Category Archives: Currencies

David Apgar: Could Germany Be Right about the Euro?

By David Apgar, co-founder of GoalScreen, a web app still in trials that lets investors test alternative price drivers of specific securities (free though the end of the year at www.goalscreen.com. He has been a manager at the Corporate Executive Board, McKinsey, the Office of the Comptroller of the Currency, and Lehman, and writes at www.goalscreen.com/blog.

What if there are good reasons for the preternatural calm of German Chancellor Merkel’s inner circle as the English-language media (based, after all, in the investor capitals of London and New York) light their collective hair on fire about the euro’s imminent immolation? Surprisingly, you can make a decent argument that the euro zone is at no risk of breakup – unless someone secretly switches its purpose from facilitating European trade to providing investors an implicit guarantee against losses.

ContagionEx is For You!

I’m in the middle of a serous shredding which is taking longer than I’d like. But for your viewing pleasure in the meantime, Mark Ames has found this tidbit:

Rob Johnson on Real News Network on the Fed’s Lifeline to Eurobanks, and the Rationale for Austerity

Rob Johnson brings a wide ranging perspective (from politics, as a former Senate staffer; from markets, as a former hedge fund manager; and an economist, by training and via his current role as head of the Institute for New Economic Thinking) to this interview on the immediate and deeper implications of the central bank intervention on behalf of the Eurozone earlier this week. Johnson is deeply skeptical both of the near and longer-term approaches taken to rescue the Euro. This talk has a particularly clear and layperson friendly discussion of the rationale for and failings of austerity.

Wolf Richter: French Presidential Election – Coup De Grâce For The Euro?

By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Amidst a flood of proposals, plans, and rumors to save the euro and the Eurozone, much has been made of the Merkozy couple, the uneasy partnership between French President Nicolas Sarkozy and German Chancellor Angela Merkel. During his speech today in Toulon, an ancient Mediterranean port town, Sarkozy reemphasized his commitments: the ECB must remain independent, and France and Germany must remain the pillar of stability. “To defend the euro is to defend Europe,” he said. Alas, he may be out of a job by May 2012—and his potential successors to the left and to the right have different ideas.

Does Anybody Who Gets It Believe Central Banks Did All That Much Yesterday?

I’m still mystified as to the market reaction on Wednesday to the coordinated central bank effort at waving a bazooka at the escalating European financial crisis. But as readers pointed out in comments, the big move was overnight, in futures, when trading is thin, and there was no follow through when markets opened. And volume was underwhelming.

Mosler/Pilkington: Response to Yanis Varoufakis Regarding Our Eurozone Exit Plan

By Warren Mosler, an investment manager and creator of the mortgage swap and the current Eurofutures swap contract and Philip Pilkington, a journalist and writer based in Dublin, Ireland

Recently the Greek economist Yanis Varoufakis responded to the euro exit plan that we published on Naked Capitalism a few days ago. While Varoufakis was broadly supportive of the plan if an exit was absolutely necessary, he criticised some of the details therein.

Central Banks Announce Coordinated Liquidity Effort to Alleviate Euromess

Any of you who are market oriented no doubt are all over the news of central bank coordinated liquidity efforts. This is from the Federal Reserve’s announcement:

Is a Eurofix Around the Corner?

After telling readers that the Eurozone leadership looks to be suffering from “dulled reaction times…so out of line with market events that even if they were to snap our of their stupor now, it would be too late,” news reports suggest that they have finally roused themselves.

Or have they?

Eurocarnage Continues

Things are only going from bad to worse in Europe.

German Bund Action Goes Badly; Bank of America CDS Spread Hit New High; EuroSovereign and US Bank Spreads Widen More. Will the Germans Finally Break Glass?

As our overly-long headline tells you, Wednesday was a really bad day in credit land. Not only has the reality of the severity and seeming intractability of the Eurozone mess started sinking in, but US investors seem finally to be facing up to the fact that a full blown crisis would not be contained and will engulf American banks. If you thought September-October 2008 events were nasty, they could look like a mere trial run for what may be in the offing.

The Financial Times coverage on the failure of the Bund auction is suitably grim:

The Fed Stress Tests While Europe Starts to Burn

Our headline at odds with the media reports on the newest confidence-bolstering ploy by the Federal Reserve, that of new, improved stress tests for the six banks at the apex of the US financial services industry looting operation: Bank of America, Citi, Goldman, J.P. Morgan, Morgan Stanley and Wells.

There’s a noteworthy gap between the scenarios employed in the 1.0 version, which took place in early 2009, when the banks were told to get more capital or else, and the ones about to be implemented.

Satyajit Das: Extortionate Privilege – America’s FMD

Yves here. I’m putting myself in the rather peculiar position of taking exception to a guest post. One might argue as to why I’m featuring it. Das gives an articulate but nevertheless fairly conventional reading of views of market professionals about the US debt levels. For instance as you’ll see, it conflates state government deficits (which do need to be funded in now skeptical markets) with the Federal deficit. And this sort of thinking, due to fear of the Bond Gods, is driving policy right now.

In addition, he posits that depreciation of the US dollar continues apace. I’m always leery of what amount to trend projections. Complex systems often have unexpected feedback loops. There is an interesting question of whether markets have over-anticipated QE3. In addition, the dollar has fallen to the point where it is becoming attractive for manufacturers to repatriate activities. But given the loss of managerial “talent” (and here I mean people who know how to run operations, not executives) and infrastructure, there will be a marked lag before the weakened dollar produces the next leg up of domestic production.

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Extortionate Privilege…

Given the magnitude of the US debt problem and the lack of political will, the most likely policy is FMD – “fudging”, “monetisation” and “devaluation”.

Mosler/Pilkington: A Credible Eurozone Exit Plan

By Warren Mosler, an investment manager and creator of the mortgage swap and the current Eurofutures swap contract and Philip Pilkington, a journalist and writer based in Dublin, Ireland

The Eurozone has certainly seen better days. The mess – to paraphrase a dodgy Irish politician – is only getting messier.

This is all avoidable, of course, and if the European authorities decided to take action and have the ECB backstop the sovereign debt of the periphery the whole crisis would come to an end. But the European authorities, for a variety of reasons, do not seem to want to do this. And even if they did there would be the issue of austerity: would they continue to force ridiculous austerity programs down the throats of the periphery governments? And if so, then for how long? Leaked documents from within the Troika show the austerity programs to be an abject failure and yet European officials continue to consider them the only game in town. So, we can only conclude at this stage that, given that European officials know that austerity programs do not work, they are pursuing them for political rather than economic reasons.

So, we contend that the periphery governments should have a credible exit strategy on hand and it is to this that we now turn.

Satyajit Das: In the Matter of Lehman Brothers – Part 1: Breaking Up is Hard To Do

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In this two part paper, the issues regarding settlement of complex derivatives arrangement revealed by the failure of Lehman Brothers is outlined. Many of the failures affect new regulatory proposals such as the rapid resolution regimes under consideration. The First Part deals with terminating and settling derivative contracts.

A generation was once measured by where they were when an American President was assassinated in Dallas. A newer financial generation measure themselves by where they were when Lehman Brothers filed for bankruptcy protection on 15 September 2008.

The controversial failure of Lehman has become a pivotal point in ideological debates about markets, finance and the role of government. At a more mundane level, Lehman’s bankruptcy points to deeper problems in the “plumbing” of the financial system. The policy debate so far has largely ignored these unfashionable issues.

EFSF Fail: Forced to Buy Some of Its Own Bonds in Auction

Pretty much everyone who is not part of the problem has seen the EFSF as unlikely to work very well, and has regarded the idea of a levered EFSF with the sort of amusement and disdain reserved for bad taxidermy.