Crash 2 The Sequel!

[threegee]

Arriving at the truth in seventeen easy steps:

Euro for Greece 'was a mistake' -- Nicolas Sarkozy, October 2011

Euro for...

[Malcolm Robinson]

Looking a bit closer at this new EU deal which has been heralded by most all the mainstream media as a 'Euro Saviour' it would seem not only are the exact details missing so is any realistic probability of its success!

The increased firepower needed is to be made up of extra contributions, by whom, the countries needing the bailouts? The BRICs have been mentioned but given the recent history of one European fiscal crisis after another I wonder if anyone in their right mind will jump in and provide the huge amount of cash needed. Mr Osborne emerged saying the UK would not be contributing, really, what about our 'aid' to our closest euro neighbour and also the fact that the UK makes up a percentage of any IMF fund. Germany has now capped its losses in the EFSF effectively releasing them of being guarantor of last resort, just what an investor will be looking for, never mind the 20% of guarantee attached to any future losses even after swallowing a 50% loss????? Can this be made any less attractive? Oh yes it can, let's get some leverage on the loans! This is akin to anyone asking the bank for 10K to buy a car and the bank saying don't just take 10K take 50K and buy 2 and have a holiday. At some point in time we arrive at payback time and putting that off is what has got us in the mire in the first place! We can always pay it off with a new credit card of course except that has an ever increasing rate of APR!

Underlying a Greek rescue is the 50% haircut banks and bondholders will be asked to take. Accepted by banking spokespersons (IIF) yet still needing ratification by the banks themselves, who as we all know are famously magnanimous, this deal will immediately call into question if not accelerate the processing of the CDS they hold. The question which needs to be asked is why have they bought 'insurance' only to ignore it and accept a 50% write-down? The plan is to half Greek debt by gearing up the loan fund? This is string theory for quantum fiscal mechanics! If anyone thinks Greece will be in a good position with a debt to GDP ratio of 120%, as this plan expects in 2020, then they need to apply to be an EU Commissioner! Greece is already slipping on present austerity commitments and state asset sales, ramping up the expectations to insurmountable heights can only have one conclusion!

Looking at the French question, Sarko looks to have lost his fight to get French banks recapitalised by anyone or anything other than France herself. He might be grinning like a cat that swallowed the cream but reality in this case will be like a sledgehammer! When France does have to do its own housekeeping it must ultimately call into question the French AAA rating because the only way they can achieve that will be to sell sovereign assets! Course he might win the Chinese over with his Gallic charm, I would just wonder what will have to be given away to get them to the table in the first place, possibly the next IMF headship?

Berlusconi might think he too could look with a degree of surety towards another election but even if the EFSF bazooka, or the SIV as will be created now, was capitalised up to the hilt for all Euro countries in trouble, Italy would need the whole lot for itself. Madness!

The whole initiative looks to be a way of extending the crisis to get over impending elections and not just those within Europe! The politicos and their acolytes will now be deployed in Summit after Summit saying they are working on the final, final, final details while the rest of us mere mortals look on in total disbelief.

[threegee]

Gearing got us into this global mess, but it seems gearing will get us out of it! Too close fiscal union caused the euro's problems, but we are told the solution is ever-closer fiscal union! Computer says no!

Has anyone asked the Greek people if they are prepared to suffer ten years of austerity in order to end up in the same debt position that Italy is in right at this moment? And that's assuming that there are no unforseens and that everything runs smoothly! At the moment the politicos can't even see ten weeks ahead let alone ten years! 50% is a default, but a default that's no good to anyone except a few banks which deserve to take a big hit! If you are going to default then the only sensible way is to default completely, and rapidly restart your economy in a state that gives it hope for the future. In the Greek case this must be outside the euro-zone - even a two-tone euro won't hack it in the Greek case.

Silvio said a while back that he wouldn't seek re-election, and that he didn't want to be president either. Exactly what he's doing at the moment is anyone's guess, except maybe making a "dignified" exit on his own timescale. Anyway, he must be the only one that can't see that this isn't going to be possible. No one sane is going to get trampled in the rush to take his place either.

What happens in Italy's case? Well not what needs to happen, but what has always happened: the official economy stumbles on - now funded by whoever - whilst the huge black economy maintains people's living standards. One day it may be different, but don't hold your breath!

[Malcolm Robinson]

EU leaders hadn't finished their back slapping when the first crack appeared in their recent agreement. The German Constitutional court finally reached a decision, albeit a temporary one, on the German contribution to the EFSF. Well the delegation of powers to a select few anyway but in effect it stops the EFSF dead in its tracks as Germany is the largest backer.

http://www.spiegel.de/international/germany/0,1518,794578,00.html

Got to hand it to the Germans, not only have they got a constitution they have a legal body in place to protect it for the benefit of the German people and woe betide any of their politicians who try and dilute their sovereignty or in this case give public cash away!

Might well be a lesson for the Uk here..........

[Malcolm Robinson]

The roller-coaster has just mounted the top rail and all the back stops put in place to stop it rolling backwards look to be as effective as a chocolate fireguard because at last Papandreou has bowed to public pressure, thrown the towel in and called a referendum. There aren't any brakes to stop the car careering down the rails going forward!

If the Greece populous rejects their bailout terms, and I would think that pretty likely, all bets are off and we will see the politicos floundering.

I will be shocked if we don't quickly see a German back-up plan roll out and that could be two Euros or even a return of the Deutsche Mark MK11. It will be interesting to see where France wants to play, in the Premiership or the Championship?

As for the UK, instead of dithering around at the edges we should be embarking on a programme to make our country self-sustainable, independent and resilient. Course that would take real leadership, not something we have seen in the UK for a generation!

[Malcolm Robinson]

A popular Greek calendar for next year................seems they still have memories of German occupation!

This time of course its a Euro sign not a Swastika!

[Malcolm Robinson]

Well a day or two is a long time in politics never mind a week!

What we can clearly see now is a determination by Germany and, hanging onto coat tails, France to impose a Totalitarian EU Government which by its very nature takes no notice of the wishes of any electorate in any sovereign member state.

Shouldn't really be surprised as we have seen this time and time again by most national governments. Even the UK showed a precursor with the way it played fast and loose with the recent referendum call here.

However the subjugation of 350 million peoples even the entrenched pro EU lot might call a tad extreme.

Maybe it's the recent 'success' in interfering in the internal politics of more eastern countries which has given the Great and Good a taste for such matters on a more domestic front?

Imposing the terms or even debarring a Greek referendum is clearly an assault on democracy, instructing opposition parties and holding secret talks with ministers of that country is tantamount to necromancy, but it all shows just how far down a crooked path the Eurocrats are willing to go in pursuit of their ideological flights of fancy. We fought two World Wars against this sort of thing didn't we? What is happening now is the fulfilment of the warnings by the anti-EU brigade for the last 40 years. How we laughed at their wild speculation of an autocratic and despotic EU, a Superstate which imposes its own rules and regulations over and above any national ones and an unelected governance. They we just plain daft weren't they, ask the Greeks and whoever is next!

[threegee]

...

Has anyone asked the Greek people if they are prepared to suffer ten years of austerity in order to end up in the same debt position that Italy is in right at this moment?...

Well... just for a few short hours someone thought they should. Or maybe they thought they needed to cover their back for the next decade or two of pain and unpopularity? But then, colleagues pointed out what a political blunder it always is to concede a referendum that could give an answer you don't want. All in "the cradle of democracy" too!

...

What we can clearly see now is a determination by Germany and, hanging onto coat tails, France to impose a Totalitarian EU Government which by its very nature takes no notice of the wishes of any electorate in any sovereign member state.

Shouldn't really be surprised as we have seen this time and time again by most national governments. Even the UK showed a precursor with the way it played fast and loose with the recent referendum call here.

However the subjugation of 350 million peoples even the entrenched pro EU lot might call a tad extreme.

Maybe it's the recent 'success' in interfering in the internal politics of more eastern countries which has given the Great and Good a taste for such matters on a more domestic front?

Imposing the terms or even debarring a Greek referendum is clearly an assault on democracy, instructing opposition parties and holding secret talks with ministers of that country is tantamount to necromancy, but it all shows just how far down a crooked path the Eurocrats are willing to go in pursuit of their ideological flights of fancy. We fought two World Wars against this sort of thing didn't we? What is happening now is the fulfilment of the warnings by the anti-EU brigade for the last 40 years. How we laughed at their wild speculation of an autocratic and despotic EU, a Superstate which imposes its own rules and regulations over and above any national ones and an unelected governance. They we just plain daft weren't they, ask the Greeks and whoever is next!

"ideological flights of fancy" or simply raw power politics and "nation building" of the 1930's kind? If it's an ideology it's one Adolf H. would be now comfortable with: lebensraum without all the mess and inconvenience of physical blitzkrieg! Sarkozy the new Pétain; the LDs the new fifth columnists; a dozing British public... "if only we'd known what was really going on at the time!". Behind the 21st century cloak simply "a little bit of history repeating"?

[Malcolm Robinson]

The thing I find particularly nauseating is that it wasn't even the Greek domestic politicians who rose up and voted against a referendum, unlike the headless chickens in the UK, it was pressure from Sarko and the Fräulein! The Greek people probably now do have an inkling this isn't really about saving their country from fiscal ravages, it's about saving other nationals banking sectors! In all likelihood the 50% haircut on Greek debt will be enough to sink most unless they are implicitly backed by their respective national governments.

Greece is being hung out to dry to get that 50% reduction in an effort to demonstrate to other Euro peripheral nations that debt default is not an easy option. We will now see foreign buyers of all Greek state owned assets which can be profitized or which are put up for sale on distressed terms.

The private financial affairs of some leading Greek figures, notably the guy in the middle of all of this wrangling the Greek PM, should really be investigated, especially the wads of cash allegedly on deposit in Switzerland!

It now looks like the big shots have shown their hand and yet still cannot get agreement between themselves on exact terms. This is something no one has taken into consideration, the human condition, and is something which will ultimately blow the whole edifice away. I find it incredible the UK political class still want to be associated with this EU mess, anyone would think our own problems would be enough to handle, God knows there are enough of them!

[Malcolm Robinson]

The new ECB head, President Draghi, looks to be caught between a rock and a hard place concerning Greece and as an afterthought lets remember he is Italian so one might assume Italian interests were close to his heart. Trichet might have sneaked out but he has left one heck of a mess at the ECB.

Draghi has to consider the lending done to the Bank of Greece which stands at around E150B plus Greek bond purchases of around E45B so something like a E200B exposure which could attract a 50% haircut, and this to a country with about E80B of capital and reserves. This equates to giving every Greek citizen a thousand Euros for Xmas!

So either keep the liquidity going and take further losses on behalf of Euro citizens in other countries or turn the tap off and risk a banking collapse with a Greek expulsion from the Euro. No wonder Trichet wanted out!

[Malcolm Robinson]

Beware Chinese bearing gifts............

http://www.chinadaily.com.cn/business/2010-07/13/content_10099685.htm

Lend the EU money.........no, take it over more like!

[threegee]

And... in the case of the ECB... Chinese computer says no!

And BTW... if we hear any more criticism of our human rights record from any of your citizens you'll be velie velie solie!

Well... this thread should be enough to get BCOUK blocked by the great firewall of China - if it isn't already!

[Malcolm Robinson]

Gives a bit of reassurance that t'internet is still a vehicle for free expression!

Don't mention the ECB! Notice how 'quite' that institution has been recently? It has been the 'buyer of last resort' for peripheral Euro countries for quite a while now and has to be insolvent, by any proper measure of asset backed performance! Having to buy what are in fact toxic assets to allow countries to pay day to day running costs is clearly not a practice which either should be allowed or can happen indefinitely. They are putting burdens on the prudent countries to save the profligate ones, bit like the UK where borrowers are being cossetted from their own hubris at the expense of savers. The ECB is being forced into actions which are way out of its mandate.

Any talk of Greece now looks to be a case of vultures picking over carrion and looking at my favourite likely defaulter Italy there have been recent moves which ratchet up that possibility. I keep saying the story is seen in bond yields and 5% was always the figure which triggers sweaty brows. Well Italy's benchmark yields are now shooting up toward 7% and with Berlusconi's detachment from the real world, looks to be having a serious impact. Even GGG's favourite fiscal pin up Christine has been forced into a speech where she seemed to say the IMF has been called in to 'help' Italy reorganise. IMF help always comes at a cost of austerity measures which might be Berlusconi's way of transferring blame? The problem Italy has is its economic performance which has been lack lustre for the last couple of decades! That hasn't stopped her ramping up borrowing in an all too familiar scenario for weak Euro members. So high borrowing with increasing costs and low economic performance coupled with not being able to alter exchange rates would seem to give some credence to my claim that Italy will be the one to burst out of the Euro if not bust the Euro.

There is a proviso to that, looking at German reaction to what is going on I cannot believe the German printing presses are not being oiled up in readiness for printing new Deutschmarks or possibly a different version of the Euro for northern Euro countries. They might have been able to swallow East Germany in reunification without a great cost but taking over the PIIGS in any fiscal understanding these days of a global economy couldn't be countenanced by the international markets.

At the end of the day the west, primarily Europe and America, have maintained increasing living standards by borrowing while the East has worked solidly and clawed its way up the wealth and living standard tables. Not hard to see which is earned and sustainable and which will become the poor relation quite soon.

[Malcolm Robinson]

If I didn't know any better........

BTW, did Gordo pre-empt Christine with her lost decade comment?

[Malcolm Robinson]

Italian bond yields now 7%+, stock markets drop about 2%.

The whole point of ECB intervention in bonds was to protect low interest charges going forwards. The ECB MUST have huge losses on its purchases and by any measure would be bankrupt! Of course the way they report their books they assume payments in full at redemption. BoA and Barcap have huge liabilities here as does other UK banks! Looks like the talking is about over!

[Malcolm Robinson]

A Lesson in Economics: Understanding 'Derivatives.'

Heidi is the proprietor of a bar in Detroit .

She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi's "Drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit .

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the

most

consumed beverages.

Consequently, Heidi's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Heidi's borrowing limit.

He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral!

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.

These "Securities" then are bundled and traded on international securities markets.

Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb - and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the

bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts.

Since Heidi cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%.

The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.

They find they are now faced with having to write off her bad debt and with losing over 90% of the

presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.

[Brett]

Saying as though Malcolm and threegee appear to be the only people on the planet that each other know what they are saying I was reading something earlier which collated how general public will be affected by the whole Greece debacle.

Banks will invest in sovereign debt as it's deemed to be risk free. Many banks, pre crisis, invested in Greek debts as a result, and now are left holding securities that are pretty much worthless. If Greece defaults then a couple of things will happen; those banks will take huge losses, which leads to a loss in confidence by the public, and investors (including those same banks) will demand higher rates of interest from similar countries for their debt.

If there is a loss in confidence in banks there is a real likelihood that you could see a run on banks, where depositors take their money and get the hell out of dodge. Since banks only hold a percentage of their deposits in cash, they could find themselves non-liquid, and depositors will be left holding the bag for the losses.

If higher rates of interest are demanded, then countries that are relatively stable (like France, lets say), then they cost of servicing that country's debt becomes higher. In order to make their debt payments they issue bonds. If the interest rate jumps, then it makes it harder and harder for them to pay down their debt. Then the country has a choice to make; raise taxes, cut spending, or default. A rise in taxes results in you taking home less money. A cut in spending could mean less services from the government. You may not think you're affected, but when your roads are in disarray, you're paying for garbage pickup, etc., then you'll notice. And if the gov't defaults on it's debt...well, lather, rinse, and repeat.

The other effect it has is on private sector lending. If a sovereign debt is considered to be "risk free", then corporate debt is considered to be "next to risk free". Corporations use short term debt to pay suppliers and their employees, since typically it takes time to collect their receivables vs when they have to pay suppliers are employees. So, if it's riskier to lend to countries, it is even more riskier to lend to corporations, which could result in companies not being able to raise debt, and in turn not pay their obligations. In 2008/2009, you had companies like GE and WalMart near insolvency because they couldn't pay their short term obligations, despite the fact they were very profitable.

[Malcolm Robinson]

It shows the interconnectivity of it all Brett. Its like politics, not many people want to discuss it but it does have a direct bearing on everyday life.

I would be much happier if the Uk Government were applying themselves to our economy, and I don't mean austerity cuts, rather than getting exposure trying to interfere in the Eurozone crisis. We should be trying to insulate ourselves from what is coming not getting involved more.

Looks like we will either see Germany leading a Northern Euro section with the southern sovereigns amalgamated into a club which more closely suits them or if the Eurocrats and the Yanks push for carpet bombing everywhere with printed money Germany will probably have to leave the Euro anyway. Whatever way it goes there are huge repercussions for the UK.

[Brett]

End of the day, no matter what happens this year. We're all going to have to take a slice of !*!@# pie and take a bite.

Alot of people don't understand the effect that decisions in Europe have on us in the UK and that they can do without haloumi and tsatsiki but it's alot more in depth than that. There is alot that I don't understand still but I am slowly trying to educate myself on it so that I can forsee how big of a slice of pie im going to have to take in future.

[Malcolm Robinson]

Neat little profiler............

http://www.payplan.c...isis-explained/

[Malcolm Robinson]

Belgium is coming up on the radar again.............

Paradoxically while other EU countries have governments changed and forced onto them because of the crisis Belgium cannot even form a national government to start and implement anything, never mind get replaced by a Troika dictate.

The renegotiations surrounding Dexia might well be the catalyst. If France has to increase its 36.5% contribution to the rescue watch the French AAA rating slide! Once that starts France will have to sell national assets and the easiest to sell…..gold, if it has as much as it says it does! And that's a Belgium bank wait and see what happens when Soc Gen, BNP, CA et al come clean and have to recapitalise properly!

[Malcolm Robinson]

Who is doing well...................

http://uk.news.yahoo.com/ghost-cities-chinas-boom-trouble-035234326.html

[Malcolm Robinson]

American perspective but still.............

http://www.businessinsider.com/european-banks-frantically-trying-to-dump-7-trillion-of-crap-assets-but-no-one-will-buy-them-2011-11

[Malcolm Robinson]

Cameron's recent use of a supposed veto has resulted in many column inches of print and if readers agree or not probably depends on their European stance with regard to the UK. It's probably worth looking at what was on the table because it may be some time before anything is actually written down for EU members to sign up to. Shying away from implementing a completely new Treaty, which would have sparked a wave of referenda in several EU countries, what was suggested was really an extension to the Lisbon Treaty. Who can forget Cameron's absolute call for a referendum when Brown signed us up to that! It is therefore hardly surprising DC walked away and preferred to ingratiate himself with his Eurosceptic backbenchers, at least that way he still had some friends! What this represents for the UK, momentous…. possibly, predictable…. definitely and it would have been the main topic of discussion in the meetings Dave had with Merkle and Sarkozy prior to the summit. The UK relationship with the EU is now irrevocably changed but then the EU itself is about to become a very changed entity so no one can possibly know what has been lost or gained!

Several of the topics now seemingly contained in this possible agreement are worthy of further consideration, not least the harmonisation of tax, notable corporation tax. The French have complained incessantly about the Irish level of this tax but in her present economic woes should Ireland increase this tax, could Ireland increase this tax, probably not. Looks likely there will be an Irish opt out as the price for her agreement or exactly what Dave said he asked for to protect the City but was refused. Hmm the waters are becoming less than clear!

There is also the small matter of the ECB becoming continental lender of last resort something it isn't legally entitled to be. Seems the way to get around this is for it to 'take over' the various stability funds, or 'bazookas, and provide them with funding allowing them to underwrite debt. It also allows leverage on these funds, the very thing which has got us into the mire in the first place! If we private citizens did this the probability is that the boys in blue would be feeling collars and levying charges of money laundering! This is very probably at the insistence of the Fed who if gossip is to be believed had to cover a dollar position of a European financial institution, probably a French bank, some weeks ago. Looks like the Fed has agreed to cover all these EU positions now, as long as the ECB cranks up its money printing operations, for fear of one becoming the first domino to fall.

As an aftershock we now have the whole Coalition relationship to consider with the two central figures being diametrically opposed on the EU question. Having read not so long ago that they were peas in a pod on the European question what has emerged is something quite at odds with that statement. It certainly relegates the deputy PM into irrelevance when the bigger national questions are debated.

Let's not be in the dark about this whole saga, it's a banking and financial problem and one which was always on the cards once the brakes were taken off stuff like re-hypothecation and fractional reserve lending. The problem is that these cyberspace losses and esoteric securities have been socialised by governments and their taxpayers and we now have to throw real money into a black hole created by cyber-betting. Pity the same reverence wasn't given to our coal, shipbuilding, iron and steel industries, but then they weren't too big to fail or located in London!

[Malcolm Robinson]

Word on the streets is that there is a big German bank, possibly the second biggest in Germany, needing bailout funding. Like many European Banks it made hay at the expense of the peripherals and the ECB but now given the talk of debt defaults, haircuts and increased capital requirements its position is becoming increasingly fragile. If the SoFFin rescue fund is reactivated look for a German bank shedding its liabilities…………

This follows another European bank, probably French, which needed to cover a dollar position a few weeks ago. The only institution which stepped in was the Fed fearing a Euro meltdown and contagion.

So if these stories are to be believed we see the two founders of the Lisbon2 Treaty up to their eyeballs in the mucky stuff. Nothing like that for concentrating minds though!

With that action by the Fed and its current agreement to cover all Euro dollar positions we have to ask what was demanded by way of payback? Looks fairly certain the subject matter of the last EU summit, the one Dave walked away from, will contain the answers! One of the biggest 'ideas' is to have the ECB as lender of last resort but legally it can't do that. Not to be sideswiped by something as insignificant as the law the Eurocrats now want the ECB to take over and capitalise all those Euro rescue vehicles identified by the dammed silly acronyms so the ECB can provide funding for them and they in turn can provide funding for sovereign debt. If we did that we would be arrested for money laundering!

Something's gotta give and it's gotta give soon!