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Archive for the ‘EUR’ Category

Oh boy….

The European banks include French lenders Societe Generale , Credit Agricole and BNP Paribas .

“Apart from spot trading, all swaps and forwards trading (with the European banks) have been stopped,” one source who is familiar with the matter told Reuters.

The question is this: How much flow are we talking about here?

This is either a nothing or it’s a precursor to a really, really big…

Which is it?  I don’t know.  But the banks over in Europe this morning, especially BNP, are acting like it’s the “Big Bada-Boom” that’s inbound – right now.

The lack of transparency and demonstrated willingness to lie – including, in fact, European ministers openly stating that when things are bad you have to lie – is a huge problem.

There are many who claim that we can “ward off” crisis with the ECB and such stepping in to “save” people “as required.”  The fact of the matter is that we’re right back where we were in the 2007/08 mess when it became clear that lending people money who you know can’t pay you back is not a sustainable business model.

How long will we continue to play this game where we have 2% moves in the market in the space of hours or minutes and “contagion” continues to percolate while investor confidence is decimated?  Eventually this sort of volatility and the plethora of lies results in a bid collapse into one of those volatility spikes.

This is not how you get a market decline — it’s what generates crashes.

There is only one solution: The truth.  It involves acceptance of pain, which nobody is willing to do in the present tense, yet there is no way around it.  The longer we play “extend and pretend”, the more we lie and the longer the games go on the worse the situation becomes both here and abroad.

We in fact learned nothing from 2008 – we simply gave a bunch of whining children on Wall Street that had just smashed their fingers with a hammer a candy bar, and we didn’t even have the dollar to buy the candy with.

Steen Jakobsen, chief economist for Saxo Bank in Copenhagen, pinged me with a personal thought regarding Europe:

“I am just back from Italy and Russia and what really strikes me is how  people have given up, and I mean totally given up. To my mind we are  entering extremely difficult time where balancing EU, US debt and social  tension makes for a black Swan event.”

On his blog, Steen writes: Time is Running Out for Europe

Europe is close to losing a generation of youth in Spain, Ireland, Portugal and Italy, with between 20 and 45 per cent youth unemployment. To avoid losing this generation, European politicians and the ECB need to come up with a radically new game plan.

First, we need to stop pretending we can dance around the word “default” Let me help: if your income is less than your expenses and you can’t borrow money, you are done, finito, insolvent and in default.

That is another lesson from Greece; the longer you avoid facing the truth, the more you solve debt with debt, the deeper the hole you are digging as your new beginning necessitates a larger and large initial trauma.

Politicians tend to underestimate their voters ability to deal with a crisis. If the population at large knows it’s coming, they can and will deal with it. Many of today’s generation of politicians forget that their grandparents lived through two wars, the depression and several stock market crashes only to create the most robust growth era in modern history.

Yes, there will be some contagion and some short-term high volatility if Greece goes the default rout, but as they say in the world of sports: no pain, no gain.

In fact, a crisis 2.0 could be what is needed to create both the economic and political platform that will solve Europe’s problems: namely, a fiscal union. Do not misunderstand me – I am agnostic on the EU’s existential question, but the EU was created as a political institution, not an economic one. Europe is a house without a financial foundation: no ministry of finance.

The time has come for some major decisions if the great European experiment is to survive. The Euro Zone needs a Ministry of Finance, one that should probably issue Euro Bonds from EFSF/ESM.

The idea that one day the voters of Europe will rise up and embrace the EU idea is fading fast. The rising social tension in all of Europe shows us that – similar to my impatience with the Danish national football team – time is running out. Let’s for once hear some straight talk from the EU and the ECB and let’s put an end to the extend-and-pretend nonsense and attempts to pull the wool over the public’s eyes. Otherwise, Europe will continue to score own goals. That’s a pity, as a new start – even if painful at first – could set up decades of sustainable growth as more transparency and less leverage would bring more stable financial markets.

Nanny State or a Breakup?

Steen says ” I am agnostic on the EU’s existential question, but the EU was created  as a political institution, not an economic one. Europe is a house  without a financial foundation: no ministry of finance.”

That is precisely the problem. Unfortunately, the only solutions I see are as follows:

1. Breakup of the Eurozone
2. Creation of the European Nanny State

I have written about the “Nanny State” several times.

Support Rises for “European Nanny State”

…Is Germany unfit for the Euro or is the Euro unfit for the PIIGS? Isn’t that the real question?

Such  discussions are the consequences of a currency union with a one size  fits all interest rate policy combined with widely varying fiscal  policies, pension structures, union benefits, and other problems.

Arguably, the Euro experiment was never meant to work in the first place, at least for such a complicated heterogeneous mix.

Trichet Calls for Creation of European “Nanny-State” and Fiscal “Nanny-Zone”

Rather than admit the innumerable mistakes has has made, ECB president Jean-Claude Trichet has continually upped the ante on taxpayers with increasingly risky measures such as loading up the ECB with junk bonds from Greece and Ireland in clear violation of the Maastricht Treaty.

Today, in the wake of still more failures of the bond market to follow his wishes, Trichet openly calls for a bold new initiative, one that would effectively transform the Euro-Zone, into a fiscal Nanny-Zone as well. ….

My friend “HB” commented

This  is what the fools that rule  the Eurocracy want – a huge centralized  nanny state in which taxes are  ‘harmonized’ and citizens can no longer  choose between low and high tax  nations.

It is the absolutely worst thing that could possibly happen. It would be better for the euro-area to break up.

Trichet was one of the architects of the Maastricht Treaty, and he has violated that treaty at will ever since.

Now he wants to completely trash the treaty, effectively transforming the Euro-Zone into a nanny-zone “Eurocracy”.

When will Germany finally step up to the plate and tell Jean-Claude Trichet in no unmistakable terms where to shove it?

Right Place to Crash the Plane

The quote of the week can be found in the Yahoo!News article Rising euro pressure could force Merkel U-turn

“At the moment we are just trying to win time in the hope of preventing contagion to other weak countries,” said one senior lawmaker from a party in Merkel’s conservative coalition.

“The truth is that for Greece, what we are really looking for is the right place to crash the plane. It should not be over a city, but in the countryside if possible.”

Deutsche Bank chief economist Thomas Mayer wrote this month that if political leaders did not offer bold new solutions, the outcome could be determined by grass-roots events — a rebellion by Greek or German lawmakers, or a Greek bank run.

“Given the recent momentum in the political debate, we would give such an outcome over the coming 6-12 months the highest probability,” he wrote.

We all realize the plane is going to crash. The debate now is when, where, and how big the crater.

Mike  “Mish”  Shedlock
Global Economic Analysis

You awake at this hour of the night?

You should be.

The Euro is breaking down severely along with big declines in Asia.  Why?  Lies.

What’s the actual exposure at Unicredit to bad debt?  Everything – mortgages, sovereign, Greek, whatever?

Does the market know the truth?  No.

Does it know the truth about our banks?  No.  Bank of America just recently took a charge that was massively in excess of their alleged reserves for the same event.  Do you believe its over?  Why would you – it hasn’t been thus far.

This campaign of lies is now running out of gas.  The market is calling “Bull!” on everything that is being emitted from the so-called “authorities”, including in this case Junker.

There’s no fix for lies other than truth.  The problem with the truth is that the banks are insolvent.  Yes, ours.  Yes, theirs.  They did not take down their leverage.  They hid it.  There, here, everywhere, and it was done with the full complicity and active involvement of governments.  Specifically, swaps and derivatives were not forced onto an exchange where chained risk is eliminated and independent nightly margining by a third party who has to make good if they don’t do their job is enforced.

This is why Greece isn’t fixed and why there’s such a tizzy over defaults and “restructuring.”  It is why the ECB is so pissed about the possibility of a credit event, because they broke their own rules on collateral quality and are holding a bunch of this trash themselves.  Yeah, they’ll probably survive Greece if it blows.

Italy?  Not a prayer in Hell and the market is telling you it’s going to happen.

Our government, for its part, faked a “recovery” with more than 10% of GDP in borrowed and blown funds.  We spent it on things like giving free illegal guns to Mexican gangs through Gunwalker (yes, that was in the porkulus bill) which unfortunately turned into a subtraction to GDP when the guns were subsequently used to kill people that actually were productive.

Italy “restricted” short sales today.  This is yet another desperation move.  Were the shorts wrong in 2008?  No, they were right.  They were trading on knowledge that Lehman was factually bankrupt.  They knew this because Lehman tried to repo with them and their collateral was no good – and when challenged on it, they had nothing else to use.  Those were not “bets”, they were positions taken with knowledge of the facts.

Facts that our government and Federal Reserve intentionally concealed from the rest of us.  That is, they lied.

This evening we’re being treated to the same sort of instability in the futures markets that we saw in 2008, just a few weeks and months before it all blew up.  History in the markets rarely repeats, but it often rhymes, and I hear echoes of the crying by CNBS anchors as the DOW fell 700 points.

Folks, I hope you’ve enjoyed the ride upward in the market and the faux “recovery” that produced no jobs and in fact has a lower labor participation rate than it did in 2009.  That, of course is otherwise known as the “taxpayer rate”, or those who can pay taxes (it’s hard to pay taxes when you’re unemployed and on the dole.)

Yes, there will be more sticksave attempts.  I expect one this coming morning, in fact, as another day like today over in Europe is going to break some key technical levels and might set off a waterfall decline, both in their markets and ours. Then you’ll have to see Obama on the TeeVee once again telling us how exceptional America is.

He’s right – we are exceptional.

We’re exceptional liars, starting with him.

Get some rest folks – it’s going to be in short supply soon.

Tickercon 1

The Market-Ticker

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And quite the ray of sunshine he was.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, talks about the outlook for the U.S., European and Chinese economies.

Black speaks with Carol Massar on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Running time 10:50

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Watch

University of Missouri Economist William Black Interview

By Katrina Nicholas

June 8 (Bloomberg) — Europe’s 750 billion euro ($900 billion) aid package might fail to save the 11-year-old monetary union and usher in an “extended period” of market stress and disorder, according to Royal Bank of Scotland Group Plc.

“Maybe we reach the point where this Herculean effort works and enough policy stimulus is provided so countries can fly again,” David Simmonds, global head of research and strategy at RBS, said in Singapore today. “However I do not subscribe to this view because one cannot treat a debt-fuelled over-consumption problem with a lot more debt.”

European finance ministers yesterday put the finishing touches on a rescue fund designed to combat the region’s fiscal woes and end speculation the euro area might break apart. The crisis is threatening to slow global economic growth, pushing the euro down 17 percent against the dollar this year.

The benchmark Stoxx Europe 600 Index has retreated 11 percent from this year’s high on April 15 as Spain, Portugal and Greece had their credit ratings downgraded. The region’s economy expanded 0.2 percent in the first quarter, strained by the highest unemployment in the euro’s history, and spending cuts.

“The buck stops with the sovereign,” said Simmonds, who is based in London and is visiting the city-state to meet with clients. “There isn’t going to be some intergalactic force that comes to bail out sovereigns, and that nervousness will weigh on the market for some time.”

Financial institutions globally have combined exposure to Portugal, Spain and Greece of more than 2 trillion euros, about half taken up by banks, Simmonds said.

“About 500 billion euros or so is held by French and German banks, so the point to stress is there will be a Herculean effort to hold this thing together,” he said.

–Editors: Ed Johnson, Tom Kohn

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

Bloomberg Businessweek

How To Fix The Euro Problem

Posted by Karl Denninger