1st Sep Early – EFSF: ICCL

Summary: EFSF design still under construction, but looking increasingly powerless. Collaterals are suggested to be watered down with fees, to discourage the demand for them.

View: EFSF is starting to sound very compromised, as was mostly expected. Veto rights demanded by Germany, and they will get them. Troubled countries have to request the EFSF bond purchases. This would be a stigmatization event that the politicians would probably postpone to the point where EFSF bond purchases would not be as effective. Also, as Germany would hold the veto country, it could essentially dictate terms of who, how and under what conditions will get EFSF support.

Meanwhile, IMF estimates a possible €200 billion capital shortfall in European banks, while Goldman Sach’s narrowly circulated paper puts the eventual potential prize tag potentially as high as €1,000 billion. Meanwhile, EZ leaders and central bankers are in total denial of the banks’ undercapitalization.

Quote of the Day:

“Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.” – Alan Blinder

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EURO CRISIS

EFSF has to wait for a request from a debt-hit government before buying its bonds in the secondary market. Today Germany’ demand for veto right over new aid applications will be discussed

Euro’s Retooled Rescue Fund Faces Political Demands That May Weaken Effort – BB

Collateral fees may end Greek row - Austrian finmin – Yahoo!

Greece Itself Now Openly Ridicules Europe's Lies Of Greek "Stability" – Zero Hedge

FINANCIAL CRISIS

Ring-fencing banks' retail operations from their investment banking arms, putting depositors before creditors, stop to taxpayer-funded bailouts. Good luck selling this to banks.

Banking reforms 'may not happen until 2015' – BBC

Good luck with the announced and “planned” financial transaction tax.

London Loses as Banks Look to Book Trades Overseas – BB

Import growth in the G7 and BRICs fizzled to 1.1% compared to a 10.1% in Q1

Global trade buckles in second quarter – The Telegraph

Slowing World Trade Q2 2011 – The Daily Capitalist

Recession? No. We're in the Second Great Contraction – dshort.com

100-page report recommends watching banking and financial sectors more closely instead of macro models, regular stress tests with scenarios of wholesale markets closing and Fed/ECB swap lines unavailable. Changing CB mandate to be clear on meaning of “promoting financial stability”, what instruments, how and when are available (varying reserve rations, FX swaps).

(pdf)Evaluation of the Riksbank’s monetary policy and work with financial stability 2005-2010 – Riksdag

STOCK MARKETS

Charts: real GDP change, S&P500 forward EPS estimate, S&P returns

Sorry QEasy Momentum Chasers: The Economy Still Matters (A Lot) – Zero Hedge

Stock Mutual Fund Cash Levels Drop To New All Time Record Low – Zero Hedge

Stoxx 50 changes – the trader

As the banks drop out of the index, automatic demand for stocks from index trackers disappears.

More Bad News For Euro Banks: SocGen, Intesa And Unicredit Kicked Out Of Stoxx 50 Index – Zero Hedge

Post QE2, Corporate Earnings Outlook Changes On A Decidedly Negative Path – Zero Hedge

EMERGING

BRICs No Cure for Global Economy This Time – BB

Belarus Runs Out of Meat as Russians Exploit Currency Plunge –The Moscow Times

Superpower China: inevitable or fragile? – beyondbrics FT

Brazil in shock rate cut – beyondbrics FT

Barclays On Brazil Rate Cut: "Unexpected...Unprecedented" – Zero Hedge

DIVERSION

As Marx is a fashionable topic, here goes: 

Marx, Labor's Dwindling Share of the Economy and the Crisis of Advanced Capitalism – oftwominds.com

UBS: Convulsions of A Political Economy – Zero Hedge

Incredible Pictures Of Iceland's Beautiful Harpa Concert Hall – Business Insider