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.
Read more...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.
Read more...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:
Read more...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?
Read more...Things are only going from bad to worse in Europe.
Read more...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:
Read more...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.
Read more...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”.
Read more...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.
Read more...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.
Read more...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.
Read more...This is Naked Capitalism fundraising week. Over 600 donors have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar or read about why we’re doing this fundraiser and other ways to donate, such as by check or another credit card portal, on our kickoff post and one discussing our current target.
By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Economic Perspectives.
The markets are again in free-fall and, once again, a lazy Mediterranean profligate is to blame. This time, it’s an Italian, rather than a Greek. No, not Silvio Berlusconi, but his fellow countryman, Mario Draghi, the new head of the increasingly spineless European Central Bank.
At least the Alice in Wonderland quality of the markets has finally dissipated. It was extraordinary to observe the euphoric reaction to the formation of the European Financial Stability Forum a few weeks ago, along with the “voluntary” 50% haircut on Greek debt (which has turned out to be as ‘voluntary’ as a bank teller opening up a vault and surrendering money to someone sticking a gun in his/her face).
Read more...This is Naked Capitalism fundraising week. Over 170 donors have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar or read about why we’re doing this fundraiser and other ways to donate on our kickoff post.
Germany found it hard to conquer and control Greece in World War II. History seems to be repeating itself.
Read more...Reader Sufferin’ Succotash asked whether Papandreou would turn out to be Pericles or Petain. We now have our answer. His finance minister, Evengelos Venizelos, went to the G20 in Cannes (going directly after being discharged from the hospital, meaning he almost certainly did not inform and therefore intended to betray Papandreou) and issued a statement arguing that the need to get the next cash dole from the bailout program and maintain “international credibility” trumped all other considerations. Papandreou backed down and canceled the referendum.
Even though everyone who is not part of the problem recognizes that an eventual Greek default (or much deeper debt restructuring) is inevitable, it seems the Greek population must be ground into the dust first to discourage any rebellion against the new order of rule by creditors. The wild card is whether the level of civil disobedience rises to the point where the government has to change course. We’ve already read of serious signs of breakdown: widespread failures to collect trash, frequent power interruption, such reduced schedules for public transportation that it becomes difficult for those who still have jobs to get to work.
Although this segment was taped before the Papandreou volte face, this discussion on Democracy Now with Michael Hudson illuminates some of the underlying dynamics behind this showdown.
Read more...If you had any doubts about the intent of the Eurobailouts, the latest news should settle them. The game plan was to severely limit Greek sovereignity and assert the primacy of creditor rights, even if they came at the expense of democracy. Greece, as we described in a post earlier today, threatened to blow up the bailout by having a referendum. That measure, even if it took place before year end, would create massive uncertainty and wreak havoc with other efforts (for instance, getting China to contribute cash to the levered EFSF, the bailout funding vehicle. As we’ve detailed in earlier posts, it is unworkable in the absence either of ECB backing or substantial outside funding).
The Eurocrats have decided to try to push Greece into line, threatening expulsion from the Euro (note, not the EU) if Greece does not back down.
Read more...