery.

Bank Regulatory Capital has been in the news a lot recently - between the $1+ trillion Basel 3 shortfall, the Spanish banks with seemingly their own set of capital issues, or JPM's snafu.  There has been a lot of discussion about Too Big To Fail (“TBTF”) in the U.S. with regulators demanding more and banks fighting it.  After JPM's surprise loss this month, the debate over the proper regulatory framework and capital requirements will reach a fever pitch.  That is great, but maybe it is also time to step back and think about what capital is supposed to do, and with that as a guideline, think of rules that make sense. Specifically, regulatory capital, or capital adequacy, or just plain capital needs to address the worst of eventual loss and potential mark to market loss. Hedges are once again front and center.  The only "perfect" hedge is selling an asset. This "hedge" is also a trade.  The risk profile looks very different than having sold the loan and the capital should reflect that.

Did France, Italy and Greece think they are the only ones who can float strawmen in the media? No. Once again, Germany shows us how it is done. From Tomorrow's edition of Deutsche Wirtschafts Nachricthen: "The Greece-exit is a done deal: According to the German economic news from financial circles EU and the ECB have abandoned the motherland of democracy as a euro member. The reason is, interestingly, not in the upcoming elections - these are basically become irrelevant. The EU has finally realized that the Greeks have not met any agreements and will not continue not to meet them. A banker: "We helped with the Toika. The help of the troika was tied to conditions. Greece has fulfilled none of the conditions, and has been for months now." So more posturing? Or is Germany truly just so sick and tired of bailing out not just Greece (which pockets between 0% and 20% of any actual bailout cash), and indirectly French banks which as of this moment are the biggest pass thru beneficiaries, and of course the ECB with its tens of billions in old par GGB holdings, that this article is, gasp, founded in reality? Is Europe approaching its own Lehman moment when everyone says "just screw it", and let the dice fall where they may? Many said Lehman could never be allowed to fail. They were wrong. Just as many are saying that Europe will never let Greece leave as the costs to the continent are just too great. Well, judging by tonight's epic fiasco of a Euro-summit, the last thing we would attribute to Europe's leaders is clear and rational thought.

Motorcyclists travel to L.A. and then travel east picking up other riders.

Here's My Argument for Fighting the Good Fight Even Against Seemingly Overwhelming Odds ... The Counter-Argument Is that We Should Unplug from the Martrix, and that Will Suck Away Its Power. What Do You Think, Savvy Reader?

There’s been a lot of excitement in the past year over the rise of North American oil production and the promise of increased oil production across the whole of the Americas in the years to come. National security experts and other geo-political observers have waxed poetic at the thought of this emerging, hemispheric strength in energy supply. What’s less discussed, however, is the negligible effect this supply swing is having on lowering the price of oil, due to the fact that, combined with OPEC production, aggregate global production remains mostly flat.  But there’s another component to this new belief in the changing global landscape for oil: the dawning awareness that OPEC’s power has finally gone into decline. You can read the celebration of OPEC’s waning in power in practically every publication from Foreign Policy to various political blogs and op-eds.

All you need to read.

Earlier today we mocked Jamie Dimon for announcing the cancellation of his firm's stock buyback program, just two shorts months after March 13, when none other than JP Morgan forced the Fed to scramble and release the full stress test ahead of schedule, after Jamie Dimon decided to frontrun the full FRBNY stress test release (whose sole purpose was to determine under what worst case scenario the Fed was ok with allowing JPM and various other Bank Holding Companies to proceed with dividend raises/stock buybacks) and announce just that - a dividend increase and a stock buyback. Well, in addition to some well justified egg in Dimon's face, today's results actually have some far more troubling implications. Because while we now know that the buyback is over, what we still don't know, because Jamie Dimon refuses to tell us, is just how big the CIO P&L loss as of close today. Yes, there are many speculations but nobody knows for sure. Zero Hedge was the first to suggest based on reverse engineering of what the potential loss drivers may well have been, and subsequently the slower media corroborated, that the total loss would be orders of magnitude greater than the $2 billion announced on May 10. But how many orders? Well, for what may be a critical clue, we go to the Fed's stress test itself. Presenting Exhibit A - page 73 of 82...

Frequent readers know that Citi's Matt King is our favorite analyst from the bailed out firm. Which is why we read his latest just released piece with great interest. And unfortunately for our European readers, if King is right, things in Europe are going to get far worse, before they get better, if at all. Because while one may speculate about political jawboning, the intricacies of summit backstabbing, and other generic nonsense, the one most important topic as discussed lately, is that terminal event that any financial system suffers just before it implodes or is bailed out: full scale bank runs. It is here where King's observations, himself a member of a TBTF bank which would likely be dragged down in any cash outflow avalanche, are most disturbing: "In Greece, Ireland, and Portugal, foreign deposits have fallen by an average of 52%, and foreign government bond holdings by an average of 33%, from their peaks. The same move in Spain and Italy, taking into account the fall that has taken place already, would imply a further €215bn and €214bn in capital flight respectively, skewed towards deposits in the case of Spain and towards government bonds in the case of Italy....Economic deterioration, ratings downgrades and especially a Greek exit would almost certainly significantly accelerate the timescale and increase the amounts of these outflows." That's right: according to Citi there is a distinct likelihood that, all else equal, the domestic bank sector in Spain will see another €215 billion in deposit outflows.

The standard Keynesian narrative that "Households and countries are not spending because they can’t borrow the funds to do so, and the best way to revive growth, the argument goes, is to find ways to get the money flowing again." is not working. In fact, former IMF Director Raghuram Rajan points out, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side as technology and foreign competition means that "advanced economies were losing their ability to grow by making useful things." Detailing his view of the mistakes of the Keynesian dream, Rajan notes "The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.", and critically his conclusion that the industrial countries have a choice. They can act as if all is well except that their consumers are in a funk and so what John Maynard Keynes called “animal spirits” must be revived through stimulus measures. Or they can treat the crisis as a wake-up call and move to fix all that has been papered over in the last few decades and thus put themselves in a better position to take advantage of coming opportunities.

Sometimes, the greatest deeds are done by those who are just doing their jobs, like Judge Katherine Forrest who last week struck down the indefinite detention provision (§1021) of the National Defense Authorization Act (NDAA). It would be all too easy in this age of ever-encroaching authoritarianism in America for a judge ruling on a matter like this to just go with the government line and throw water over the plaintiffs. After all, telling truth to power has consequences. Forrest was appointed by Obama, but after this ruling one wonders whether she is about to meet a career dead-end. Power — especially narcissistic power — does not like being told uncomfortable truths. Everything about this case is shameful; it should be obvious to anyone who can read the Constitution that indefinite detention without trial (just like assassination without trial — something else that Obama and his goons have no problem practicing and defending) is hideously and cruelly unconstitutional. It defecates upon both the words and the spirit of the document.

The last time the body language (and ex-intelligence) experts from Business Intelligence Advisors appeared on these pages, their target was Ben Bernanke, and specifically his first ever post-FOMC press conference. This time around, BIA has chosen the analyze what has been left unsaid by none other than the head of JP Morgan in the context of his $2 billion (and soon to be far larger) loss which is still sending shockwaves around the financial world. As a reminder, "Using techniques developed at the Central Intelligence Agency, BIA analysts pore over management communications for answers that are evasive, incomplete, overly specific or defensive, potentially signaling anything from discomfort with certain subjects,  purposeful obfuscation, or a lack of knowledge." So what would the CIA conclude if they were cross-examining Jamie Dimon?

So stepping aside from the biggest aggregator of private data for a few minutes, and focusing on what actually matters, here is Citigroup telling our European readers who have those fancy multi-colored bills in their wallets, that they are in deep trouble.

To summarize from Citi:

• There are many scenarios for a Greek exit;  almost all of them are likely to be EUR negative for an extended period
• Some scenarios could be positive in equilibrium but the run-up to the new equilibrium could be nasty, brutal and long 
• The positive scenarios for the euro involve aggressive reduction of tail risk; none of these seem likely
• It is unlikely that central banks busily substitute EUR for USD in their portfolios during periods of intense political uncertainty.

We already know that JPM has lost billions on its prop trade, and as suggested earlier (and as the FT picked up subsequently), JPM's prop desk (not to mention its actual standalone hedge fund, $29 billion Highbridge, which nobody has oddly enough discussed in the mainstream press yet) is so large that unwinding the full trade, as well as all other positions held by the CIO, would be unwieldy, allowing us to mock "the fun of negative convexity - especially when you ARE the market and there is no-one to unwind the actual tranches to." The FT then phrased it as follows: "I can’t see how they could unwind these positions because no one can replace them in terms of size. It’s a bit of the same problem they face with the derivatives trade," said a credit trader at a rival bank. "They pretty much are the market." Which actually is funny, because if the media were to actually read a paper or two on how the market works, and puts two and two together, it just may figure out that the biggest beneficial counterparty for JPM is none other than the Fed, using the conduits of the Tri-Party repo system. But that is for Long-Term Capital Morgan^TM and its new CIO head Matt "LTCM" Zames to worry about. In the meantime, a question nobody has asked is how have the purported JPM counterparties, the most public of which are BlueMountain and BlueCrest who leaked the trade to the press in the first place, and are allegedly on the other side of the IG9 blow up doing. Well, according to the latest HSBC hedge fund update looking at the week ended May 11, not that hot.

As many already know, earlier today Senator Schumer announced the cleverly named Ex-PATRIOT act, which seeks nothing short of exile for anyone who effectively declines their US citizenship for tax avoidance purposes. So far so good. We have, however, one simple question. In light of recent media reports of rampant abuse of various international tax loopholes by US corporations (recall the Double Irish with a Dutch Sandwich), but much more importantly, the glaring abuse of offshore tax shelters by hedge funds - organization such as Paulson & Co., RenTec, York Capital, etc., and financial institutions, such as Lazard, Blackstone, and Credit Suisse, can Senator Schumer please rep, warrant and guarantee that none of his corporate sponsors, i.e., his Top 100 Contributors, have ever engaged in any form of explicit or implicit tax avoidance, tax offshoring, and tax shelter. To facilitate his checklisting, we have presented his top 100 contributors below. Because if he can't, one may be left with the impression that his whole anti-tax tirade and legislation is, you know, hypocritical.