And now a little something for everyone who consistently has a nagging feeling that at any second the world is one short flap of a butterfly's wings away from complete systemic disintegration: according to David Korowicz of FEASTA, and his most recent paper: 'Trade-Off: Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse." that just may be the case. Think of the attached 78-page paper as Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890. To wit: "Something sets off an interrelated Eurozone crisis and banking crisis, a Spanish default say, which spreads panic and fear across other vulnerable Eurozone countries. This sets off a Minsky moment when overleveraged speculators in the banking and shadow banking system are forced to unwind positions into a one-sided (sellers only) market. The financial system contagion passes a tipping point where governments and central banks start to lose control and panic drives a (positive feedback) deepening and widening of the impact globally. In our tropic model of the globalised economy, the banking and monetary system keystone hub comes out of its equilibrium range, crosses a tipping point, and is driven away by positive feedbacks to some new state.... it is very clear that we have learned almost nothing general about risk management as a societal practice arising from the financial crisis. We have merely adopted a new consensus, with a questionable acknowledgement that we will not let this type of crisis happen again. However, the argument in this following report is that we are facing growing real-time, severe, civilisation transforming risks without any risk management."
In a few moments we will post a critical analysis by David Korowicz, titled Trade-Off: Financial System Supply-Chain Cross- Contagion: a study in global systemic collapse, arguably one of the best big picture overviews of the New Normal in systemic complexity, which considers the "relationship between a global systemic banking, monetary and solvency crisis and its implications for the real-time flow of goods and services in the globalised economy" and specifically looks at how various "what if" scenarios can propagate through a Just In Time world in which virtually everything is connected, and in which even a modest breakdown in one daisy-chain can lead to uncontrolled systemic collapse via the trade pathways more than ever reliant on solvency, sound money and bank intermediation.To wit: "For example, when the Federal Reserve Bank of New York commissioned a study of the structure of the inter-bank payment flows within the US Fedwire system they found remarkable levels of concentration. Looking at 7,000 transfers between 5,000 banks on an average day, they found 75% of payment flows involved less than 0.1% of the banks and 0.3% of linkages."
In a memo released to Barclays staff, outgoing Chairman Marcus Agius appeared to throw the rest of his Liebor-fixing cohort banks under the bus, noting that "As other banks settle with authorities, and their details become public, and various governments' inquiries shed more light, our situation will eventually be put in perspective" by the fines handed out to other international banks. As Sky News reports, it appears 90 million emails and 1 million voicemails will be made available to the independent body spearheading the Liebor probe - the details of which are being finalized this weekend. While the rest of the memo focused on the restoration of Barclays' reputation and the "trust that has been so badly damaged", they quite clearly hinted at its rivals were likely to be hit with even harder fines that the GBP290 million imposed on Barclays. They add, as if we did not need reminding that "the macro-environment remains febrile, especially in Europe. We have to remain vigilant on balance sheet exposures and risk management. In short, our focus must remain on capital, funding and liquidity; improving returns; and driving income growth." But we can't help but feel a Charles Prince-esque defense coming here that 'everyone was doing it' and while the music still played, we kept 'dancing'.
In broad brush, financialization enabled the explosive rise of politically dominant cartels (crony capitalism) that reap profits from graft, legalized fraud, embezzlement, collusion, price-fixing, misrepresentation of risk, shadow systems of governance, and the use of phantom assets as collateral. This systemic allocation of resources and the national income to serve their interests also serves the interests of the protected fiefdoms of the State that enable and protect the parasitic sectors of the economy. The productive, efficient private sectors of the economy are, in effect, subsidizing the most inefficient, unproductive parts of the economy. Productivity has been siphoned off to financialized corporate profits, politically powerful cartels, and bloated State fiefdoms. The current attempts to “restart growth” via the same old financialization tricks of more debt, more leverage, and more speculative excess backstopped by a captured Central State are failing.
Neofeudal financialization and unproductive State/private vested interests have bled the middle class dry.
Hundreds of billions of dollars of additional potential legal liability, much of which likely borne by US banks, yet very few are paying attention. Here's how I see it...
Barclays Wins Euromoney's Best Global Debt, Best Investment Bank, And Best Global Flow House Of The Year AwardsSubmitted by Tyler Durden on 07/05/2012 17:24 -0500
Financial magazine Euromoney, which in addition to being a subscription-based publication appears to also rely on bank advertising, has just held its 2012 Awards for Excellence dinner event. And in the "you can't make this up" category we have Barclays winning the Best Global Debt House, Best Investment Bank, And Best Global Flow House Of The Year Awards. Specifically we learn that "the bank’s commitment to the US is exemplified by the addition of another global senior manager to the country – Tom Kalaris is now going to be splitting his time between New York and London as executive chairman of the Americas as well as overseeing wealth management. Jerry del Missier, who has overseen the corporate and investment bank through its Lehman integration and was recently appointed COO of the Barclays group, says the bank is well positioned. "We came out of the crisis in a stronger strategic position and that has allowed us to continue to win market share and build our franchise. Keep in mind that the US is the largest investment banking, wealth management, credit card and investment management market in the world, and in terms of fee share will remain the most dynamic economy in the world for many years. As a strong global, universal bank operating in a competitive environment that is undergoing significant retrenchment, we like our position." That said, with the Chairman, CEO and COO all now fired, just who was it who accepted the various award: the firm's LIBOR setting team? And if so, were they drinking Bollinger at the dinner?
- Merkel Backs Debt Sharing in Germany Amid Closer EU Push (Bloomberg)
- With a ruling as early as today, here are four health care questions the Supreme Court is asking (CBS)
- George Soros - Germany’s Reticence to Agree Threatens European Stability (FT)
- China Stocks Drop to Five-Month Low (Bloomberg)
- The New Republic of Porn (Bloomberg)
- That's a costly detached retina: Greek Lenders Postpone Mission to Athens (FT)
- Spain Asks for Aid as EU Fights Debt Crisis (FT)
- Wolfgang Münchau - Why Mario Monti Needs to Speak Truth to Power (FT)
- U.S. Banks Aren’t Nearly Ready for Coming European Crisis (Bloomberg)
- MPC Member Wants £50bn Easing (FT)
- India Boosts Foreign Debt Ceiling by $5 Billion to Defend Rupee (Bloomberg)
PIIGS are only the beginning.
Here We Go: Moody's Downgrade Is Out - Morgan Stanley Cut Only 2 Notches, To Face $6.8 Billion In Collateral CallsSubmitted by Tyler Durden on 06/21/2012 16:26 -0500
Here we come:
- MOODY'S CUTS 4 FIRMS BY 1 NOTCH
- MOODY'S CUTS 10 FIRMS' RATINGS BY 2 NOTCHES
- MOODY'S CUTS 1 FIRM BY 3 NOTCHES
- MORGAN STANLEY L-T SR DEBT CUT TO Baa1 FROM A2 BY MOODY'S
- MOODY'S CUTS MORGAN STANLEY 2 LEVELS, HAD SEEN UP TO 3
- MORGAN STANLEY OUTLOOK NEGATIVE BY MOODY'S
- MORGAN STANLEY S-T RATING CUT TO P-2 FROM P-1 BY MOODY'S
- BANK OF AMERICA L-T SR DEBT CUT TO Baa2 BY MOODY'S;OUTLOOK NEG
So the reason for the delay were last minute negotiations, most certainly involving extensive monetary explanations, by Morgan Stanley's Gorman (potentially with Moody's investor Warren Buffett on the call) to get only a two notch downgrade. And Wall Street wins again.
More than 80 institutions with collective assets under management of over $8 trillion attended the event and were polled regarding macroeconomic matters and their outlook for various asset classes. Gold is seen as one of the assets likely to outperform again in 2012 due to risks posed to the euro and longer term risks for the dollar. Those polled by UBS were also positive on emerging market debt. Both asset classes, gold and emerging market debt, were the top pick of 22.5% of the assembly – thereby accounting for 45% of the votes. On gold’s role as a reserve asset, the importance reserve managers attach to the yellow metal has slipped back to 2009 levels, with about 14% having the opinion that it will be the most important reserve currency in 25 years. This marks a decline from the past two years’ surveys wherein over 20% viewed gold to be the most important reserve currency.
The most effective response for Spain would be to de-link sovereigns and their banks, following recent steady accumulation of sovereign debt by peripheral banks, in our view. Reducing the link between Spanish banks and the sovereign remains one of the key aspects for relieving pressure on Spain, whether this be by removing sovereign debt from balance sheets or ensuring sufficient capitalization to absorb losses. Unemployment out this morning at 24.4% shows the fragile state the economy is in, which is likely to keep pressure on Spanish yields. Against this backdrop the effect on the asset side of balance sheets is concerning, with expected weakness in non-core government bond prices coupled with a weak economy decreasing individuals' and corporates' ability to repay
We are just about 16 hours away from Jamie Dimon's sworn testimony before the Senate Banking Committee, which even has the theatrical name: "A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?" Will anyone learn anything? Of course not: Jamie Dimon has been well-schooled in not disclosing critical trading information, and will certainly use the "proprietary position" and "more shareholder losses" excuse for any directed question asking how big the JPM CIO loss has become. Because while the hearing could have been productive, if indeed its purpose was to seek to prevent future massive losses of scale such as the suffered by the JPM prop trading unit and its hundreds of billions in CDS notional position, the last thing anyone will care about tomorrow is market efficiency and actual regulation. First and foremost: grandstanding and posturing, in the case of the politicians, and not disclosing anything, without saying too many "I don't recall"s in the case of Dimon. Which is why we have little hope to get anything out of tomorrow's formulaic 2 hours of largely meaningless droning. That said, considering we have already covered the topic of the JPM loss from a mechanistic standpoint more than any other media outlet, there is one more chart we would like to share with readers.
A land grab shrouded in a banking takeover, wrapped in a financial crisis "rescue." As always, insiders get first dibs. (And, yes, there is an MF Global connection.)
European Insurer Needs Insurance As $6B Of Its Bonds Are Instantly Subordinated Due To "Spain's Pain"Submitted by Reggie Middleton on 06/11/2012 10:36 -0500
One minute you have it, the next minute you don't. Nowadays you never know if the money you have in Europe is really yours or not. From instantaneous debt subordination to capital (flight) controls, things are starting to look ugly!
Fitch Follows S&P, Slashes Spain By 3 Notches To BBB, Only Moody Is Left - Step 3 Collateral Downgrade ImminentSubmitted by Tyler Durden on 06/07/2012 11:48 -0500
First it Egan-Jones (of course). Then S&P. Now Fitch (which sees the Spanish bank recap burden between €60 and a massive €100 billion!) joins the downgrade party of rating agencies that have Spain at a sub-A rating. Only Moody's is left. What happens when Moody's also cuts Spain from its current cuspy A3 rating to sub-A? Bad things: as we explained on April 30, when everyone has Spain at BBB or less...