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Wednesday, August 31

31st Aug Late – Stealth Collateral Damage

Summary:  Today’s earlier post was rich in Euro Crisis links. Now the three Financial Crisis links are really worth the time, and the Nomura research piece (second link) is worth it if you can access it.

MoreLiver’s rules of the game
  1. Never trust a politician with pompous catchphrases or terminology (stability, solidarity, etc.)
  2. It is not going to be different this time, regardless of whatever they try to tell you.
  3. When markets try to tell you something, do not blame the markets nor go to denial. The markets will keep coming back, until you fall down.
  4. When it looks it might not work, it will not work.
  5. Ideology and idealism are not good substitutes for common sense and sound theory.
Views: As I know something about Finland, a word of advice to readers: before the last elections the politicians absolutely promised “no more money to PIIGS without collateral”. If they eat their word, they will be destroyed in the next elections and would actually have to get real jobs. Not happening.

Joke of the day: Angelo Mozilo, June 26, 2008: “Bank of America will reap the benefits of what we have sowed.” – Bank of America paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.

The balance sheet of the central bank is terrible, and one reason why they oppose bond haircuts.

Government agrees to EFSF increase, but parliament and court still ahead.

What will Merkel promise to get the EFSF increase accepted in the parliament?

LIBORs on the rise

Includes longer background on the negotiations

Banks took €49.4bn loans from ECB. Greek banks are in pains as there is uncertainty whether the Greek government bonds will continue being accepted as collateral by the ECB.   

“entirely brand new black-swan risk, an overnight funding squeeze”
The overnight Black Swan – alphaville FT

Research note from Nomura, very nice summary and list of drivers for “back to school”-period

“Debt becomes poisonous once it reaches 80pc to 100pc of GDP for governments, 90pc of GDP for companies, and 85pc of GDP for households”

Interesting thoughts on the origins of stock correlations. Conclusion: “when correlations get too high, act against the direction of the market.”
On High Correlations – The Aleph Blog

Tracks online price data, calculates a daily price index. An almost real-time inflation measure.

The risk of Swiss Franc turning into a carry funding currency given negative interest rates
Carried away in Switzerland – alphaville FT

Spoofing – market manipulation case of SwiftTrade.
28 Day-Traders Later – alphaville FT

Video of a rollercoaster ride up and down the housing prices.
Case Shiller Rollercoaster – The Big Picture

10 years after, 38 past articles from the magazine.