Archive for May 6th, 2010
By J.D. Foster
The European Union (EU) has gone hat in hand to the International Monetary Fund (IMF) for assistance in bailing out one of its own. Greece is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states to the detriment of their economies. Greece also abandoned its national currency in favor of the Euro, in hindsight at least a stunningly bad move which for the EU makes this a major financial crisis and an embarrassment of the first order. What makes these otherwise somewhat removed events of immediate concern to the United States is that the IMF intends to use US taxpayer dollars to try to stave off Grecian disaster.
The relevant specifics of the Greek bailout are that the Eurozone (mostly Germany and France) is to chip in $106 billion while the IMF is to plus up this amount with another $39 billion. The IMF, of course, is tapping funds provided by its own member governments to participate in the bailout. As it happens, the Obama Administration convinced the Congress to give the IMF an extra $100 billion in play money last year. How convenient.
Suppose we suspend all credulity for a moment and imagine the Greeks will get their fiscal house in order, their economy won’t collapse under the now vastly higher taxes, workers will tire of striking in the streets and so return to work having seen their wages slashed, and that no other country (read, Portugal, Spain, Italy, Ireland, the U.K.) is caught up in the building financial contagion. In short, suppose we imagine the bailout works. Exactly why are U.S. tax dollars being used to bail out a European basket case?
And, of course, the odds are somewhere between slim and none that the Greek bailout will work. Having gotten the loan, will the perennially weak Greek government have the determination let alone the muscle to devalue the artificially elevated Greek standard of living? Fat chance.
Nor is Greece alone, but rather merely the first. A Mediterranean contagion is starting that is likely to sweep up many sad actors in the region. Are US taxpayer dollars to be used to bail out these countries, as well?
It was bad enough when the federal government bailed out AIG, and then Fannie Mae and Freddie Mac, and then many of the mega banks, and then GM and Chrysler. At least these had the modest merit of being US companies with US workers. Even if US government finances were in pristine shape, US taxpayer dollars should not be used to bail out a perennially dysfunctional state. But as spending-driven trillion dollar budget deficits and a Presidential debt commission starkly evidence, the US is seriously risking its own Greek-style sovereign debt crisis. Fortunately, the US doesn’t need an IMF bailout. It only needs a President willing to acknowledge that he has led the country on a Grecian spending binge it cannot afford.
Fortunately, Congressman Mike Pence (R-IN) and Congresswoman Cathy McMorris Rogers (R-WA) share this view and are circulating a letter to Treasury Secretary Geithner to urge him to protect American taxpayers from such nonsense. If European leaders wish to be Greek patsies then that’s their business. American taxpayer dollars should have no place in this foolishness.
As our readers have already learned, Rep. Andre Carson gathered Capitol Hill reporters around him and told the tale of racial slurs and menacing crowds on the verge of hurling rocks at the congressmen. Our first few videos showed the congressmen coming out of the Cannon Office Building, walking down the steps and into Independence Avenue from various angles. None of those videos revealed the racial hatred Rep. Carson conveyed to reporters that day and none of the videos showed a mob rushing or in any way impeding the congressmen.
When Rep. Carson gathered reporters around him to spread the myth of racial slurs being hurled “fifteen times” he painted the protesters not just as racists, but as a terrorist threat. We know this, because Kerry Picket of the Washington Times recorded Rep. Carson as he explained it all to eager reporters.
KERRY PICKET (Wash. Times): Do you think the people outside are generally dangerous or no?
REP. CARSON: Oh absolutely. I worked in homeland security. I’m from intelligence, and I’ll tell you, one of the largest threats to our internal security…I mean terrorism has an Islamic face, but it really comes from racial supremacist groups. (inaudible) Its the kind of thing we keep a threat assessment on record [for].
PICKET: From groups like this?
REP. CARSON: Oh absolutely.
And we can now see this two pronged message continuing in the narrative from Democratic politicians and the media: The Tea Party protests are really about white rage and they are sowing the seeds for domestic terrorism. This was the message delivered by Rep. Carson that afternoon and that is the message the media has run with.
Only problem is, we can’t find any proof to back up Rep. Carson’s story. And when challenged, he hides behind the legend and stature of Rep. Lewis. The constant challenge of “Are you calling Rep. John Lewis a liar?” must now be answered with “Are you calling Rep. Andre Carson beyond reproach?”.
Posted by Karl Denninger
May 5 (Bloomberg) — Former Merrill Lynch & Co. Chief Executive Officer David Komansky said he regrets promoting the 1999 repeal of the Glass-Steagall Act that separated commercial and investment banks.
“Unfortunately, I was one of the people who led the charge to try to get Glass-Steagall repealed,” Komansky, 71, said in a Bloomberg Television interview today. “I regret those activities and wish we hadn’t done that.”
John S. Reed, former co-chief executive officer of Citigroup Inc., also said in January that U.S. lawmakers were wrong to repeal Glass-Steagall.
Now do it Congress.
You were conned. We won’t hold it against you – if you put it back now. If you pull the curtain down on Greenspan’s meddling and your ex-post-facto legalization of his unlawful act of approving a merger he knew was illegal.
This is the solution to the problem and you know it.
It kept the banking system safe for 50 years.
It was 14 pages.
And you can put it back in force with one.
Posted by Karl Denninger
Shall we talk about RISK the markets and in particular high-frequency trading and direct-exchange connected computers?
What started this? Right here:
That trade appears to be what set it off.
Here’s the problem: As soon as that hit the DOW it dropped the index hard. The response in the computers connected directly to the exchanges was instantaneous and produced this:
Computer-triggered and the result was a more than 1,000 point selloff, about half it organic and the rest on a bid-collapse driven entirely by the HFT computers that took less than a minute.
No, that’s not the ONLY oddity. There were plenty of wild moves in both option premia and the FX just before it all went down the toilet – but the computer trading systems, with no humans actually feeding them orders – that is, autonomous robots - did exactly what they were programmed to do.
There is absolutely no protection against this sort of thing in the market for the average investor, or anyone other than the HFT boys. Stops don’t work as there’s “no bid” during these events – there was LITERALLY no bid in the futures for about 30 seconds, then no offer on the way back up.
This sort of thing has to be stopped.
This was not humans – it was pure computer algorithm trading. If you had stops set, you got blown out way below any reasonable trading range with no recourse. Margin requirements were raised instantly on futures which sure didn’t help.
This was basically the 1987 program-trading crash powered by the fastest CPUs money can buy, and points out that these systems do not have social utility and at times like this they are unbelievably destructive.
The banks and others who have argued for innovation have just proved once again that their brand of “innovation” means that the average investor gets bent over the table. You cannot, as an investor, be in the market until these outrageous practices are permanently barred from the exchanges.
I was on the right side of the destruction today, but I could have very easily been on the wrong side and gotten badly hurt. As it stands I’m quite certain there were tens of thousands of individual traders who went so far into negative equity in the futures market and got immediately liquidated that we will be hearing of blown up accounts and bankrupted traders for weeks if not months.
To those who say that we have “restored confidence” in the markets and “the worst is beyond us”, I want everyone to remember very carefully the early 2007 market collapse that originated in Asia and came over here – the event that began my writing of The Ticker.
When governments tamper with markets as has been done over the last year and change to the point that true liquidity leaves and is replaced by computer-driven volume, this is what happens as there is NO UNDERLYING BID.
VOLUME IS NOT LIQUIDITY. Liquidity creates volume but not the other way around. We have deluded ourselves into believing that a handful of major banks passing shares between each other funded with zero percent loans equals “liquidity.”
IT DOES NOT.
This is the harbringer of more trouble to come, it is not over, and I have been warning people all through the so-called “new bull market” that this sort of event – and likely more than one – was coming as a direct consequence of the destruction of true liquidity and it’s replacement with BS and games.
It was simply a matter of when.
Bernanke, Geithner and Obama have failed to restore confidence – in fact all they’ve done is put in front of the big banks a near-unlimited amount of money to game the system with and game it they have – right up until you had your stops run today and got screwed once again.
Say thanks to your elected and appointed officials who have taken their bows for something that, just as with “Mission Accomplished”, has turned out to be one gigantic lie.
PS: Tickerforum remained up during the entire event, although it recorded the highest load-average and page-count spike ever seen, including during the depths of the 2008/2009 hell.